A federal court dismissed fraud claims brought by the US Securities and Exchange Commission against three Cohmad Securities executives accused of helping Bernard Madoff conduct a $65 billion Ponzi scheme.
In an order released today, US District Judge Louis Stanton in Manhattan dismissed the fraud claims against Cohmad chairman Maurice Cohn, chief operating officer Marcia Cohn and former vice president Robert Jaffe.
Judge Stanton's ruling is a victory for the defendants, who worked for many years with Madoff and his investment advisory firm Bernard Madoff Investment Securities LLC, but claimed not to know he was defrauding thousands of customers.
"There is nothing inherently fraudulent about referring customers to an investment adviser for fees," Judge Stanton wrote in his 16-page ruling. "One who conducts normal business activities while ignorant that those activities are furthering a fraud is not liable for securities fraud."
Judge Stanton said the complaint "supports the reasonable inference that Madoff fooled the defendants as he did individual investors, financial institutions, and regulators."
The ruling was a blow to the SEC, which was widely criticised for missing Madoff's fraud in the first place.
Judge Stanton let the SEC pursue possible civil fines against Cohmad and the Cohns for aiding and abetting violations of a federal law governing investment advisers, and a claim against Maurice Cohn for failing to correct various regulatory filings. He said the SEC has 30 days to file an amended complaint.
"We are reviewing the order and will proceed accordingly," SEC spokesman John Nestersaid.
Reuters