"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).