SEC Concludes That Certain Stanford Ponzi Scheme Investors Are Entitled to Protections of SIPA
June 15, 2011
Washington, D.C.
The Securities and Exchange Commission today concluded that certain individuals who invested money through the Stanford
Group Company – a U.S. broker-dealer owned and used by Allen Stanford to perpetrate a massive Ponzi scheme – are entitled
to the protections of the Securities Investor Protection Act of 1970 (SIPA).
In exercising its discretionary authority under SIPA and based on the totality of the facts and circumstances of the case,
the Commission asked the Securities Investor Protection Corporation (SIPC) to initiate a court proceeding under SIPA to
liquidate the broker-dealer.
According to its 2009 complaint, the SEC alleged that Allen Stanford operated a Ponzi scheme in which certain investors
were sold certificates of deposit (CDs) issued by Stanford International Bank Ltd. (SIBL) through the Stanford Group
Company (SGC). SGC is a SIPC Member.
In an analysis
provided to SIPC, the SEC explains that, on the specific facts of this case, investors with brokerage
accounts at SGC who purchased the CDs through the broker-dealer qualify for protected "customer" status under SIPA.
In reaching its determination, the SEC cited the conclusions in the report of the court appointed-receiver for SGC, who
noted that the many companies controlled and directly or indirectly owned by Stanford "were operated in a highly
interconnected fashion, with a core objective of selling" the CDs.
Among other things, the receiver also noted that "[c]orporate separateness was not respected within the Stanford
empire. ... Money was transferred from entity to entity as needed, irrespective of legitimate business need. Ultimately,
all of the fund transfers supported the Ponzi scheme in one way or another, or benefitted Allen Stanford personally."
The Commission further determined that, in light of all of the facts and circumstances in this case, the customers' claims
should be based on their net investment in the fraudulent CDs used to carry out the Ponzi scheme.
A SIPA liquidation proceeding would allow investors with accounts at SGC to file claims with a trustee selected by SIPC.
The trustee would decide whether the investors have "customer" claims that are protected by the statute. An investor who
disagreed with the trustee's determination could seek court review.
The Commission has authorized its staff to file an action in federal district court under SIPA to compel SIPC to
initiate a liquidation proceeding in the event SIPC does not do so.
SIPC TO REVIEW SEC DIRECTION ON STANFORD LIQUIDATION
The Securities Investor Protection Corporation ("SIPC"), which maintains a special reserve fund mandated by Congress to
protect the customers of insolvent brokerage firms, said that it will analyze the referral provided today by the U.S.
Securities and Exchange Commission ("SEC") with respect to the Stanford Group Company, operated by Robert Allen Stanford.
On February 17, 2009, the SEC filed an action in the U.S. District Court for the Northern District of Texas alleging that
Stanford orchestrated an $8 billion fraud based on false promises of guaranteed returns related to certificates of
deposit ("CDs") issued by the Antiguan-based Stanford International Bank ("SIB"). The SEC's Complaint alleged that SIB
sold approximately $7.2 billion of CDs to investors by promising returns that were "improbable, if not impossible."
Complaint, SEC v. Stanford International Bank, Ltd., et al., Case No. 3-09CV0298-L (N.D. Tex. filed February 17, 2009).
In response to the SEC's request for emergency relief, the Court immediately issued a temporary restraining order, froze
the defendants' assets, and appointed a receiver to marshal those assets. The SEC filed a second amended complaint on
June 19, 2009, alleging that Stanford conducted a Ponzi scheme.
SIPC President and CEO Stephen Harbeck said that SIPC would take the SEC's referral in the Stanford case under advisement
before deciding how to proceed. He indicated that a decision would be forthcoming in the near future.
Harbeck said: "SIPC's Board will review the referral, and analyze the SEC's underlying documentation as quickly as
possible."
The SEC's referral of this matter this week is the first time the SEC has informed SIPC of the possibility that the
Stanford matter is appropriate for a proceeding under the Securities Investor Protection Act ("SIPA").
ABOUT SIPC
The Securities Investor Protection Corporation is the U.S. investor's first line of defense in the event a brokerage firm
fails, owing customers cash and securities that are missing from customer accounts. SIPC either acts as trustee or works
with an independent court-appointed trustee in a brokerage insolvency case to recover funds.
The statute that created SIPC provides that customers of a failed brokerage firm receive all non-negotiable
securities - such as stocks or bonds -- that are already registered in their names or in the process of being registered.
At the same time, funds from the SIPC reserve are available to satisfy the remaining claims for customer cash and/or
securities custodied with the broker for up to a maximum of $500,000 per customer. This figure includes a maximum
of $250,000 on claims for cash. From the time Congress created it in 1970 through December 2010, SIPC has
advanced $ 1.6 billion in order to make possible the recovery of $ 109.3 billion in assets for an estimated 739,000
investors.
MEDIA CONTACT:
Ailis Aaron Wolf, (703) 276-3265 or aawolf@hastingsgroup.com. All
investor inquiries of SIPC should be directed to asksipc@sipc.org
or (202) 371-8300.
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Showing 1 comments...
| Andrew wrote on March 8, 2012 at 23:41 |
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Employee loans. I hope that you are pursuing all of the former Stanford employees who had "loans" from the company.
These loans vested over time and some may have large sums in their personal accounts that are not theirs but rather belong to
you. Just concerned and thought about sharing my info. Good luck! |