May 25 (Bloomberg) -- Bernard Madoff’s investors shouldn’t be allowed to appeal a court ruling denying them payment for fake Ponzi profits on their account statements, the U.S. Securities and Exchange Commission said.
The investors asked the U.S. Supreme Court to hear their case after a federal appeals court in New York said in August it would be “absurd” to treat fictitious paper profits as real, upholding a lower court ruling. The Supreme Court judges asked the SEC to file papers by today on whether they should take the appeal on whether the liquidator of the con man’s brokerage is using the right formula to compensate investors.
“Petitioners thus do not present an issue of recurring significance warranting this court’s review,” the SEC said in the filing, made on its behalf today by the U.S. Solicitor General who supervises the Supreme Court.
If the judges decline to hear the case after conferring on the SEC brief, Madoff trustee Irving Picard could begin to tap into the $9 billion he says he has raised for Ponzi victims, starting with some of the $2.3 billion already set aside for customers. He could share the money among investors who lost around $17 billion in principal, instead of a wider circle owed $57 billion, including profits, according to his latest calculations.
Picard’s formula for compensating victims is to figure their net losses -- money they put in, minus money they took out of Madoff’s defunct brokerage. He allots the net losers a share of the available money. Investors with net gains, who took out more money than they put in, have to wait until net losers get paid in full.
More than three years after Madoff’s epic swindle collapsed, Picard has paid investors about $330 million, because most of the $9 billion his website says he has raised -- largely from settlements with former Madoff investors or their estates, such as Jeffry Picower’s -- is tied up in court challenges. The appeal over his formula is partly tying up $2.3 billion in customer accounts, while another $6.5 billion won in settlements is separately being challenged in courts.
Reflecting poor payment prospects, larger claims on the Madoff brokerage’s estate have fallen from about 70 cents on the dollar last year, to about 58 to 62 cents, said Joseph Sarachek, managing director of claims trading at CRT Capital Group LLC, which buys and sells distressed debt.
Picard and his law firm have charged $273 million for their Madoff work so far. Madoff is in jail, serving a 150-year sentence for fraud.
The brokerage liquidation case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan). One of the investors’ appeals on Picard’s formula is Velvel v. Picard, 11-00986, U.S. Supreme Court (Washington).