The Securities and Exchange Commission wants the US Supreme Court to leave standing the U.S. Court of Appeals for the Second Circuit’s decision upholding Irving Picard’s “net equity” approach to compensating victims of Bernard Madoff’s Ponzi scam. Picard is the Securities Investor Protection Act trustee of Bernard L. Madoff Investment Securities LLC. Madoff defrauded investors in a multibillion-dollar Ponzi scam.
SIPA lets investors get back their “net equity,” and Picard’s formula for compensation is to calculate a victim’s net losses-how much they put in, minus how much they got from the failed brokerage firm. He then gives these net losers a portion of the available money. Investors that have net gains-meaning they took out more funds than they invested-must wait until the net losers are fully paid. It is these clients with net gains that are appealing the Second Circuit’s decision and contending that their losses should instead be calculated from the last account statement issued by Madoff’s financial firm.
The SEC disagrees with them. In fact, the Commission doesn’t believe that these Madoff investors should be allowed to appeal a decision that won’t let them receive payment for bogus Ponzi profits that were noted on account statements. In its opposition brief to the nation’s highest court, the SEC said the Second Circuit ruling was “correct” and doesn’t conflict with past decisions. It also said that considering the circumstances and the “relevant statutory language,” the “net equity” approach “was legally sound.”