The IRS position on this type of thing has been clear and well addressed for decades. A stock loss is a capital loss and never an ordinary income (theft loss). Regardless of anything, including that the promoters of the stock are convicted, admit, etc that it was fraud. To the buyer, it was an investment.
The difference is that the theft loss can be used to offset ordinary income which is typically at a higher tax rate so the loss produces a larger benefit.
However, the IRS position - regardless of this statement you refer to - is well based. The tax position was a capital investment when made. That is the gain or loss that it results.
Again the - if any- theft loss is prohibited from something classed as a capital investment.
You will note that in all those bizarre wacko to and fro about the ability (actually requirement) of when to take the loss on SPNG that aspect was addressed many times already.
Bad investments....and that is what SPNG was - do not get ordinary income treatment.
Now, if you are a dealer (professional trader) in investments...you do, in fact must get ordinary income treatment of the loss. Of course you also get ordinary income treatment of any trading gains you make.
