In the civil litigation against the Madoff feeder fund Fairfield Greenwich, its auditors and others, Judge Maas on Thursday (Thanksgiving Day), denied the defendants’ letter motion to compel depositions of two SEC employees for the purpose of showing that, since Madoff successfully deceived the SEC, he could have also deceived the defendants.  Judge Maas found the proposed depositions to be of “marginal relevance”:

The mere fact that a government agency charged with assessing BLMIS’s regulatory compliance failed to discover Madoff’s wrongdoing in a timely manner hardly suggests that the Defendants could not have done so had they taken additional steps in the course of auditing FGG. Indeed, in order to capitalize on the SEC’s conceded failure to uncover the fraud at an earlier time, the Defendants would have to establish that they and the SEC were similarly situated, and that the SEC competently discharged its regulatory and investigative functions. The first of these showings plainly cannot be made since the Defendants, unlike the SEC, were in privity with FGG. The second showing also appears to be a stretch since the SEC Inspector General found that the Commission and its staff failed to perform a thorough and competent investigation of BLMIS and Madoff. The SEC is therefore correct that, rather than forming the crux of a potential defense, the testimony that the Defendants seek to obtain  . . . would, at best, be of marginal relevance. The Defendants’ contention that the SEC witnesses’ testimony will help establish that Madoff and his colleagues would have stonewalled the Defendants in the same manner that they sidestepped the SEC’s inquiries rests on even shakier ground. Indeed, it amounts to sheer speculation. The Defendants have not put forth any evidence to suggest that BLMIS would have responded to the Defendants’ inquiries in the same way that it responded to the SEC. The SEC had an entirely different relationship with Madoff and his associates, and had the power to impose arguably greater consequences than the Defendants in the event it detected fraudulent activity. For this reason, Madoff had a greater incentive to lie to the SEC. Madoff’s responses to the SEC thus shed little, if any, light on what he would have told the Defendants if they had asked similar questions.

Judge Maas did not decide the question, raised in the briefing and discussed in this post, about the proper standard of review when federal agencies refuse to comply with nonparty subpoenas, because he found that the subpoenas were improper under even the defendants’ proposed standard. Our prior posts on the case are here.