By Rachelle Younglai
WASHINGTON (Reuters) - Investors duped by Bernard Madoff's epic $65 billion (40 billion pounds) scam urged Congress on Wednesday to change laws so that victims of investment fraud never again lose all their money.
At a U.S. House of Representatives hearing, Madoff victims described how the imprisoned swindler destroyed their lives and demanded that Congress take action.
"We need your help now," Jeannene Langford told the House Financial Services subcommittee on capital markets. Langford said the money she had invested with Madoff represented 30 years of savings.
Under current law, some groups of Madoff victims have been told that they are either not eligible to be compensated the full amount of their last balance statement, or will not be repaid at all.
The trustee in charge of liquidating the Madoff's brokerage is also trying to "claw back" some funds that investors withdrew before Madoff was arrested.
The subcommittee chairman, Representative Paul Kanjorski, tried to temper hopes that Congress would make Madoff's victims whole. "We don't have the funds," he told the panel of Madoff victims and their representatives.
Later, Kanjorski told reporters that the government could not be responsible for reimbursing every single fraud victim. "If you are going to have total guarantee against loss, you cannot have a market system because you can't pay the upside without having the losses," he said.
Court-appointed trustee Irving Picard has so far recovered $1.4 billion of assets -- a fraction of the $65 billion prosecutors said was recorded in Madoff's customer accounts.
Picard has received more than 15,900 claims from people who said they were Madoff victims, has reviewed nearly 3,000, and so far has rejected some 1,300.
Madoff victims are frustrated with the slow pace of payouts and the laws that dictate who is paid first when a brokerage firm is liquidated.
They are also upset with the method the Securities Investor Protection Corp (SIPC) and the trustee are using to determine how much money will be reimbursed.
SIPC is a non-profit agency created by Congress to maintain a fund to help investors who had accounts at failed brokerage firms. The agency can pay a single investor a maximum of $500,000.
SIPC, the trustee and the Securities and Exchange Commission agree that customer claims should be based on how much money the victim invested, not the amount the victim thought he had made from Madoff's fictitious investments.
Madoff ran a Ponzi scheme, where earlier investors were paid with money from later investors.
"The claims of the Madoff investors cannot be valued based on the balance shown on their final account statements," said Michael Conley, the SEC's deputy solicitor.
"Although this approach would allow most Madoff account holders to receive payments on their claims, those payments would be based on account balances reflecting amounts that Madoff concocted that bear no relation to reality," he said.
Helen Davis, a lawyer representing hundreds of Madoff victims, said her clients were not only hit by a "financial tsunami" when they found out Madoff swindled them, but by a "second tsunami" when SIPC could not reimburse them the full $500,000 allowable.
SIPC is grossly underfunded and has never had to deal with a liquidation the size of Madoff's brokerage.
The full House will debate legislation later this week that would increase the size of the fund and force brokerages to pay a percentage of their revenue to the fund, instead of a flat fee of $150 a year.
(Reporting by Rachelle Younglai, editing by Matthew Lewis and John Wallace)
