www.blacktiemagazine.com - www.blacktiechina.com
Celebrity Philanthropy News
Society News
Save the Date Directory
Black Tie China
Black Tie France
Black Tie Israel
Black Tie Philippines
Black Tie
Global Sustainability News
Nightlife With
Rose Billings
The Season
Gerard Mc Keon
Joyce Brooks
Follow us on 
Twitter   Facebook   Google+   Pinterest
Society News
New York Society
Palm Beach Society
International Society
Hampton Society
Las Vegas Society
West Coast Society
U.S. Society
Save The Date
Save the Date Directory
Listing Non-Profit Events
Philanthropy News
Featured Foundations
Philanthropy  Giving
Entrepreneurial & Philanthropy Awards
Event Resources
Event Resource Directory
Event Talent Directory
Black Tie
Lifestyle Selection
Couture Fashion
Fine Wines
Friends of Black Tie
 Health & Wellness
Impact Investment
Interior Design
Investigative Services
Kids on Location
Legal Services
Luxury Yachts
Pet Services
Private Air
 Real Estate
Recommended Reading
Restaurant Reviews
Single Friendly Events
Social Announcements
Sustainable Investment
Wealth Management
Share this Page
Promote Your Business or Foundation:
Co-Hosting Events
Featured Foundations
Listing Non-Profit Events
Promote your Services
Feature your Talent
Friends of
Black Tie
Add your e-mail
for invitations to  our
Friends of Black Tie Events

Friends of Black Tie
Black Tie Classic
Current Issue
Diana Issue
Jacqueline Kennedy
Back Issues
More Back Issues
Black Tie TV
Online Store 1

























































































































































































































































































































































Black Tie Wealth Management  1

Black Tie Wealth Management  1

jaime Dermody

Jaime Cuevas Dermody


FROM  Madoff  Theft



Jaime Cuevas Dermody  561 278-4100  jaime@fe.net                                                                                                                                                                
 12 October 2009 ã Financial Engineering 1 LLC, 2009                              


 In Section (1.) we analyze a tort liability of the Securities and Exchange Commission (“SEC”) under the Federal Tort Claims Act (“FTCA”), as amended (28 U.S.C. § 1346(b), 2671-2680).  This tort stems from the: 


(i.)    failure of the SEC line auditor to comply with its own procedures in auditing Bernard L. Madoff Investment Securities LLC and Bernard L. Madoff Investment Advisors LLC, 

 (ii.)          the SEC line auditor falsely purporting to have conducted an audit in 1999 and in 2004, and 

(iii.)  the subsequent loss manifest by Mr. Madoff’s 11 December 2009 announcement that the operation of his client’s managed accounts was a multi-billion-dollar Ponzi scheme. 

 Section (2.) considers the specific types of losses involved, and Section (3.) briefly outlines the procedure for such client’s to seek relief from the SEC.  Note that the Congressional Research Office has prepared an insightful and far-more general analysis of both the Federal Tort Claims Act and the important court cases related to it.[1]  That report was a guide to this analysis.


 There is a long, well-established common-law doctrine of sovereign immunity for national governments.  This was articulated in many court decision, most notably in the Supreme Court case of Federal Housing Administration v. Burr, 309 U.S. 242, 244 (1940).  Under this doctrine, tort relief from a sovereign requires the sovereign’s consent.  In the United States this was accomplished by the Senate passing a bill for each case.  In 1946 the Congress sought its own relief from the volume of such bills, by granting statutory waiver of sovereign immunity for a broad class of torts.  This law was revised as cited above in 1948.

