The financial press has been flooded the last few weeks with stories of the billions of dollars lost in the giant Ponzi scheme orchestrated by Bernie Madoff.

No one knows for sure, but it is likely that the number of investors that lost everything will run into the thousands.

But are all of them eligible for the $500,000 in SIPC coverage?

Not likely, and here's why.

The investors parked their money with Madoff for the stable 10-15 percent gains quarter after quarter, year after year, that the fund provided.

Just for the sake of easy math, let's assume a $100,000 investment was made with Madoff early in 1995. Let's also assume a consistent 12 percent gain. This would be the total amount ‘spun off' every year from the return:

End of 1995: Cumulative total $12,000
End of 1996: Cumulative total $24,000
End of 1997: Cumulative total $36,000
End of 1998: Cumulative total $48,000
End of 1999: Cumulative total $60,000
End of 2000: Cumulative total $72,000
End of 2001: Cumulative total $84,000
End of 2002: Cumulative total $96,000

As you can see, by the end of 2002 (eight years after the initial investment) the investor has earned back almost the initial investment, and if they stuck with it, possibly made a handsome profit on the scam.

This is why you will find many supposed ‘victims' of the Ponzi scheme not file for SIPC protection, or perhaps even take part in the lawsuit against Madoff: they actually profited from the deal.

Of course this assumes that they withdrew profits over time, which who knows how many did, or how many just kept plowing the profits back into the fund. It would also likely apply to investors who have been in the fund for at least eight years, give or take a slight variation in returns that could lengthen or shorten this time span.

Am I saying all investors with Madoff who have invested with him over eight years have profited? Of course not. But I bet there are many who after crunching the numbers are more worried about a call from the regulators who will likely want to know where those ill-gotten profits are, than going after any money left in the fund when the jig was up.

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