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The Securities Investor Protection Corp. has informed Madoff investors that they can apply for up to $500,000 in aid. There’s one little problem: Many of these folks made money from Madoff.

Jonathan Levitt, a New Jersey attorney who represents several former Madoff clients, said more than half of the victims who called his office looking for help have turned out to be people whose long-term profits exceeded their principal investment.

"There are a lot of net winners," he said.

Asked for an example, Levitt said one caller, whom he declined to name, invested $1.8 million with Madoff more than a decade ago, then cashed out nearly $3 million worth of "profits" as the years went by.

On paper, he still had $4 million invested with Madoff when the scheme collapsed, but it now looks as if that figure was almost entirely comprised of fictitious profits on investments that were never actually made, leaving his claim to be owed anything unclear.

Legally, this isn’t going to be pretty. The courts may rule that the recent profits have to be returned. This will pit the Madoff winners against the Madoff losers.

Posted by edelfenbein at January 10, 2009 11:18 AM