 With four major classes of exception, it made the United States liable:

 “…. for injury or loss of property, or personal injury or death caused by the negligent or wrongful act or omission of any employee of the government while acting within the scope of his office or employment, under circumstances where the United States, if a private person would be liable to the claimant in accordance with the law of the place where the act or omission occurred.”1

 Two of these classes are basically statutory.  The first appears in 28 U.S.C. § 2680(h) and is know as the Intentional Tort Exception.  It excludes from the FTCA, torts:  “….arising out of assault, false imprisonment, false arrest, malicious prosecution, abuse of process, libel, slander,  misrepresentation, deceit, or interference with contractual rights. ….”  unless committed by “…. investigative or law enforcement officer of the United States Government.”  The second exception is that any liability under the FTCA stems only from a “negligent or wrongful act or omission” in 28 U.S.C. § 1346(b).  This precludes “strict liability” (i.e., tort without culpability).  See Dalehite v. U.S., 346 U.S. 14, 44-45 (1953).

 The third major class of exception arose in Feres v. U.S., 340 U.S. (1950) and excludes injury to military personnel in the line of duty.  In that case, the Supreme Court read the FTCA “to fit, so far as will comport with its words, into the entire statutory scheme of remedies against the Government to make a workable, consistent and equitable whole.”  See that case at 139. 

 These major classes of exception and several minor exceptions, like the postal exception (28 U.S.C § 2680(b)) are clearly not applicable to the tort liability at hand.  We are thus left with the discretionary function exception as the only one potentially at issue here.  This exception  is based on 28 U.S.C. § 2680(a) and precludes Government liability from torts “based upon the exercise of performance or the failure to exercise or perform a discretionary function”.  The most famous interpretation of this exception is found in Dalhite v. U.S., 346 U.S. 15 (1953).  The Supreme Court defined that discretion by these words in that case at 34-36:

 “is the discretion of the executive or administrator to act according to one’s judgment of the best course ….  It …. Includes more than the initiation of programs and activities.  It also includes determinations made by executives and administrators in establishing plans, specifications or schedules of operations.  Where there is room for policy judgment and decision there is discretion.  It necessarily follows that the acts of subordinates in carrying out the operations of governments in accordance with official directions cannot be actionable.”

 The Supreme Court put a finer point on this interpretation in
Berkovitz v. U.S., 486 U.S. 531 (1988):

 “a court must first consider whether the action is a matter of choice for the acting employee …. Conduct cannot be discretionary unless it involves an element of judgment or choice ….  Thus the discretionary function exception will not apply when a federal statute, regulation, or policy specifically prescribes a course of action for an employee to follow.  In this event, the employee has no rightful option but to adhere to the directive ….  The exception …. protects only governmental actions and decisions based on considerations of public policy.”


In the 1999 and 2004 SEC audits of Bernard L. Madoff Investment Advisors and Bernard L. Madoff Investment Securities, the same line SEC auditor failed to follow even the most rudimentary of SEC procedures.  In fact he failed to follow any established audit procedure.  The most basic of any audit procedure is to confirm the assets of an enterprise, in this case the securities purchased in the Client’s managed accounts.  Since no assets were ever purchased, there was no sample ever taken.  No executive or administrative policy or procedure directed such failure, nor was there such to lie about it by signing the SEC finding of no violation of compliance, and thus purporting to have conducted an SEC audit.  Hence, the S.E.C employee’s acts of omission and commission are not exempt from the statutory waiver of sovereign immunity afforded by the FTCA.


We find a clear match for this SEC liability in comparing two Supreme Courts decisions.  In Berkovitz v. U.S. cited above, the Supreme Court held that the National Institute of Health’s (then) Division of Biologic Standards and the Food and Drug Administration’s Bureau of Biologics (“NIH and  FDA”) could be held liable for failing to follow their own regulations.  In this case plaintiffs claimed that these agencies:

“adopted a policy of testing all vaccine lots for compliance with safety standards and preventing the distribution to the public of any lots that fail to comply.  …. Further allege that notwithstanding this policy, which allegedly leaves no room for implementing officials to exercise independent policy judgment, employees of the Bureau knowingly approved a lot that did not comply with safety standards.”

