After much debate, a bankruptcy court judge has decided that victims of Bernard Madoff's Ponzi scheme are not entitled to fake profits that Madoff made up. Instead, their losses will be calculated with the formula of "money invested minus money withdrawn." The decision supports trustee Irving Picard's argument and will likely be appealed by the many victims.
Victims had wanted the amounts in their final Madoff statement to represent what they are owed, but Judge Burton Lifland called those numbers "entirely fictitious... The only verifiable amounts that are manifest from the books and records are the cash deposits and withdrawals." So victims who withdrew more than they put in will not be eligible for up to $500,000 from the SIPC.
The NY Times's leading example is 87-year-old widow Adele Fox: "Mrs. Fox withdrew more than her original capital for living expenses, but still had nearly $3 million on her account statement when the fraud was discovered." She said, "My health has been a mess. I can manage, more or less, but if I have to go into a facility, what would I do? All my life savings, it all went into Madoff and it is all gone."
One lawyer representing victims was furious, telling the Daily News, "If we learned anything in the last two years, it was that Wall Street will manipulate the law to enrich itself at the expense of every honest, hard-working American taxpayer. Now we know that no American can rely on SIPC insurance."
