Trustee seeks hearing on compensation for Madoff victims

— -- The trustee liquidating Bernard Madoff's business assets will ask a court to decide whether repayments to victims of the imprisoned Ponzi scheme architect should be based on the phantom profits listed on their investment account statements.

In a federal court bankruptcy filing in New York on Thursday, Irving Picard asked for a Feb. 2 hearing to resolve what has emerged as a financial flashpoint for many of the victims of Madoff's scam.

Picard so far has recovered more than $1 billion in assets related to Bernard L. Madoff Investment Securities, the Manhattan firm at the center of a decades-long scam that victimized charities, celebrities, financial funds and average investors worldwide.

That amount reflects just a fraction of the $65 billion listed in the records of Madoff's investment business — as well as the roughly $13 billion investigators have estimated as the actual losses from the scam. Picard has received thousands of investor claims seeking recovery.

In cases when full recovery is impossible, investors of failed brokerages are legally entitled to pro rata shares of the amount a court-appointed receiver manages to collect. Picard has been determining those shares based on the amount each Madoff investor deposited, minus any amounts the client withdrew.

Picard has argued this approach would avoid creating "net winners" — victims who received more than they actually deposited with Madoff — leaving less for recovery for fellow investors.

But two lawsuits filed on behalf of Madoff investors argue that Picard should instead decide repayment shares based on the higher totals listed on victims' accounts, even though those accounts reflect purported investment gains on stock trades that were never made.

Alternatively, the lawsuits contend that the shares should reflect the interest the investments should have earned over the years and other financial factors. Numerous Madoff victims argue that this approach would be fairer for those who based years of personal financial decisions on the assumption that their investments were growing,