The Network for Investor Action and Protection (NIAP), a not-for-profit foundation founded by former investors of Bernard L. Madoff Investment Securities Inc., is instituting a “large-scale effort” to help Madoff investors initiate legal actions against the Securities and Exchange Commission (SEC) and the Internal Revenue Service (IRS) for negligence in failing to identify and halt the Bernard Madoff Ponzi scheme. NIAP informed Madoff victims that they have until December 11 to file the claims to start the lawsuit process.
“The SEC and IRS, through negligent actions and inactions, allowed the Bernard L. Madoff Investment Securities Ponzi scheme to occur, continue and flourish,” said NIAP President Ron Stein, in a statement. “The result was an unregulated scheme that spiraled out of control, costing billions of dollars and wiping out the savings of thousands of individuals who believed they were investing in good faith.”
Dec. 11, 2010, marks the two-year date from when the Madoff fraud was disclosed, and persons wishing to sue a governmental body such as the SEC and the IRS must file a Notice of Claim form with the agency within two years of the date of the loss. NIAP says the agencies will then have a “six-month period to decide whether to accept or reject the claim, and from that point, formal lawsuits can commence.”
A recent auction in New York of Madoff’s personal belongings, like his bed, footwear, and personal clothing items, raised more than $2 million to compensate his victims.
Stein said in the statement that the negligence and failure of the SEC has been well documented, particularly in the report by the SEC’s Office of Inspector General. “The most basic level of oversight by the SEC would have revealed the fraud, particularly with the SEC having been notified on multiple occasions that a Ponzi scheme was taking place,” he said. “The government had a responsibility to stop this fraud immediately. It chose not to.”
With respect to the IRS, Stein said that in approving Bernard L. Madoff Investment Securities as a non-bank custodian, “the IRS violated relevant regulations wholesale adding legitimacy to the Ponzi scheme that has wreaked havoc on thousands of lives.”
Ironically, Stein continued, “the federal government was probably the largest beneficiary of the fraud because victims for years paid income taxes on fictitious earnings from the Madoff scheme. Despite this fact, the IRS has refused to return significant portions of those taxes to Madoff victims except for the limited time frame currently allowed for theft loss carrybacks.”
NIAP is calling for tax legislation to extend theft loss deductions and provide deductions for IRAs and retirement plans to help victims. NIAP is also asking Congress to ensure “the federal pressing of the Securities Investment Protection Corporation (SIPC) to open its books, protect final account statement values, and stop the claw back of assets of innocent investor victims.”