A representative of a Minnesota pharmaceutical company that lost about $8 million in company contributions to its profit-sharing retirement plan to Bernie Madoff's giant Ponzi scheme testified in Washington, D.C., on Wednesday in favor of legislation that would expand current federal investment protections to cover the losses of individuals.

Joel Green, general counsel and vice president of legal affairs at Upsher-Smith Laboratories Inc. in Maple Grove, which has about 550 employees, testified before the House Financial Services Committee, urging support for protection to cover individual participants in pension plans, profit-sharing plans and other qualified plans.

Even though the company was later able to restore the funds to employees' accounts on its own, Green said the change is important to protect workers elsewhere who were hit by the Madoff scandal and others who may fall victim to such schemes in the future.

"The legislation would protect these employees and their retirement security, and that of countless working men and women throughout America who rely on their retirement benefits for a secure and dignified retirement," he said.

Currently the Securities Investor Protection Corp. (SIPC), an industry-funded nonprofit created by Congress to protect investors when a brokerage firm fails, can provide as much as $500,000 for each "customer." But the SIPC maintains that the customer in this case is the fund itself, not the individual participants.

The change, which would be part of the Investor Protection Act, would allow individual members of, for instance, a pension plan, to recoup investment losses.

"If you have several thousand people in that plan, [the $500,000] is not going to go very far," said Rep. Keith Ellison, D-Minn., who is urging the committee to make the change. "So we wanted to redefine what 'customer' meant so more people can participate. The problem is that there's just not enough money to go around."

Indeed, Ellison and other sponsors of the legislation don't have a price tag associated with the change.

Protect the worker, investor

Ellison said the idea is to protect the worker or small-time investor, not the sophisticated one. "We're talking about people who might not have had reason to know that their plan was invested with Madoff," he said in an interview after the hearing.

Green said the rules should be patterned after how the FDIC protects investors. Even though the deposit is held in the name of the trustee of the plan, FDIC rules insure each participant up to $250,000, he said.

"The same policy decision should apply to protection of the retirement benefits of working men and women in pension plan investments in federally regulated broker-dealers through SIPC," Green said.

Green said the company established a profit-sharing retirement plan for employees in 1974 and invested the plan's assets with Madoff starting in 1995.

Over the next 12 years, the company contributed more than $8 million to the plan, which he said is in addition to the company's 401(k) plan. The company thought the money was invested in "a diversified pool of high-grade securities and Treasury options," he said.

After Madoff was arrested last December, Upsher-Smith learned the plan's funds invested with Madoff were gone. At that time, Green declined to estimate how much money might be lost and how many past and current Upsher-Smith employees were affected.

But the company, which is privately held, has been able to restore the funds to the employees' accounts. "It's not the full false earnings of Madoff. It's what independent outside advisers said a pension plan invested in other reasonable models would have earned," Green said in a phone interview after the hearing. He declined to elaborate on how the family-owned company restored the funds.

Losses over $19 million

Green said supporters of the legislation have worked with three other Minnesota companies whose retirement plans also suffered losses because of Madoff. "Collectively, our companies have 735 participants who lost over $19 million in company contributions due to Madoff," he said.

Of those 735 participants, more than 640 had account balances of less than $50,000, Green said. He did not name the other companies.

SIPC President Stephen Harbeck said it has so far paid out $559 million to Madoff investors. That's more than the combined total of all the brokerage busts it previously handled. More than 16,000 claims have been filed by investors with SIPC, representing $4.6 billion, Harbeck said.

Fourteen lawsuits seeking $14.8 billion from "feeder funds" that channeled money to Madoff have been filed, and $1.1 billion has been recovered, Harbeck noted.

Green said that the fact that Madoff will spend the rest of his life in prison provides little comfort to the company's current and former employees or to the other victims of his fraud. "Any recovery from the bankruptcy estate will likely yield only pennies on the dollar, and, even then, will take years to resolve," he said.

The Associated Press contributed to this report. Suzanne Ziegler • 612-673-1707