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Lose money to Madoff? Don't cry to Uncle Sam.

Some gear up for lawsuits, but few expect much help from the US government's 'investor protection' group.

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Initially, some Madoff clients had hoped to take advantage of SIPC guarantees of $400,000 in securities and $100,000 in cash in the event of a brokerage's failure. But owing to Byzantine rules of this congressionally chartered entity and the nature of the Madoff case, many have now concluded that they won't receive even that much.

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Darlene, a design consultant in her 50s and a self-described "middle-class investor," is among them. She had never even heard the name "Madoff" when she learned in December that the limited partnership holding her $300,000 in savings – 75 percent of her total assets – had funneled the money through intermediaries to Madoff.

"I am not rich, and I was set back 25 years with one phone call," says the single mother, who asked that her real name not be used. She says she is embarrassed by her losses.

Darlene says that she was aware that the SIPC is touted on many brokerage statements and marketing materials as a means of protection. But she lost hope when her lawyer told her that even if the partnership is covered it will likely stand as a single "customer" before SIPC, meaning that the $500,000 compensation would be divided among the several dozen investors in the fund.

Under SIPC rules, limited partnerships, many of whom sent money to Madoff "feeder funds," are not covered. Nor, at least historically, are cases of fraud. The Madoff mess, as a so-called 'Ponzi scheme,' would be a classic fraud.

The SIPC website also warns investors: "SIPC could not keep its doors open for long if its purpose was to compensate all victims in the event of loss due to investment fraud."

Interestingly, the group has not yet made that distinction in its congressional testimony or public statements.

“We have not prejudged any claim, particularly until we see the claimant's paperwork," says SIPC President Stephen Harbeck through a spokesperson. "Anyone who believes they have a claim should do so." March 4 is the customer claims deadline for Madoff cases, by which point claims for restitution may be paid from either the estate or from Securities Investor Protection Corporation funds. July 2 is the final claim deadline. Claims filed by this deadline need not be paid from the estate, and may be paid by the Securities Investor Protection Corporation fund at the trustee's discretion. [Editor's note: The original version did not provide complete details on claims deadlines for Madoff cases.]

In Senate testimony two weeks ago, Mr. Harbeck revealed a dollar figure for the "missing securities" connected to Madoff: $600 million, implying that the SIPC will cover at least some investors. (It's an amount the SIPC can afford, given that it has $1.7 billion in assets and $1 billion in credit available from the US Treasury.)

But some doubt that means much in cases like Darlene's.

"I would be surprised if the customer dealing with a forwarding broker would be deemed to have an account with Madoff that is covered by the SIPC," says James D. Cox, a law professor at Duke University in Durham, N.C.

• From its inception in 1970 through 2007, the SIPC has liquidated 317 brokerage firms, returning more than $15.7 billion in cash and securities to customers.

• The SIPC's recovery fund now holds $1.7 billion in assets. Over 37 years, $322.5 million has been paid out of this fund.

• The SIPC has 5,435 broker-dealer members, including Merrill Lynch, AIG, and Ameriprise.

• A SIPC online quiz asks: "Which of the following organizations insures you against losing money in the stock market or as the result of investment fraud? The SEC, FDIC, or SIPC."

Answer: "None of these."

• Estimates of total annual losses from investment fraud in the United States range from $10 billion to $40 billion.

Source: Securities Investor Protection Corporation fast facts: securities investor protection corp.

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