The U.S. Securities and Exchange Commission sued the federal Securities Investor Protection Corp., seeking an order forcing it to create a claims process for R. Allen Stanford’s alleged investment fraud victims.
The SEC, in papers filed yesterday in federal court in Washington, said it had determined in June that thousands of those alleged victims may be entitled to SIPC coverage and that the agency’s unwillingness to act compelled the commission to sue. The filing couldn’t be independently confirmed with the court.
“It’s hope,” Stanford investor advocate Angela Shaw said yesterday in a phone interview. “In the last three years, investors have not had hope.” Shaw said she and her husband lost $2 million they had invested with the Houston-based financier.
The SEC sued Stanford and three of his businesses in February 2009, claiming they were part of a $7 billion Ponzi scheme centered on the sale of certificates of deposit by Antigua-based Stanford International Bank.
The financier was indicted by a U.S. grand jury in Houston four months later. He has pleaded not guilty.
SIPC is responsible for providing as much as $500,000 in coverage for individual investors who lose money or securities held by insolvent or failing member brokerage firms. It previously agreed to cover losses sustained by victims of Bernard Madoff’s multibillion-dollar Ponzi scheme and investors who may have lost money in the October collapse of commodities broker MF Global Inc.
The liquidation proceeding would provide customers of the Stanford brokerage firm a chance to file claims seeking coverage under the U.S. Securities Investor Protection Act, the SEC said yesterday in a statement announcing the filing of the lawsuit.
Stanford investors aren’t covered by that law, SIPC President Stephen P. Harbeck said in a phone interview yesterday.
“SIPC is going to defend its statutory program,” Harbeck said. “Congress did not give us the authority to protect the victims of the Stanford Antigua bank fraud.”
While the victims of the alleged Ponzi scheme are “very sympathetic people,” he said the agency’s mandate is limited to protecting cash and securities in the possession of a brokerage firm.
“The victims here did not leave anything with the brokerage firms,” Harbeck said. “They bought investments. They were defrauded into buying them.”
In a statement, Harbeck’s agency called the SEC’s position that it should cover investor losses on CDs issued by a bank outside the U.S. “unprecedented.”
“It seems to me that’s what’s going to be required based on my information and my conversations,” the senator said then.
Reacting to the agency’s move yesterday, Vitter said in a statement that it “should significantly help the process.”
“This has been a long time coming,” said Shaw, a Dallas wife and mother who also holds a part-time public relations job.
Shaw, 40, was a founder of the Stanford Victims Coalition, which lobbied the SEC for intervention when SIPC declined to recognize investor claims.
She criticized the investor protection agency for taking a stance adverse to the SEC. Stanford Group claimed it was a registered securities broker and dealer. Shaw said.
“Investors should not have to fight this hard,” she said.
The SEC case against Stanford and his companies was filed in U.S. District Court in Dallas, where Judge David Godbey then granted the regulator’s request to appoint a receiver to liquidate the financier’s personal and commercial holdings.
Receiver Ralph Janvey, in a telephone interview yesterday, said it doesn’t matter whether the money to repay Stanford’s investors is derived from his efforts or from the SIPC.
“I want to get as much money back to the investors as possible,” he said.
Janvey sought SIPC coverage for Stanford Group clients in 2009, according to the SEC filing today. The agency declined then, stating that the business hadn’t been performing a custody function for its customers.
The SEC on June 15, 2011, determined that Stanford Group customers were entitled to SIPC protection, the regulator said, and formally requested its board of directors initiate proceedings.
While the agency said it would reveal its own determination in September, no such announcement was made.
“To date, SIPC has refused to take the necessary steps to institute a liquidation proceeding as requested by the commission,” according to the SEC court filing.
“Given the diametrically opposed positions of the SEC and SIPC, this matter is going to have to be resolved in the courts,” Harbeck said in the agency’s press statement. “The courts have a process in place for examining both the facts and the law to test the SEC’s position.”
The case is Securities and Exchange Commission v. Securities Investor Protection Corp., U.S. District Court, District of Columbia (Washington). The 2009 case is Securities and Exchange Commission v. Stanford International Bank Ltd., 09cv298, U.S. District Court, Northern District of Texas (Dallas).