Madoff victims demand more
In a step that would substantially increase the price tag for Bernard L. Madoff's long-running Ponzi scheme, lawyers for a group of his victims are asking a federal bankruptcy judge to reject the way their losses in the fraud are being calculated.
The customers insist that, by law, they should be given credit for the full value of the securities shown on the last account statements they received before Madoff's arrest in mid-December, even though the statements were bogus and none of the trades were ever made. According to court filings, those account balances add up to more than $64 billion.
After months of private negotiations and Internet arguments, lawyers for these customers formally put the issue before the federal bankruptcy court in New York in a lawsuit filed late Friday evening, less than a month before the deadline for filing claims for compensation.
The approach they seek would produce a significantly higher tally of cash losses than the formula being used by the court-appointed trustee overseeing the claims process for the Securities Investor Protection Corp., a government-chartered agency financed by the brokerage industry.
The trustee, Irving H. Picard, is calculating investor losses as the difference between the total amount a customer paid into the scheme and the total amount withdrawn before it collapsed.
Customers who qualify are eligible for up to $500,000 in immediate compensation from SIPC. Those whose eligible losses exceed that amount would divide up the assets recovered by the trustee.
Thousands of long-term investors, including elderly people who lived for decades on withdrawals from their Madoff accounts, do not qualify for SIPC payments because they withdrew considerably more over time than they originally entrusted to Madoff, Barry Lax, a lawyer for the plaintiffs, said.
"We are talking about some of the saddest cases imaginable," Lax said. "These are people in their 70s and 80s who cannot work and have no possible source of income to replace the money" lost in the fraud.
David J. Sheehan of Baker Hostetler, a lawyer for Picard, declined to comment on the litigation.