As has become standard practice, the day after the New York Times says something bad about the Wlipons/Madoff case, the New York Daily News has a story — sourced, quite clearly, by Wilpon’s lawyers — endeavoring to counter it. Today’s story: explaining the Wilpon defense.
And that defense: “hey, if the Securities and Exchange Commission had no clue that Madoff was a fraudster, how on Earth could the Wilpons be said to have “known or should have known” that things weren’t on the up-and-up?”
And you know what? That defense has some surface appeal. It’s the SEC’s job to sniff out such frauds. If they can’t do it, why should the Wilpons be expected to? But here’s my problem with it, provided by Daily News itself:
In attacking the SEC, the Wilpons are echoing the claims in a civil suit brought against the commission in 2009 by Phyllis Molchatsky and Steven Schneider, two alleged Madoff victims who claim the SEC’s “negligence, incompetence, inexperience, inattentiveness and laziness” is to blame for the epic scandal.
“For at least 16 years, the SEC’s failure to follow basic investigative procedures and practices, or even to observe simple common sense, allowed Madoff to perpetuate his scheme, drawing in innumerable new victims who were totally unaware that the government agency sworn to protect them had fallen down on the job,” their suit says.
As lawyers annoyingly say sometimes, that argument proves too much. It’s one thing to say that the SEC was itself hoodwinked and unable to uncover Madoff’s crimes, which is how a defense attorney unrelated to the Wilpons characterizes the defense in the story. If that’s the case — if the SEC, using all of its investigative powers and native experience and intelligence hit a dead end — of course the Wilpons shouldn’t have been expected to do better. But it’s another thing altogether to say the SEC didn’t even try and was epically incompetent, and thus the Wilpons should be judged by that standard too.
Indeed, the other side of the accusations in that above quote is that anyone who “was able to observe simple common sense” or anyone who wasn’t “negligent, incompetent, inexperienced, inattentive or lazy” could have figured Maddof’s fraud out. Just because the federal agency charged with looking into Madoff was utterly incompetent doesn’t mean that reasonable, sophisticated investors with better information at their disposal about Bernie Madoff than the SEC had shouldn’t have been expected to do the basic kinds of due diligence the Wilpons are accused of not doing.
Put differently, if the city cop on the corner “fell down on the job,” people on the street aren’t permitted to break the law and can’t point to the face-down cop as a defense when the more attentive county sheriff comes to arrest them. People still have a duty to act in a reasonable manner and behave the way the law expects them.
I’d have a lot more faith in the Wilpons’ defense if it was the SEC going after them. Because, yeah, it would take a lot of nerve for the SEC to say “you should have done better than us.” But it’s not the SEC going after the Wilpons. It’s a trustee appointed to represent the interest of people who were wronged by Madoff. His claim isn’t that the Wilpons should have done better than the SEC. It’s that the Wilpons should have done better than the did based on the information they had at their disposal. As such, pointing at the SEC as their defense doesn’t totally do it for me.