Madoff “Net Winners” Lose Court Fight on Restitution

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A federal bankruptcy judge in Manhattan on March 1, 2010, agreed with the trustee trying to recoup money for victims of Bernard Madoff’s multibillion dollar Ponzi Scheme.

U.S. Bankruptcy Judge Burton Lifland ruled that trustee Irving Picard is correct in denying claims from investors who profited from Madoff’s scheme.

Picard argued that only the “net losers” — those who deposited more into their account than they took out — should be reimbursed, while “net winners” — those who made money on the fraud — should not recover anything.      The recent ruling is a defeat for Madoff investors who withdrew more from their Madoff accounts than they put in.

Lifland wrote in his ruling, “while the court recognizes that the outcome of this dispute will inevitably be unpalatable to one party or another, notions of fairness and the need for practicality also support” Picard’s method of determining claims.

Lifland also said “the plain meaning and legislative history” of the law allowed Picard to deduct withdrawals from cash deposits in determining who gets what.    “Because securities positions are in fact nonexistent, the trustee cannot discharge claims upon the false premise that customers’ securities positions are what the account statements purport them to be,” the judge ruled.

Picard’s methodology was backed by Madoff’s less fortunate victims, the so-called net losers, who stood to receive much less if the net-winners were included in the pool, as well as the Securities and Exchange Commission.

Anna Timone (195 Posts)


  1. The Trustee and SIPC have tried to create a fictitious division amongst those who were victimized by Madoff. There is no distinction between the investors – - ALL investors lost money to Madoff’s fraud. SIPC was not created to protect only some investors. It was created to protect all investors from fraud.
    One of the best tactical approaches to a battle is to divide the opposing sides. Picard has tried to do that and yet that division, like his definition of Net Equity, bears no semblance to reality. The terms “net winner” and “net loser” are monikers that don’t apply to this situation.
    The clear cut facts of the matter are that SIPC neglected to keep itself funded adequately (only charging $150/year to its broker members) and thus has insufficient funds to pay the investors. As a result, they had to determine how to keep face and yet appear to be living up to their responsibility to protect investors of a fraudulent broker. Thus, they created their strategy to ‘divide and conquer’. The approach they are taking is trying to make the victims responsible for the protection that SIPC should be offering. By saying that one victim stole money from another is a convenient way of taking the responsibility off SIPC. The victims didn’t steal other people’s funds-they took out money that the SEC said was their own.
    I believe it was David Sheehan, (Picard’s attorney) who said that just because you repeat something hundreds of times does not make it true. The terms net winner and net loser are misleading and inaccurate, however one must remember an important piece of the puzzle that so often seems to be ignored.
    The fraud was allowed to continue for at least an additional 17 years after the SEC had an opportunity to discover it. During that time, the fraud grew to huge proportions. The US Government investigated Madoff and told the world that he was legitimate. This allowed the investors to withdraw what they believed was their own money. The SEC believed it as well, as did the IRS when they collected capital gains tax on the profits reported.
    So, I question anyone who feels that an investor took out money that didn’t belong to them.

    To clarify-I am a Madoff victim. I withdrew LESS money than I put in. I am considered by Picard a net loser. But, I don’t feel that any other victim has benefitted at my expense. The beneficiaries of the fraud are Madoff (and family), SIPC and the IRS.

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