EDITORIAL: Stanford Justice?
June 19, 2011 (Northeast Mississippi Daily Journal, Tupelo, Mississippi) Victims of the $7 billion R. Allen Stanford alleged Ponzi scheme were heartened last week with an announcement that the Securities and Exchange Commission says Stanford investors are entitled to protection from the Securities Investor Protection Corp. (SIPC), which insures accounts at failed brokerages.
Stanford Financial had an elegant downtown office in Tupelo because two of its main executives, chief financial officer James Davis, and investment officer Laura Pendergest-Holt, are both Baldwyn natives. The firm had investment account executives working in Tupelo and other Mississippi cities. The collapse cost a reported 50,000 people nationwide their life savings, including many investors from across Mississippi.
James Davis pleaded guilty to indictments handed down against him, and he will be a government witness. Pendergest-Holt and Stanford both pleaded innocent. Trials are pending.
The breadth and depth of the case and its impact can be measured in part by the reaction of high-level politicians from the states where losses were keenly felt, including Mississippi, Louisiana and Texas. The SEC's announcement 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.
Sens. Thad Cochran and Roger Wicker, Mississippi Republicans, both issued statements praising the SEC's decision and urging relief for the people whose investments were wiped out.
The investors are the point in seeking justice, including financial relief to the limit allowed under law. Many of the investors were not multi-millionaires but people of relatively modest means who trusted Stanford with life savings, only to see accounts vanish in the apparent indulgences of alleged crooks who used it to finance excessive lifestyles.
Distraught Stanford investors are the ones who had rightly 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 had failed to stop Stanford despite warning signals as far back as 1997.
An SEC examiner reviewed the Stanford group and concluded 14 years ago that its stated financial returns were "absolutely ludicrous."
Newspapers and financial news services reported that the SIPC insurance fund's last disclosed balance was about $1.3 billion, which the SIPC has the ability to increase. Stanford's business was placed in receivership in 2009, when holders of certificates of deposit had about $1.8 billion in their accounts, said Angela Shaw, director of the Stanford Victims Coalition, last week in published reports.
The Texas Insider report summed up the situation in quotes from Congressman John Culberson, R-Texas, who said, "While no one can restore everything these victims lost, this decision will help return a portion of what is rightfully theirs. It's been more than two years ... Many of the victims were teachers, nurses and firefighters, and these losses reflect most, if not all, of the retirement funds they accumulated over many years of hard work."
Culberson said justice has finally prevailed, but that won't be fact until cash is in hand and those guilty of crimes are sentenced.
Cochran, vice chairman of the Appropriations Committee, said, "The Securities and Exchange Commission determination is the first positive sign we've seen in a long time that victims should be able to recoup investments that they lost .... The Securities Investor Protection Corporation should follow suit and soon agree to help those who fell prey to this fraud ...."
The SIPC was created by Congress in 1970 to recoup losses, within certain limits, from bankrupt or financially-troubled brokerages, so Congress or the courts must find a way to require it to function that way if it tries to refuse.
Congress should start now to ensure that the SEC never again ignores warnings as in the Stanford case. The SEC's neglect is inexcusable.