(Bloomberg News) The trustee liquidating Bernard L. Madoff's former firm won an appeals court ruling that affirmed his method of determining which investors can recover money lost in the Ponzi scheme.

The federal appeals court in New York said today that trustee Irving Picard can calculate losses by subtracting the amount withdrawn from an investor's account from the total placed with Madoff, the so-called net investment method.

A group of Madoff victims urged the court to require Picard to use their final account statements, reflecting fictitious profits on money Madoff never invested, to determine losses. Today's ruling limits the number of victims who can claim money from the fund Picard oversees and reduces the amount of many eligible claims.

"Mr. Picard's selection of the net investment method was more consistent with the statutory definition of 'net equity' than any other method advocated by the parties or perceived by this court," Chief U.S. Circuit Judge Dennis Jacobs wrote in the opinion.

Picard has sued investors, banks and others he claims profited from Madoff or should have known of his fraud, seeking a total of about $100 billion. He has raised more than $8.6 billion, or almost half the $17.3 billion in principal he calculates investors lost in the fraud, including a $1 billion settlement with hedge-fund firm Tremont Group Holdings Inc., which was announced July 28.

Money From Accounts

Madoff investors who removed more from their accounts than they invested, including the owners of the New York Mets baseball team, stand to lose from today's ruling. Picard has claimed $300 million in fictitious profits from a group of defendants tied to Mets owners Fred Wilpon and Saul Katz. He is also seeking $700 million in principal from Wilpon and Katz, claiming they should have known Madoff was running a fraud.

Karen Wagner, a lawyer for Wilpon and Katz, didn't immediately return calls seeking comment on the ruling.

Picard's loss calculation method also reduces the amount of payouts to Madoff investors by the Securities Investor Protection Corp., which reimburses defrauded investors up to $500,000 per account. Picard represents SIPC.

'Investor Confidence'

"The Second Circuit's ruling will destroy investor confidence in the capital markets because the promise of SIPC insurance is illusory," said Helen Chaitman, a lawyer for many Madoff victims. "The message to every American who invests in the stock market is clear: Invest at your own risk and assume that SIPC insurance does not exist."

Ron Stein, president of the Network for Investor Action and Protection, said in a statement that the decision is "another blow to small investors who merely relied on the information their broker gave them."

Amanda Remus, a spokeswoman for Picard, said in a statement that the trustee has "maintained all along that our definition of net equity -- which is supported by longstanding precedents in bankruptcy and securities laws -- is the fairest approach to the determination of claims."

Picard and his law firm, Baker & Hostetler LLP, have charged about $179 million for their work since Madoff's Ponzi scheme collapsed in 2008, according to court filings.

Madoff, 73, pleaded guilty in 2009 to orchestrating what has been called the biggest Ponzi scheme in history. He's in a federal prison in North Carolina, serving a 150-year sentence.

The court today agreed with Picard's argument that calculating losses based on investors' final statements, issued before the con man was arrested in December 2008, would allow Madoff to dictate the winners and losers among his victims.

"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," Jacobs wrote.

The case is In re Bernard L. Madoff Investment Securities LLC, 10-2378, 2nd U.S. Circuit Court of Appeals (Manhattan).