 The Supreme Court distinguished this case from U.S. v. Varig Airlines, 467 U.S. 797 (1984), where it applied the discretionary function exemption to the Federal Aviation Administration’s (“FAA”) policy of only spot checking aircraft of a given type, rather than checking every plane.   In that case FAA employees carried out the administrative policy, in marked contrast to the NIH and FDA employees above that failed to carryout the administrative policy of their agencies.  U.S. v. Varig Airlines applied the standard set in Dalehite v. U.S.:

 “Here, the FAA has determined that a program of “spot checking” manufactures’ compliance with minimum safety standards best accommodates the goal of air transportation safety and the reality of finite agency resources.  Judicial intervention in such decisionmaking through private tort suits would require the courts to “second guess” the political, social, and economic judgments of an agency exercising its regulatory function ….  It follows that the acts of FAA employees in exercising the “spot check” program in Accordance with agency directives are protected by the discretionary function exemption as well ….  The FAA employees who conducted compliance reviews of the aircraft involved in this case were specifically empowered to make policy judgments.”




The most obvious loss in the Madoff managed accounts is the contributed capital that was lost by clients.  A more subtle loss of many investors is the opportunity cost of earnings on their contributed capital.  If an investor had not invested in the Madoff managed accounts, say because the SEC had audited them, and thus discovered that there were no assets in the managed accounts, then the investor would have earned some return on that contributed capital elsewhere.  The question is what return. 

One answer is the return earned on the client’s other investments during the time of their Madoff accounts purported to exist.  A lazy judge might prefer the simplicity of one of the Applicable Federal, either short-, mid-, or long-term.  To make a Madoff victim whole as Tort law is designed to do, we would need to find what they would have earned if the SEC had actually performed the first Madoff audit in 1999 or not false signed the letter purporting to have conducted an audit.  This, in turn, requires an examination of the other investment opportunities they faced.  We can use the purported return up to 11 December 2009, as an upper bound on this return.  



 Within two years of first discovering the tort and its cause, the victim must present a claim to the federal agency whose employee(s) gave rise to the claim (28 U.S.C. § 2675)[2].  If that agency mails a denial of that claim within six months, then the victim has six months to file suit in Federal District Court (28 U.S.C. § 2401, 2675).  Otherwise, there is no time limit on filing suit. 


[1] Cohen, Henry and Chu, Vivian S.  Federal Tort Claims Act.  Congressional Research Service 7-5700.  18 May 2009

[2] U.S. v. Kubrick, 444 U.S. 111, 120 (1979).


Print Friendly PDf of Document


To list in Wealth Management   please contact gerard@blacktiemagazine.com



«  Back to wealth management




Featured Philanthropic Events
 & Sustainable Investment Opportunities

Follow us on
Black Tie Magazine TV

Search the Site



Save the Date

 The Society of
Memorial Sloan Kettering  
 Third Annual  Opening
Night of TEFAF
 New York Spring

May 2, 2019

Save the Date

Lupus Luminary Luncheon

Luminary Luncheon
NYC. May 7, 2019

Save the Date


Black Tie China

howie rosen, ma qiaoqui, joyce brooks, gerard mc keon

Black Tie International Magazine
& Black Tie China,
Greenwich Financial Investment Forum


Celebrating 40 Years of china -u.s. diplomatic relations

Celebrating 40 Years of
China - U.S.
Diplomatic Relations

United Nations, NY
Black Tie China


Kaity Tong

Community Network
Leadership Awards Gala

Black Tie China


Black Tie Sustainable Investment

jeff bezos

Jeff Bezos
On Philanthropy

Impact Investment

Black Tie Philippines

Gerard Mc Keon and Laica Herrera.  Photo by:  GMK/Blacktiemagazine.com

5th Annual Belgium
Cheese & Beer Night
at Manila Polo Club
Black Tie


Black Tie Philippines

 Celebrity Philanthropy News

Jean Shafiroff and Patrick McMullan.  Photo by:  Joyce Brooks/Blacktiemaagzine.com

