Mary Schapiro, newly appointed Commissioner of the SEC was the only witness in a Congressional Hearing on July 14th. Her testimony before the United States House of Representatives Committee on Financial Services, Subcommittee on Capital Markets, Insurance and Government-Sponsored Enterprises, gave former Madoff investors the answer as to why they have not received up to $500,000 from SIPC based upon their November 30, 2008 statements, as required under the Securities Investor Protection Act ("SIPA").
When asked by Congressman Gary Ackerman (D-NY) "Which investors are eligible for their SIPC insurance?", Ms. Schapiro hesitated, adjusted the microphone, then replied, "It shouldn't be such a difficult issue but it is." She then goes on to say, "The tragic truth is there is not enough money available to pay off all the customer claims." (source: http://www.house.gov/apps/list/hearing/financialsvcs_dem/cmhr_070709.shtml)
Stephen Harbeck was named President and CEO of SIPC in 2003 and at that time he said, " When SIPC was founded in 1970, Congress stated that one of the primary purposes of the legislation was to restore investor confidence in the markets." (source: http://www.sipc.org/media/release01dec03.cfm )
SIPC was created in 1970 after the Securities and Investor Protect Act ("SIPA") was passed. Senator Edward S. Muskie, the prime mover in Congress behind the idea that investors should be protected against brokerage failures, was impressed enough by the SEC's arguments to incorporate most of them into his bill to set up a corporation to insure investors.
The Madoff investors received trade confirmations for every security they believed was bought and sold by the broker/dealer. Each trade confirmation confirmed that Madoff was a member of SIPC and thus investors believed Mr. Harbeck's and Senator Muskie's words and felt assured their accounts were protected (up to $500,000).