Baer v. United States, No. 12-1319 (3d Cir. 2013)Annotate this Case
The Securities and Exchange Commission (SEC) Office of Investigations (OIG) found that the SEC had received numerous substantive complaints since 1992 that raised significant concerns about Madoff’s hedge fund operations that should have led to a thorough investigation of the possibility that Madoff was operating a Ponzi scheme. The SEC conducted five examinations and investigations, but never took the steps necessary to determine whether Madoff was misrepresenting his trading. The OIG found that had these efforts been made, the SEC could have uncovered the Ponzi scheme. Madoff’s clients filed suit under the Federal Tort Claims Act, 28 U.S.C. 1346(b), 2671, to recover damages resulting from the SEC’s failure to uncover and terminate the scheme in a timely manner. The district court dismissed for lack of subject matter jurisdiction, finding that the claims were barred by the discretionary function exception to the FTCA. The Third Circuit affirmed, reasoning that SEC regulations afford examiners discretion regarding the timing, manner, and scope of investigations and that there is a strong presumption that the SEC’s conduct is susceptible to policy analysis.