Let’s say that Bernard Madoff duped not only investors but also the press and that, having heard about his celebrity customers, the financial press publicized the ostensibly generous returns that caused even savvy investors to flock to him. Naturally, the attention would be good for Madoff’s business. Question: When Madoff’s swindle was revealed, would the press bear responsibility for some investor losses?

The question is not altogether hypothetical. A civil suit filed March 23 against an investment newsletter, Donald H. Rowe’s Wall Street Digest, in Sarasota, FL, on behalf of six investors who lost $2.3 million after they acted on advice in the newsletter and put money into hedge funds operated by Arthur G. Nadel and associates. The complaint alleges “fraudulent misrepresentation” and “securities fraud” by the publication.

The monthly Digest, for which subscribers pay $99 a year, describes itself as “Wall Street’s Most Widely Read Investment Advisor.” The Digest’s Web site goes further, claiming to be “the world’s most widely read investment newsletter.” It’s not possible to verify either boast; when I requested circulation figures, I was told the information is proprietary. The size of the Digest’s staff also is secret.

The Wall Street Digest made no secret of its admiration for Nadel’s expertise. In 2003 it called his firm “America’s Top Ranked Money Manager.” The newsletter did not explain who did the ranking.

Rowe lauded the returns supposedly obtained by Nadel’s operation and told subscribers, “My curiosity about Nadel’s computerized trading program eventually led to a due diligence visit to the offices of Nadel & Moody. Understandably, I did not learn the various mathematical formulas in Nadel’s ’black box’ computer program. What I did learn is very important for the individual investor. After 26 years of reviewing the track records of over 11,000 mutual funds, 6,000 money managers and 5,800 hedge funds, Nadel’s computerized investment program has produced the best track record and most consistent returns I have ever seen…The highly technical program used by the group is proprietary, but I was given an opportunity to see it in action during a due diligence visit to their office.” The receiver subsequently appointed to actually examine Nadel’s books found his returns to be “massively overstated.”

Rowe’s due diligence evidently did not turn up Nadel’s disbarment from the practice of law in New York in the 1980s If it did, Rowe did not share the information with his subscribers. For their part, they either did not notice or did not care that Rowe, at the tag end of his lavish praise for Nadel, disclosed that a company operated by Rowe “receives monetary compensation” from the Nadel group.

To make a long and sordid story shorter, Nadel now sits in the same lock-up as Madoff, facing federal fraud charges in connection with the loss of nearly $400 million by investors. in what looks to have been a Ponzi-like scheme.

“Due diligence” is not a journalistic term; it is most often used in finance and investing. In plain English, it means “making sure you get what you think you are paying for.”

Readers of the Wall Street Digest who took the Digest’s advice and invested with Nadel did not receive a lot of relevant information. For instance, they did not know, as the complaint alleges, that “none of the [Nadel] hedge funds had audited financial statements, that the accountant for the hedge funds had lost his license to practice as a certified public accountant in Florida, and that investors had paid extraordinary fees…to Mr. Nadel and his business partners.” Nor were they advised that Rowe had quit vouching for Nadel and had withdrawn the money he put in Nadel’s funds.

It’s an outrage that people with shady backgrounds can operate hedge funds and that they can do so without audited financial statements. This situation was ripe for investigative reporting and exposure, but instead of exposing it and warning the public the Wall Street Digest actually promoted Nadel and his funds.

It will be interesting to see how Florida’s courts sort out the Digest’s likely First Amendment defenses versus the public’s right not to be bamboozled.