NEW YORK — Thousands of victims of Bernard Madoff’s multibillion-dollar fraud are not entitled to interest or inflation when they get a share of recovered funds, a federal appeals court said Friday.
The ruling by a three-judge panel of the 2nd U.S. Circuit Court of Appeals in Manhattan came after lawyers for victims argued it was only fair for victims of a fraud that lasted decades to get an adjustment for time lost.
Investors who lost about $20 billion had been told in statements from Madoff’s private investment office in November 2008 that the overall portfolio had grown to over $60 billion. In truth, it had dwindled to just a few hundred millions dollars by the time of Madoff’s December 2008 arrest. Madoff, 76, is serving a 150-year prison sentence in North Carolina after pleading guilty to fraud charges for his Ponzi scheme.
The inflation adjustment argument was supported by the Securities and Exchange Commission in December 2009 before the House of Representatives Subcommittee on Capital Markets and again more recently before a bankruptcy judge, though the SEC did not submit arguments to the appeals court.
In a decision written by Circuit Judge Chester J. Straub, the appeals court said the SEC’s position was “novel, inconsistent with its positions in other cases and ultimately unpersuasive.”
The appeals panel noted that lawyers for the Securities Investor Protection Act or SIPC had explained that the SEC had not once suggested that customers’ claims should be adjusted to reflect inflation in more than 300 liquidations overseen by SIPA prior to the Madoff case.
“In this case, the SEC asserted that adjusting claims for inflation would provide the most accurate valuation, yet it recently opposed an inflation adjustment in a different long-lasting Ponzi scheme,” the 2nd Circuit said.
The SEC declined to comment on the ruling.
In a 2013 ruling, the 2nd Circuit said Madoff investors could not hold the SEC responsible despite what it called the agency’s “regrettable inaction.”
In a 2009 interview with the SEC inspector general, Madoff said he believed “it never entered the SEC’s mind that it was a Ponzi scheme.” An inspector general’s report later concluded the SEC missed red flags over many years as inspectors argued over the findings of numerous probes and SEC employees failed to communicate with one another, allowing credible complaints to go relatively unchecked.
Greg Schwed, a lawyer who argued before the 2nd Circuit, said investors were disappointed with Friday’s ruling.
“That’s just show biz,” he said. “You win some, you lose some.”
Amanda Remus, spokeswoman for Irving H. Picard, the SIPA trustee recovering money for investors, called Friday’s ruling “an important milestone” in recovery efforts for investors.
She said Picard was “hopeful that further delay will be viewed as pointless” and no further appeal will be pursued, enabling over $1 billion to be distributed to customers with allowable claims. She said the money had been held in reserve.
So far, Picard’s office has recovered over $10.5 billion, with more than $7.2 billion paid out.