[JURIST] A judge for the US Bankruptcy Court for the Southern District of New York [official website] ruled [text, PDF] Tuesday that victims of the Bernie Madoff Ponzi scheme [JURIST news archive] can only recover the principal amount invested without accounting for inflation over the past five years. Under the Securities Investors Protection ACT (SIPA) [text, PDF], defrauded investors are entitled to a return of their principal calculated with inflation and interest, known as “time-based damages” [Madoff Recovery Initiative summary]. Judge Burton Lifland granted trustee Irving Picard’s motion to limit [text, PDF] the amounts distributed based on the grounds that the recovery pool is limited, and granting more than any one principal amount would drain the account before all investors are repaid even their initial principal amount. Some investors objected to the motion, arguing that such a calculation favors those who invested later, exposing themselves to less loss and actualized time-based damages. Liflano explained, “This Court recognizes that choosing any method for calculating net equity is particularly challenging in light of the complex and unique facts of Madoff’s Ponzi scheme, and each method will benefit some victims at the expense of others. Indeed, in this zero sum game ‘whe[re] funds are limited, hard choices must be made.'” To date, recovery and settlement agreements [official website] have been reached regarding $9.354 billion, while the litigation fees are already into the hundreds of millions.

Madoff’s scheme is believed to have defrauded investors of over $65 billion [Madoff trustee summary]. In April a federal appeals court rejected [JURIST report] the victims’ suit against the US Securities and Exchange Commission for negligence in not catching Madoff sooner. In July 2012 the US District Court for the Southern District of New York (SDNY) [official website] approved the first payouts [JURIST report] to Madoff’s victims. The trustee, Picard, filed almost 60 lawsuits [JURIST report] for victims of Madoff’s fraud in December 2010, including suits against large banks like JPMorgan Chase and HSBC. Judge Louis Stanton made Picard the trustee of Bernard L Madoff Securities, LLC in December 2008. Madoff was sentenced [JURIST report] in June 2009 to 150 years in prison for securities fraud stemming from his Ponzi scheme. He pleaded guilty [JURIST report] to 11 counts of securities fraud in March 2009.