By Martha Graybow
NEW YORK (Reuters) - A woman who says she gave accused swindler Bernard Madoff $2 million to manage is trying to hold U.S. regulators responsible for her losses, a case that shows how widely INVESTOR (INVEB.ES) are casting their net in trying to find potential defendants in the scandal.
The claim by retiree Phyllis Molchatsky is believed to be the first attempt by an investor to recover investment losses from the U.S. Securities and Exchange Commission. Since Madoff was arrested, other investors have sued hedge funds they say improperly entrusted their money to him.
Molchatsky's lawyer said on Tuesday the SEC failed to protect investors from Madoff, who has been charged with securities fraud by federal prosecutors but has yet to formally respond to the accusations in court.
"We believe in this particular instance that the SEC has fallen down on the job," said attorney Howard Elisofon, a former SEC lawyer who represents Molchatsky. "They should be held responsible for these catastrophic losses."
The SEC declined to comment.
Molchatsky brought an administrative claim on Monday against the commission, contending the agency was negligent in failing to detect the alleged $50 billion fraud at Madoff's money management operation.
Molchatsky, 61, of New City, New York, is seeking $1.7 million in damages from the agency.
She could face an uphill battle because the doctrine of sovereign immunity historically has limited the types of cases that could be brought against the SEC and other federal agencies.
An administrative claim is an investor's first step in trying to get monetary damages from the SEC. Elisofon said that the commission has six months to act on Molchatsky's claim. After that, he said, she could bring a lawsuit in federal court if the matter is not resolved.
"We anticipate a bitter legal battle over this," he said.
The SEC has come under fire for not uncovering the Madoff scandal until the money manager's sons went to authorities and told them he had confessed to the fraud. The agency has been accused of missing a number of red flags about the way Madoff operated his investment business.
A U.S. House of Representatives panel plans to convene an inquiry in January into the failure of regulators in the case.
(Reporting by Martha Graybow; editing by Jeffrey Benkoe)
