So, can they sue the SEC?

The New York Times has the mea culpa by the SEC about the Madoff scheme:

The Securities and Exchange Commission said Tuesday night that it had missed repeated opportunities to discover what may be the largest financial fraud in history, a Ponzi scheme whose losses could run as high as $50 billion. The commission said it received credible allegations about the scheme at least nine years ago and will immediately open an internal investigation to examine why it had failed to pursue them aggressively. The SEC issued the statement hours after Bernard Madoff, the 70-year-old Wall Street executive accused of operating the scheme, discussed the fraud with federal authorities at a meeting in New York.
“Our initial findings have been deeply troubling,” Christopher Cox, the SEC chairman, said in his statement. The commission received “credible and specific allegations regarding Mr. Madoff’s financial wrongdoing", but did not respond aggressively, he said. “I am gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations or at any point to seek formal authority to pursue them,” Mr. Cox said.
Moreover, Mr. Cox said, the commission will investigate “all staff contact and relationships with the Madoff family and firm, and their impact, if any, on decisions by staff regarding the firm". Mr. Cox added that he had ordered SEC staff to recuse themselves from the investigation if they had “more than insubstantial personal contacts with Mr. Madoff or his family".
One of the commission’s investigative teams that had examined the Madoff firm was headed by a lawyer named Eric Swanson, who served for 10 years as a lawyer at the commission and left in 2006 while he was an assistant director of the office of compliance inspections and examinations in Washington. In 2007, Mr. Swanson married Shana Madoff, a niece of Bernard Madoff and daughter of his brother, Peter Madoff, the firm’s chief compliance officer. Ms. Madoff is the firm’s compliance attorney.
Eric Starkman, a spokesman for Mr. Swanson, said that Mr. Swanson’s “romantic relationship with his wife began years after the compliance team he helped supervise made an inquiry about Bernard Madoff’s securities operations.” And Randy Williams, a spokesman for Mr. Swanson’s current employer, BATS Exchange in Kansas City, said that Mr. Swanson had not participated in any inquiry of into the Madoff firm or its affiliates while he was involved in a relationship with Ms. Madoff.
Besides investigating Mr. Madoff, regulators are now in the embarrassing position of examining whether they should have caught him sooner. Mr. Madoff kept several sets of books and false documents and lied to regulators when they questioned him in previous examinations of his firm, Bernard L. Madoff Investment Securities, Mr. Cox said. Investigators never used subpoena powers to obtain information, but rather “relied on information voluntarily produced by Mr. Madoff and his firm", Mr. Cox said.
When he was arrested last week, Mr. Madoff estimated that investors lost as much as $50 billion in the fraud, according to court filings. Mr. Madoff has said the scam was a Ponzi scheme, a type of fraud in which early investors are paid off with money from later victims, until no more money can be raised and the scheme collapses.
Over the decades, Mr. Madoff steadily expanded his circle of investors, drawing in small individual investors, charities, pension funds, prominent billionaires, and European banks. On Tuesday, a Vienna bank, Bank Medici, became the latest major institution to acknowledge it was a client of Mr. Madoff, saying it had $2.1 billion invested with him. Institutions and individuals have now reported losses of more than $20 billion.
Stephen Harbeck, the chief executive of the Securities Investor Protection Corporation, which has taken control of Mr. Madoff’s firm through a trustee, said the firm appeared to have multiple sets of books and that he was unsure how much money, if any, Mr. Madoff’s clients would eventually recover. “The trustee and SIPC have been involved in this case for about 24 hours,” Mr. Harbeck said. “You’re talking about an ongoing fraud that lasted for decades.”
Attorneys for Mr. Madoff declined to comment on Tuesday night about Mr. Madoff’s conversations with government authorities. “We have said from the beginning that we are cooperating fully with the government investigation,” said Ira Lee Sorkin, one of the lawyers. When pressed, Mr. Sorkin said he had used “we” to refer to “the company, whose sole shareholder is Bernie Madoff.” Mr. Sorkin would not confirm that Mr. Madoff himself was providing first-hand cooperation.
Extensive cooperation from Mr. Madoff could substantially shorten the time it will take for regulators to track down any available assets, locate any other people who may have been involved in the fraud, and determine whether investors will recover any of their losses.
The first indication that Mr. Madoff might be talking to authorities came when a federal judge delayed a bond hearing for Mr. Madoff. At the request of federal prosecutors, the hearing was rescheduled for the same time on Wednesday. No reason for the postponement was given, nor would the federal prosecutor’s office or Mr. Madoff’s lawyers comment on the delay.
Mr. Madoff was arrested at his Upper East Side apartment in Manhattan last Thursday by FBI agents, after his two sons — both of whom work for the company — reported that he had confessed to them that his money-management business was “basically, a giant Ponzi scheme” and “a big lie". The criminal complaint under which he was arrested charged him with a single count of securities fraud. He surrendered his passport and was released on a $10 million bond, secured by his apartment and co-signed by his wife and his brother, Peter Madoff, who was also the general counsel at his trading firm.

Rico says it just keeps getting better and better...