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By Andrew Longstreth
August 16, 2011 2:56 PM EDT
A U.S. appeals court on Tuesday upheld a method developed by the trustee liquidating Bernard Madoff's firm for determining how to calculate investor losses, handing a defeat to so-called "net winners."
The trustee, Irving Picard, has argued that investor losses should be the amount deposited into the Madoff firm less any withdrawals, rather than the amount shown on their account statements.
The 2nd Circuit U.S. Court of Appeals in New York agreed.
"Use of the Last Statement Method in this case would have the absurd effect of treating fictitious and arbitrarily assigned paper profits as real and would give legal effect to Madoff's machinations," the court said.
A spokeswoman for Picard said in a statement that the decision is an "important step forward for customers with allowed claims."
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Picard has filed roughly 1,050 lawsuits seeking more than $103 billion from banks, feeder funds and others he said aided or benefited from Madoff's fraud.
His targets include so-called "net winners," investors who withdrew more from their Madoff accounts than they initially deposited.
Picard said last month that he has recovered more than $8.6 billion, or nearly half the approximately $17.3 billion in principal that was lost to Madoff's Ponzi scheme.
ENTIRELY FICTITIOUS
Madoff investors had appealed a decision from March 2010 by U.S. Bankruptcy Judge Burton Lifland who rejected their arguments that their claims be assessed on their November 30 account statements from Bernard L. Madoff Investment Securities LLC.
Lifland ruled that such statements were "entirely fictitious" and "did not reflect the actual securities positions that could be liquidated."
The 2nd Circuit also found that the statements could not be relied upon.
"BLMIS customer statements reflect impossible transactions and the Trustee is not obligated to step into the shoes of the defrauder or treat the customer statements as reflections of reality," said the court.
Helen Chaitman, an attorney for investors who appealed Lifland's ruling, said in an email that the decision was bad for all investors.
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