Wall Street's insurance fund for failed brokerages is "the worst kind of insurance company," according to an investor who lost money with Bernard L. Madoff.
The fund, run by the Securities Investor Protection Corp., is "constantly finding technical reasons for choking out victims," said Leah Larsen, 72, a New Yorker who works as a paralegal.
Larsen, who said she lost about $100,000 with Madoff, who was convicted of running the largest Ponzi scheme in U.S. history, said her claim was denied by the SIPC because her money was pooled with her brother's account.
Larsen was one of five investors who spoke at a forum held by the SIPC on Wednesday in New York. The purpose was to give investors a chance to voice their opinions on how to improve the group.
The SIPC, based in Washington, is a nonprofit membership corporation overseen by the Securities and Exchange Commission and funded by brokerage firms to compensate investors whose accounts are missing stocks or other assets because of theft or other reasons when a member firm fails. The SIPC may reimburse investors for assets of up to $500,000, including up to $250,000 in cash, and generally doesn't reimburse investors who have been sold worthless investments.
There should be greater scrutiny of trustee fees, said Norma Hill, another investor at the forum, who said she lost more than $1 million in investments directly with Madoff and through feeder funds. Hill, who lives outside New York City, said she was living on Social Security benefits.
"There is a lot of overbilling," Hill said. "Basically, the customer is always shorted, but the trustee is always a winner."
The SIPC has paid more than $1.1 billion to Irving Picard, the trustee liquidating the Madoff assets, according to a May report. About $779 million was used to pay customer claims and $346 million was used for administrative expenses such as rent and fees, the report said.
Five members of the SIPC modernization task force attended the forum. They will review the public input and present a written report to the SIPC board of directors later this year.