Madoff investors get reprieve

Madoff investors get reprieve

Federal Judge says investors in Bernard Madoff's fund may qualify for some protection. Moves case to bankruptcy court.

NEW YORK (CNNMoney.com) -- A federal judge Monday issued an order that may help investors swindled by what appears to be the largest Ponzi scheme in history recover some of their money.

The order, which was signed by Judge Louis Stanton in the U.S. District Court for the Southern District of New York, said customers of Bernard Madoff Investment Securities LLC are "in need of the protection" under the Securities Investor Protection Act of 1970.

SIPA created the Securities Investor Protection Corporation, a nonprofit that maintains a fund aimed at protecting investor funds from being mishandled if their broker defaults.

SIPC differs from the Federal Deposit Insurance Corporation, which insures all depositorsof failed banks against loss up to a certain dollar limit. SIPC does not bail out investors but rather replaces "missing stocks and other securities," when a brokerage is closed. SIPC typically will go to a federal judge and request a trustee be appointed to liquidate the firm. (Click here to read more)

SIPC has a reserve of slightly more than $1 billion, according to its Web site

As part of his ruling, the judge named New York lawyer Irving Picard as trustee for the liquidation of the business and ordered that the proceedings be moved to bankruptcy court.

Federal prosecutors have charged Madoff for securities fraud that could result in huge losses at financial firms worldwide, charities and individual investors. The total cost of the fraud has been estimated at nearly $3 billion.

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