Policyholders did not lose money – the cash did not exist

US District Judge Paul Crotty has ruled that AIG need not pay out for paper losses caused by Bernard Madoff’s Ponzi fraud stating the cash "was not taken from the plaintiffs by fraud; rather, it never belonged to them, or even existed, in the first place due to fraud,” Reuters reports.

Robert and Harlene Horowitz, had alleged $8.5m of losses in Madoff's Ponzi scheme, as that was the amount on their final account statement before the fraud was revealed in December 2008. They had taken out $226,000 more from Madoff's firm than they put in.

AIG refused to pay out on its Fraud SafeGuard policy.

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