SEC Decides in Favor of Stanford Investors
June 16, 2011 (washingtonpost.com) For victims of R. Allen Stanford's alleged $7 billion Ponzi scheme, help is on the way.
The SEC declared Wednesday that Stanford investors are entitled to protection from the Securities Investor Protection Corp. (SIPC), which insures accounts at failed brokerages in much the way the FDIC backstops bank accounts.
The SEC directed the SIPC to step in, and it threatened to go to court if necessary to compel the SIPC to intervene.
The SIPC had resisted assuming financial responsibility for investors' losses, saying the alleged victims lacked legal standing to recoup money from the organization.
SIPC President Stephen Harbeck issued a statement saying his organization will review the SEC's position and decide how it will proceed "in the near future."
In a 2009 letter explaining why the SIPC was not assisting Stanford investors, Harbeck wrote: "The fact that the fraudulent actor may have implied that SIPC would protect the underlying value of the CDs does not make it so."
Stanford's financial empire included a brokerage firm based in Houston and a bank based in Antigua that issued allegedly bogus certificates of deposit. Investors' money was apparently diverted to finance a lavish lifestyle that included jets, a yacht and luxury cars, according to a court-appointed receiver.
Stanford has been defending himself in court.
Distraught Stanford investors have been pleading for relief. They had taken their case to members of Congress and to the Securities and Exchange Commission, which oversees the SIPC.
The pressure on the SEC was especially intense because it was severely criticized for failing to stop Stanford.
As early as 1997, an SEC examiner reviewed the Stanford Group and concluded that its stated financial returns were "absolutely ludicrous." The SEC flagged the business as a "possible Ponzi scheme." But the agency did not take enforcement action until early 2009, after the collapse of Bernard Madoff's fraud humiliated the SEC and put Ponzi schemes in the spotlight.
The SEC's announcement Wednesday came one day after Sen. David Vitter (R-La.) said he would block two nominees for positions as SEC commissioners until the agency issued its decision in the Stanford matter.
Vitter accused the SEC of waiting too long to take action against Stanford and then dragging its feet in responding to the victims.
After the SEC's announcement, Vitter said he was releasing his hold on the SEC appointments.
In Blue Bell, Pa., a retired teacher named Stan Kauffman who put his nest egg into Stanford CDs said he and his wife were so overjoyed that they "were literally crying" when they heard about the SEC's action Wednesday.
"This has been such an ordeal for us," he said.
The SIPC insurance fund's last disclosed balance was about $1.3 billion, which the SIPC has the ability to increase.
When Stanford's business was placed in receivership in 2009, holders of his certificates of deposit had about $1.8 billion in their accounts, said Angela Shaw, director of the Stanford Victims Coalition.
The SIPC has said it is not responsible for covering investors' losses for multiple reasons. It said it protects brokerage clients for assets missing from their accounts, not declines in the value of investments.
The SEC framed its analysis in different terms, taking aim at the fact that the CDs were issued by Stanford International Bank Ltd., a separate entity from the SIPC-insured brokerage firm, Stanford Group Company.
The SEC said that was an irrelevant distinction because, to quote the Stanford receiver, all the Stanford entities were "puppets of the same puppeteer."