The bankruptcy trustee overseeing the liquidation of Bernard Madoff's investment advisory firm will ask a court to decide how much the imprisoned swindler's victims should recover, including those seeking profits reflected on their faked account statements.

In a Thursday filing with the U.S. Bankruptcy Court in Manhattan, trustee Irving Picard said he wanted to determine how much net equity each customer had at Bernard L. Madoff Investment Securities LLC, the epicenter of an estimated $65 billion Ponzi scheme.

He said this sum would reflect a cash in/cash out approach, where net equity equals the amounts of cash that customers deposit, minus amounts withdrawn.

That approach would disappoint many Madoff victims.

Some have proposed valuing their stakes based on amounts reflected on their November 30, 2008, account statements. Such amounts may be illusory if the statements were based on transactions that Madoff's firm claimed to make but never did.

Picard said other investors wanted net equity to reflect the time value of money. This reflects how investments generate positive returns through capital gains, interest and dividend payments, so long as investors get their principal back.

The trustee is trying to avoid unwarranted payouts to what he calls net winners. These are customers who withdrew more money from Madoff's firm then they deposited, reflecting some amounts of fictitious profits.

According to the filing, Picard will identify the contested claims by October 16 and wants a hearing on February 2.

Madoff is serving a 150-year sentence in a medium security federal prison in Butner, North Carolina.

The case is Securities Investor Protection Corp v. Bernard L. Madoff Investment Securities LLC, U.S. Bankruptcy Court, Southern District of New York (Manhattan), No. 08-1789.

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