SEC says decision near on Stanford coverage

May 14, 2011
By Stewart M. Powell - Washington Bureau

Investors want insurance on their losses.
Possible federal brokerage insurance in the Stanford case.

WASHINGTON — Investors in R. Allen Stanford's alleged $7 billion Ponzi scheme should know "within the next few weeks" whether they will be able to collect federal brokerage insurance to cover some of their losses, senior officials with the Securities and Exchange Commission told Congress on Friday.

Pressed by members of Congress on a timetable for a long-awaited decision, SEC enforcement director Robert Khuzami and SEC inspections chief Carlo di Florio told the House Financial Services Committee's oversight panel that a decision is near. "Commission staff has devoted substantial time and effort to analyzing the issues surrounding a potential Securities Investor Protection Act liquidation of Stanford Group Company," the officials told the panel chaired by Rep. Randy Neugebaur, RLubbock.

"The staff is finalizing its investigation and review of the relevant facts relating to the Stanford case, and we anticipate that the Commission will make a determination regarding these issues in the near future."

The Securities Investor Protection Corporation has helped an estimated 739,000 investors recover $109.3 billion in assets over the last 40 years, according to the agency. The brokerage insurance, however, does not cover every investor or every investment.

Nature of investment
The agency so far has opposed covering victims of Stanford's alleged investment fraud because of the nature of the investments. The SEC, however, is "taking the concerns of the Stanford Victims Coalition members, and all other Stanford victims, very seriously, and the staff is investigating closely their status" under federal law, the SEC officials assured the committee.

Rep. Michael McCaul, R-Austin, who joined the committee for the hearing, joined other members who endorsed having the SEC authorize brokerage insurance coverage for Stanford's victims.

McCaul, saying constituents of his in the Houston-to-Austin corridor had been hurt by Stanford's alleged fraud, urged lawmakers to "do what we can to help investors and victims recover what they can" through brokerage insurance.

Victims of Bernard Madoff's alleged Ponzi scheme had been qualified to benefit from the coverage, McCaul said. "Stanford's investors should be covered like Madoff's investors," said McCaul, a former federal prosecutor and deputy attorney general of Texas. "We need to work to see that this gets done."

Stanford has pleaded innocent to fraud and other charges in connection with what SEC investigators labeled a "massive Ponzi scheme." Stanford, 61, a fifth generation Texan, remains in federal custody awaiting trial, currently set for September.

'Insult added to injury'
Winning brokerage insurance coverage could cover 80 percent of his losses of about $500,000, retired Philadelphia science teacher Stan Kauffman told the House panel. But so far, authorities have ruled that investors such as Kauffman do not qualify for insurance coverage designed to protect investors from thefts by a broker dealer. The officials contend many of Stanford's investors are ineligible for coverage because they bought certificates of deposit rather than stocks.

"The insult added to injury here is the reality we've been victimized a second time as the SEC has seemingly gone out of its way to not order the protection we feel we legally qualify for," Kauffman told the panel. "We are being told our money was stolen the wrong way."

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