The owners of the New York Mets want to argue that SEC inaction encouraged them to think Bernard Madoff's Ponzi scheme was a safe and regulated investment. This is not a scenario the regulator wants.
Modern SEC standard operating procedure has focused on shutting down fraudulent investments after people start complaining.
While they do catch the occasional problem in their audits, they're just not oriented around proactively hunting down securities criminals.
This means that while knowing a firm is SEC regulated is better than nothing, it's still not a guarantee that everything is on the level, much less safe.
The Mets' owners are currently accused of withdrawing $83 million in "fictitious" profit from Madoff's fund after they discovered that it was all a hoax.
They counter that they were simply acting like normal investors and pulled the money out when they needed it.
They point to their trust in the SEC as evidence that they didn't simply run when the scam got shaky.
As their lawyers say, "the absence of any regulatory action against Madoff Securities is relevant to defendants' good faith."
The reasoning on both sides seems paradoxical even by my standards.
The people wanting the Mets to give back the $83 million argue that the team's owners knew something was fishy about Madoff but "blinded themselves to the evidence."
In other words, they kept their money in a pyramid scheme because they'd convinced themselves it was legitimate, and then they pulled their money out...because they thought it was legitimate?
The Mets, meanwhile, argue that they thought Madoff was legitimate, so they kept their money in and pulled their money out.
The real issue here is simply whether any imaginary profit is legitimate or whether the money has to go back to the Madoff trust to distribute among clients who lost their principal.
That issue seems to have been resolved. The Mets already got their principal back, so if their case works like others, the "profit" will probably need to be returned.
Muddying the water with debate over whether it's legal to pull your money out of an investment that you can see is tanking -- or whether the SEC should be held accountable for any firm that melts down on its watch -- is not helping either side.
At least the Madoff trustee is bound by his fiduciary duty to the defrauded investors to try every angle to make them whole.