Madoff Victims to Appeal Ruling on Ponzi Claims
An attorney for several hundred victims of Bernard Madoff's Ponzi scheme says she will ask the U.S. Supreme Court to overturn an appeals court ruling that would limit payments by the Securities Investor Protection Corporation, or SIPC.
A three-judge panel of the Second Circuit Court of Appeals in New York on Tuesday upheld the formula developed by Irving Picard, the court-appointed trustee who is liquidating Madoff's firm.
Under the so-called "net equity" formula, investors are compensated based on the amount they invested minus the amount they withdrew. Several investor groups challenged the formula, saying they should receive payments based on the amounts shown on their last statements before Madoff's scheme collapsed in December 2008.
While Picard has recovered roughly half the investor funds in the scam, actual payouts have been delayed because of the litigation. A spokeswoman for Picard called the decision "an important step forward for customers with allowed claims," adding, "We hope that the Court's decision can be the final word on the issue."
But investor attorney Helen Davis Chaitman told CNBC in an email she "absolutely" intends to appeal to the U.S. Supreme Court.
"I represent 850 Madoff victims; net winners, net losers," Chaitman wrote. "All of them are honest Americans who believed in the promise of SIPC insurance and have learned that SIPC is a scam."
Other groups also criticized the ruling. The Network for Investor Action and Protection called it "another blow to small investors who merely relied on the information their broker gave them."
Writing for the panel, Chief Judge Dennis Jacobs acknowledged "the great majority of investors relied on their customer statements for purposes of financial planning and tax reporting, to their terrible detriment."
Jacobs added, "Use of the Last Statement method in this case would have the absurd effect of treating fictitious and arbitrarily assigned paper profits as real and would give legal effect to Madoff's machinations."