Madoff 'Net Winners' Lose Out

In a decision likely to affect thousands of Madoff investors, the Second Circuit Court of Appeals on Aug. 16, 2011, unanimously upheld the method used by the liquidating trustee for Bernard L. Madoff Investment Securities LLC ("BLMIS") to calculate investors' "net equity" when determining how customer property will be distributed in the BLMIS liquidation.

The ruling means that customers of the failed broker-dealers who withdrew more money than they deposited into BLMIS (the so-called "net winners") will not be able to recover additional funds until all customers who deposited more money into BLMIS than they withdrew (the so-called "net losers") recover the full amounts they deposited. Overall, the ruling makes it less likely that the net winners will be able to recover any funds in the BLMIS estate.