NU Online News Service, Sept. 17, 1:05 p.m. EDT

NEW YORK–Pursuing directors and officers claims against investment advisors in connection with the Madoff pyramid scheme could be difficult as multiple Securities and Exchange Commission investigations failed to uncover his fraud, an attorney advised today.

William Passannante had those cautionary words in speaking at the Anderson Kill & Olick 12th Annual Policyholder Advisor Conference.

Mr. Passannante, a partner and co chair of the Anderson Kill Insurance Recovery Practice, said proving in a D&O claim that the advisor was aware of fraud could be complicated by the fact that five separate SEC investigations failed to uncover Bernard Madoff’s Ponzi scheme. Mr. Madoff, now serving a 150 year prison term, pled guilty to a decades long scheme said to have cost investors more than $50 billion.

Mr. Passannante noted that the inspector general of the SEC has apologized and acknowledged that the investigations missed the fraud scheme.

While Charles Bennett, senior vice president of Intercom Consulting, said that there were red flags that all was not on the level at Mr. Madoff’s firm – as evidenced by some advisors moving their business earlier in the decade – Mr. Passannante said the SEC investigations will likely become an issue in coverage disputes.

As to what the liability issues from the Madoff situation will be, Mr. Passannante said it is still early. He noted that there are still cases going on regarding claims from the Sept. 11, 2001 terror attacks, so it is hard to say anything definitive about issues stemming from the Madoff scheme.

But he did mention areas that plaintiff attorneys will likely look to target. Going after Mr. Madoff’s firm, he said, would not be useful, as it is in bankruptcy and recovering funds is unlikely.

Attorneys most probably will look to investment advisors and feeder funds, and the accountants for advisors. Rating agencies and, lastly, lawyers who documented deals could also be at risk, Mr. Passannante said.