Madoff Investors Seek Change to Loss CalculationJun 8, 2009 | Parker Waichman LLP
A group of Bernard Madoff's burned investors wants a change made to the way fraud losses from his scam are calculated. According to The New York Times, the change they are seeking - to receive credit for the full value of the securities shown on the last account statements they received before Madoff's arrest - could substantially increase the price tag for his Ponzi scam.
Madoff pleaded guilty to 11 criminal charges last March, including securities fraud, wire fraud, mail fraud, money laundering and making a false filing with the U.S. Securities and Exchange Commission. At the time of his plea, Madoff publicly admitted he had run a Ponzi scheme. Madoff is being detained at the Manhattan Correctional Center in New York City, where he is awaiting sentencing scheduled for later this month. He faces as much as 150 years in prison.
Before his arrest late last year, Madoff told his investors that his fund held more than $64 billion, but in reality, he only had a fraction of that amount. As we reported previously, Madoff never made a single trade on behalf of his investors. But they received statements every month reflecting fake trades - and false profits - Madoff supposedly made for them.
According to the New York Times, some Madoff investors have filed a lawsuit asking a federal bankruptcy judge to calculate their losses based on the value of their last Madoff statements. Right now, the trustee in the case is calculating an investor's loss as the difference between the total amount a customer paid into the scam and the total amount withdrawn before it collapsed, the Times said.
If the judge grants the request, losses to investors could reach as high as the $64 billion Madoff claimed to have had in his funds. An attorney for the investors involved in this lawsuit told The New York Times that such a recalculation could be of particular help to elderly people who had been investing with Madoff for decades. Many of these victims - who lost their entire savings, and are too old to return to work - will not be eligible for reimbursement from the Securities Investor Protection Corporation (SIPC), a government-chartered agency financed by the brokerage industry, under the current method of calculation. That's because often their withdrawals over time were more than their original investment. If their final account balances were taken into account, many would end up being eligible for SIPC reimbursement, the attorney said.
As we've reported previously, Madoff's victims may be eligible to receive as much as $500,000 from the SIPC, as well as a share of any monies the Madoff trustee is able to recover from a liquidation of his assets. So far the trustee has been able to recover about $1 billion. But most experts in these types of frauds say victims rarely recover more than pennies on the dollar.