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Will Madoff Trustee Irving Picard Pursue the SEC for Complicity in the Fraud?

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It is the Trustee's job to pursue any and all parties who participated in creating or perpetuating the financial fraud.

David Sheehan, attorney working for Irving Picard, commented on the $6.4 billion suit recently filed against JP Morgan Chase JPMC). He said, "(The bank) was willfully blind to the fraud, even after learning about numerous red flags surrounding Madoff". JPMC was at the very center of that fraud and thoroughly complicit in it. Madoff would not have been able to commit this massive Ponzi scheme without this bank."

The victims of the fraud, many whom lost their life savings, are also being sued by Picard. They received notice via the internet over the last week that he is seeking to recover any assets they have remaining. The victims believe that Picard also has the obligation to pursue the Securities and Exchange Commission (SEC) for complicity. The SEC, like JPMC "was willfully blind to the fraud, even after learning about numerous red flags." This information was confirmed in a 495 page report issued by Inspector General David Kotz.

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Picard has a deadline, December 11, 2010, in which to file an administrative claim in order to be able to sue the SEC. Will he do it? Will he finally follow the rules set up by Congress when they created the Securities Investor Protection Corporation (SIPC) in 1970? Isn't that his mandated responsibility?

A lawsuit filed in Colorado states that the SEC is liable under the Federal Tort Claims Act, 28 U.S.C. - 2671, to compensate victims because the agency failed to catch Madoff's Ponzi scheme despite a "litany of red flags."

Just 5 days after the Ponzi scheme was revealed, former SEC Chairman Christopher Cox admitted the failure of the SEC to stop the fraud. In a statement issued on Dec 16th, Cox said, " The Commission has learned that credible and specific allegations regarding Mr. Madoff's financial wrongdoing, going back to at least 1999, were repeatedly brought to the attention of SEC staff, but were never recommended to the Commission for action. I am gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations or at any point to seek formal authority to pursue them."

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In 1992, the SEC investigated the accounting firm of Avellino & Bienes in connection with investments in Bernard L. Madoff Investment Securities, LLC (BLMIS). A source close to the case says, " It is Mr. Picard's obligation to recover what he can for the victims of this crime. As of yet I have not seen any reports of Mr. Picard filing suit against the SEC. It is understandably an uphill battle to do so, but that should not be the primary concern. Mr. Picard has proven that he can win many uphill, even preposterous battles. It is my fear, however, that he will miss his deadline to file suit against the SEC, which it appears he is obligated to file on behalf of the victims he is charged with protecting and recovering funds for.

Instead of acting as an attorney for the protection of SIPC, I think it is time he acts as an advocate for the victims. Mr. Picard has the authority, resources and obligation of filing such a suit on behalf of the entirety of victims."

In the JPMC case, Picard acknowledges that there are "damages". After all, he is suing for damages. Who has been damaged more than the people who incorporated their diversified Madoff portfolio into their living expenses? All the investors knew which stocks, bonds, options, etc. they held and budgeted life accordingly. Had there been losses, they would have also budgeted accordingly. In other words, they completely relied upon the validity of the SIPC insured accounts and had every reason to do so based upon the knowledge that the SEC had all pertinent information to determine Madoff's legitimacy.

It is encouraging to hear that Mr. Picard has acknowledged that there are indeed damages. Those damages should be pursued and distributed to the victims. Not only should the value of ALL of the 11/30/08 statement balances be pursued, but damages in addition to that. The toll this has taken on so many human lives and families is incalculable. What price do you put on making people homeless and helpless? All this, as a result of the fact that the SEC didn't do their job.

The deadline for filing an administrative claim in order to file suit against the SEC is Friday, December 10th. Will Mr. Picard meet the obligation given to him by the Securities Investor Protection Corporation (SIPC)? The victims of the fraud can only hope so.

Editor: The answer to that last question appears to be "yes." See: LegalDocs.

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I am a retired computer analyst and former Yoga instructor originally from New York. My life changed abruptly on December 11, 2008 when Bernard Madoff, my only source of income, confessed to running largest Ponzi scheme in history. I've been (more...)
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