It had to happen. Bernard Madoff's $50 billion Ponzi scheme is turning into a lawyers' picnic with the lawsuits rolling in.
First, we have reports that a New York woman, Phyllis Molchatsky, is suing the Securities and Exchange Commission after losing $2 million investing with Madoff. She alleges, with good reason, that the SEC was negligent in failing to detect the scam over the last decade, claiming its "failure enabled Madoff to perpetuate and expand the scheme, drawing in more and more innocent investors."
The administrative claim for relief filed with the SEC this week is seen as the first step towards a full-blown lawsuit and is the first of its kind targeting government agencies over Madoff. Whether the SEC rolls out the "sovereign immunity" defense remains to be seen. Still, it's interesting in light of SEC chairman Christopher Cox last week announcing an investigation into why the SEC missed warning signs. So watch this space.
Add to that the reports of Fairfield Greenwich Group and Massachusetts Mutual being sued by investors for ignoring those red flags.
This is just the beginning. There will be many more and it might well clog up the court system for some time. But then, investors don't have much alternative.
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