Investors who lost their fortunes to Bernard Madoff are not entitled to recoup the phony profits the Ponzi king led them to believe they had accumulated from the $65 billion scheme, a federal bankruptcy judge ruled yesterday.

In a controversial decision that is likely to be appealed, Manhattan Judge Burton Lifland told the agency responsible for liquidating Madoff’s fraudulent investment and brokerage operations to go ahead as planned and ignore “fake” profits when returning money to duped investors.

The ruling is a victory for Irving Picard, the court-appointed trustee responsible for recovering funds left over from Madoff’s scam. Picard has been attacked for pushing for a formula that would base claims on “net profits,” or the amount of money that investors pumped into the scheme, minus the money they withdrew over the years.

Under that formula, Madoff victims who have withdrawn more than they invested over the years are not entitled to any compensation, meaning thousands of people who were conned stand to get nothing.