This is a good example of some of the limitations of protections that you get from the Securities Investor Protection Corporation (SIPC). In the Madoff case, most victims did not qualify for any help from the SIPC. According to this CNNMoney.com article
That's because the majority of Madoff's victims did not invest directly in his firm. They invested in third-party feeder funds, and therefore don't qualify for the financial protections extended to direct investors.