Jean & Martin Shafiroff
St. Patrick Day Party
In Honor of
 Stony Brooks Hospital
Southampton Hospital


Society News


UNWFPA’s Treasurer Michal Grayevsky, UN Women’s Resource Mobilization and Advocacy Manager Vesna Jaric, UNWFPA’s President Barbara Winston

UN Women for Peace
donates $50K
 to the United Nations Trust
 Fund to End Violence
 Against Women


Society News


Police Athletic League

Police Athletic League

Daniel A. Nigro
Fire Commissioner
City of New York

Society News

gerard mc keon

United Nations Correspondents Association
The 23rd Annual UNCA Awards

Ronald S. Lauder 

Peres Center For Peace
And Innovation
Ronald S. Lauder 


Celebrity Philanthropy News


Sandeep  Tanya Guleria and Tanya Guleria.  Photo by:  Rose Billings/Blacktiemagaizne.com

New York Junior League
67th Annual Winter Ball

Society News


Time to Act on Global Mental Health

Time to Act
Global Mental Health
United Nations, NYC


Society News


Musical Director &Conductor Steve Reineke, Honoree is Alan Menken,and Robert De Niro.  Photo by:  Rose Billings/Blacktiemagazine.com

 Steve Reineke
Alan Menken
Robert De Niro

The  New YorkPops
35th Birthday Gala


Celebrity Philanthropy News


Joseph Coselli and Miss Aubrienne Krysiewicz-Bell.  Photo by: Rose Billings/Blacktiemagazine.com

The 64th
Debutante Ball


Celebrity Philanthropy News


Usher and Sharon Bush with Honoree Harry Belafonte.  Photo by:  Rose Billings/Blacktiemaagzine.com

Sharon Bush
 Harry Belafonte

RFK Human Rights
Ripple of Hope Awards


Society News


Greg Schriefer and Honoree Clive Davis. Photo by:  Rose Billings/Blacktiemagazine.com

Clive Davis

Fifth Annual
Eight Over Eighty
Benefit Gala



Celebrity Philanthropy News


His Eminence, Timothy Michael Cardinal Dolan, Archbishop of New York.   Photo by:  Julie Robinson

42nd Annual Inner-City
Scholarship Fund
 Friends Gala
Raises Over $1 Million


Society News


Global CeylonTea Party

Permanent Mission
 of Sri Lanka
 to the United Nation

Global Ceylon Tea Party
in Celebration of the
150th Anniversary of
Ceylon Tea


Society News


Taye Diggs presented the Spirit of Entertainment Award to Nancy O’Dell, co-anchor of Entertainment Tonight

Nancy O'Dell
Taye Diggs
Associates for Breast
 and  Prostrate Cancer
Talk of the Town Gala
Beverley Hills, CA


Celebrity Philanthropy News


national meningitas

National Meningitis
 Association Rings
The Nasdaq Stock Market
Closing Bell

Society News


the ocean conference

The Ocean Conference

Our oceans, our future:
partnering for the
implementation of
 Sustainable Development
 Goal 14

United Nations

Society News


Charles Rangel, Representative for Districts New York and David N Dinkins,  106th Mayor of New York City.  Photo by:  Rose Billings/Blacktiemagazine.com

The Inner Circle
 Annual Charity Show
"Curb Your Narcissism"
 The New York
Hilton Midtown

Society News


Catherina Farrell, John Farrell, Honoree and daughter Caitlin Farrell.  Photo by:  Rose Billings/Blacktiemagazine.com

 Historical Society
Annual Weekend
With History

Society News


ecosoc 2017

“Partnerships for
promoting opportunities,
increased prosperity
 and sustainable development
 for all”

Society News


Kathryn and Leo Vecellio

The 62nd Annual
Palm Beach Heart Ball
Raises Over $1 Million


Palm Beach Society


 Silvia Frieser (Co-Chair) (Executive Director) Michael Peenik (Co-Chair).  Photo by:  Rose Billings/Blacktiemagazine.com

