Speaking before a U.S. House panel on Thursday, SIPC Chairman Orlan Johnson countered criticisms leveled at this nonprofit corporation by some lawmakers and victims who question its fairness.  SIPC was established to return money to the customers of failed brokerages - for the most part, as much as $500,000 an account - but has come under some criticism for its handling of the Madoff Ponzi scheme.  

    SIPC's Position.   The Chairman of the Securities Investor Protection Corp. says it wouldn't be right to pay claims based on account statements containing phony trading profits.  He instead advocates how Irving Picard, the court-appointed trustee, is doing the calculation - which is based on the net equity in a customer's account, or the amount invested minus any funds withdrawn. 

"This method ensures that a criminal operating a fraudulent scheme of fictitious trades and profits does not determine the amount of money owed to customers after the collapse of the scheme."  He added, that the Madoff case is unusual, and that most of the time the books of failed broker-dealers accurately reflect what a customer is owed.  

Of course, SIPC wants Congress to know that it's not anti-customer.  It's actually taken constructive steps to boost customer protection.  In June, SIPC launched a task force to explore changes that might be in order for the SIPC Act, including the adequacy of the fund used to pay out customers, the corporate governance of the SIPC and the levels of protection offered investors.  At least one member of the task force Thursday plans to propose some changes to lawmakers, including increasing coverage levels for investors. 

This may be small consolation to Madoff victims - including so-called indirect investors who invested with Madoff through feeder funds and haven't been able to get claims paid.  Mr. Johnson says that the task force is considering whether to expand the definition of "customer" to be more inclusive.   [C-I Note:  But is he saying that apply to the Madoff case, or only future cases?  An indication may come from this statement made today: "I am confident that the resulting determination will expand protection in this area on a prospective basis."]

    Disgruntled Politicians Say This.  Some politicians had these comments - mostly critical - about SIPC's manner of handling the Madoff case. 

"SIPC has denied the claims of customers based on statement balances provided to them by their brokers, yet SIPC expects customers to use those very same statements to report unauthorized trading in their accounts."   "This paradox results in a customer's statement being meaningless whenever it could harm SIPC, but not when it harms the customer."   -- Panel Chairman, Rep. Paul Kanjorski (D-Pa.)

Alabama Securities Commission Director Joseph Borg will urge an increase in coverage from $500,000 to $1 million, and he'll support establishing protection levels that are indexed to inflation.  "Americans today are heavily invested in the markets and...a large portion of their retirement savings consist of securities investments."  He also expressed the public's concern over the SIPC's "lack of adjustments over the years."  .