A federal court dismissed fraud claims brought by the Securities and Exchange Commission against three Cohmad Securities Corp executives accused of helping Bernard Madoff conduct a $65 billion Ponzi scheme.
In an order released Tuesday, U.S. District Judge Louis Stanton dismissed the fraud claims against Cohmad Chairman Maurice Cohn, Chief Operating Officer Marcia Cohn and former Vice President Robert Jaffe.
The judge let stand a claim against Maurice Cohn related to a duty to correct various regulatory filings. He granted the SEC 30 days to file an amended complaint.
Stanton's ruling is a victory for defendants who worked for many years with Madoff and his investment advisory firm, Bernard L. Madoff Investment Securities LLC, but claimed not to know he was defrauding thousands of customers.
It is also a blow to the SEC, which had been widely criticized for missing Madoff's fraud in the first place.
The regulator had accused the Cohns and Jaffe of aggressively marketing Madoff's services, receiving $98.4 million of payments from 1996 to 2008, while concealing their scheme through false regulatory filings, court records show.
We are reviewing the order and will proceed accordingly, SEC spokesman John Nester said.
Stanley Arkin, a lawyer for Jaffe, said: We are pleased that the court dismissed every single fraud claim against Robert Jaffe, and that it rejected the SEC's obvious overreaching.
Lawyers for the Cohns were not immediately available for comment.
Irving Picard, the trustee liquidating Madoff's firm, filed a lawsuit raising similar claims in Manhattan bankruptcy court. He was not immediately available for comment.
In his ruling, Stanton said the SEC had failed to allege facts that could lead to a plausible inference that the Cohns or Jaffe intended to commit fraud.
There is nothing fraudulent about referring customers to an investment adviser for fees, the judge wrote. One who conducts normal business activities while ignorant that those activities are furthering a fraud is not liable for securities fraud.
Jaffe is a son-in-law of one of Madoff's largest investors, Carl Shapiro. He worked in Cohmad's office in Boston, and relied on his deep roots in the city to introduce wealthy investors to Madoff.
Madoff is serving a 150-year sentence in a North Carolina federal prison.
The case is SEC v. Cohmad Securities Corp et al, U.S. District Court, Southern District of New York, No. 09-5680.
(Reporting by Svea Herbst-Bayliss in Boston and Jonathan Stempel in New York)