- Molchatsky v. U.S., Case No. 11-2510 (2nd Cir. April 10, 2013)
- Claims arising from the SEC's actions or inaction in its investigation of the Bernard Madoff Ponzi scheme are shielded by the Discretionary Function Exception to the Federal Tort Claims Act and are subject to dismissal for lack of subject matter jurisdiction.
- Procedural context:
- Plaintiffs/Appellants filed suit against the SEC alleging negligence in connection with the SEC's investigation (or lack thereof) of the Bernard Madoff Ponzi scheme. The district court granted the United States' motion to dismiss plaintiffs' claims for lack of subject matter jurisdiction pursuant to Federal Rule of Civl Procedure 12(b)(1). On appeal, the court of appeals affirmed the district court's ruling.
- Plaintiffs/Appellants were investors who lost money they had entrusted to Bernard Madoff and his firm after Madoff's massive Ponzi scheme exploded in 2008. Plaintiffs filed suit against the SEC under the Federal Tort Claims Act (FTCA) alleging that the SEC negligently failed to uncover Madoff's fraud despite receiving numerous complaints over a sixteen-year period. The court of appeals affirmed the district court's dismissal of the Plaintiffs' claims for lack of subject matter jurisdiction. Specifically, the court of appeals explained that although the FTCA is an exception to the rule that the United States is typically immune from suit, the DFE, which was enacted to shield regulatory agencies' discretionary use of specific investigative powers, barred Plaintiffs' claims because under the DFE the alleged misconduct by the SEC was too intertwined with purely discretionary decisions made by SEC personnel.
- Wesley, Droney and Alison Nathan (USDC SDNY) sitting by designation.
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