A Tussle Over Paying Stanford Fraud Victims

More than two years after R. Allen Stanford was accused of masterminding a $7 billion Ponzi scheme, the Securities and Exchange Commission and an investor protection fund are arguing over whether to reimburse victims of the alleged fraud. In June, the SEC recommended that the Securities Investor Protection Corp. offer some buyers of Stanford’s certificates of deposit as much as $500,000 each. The SIPC, a four-decade-old nonprofit corporation funded by brokerages, has helped to collect billions of dollars for victims of Bernard Madoff but has maintained that Stanford investors aren’t eligible for restitution.

SIPC President Stephen P. Harbeck advised a court-appointed receiver two years ago that Stanford investors wouldn’t be eligible for reimbursement because Stanford’s Houston brokerage didn’t steal the CDs. The money was sent to an affiliated bank, and the now-worthless CDs were delivered to the investors. The SIPC, he says, only protects securities that are stolen or lost in the collapse of a brokerage and not losses from fraud. “It is very difficult to explain the difference between theft and fraud,” Harbeck says. “Nobody is saying these people weren’t defrauded.”