The victims of Bernard Madoff's massive swindle are only owed the money they invested with his firm and not the $64.8 billion reflected on fictitious statements, a Manhattan bankruptcy judge ruled Monday.
The written decision by U.S. Bankruptcy Court Judge Burton Lifland rejected the victims' arguments that they had legitimate claims based on "securities positions" listed in final Nov. 30, 2008 statements. It upheld a "net equity" formula being used by a trustee overseeing the liquidation and distribution of Madoff's assets.
Records from Madoff's defunct firm "expose a Ponzi scheme where no securities were ever ordered, paid for or acquired," the judge wrote. "Because securities positions are in fact nonexistent, the trustee cannot discharge claims upon the false premise that customers' securities positions are what the account statements purport them to be."
Madoff, 71, was sentenced last year to 150 years in prison for orchestrating an epic scheme that wiped out life savings and entire charities. He admitted that he never made investments, and instead used new investors' money to pay returns to existing ones.
In his ruling, the judge said the trustee's "net equity" formula for processing more than 12,000 claims was the fairest approach.
"Equality is achieved in this case by employing the trustee's method, which looks solely to deposits and withdrawals that in reality occurred," he wrote. "To the extent possible, principal will rightly be returned to net losers rather than unjustly rewarded to net winners under the guise of profits."