One week ago, Ronnie Ambrosino was a millionaire.
Now, Ambrosino is among the long list of investors whose fortunes were allegedly wiped out by Bernard Madoff. Like them, she's left hoping for a bailout that might never come.
She plans to sue Madoff but that could take years to work through the courts and yield little in the end. Her best hope to recoup some of her money is from the Securities Investor Protection Corp., an industry-funded organization set up by the government to protect investors from fraud.
But, here's the problem: SIPC does not have enough money to pay out all the claims that are sure to come from one of the biggest fraud cases to ever hit Wall Street. Securities attorneys say the organization has a reputation of being tough to squeeze money from, and each investor is only entitled to a maximum payout of $500,000 if a claims is approved.
SIPC officials say the books of Bernard L. Madoff Investment Securities LLC are in complete disarray and could take six months or more to piece them together. With bills piling up and her bank account vanishing, the one thing Ambrosino and others caught in the alleged $50 billion fraud don't have is time.
"It feels like I'm drowning, and someone is saying 'we're going to save you, but we have to build the boat first,'" said Ambrosino, 55, who had $1.6 million invested with Madoff. "We can't wait for SIPC to go through all the papers."
The government created SIPC in 1970 to reimburse investors duped by brokerages in areas such as unauthorized trading or theft. SIPC is set up to cover losses of up to $500,000, and $100,000 of that amount can be claims for cash holdings that were lost.
The scope of what SIPC covers, however, can be limited. SIPC, for example, typically won't cover claims for cases involving stock manipulation or investments made into hedge funds.
Since its inception, SIPC has paid out $508 million to reimburse some 625,000 investors who lost money. The Madoff case will be SIPC's biggest test, and experts are raising questions about whether the organization can handle the massive amount of claims that are expected. Some experts suggest the government might have to assist.
"There's no doubt that hearings will be held on this, and some government aid is a very logical request," said Robert Schachter, an attorney with New York-based Zwerling, Schachter & Zwerling, which is representing several Madoff victims. "If we're bailing out Wall Street and the auto industry, maybe these individuals should be bailed out too."
Madoff was arrested last week and charged with securities fraud. On Wednesday he made his first public appearance at the federal courthouse in Manhattan, where a judge imposed a curfew and a monitoring bracelet.
When the government established SIPC a generation ago, nation's brokerages were ordered to fund it by kicking in a percentage of their revenue. Once the amount hit $1 billion in 1996, those brokerages were allowed to reduce their contribution to $150 a year. Any changes now much be approved by Congress, SIPC said.
SIPC currently has $1.6 billion onhand to make payouts — a small amount compared with the more than $17 billion that Madoff managed at the start of the year. However, SIPC said it can tap a $1 billion line of credit and a $1 billion injection from the Treasury Department to gain access to more money.
This theoretically means that about 7,000 customers who entrusted their money to Madoff can receive the maximum amount. It is still not known how many customers Madoff's investment arm had, and investigators have not speculated.
While brokerages often highlight the fact that they are covered by SIPC, securities attorneys say the process of recouping money can be daunting and time consuming.
"This is not going to be a full recovery, even if your claim is valid and proved," said J. Boyd Page, senior partner of Page Perry LLC, an Atlanta-based law firm that represents investors in securities fraud. "They have taken a miserly approach to evaluating claims in the past. The process can be long and painful."
Investigators are poring over paperwork at Madoff's Manhattan office trying to identify exactly how many customers his brokerage operation had. That could prove to be an arduous task, with SIPC President and Chief Executive Steve Harbeck describing Madoff's books as being "totally unreliable and in complete disarray."
Once the names are collected, SIPC and the court-appointed trustee in charge of liquidating the brokerage will send investors claim forms. SIPC typically mails out generic claim forms to investors, but this will be the first time the organization sends paperwork that is specific to just one case.
Investors then have up to six months to return the claim forms, along with monthly statements and other documents that prove how much money they thought were in the accounts. Approval of these documents gives the investors a preferred status when it comes time to split up assets left in Madoff's firm.
"It can take years," said Leo Asaro, partner in the St. Louis office of law firm Bryan Cave LLP. "People need to think of other options, not waiting on these matters to wind their ways through the courts. It is not going to happen fast enough to get the relief that they need."
SIPC's Harbeck does not dispute filing a claim and getting reimbursed can be a long process. In this case, investigators are being delayed because it is difficult to determine how much of Madoff's assets will be available, and what the size of the claims are.
He has received calls from many investors caught in the alleged scam who question why they can't recoup higher amounts. Harbeck also deflected recent criticism that SIPC might not even have enough money to cover the amount of claims that might come in.
"It is way too early to speculate about the claims," he said. "We don't know the number of customers, how much each is owed, and I don't want to be prematurely alarmist."
That's not exactly what angry investors like Ambrosino want to hear. She used the money she thought was secure with Madoff to retire early, buy a luxury motor home, and travel around the country. The only assets she has now are the pieces of furniture inside the motor home she's been making payments on for the past four years.
Now living in Surprise, Ariz., she felt helpless watching Madoff enter the court house Wednesday for a bail hearing. Ambrosino, who invested in Madoff's firm some three decades ago, knows that others are in the same position.
"We need to get out there and get names and get unified so that we can go to the government and make our case," she said. "Everybody has a horror story, everybody has bills, and everybody is devastated."