 The 62nd
Viennese Opera Ball


Society News


Lois Pope and Dr. Robin Ganzert. Photos by CAPEHART

LIFE's 23rd Annual
"Lady in Red" Gala
Raises More Than
 $1.2 Million



Palm Beach Society


 Deborra-Lee Furness, Leadership Award Recipient and Cate Blanchett, Presenter.  Photo by:  Rose Billings/Blacktiemagazine.com

Deborra-Lee Furness
 Cate Blanchett

UN Women for Peace
Awards Luncheon

Celebrity Philanthropy News


Andrew Solomon, Meryl Streep, Stephen Sondheim

Andrew Solomon
Meryl Streep
Stephen Sondheim

PEN America
Annual Literary Gala
Raises $2 Million

Celebrity Philanthropy News


NEW YORK, NY - APRIL 20: (L-R) Fashion designer Issac Mizrahi, honoree Linda Lloyd Lambert and President and CEO of ASPCA, Matt Bershadker attend the ASPCA hosted 20th Annual Bergh Ball at The Plaza Hotel on April 20, 2017 in New York City. (Photo by Bryan Bedder/Getty Images for ASPCA)

 Issac Mizrahi
Linda Lloyd Lambert
  Matt Bershadker
20th Annual Bergh Ball
Raises   $1.5 Million

Society News


Crown Prince Alexander, Joyce Brooks

Crown Prince Alexander
 Joyce Brooks


Society News


Elizabeth Taylor and Kathy Ireland

Elizabeth Taylor
 Kathy Ireland

The Elizabeth Taylor
 AIDS Foundation
 Legendary Stars
 85th Birthday

Celebrity Philanthropy News


Jude Demorest, Lee Daniels and Brittany O'Grady.  Photo by:  Vince Bucci

 Jude Demorest
 Lee Daniels
 Brittany O'Grady

Extraordinary Families
2nd Annual Awards Gala
Beverly Hills, CA


Celebrity Philanthropy News


From left: Dr. Steven J. Corwin, president and CEO of NewYork-Presbyterian, Jessica M. Bibiliowicz, chairman of Weill Cornell Medicine's Board of Overseers, Frank A. Bennack, Jr., chairman of NewYork-Presbyterian's Board of Trustees, and Dr. Augustine M.K. Choi, interim dean of Weill Cornell Medicine, during the annual Cabaret benefit dinner on Nov. 9 at Pier Sixty, Chelsea Piers. The event raised $3.5 million to support the institutions' ongoing work in patient care, biomedical research and medical education..  Photo by:  Studio Brooke

 Weill Cornell Medicine
Annual Cabaret Benefit
Raises $3,5 Million


Society News


T. Denny Sanford

T. Denny Sanford
 $100 million Gift
Sanford Stem Cell
Clinical Center


Society News


Nancy Grand, Stephen Grand

Nancy &Stephen Grand
commit $50 million
to the
Weizmann Institute
of Science


Society News


Marc Anthony, Carlos Slim, Petra Nemcova

Marc Anthony
Carlos Slim
Petra Nemcova

 Hearts Fund


 Celebrity Philanthropy News


Israel's 65th birthday

Birthday gift


Philanthropy Giving


Black Tie International Realty

amayan beach, palawan, philippines

 Amayan, Beach,

348 acres
$5.25 million

International Realty


Philanthropy Giving

2017 US Charitable Giving
Sets New Record $477.55 Billion



Global Sustainability News


Cortés Desalination and Tidal Electric Generation Project

and Tidal Electric
 Generation Project

Impact Investments


sustainable development goals

United Nations 
  Sustainable Development Goals (SDG's)


Event Resources Directory

gerard mc keon, Event Resourcess

Everything you need
to run a
World Class Event

Promote your Services

Event Resource Directory



Follow us on   Twitter       Facebook




Copyright 2006 Black Tie Magazine. All Rights Reserved .

Privacy Policy |