Is SIPC afraid of lawsuits in the Stanford case?
December 2, 2011
By Loren Steffy
For years, almost 8,000 investors who lost money in the collapse of Stanford Financial's U.S.
brokerage have been waiting for a decision on whether their losses will be covered by the
Securities Investor Protection Corp. Back in June, the Securities and Exchange Commission
said that they should. SIPC itself has yet to make a decision, and 18 members of Congress
recently gave the insurance fund a Dec. 15 deadline for coming up with an answer.
Now, SIPC apparently is attempting to reach some sort of settlement with the SEC, though the
details remain unclear. U.S. Sen. David Vitter, R-La., told the Advocate in Baton Rouge that
in earlier discussions with him, SIPC Chairman Orlan Johnson "expressed concern that the
organization could be sued in the Stanford matter by financial institutions who contribute to
the fund, further delaying the compensation."
Vitter's press secretary, Luke Bolar, told me the senator has been working with SIPC and the
SEC in hopes of reaching an agreement. SIPC is expected to present a settlement offer to the SEC
next week, Bolar said. I haven't heard back from SIPC's spokeswoman yet.
The SEC, however, doesn't have to agree. It has the authority to sue SIPC and force it to comply
with the commission's order in June. Presumably, some sort of agreement would speed any recovery
to Stanford's investors, who have been waiting for almost three years. SIPC already is covering
losses for victims of Bernard Madoff's Ponzi scheme and is planning to cover customers who lost
money in the collapse of MF Global. Some of the brokerages that contribute to SIPC may be getting
worried that they will be hit with big assessments to cover the payouts.
Unlike Madoff and MF Global, the Stanford case is more complicated. SIPC doesn't typically cover
certificates of deposit, which is what most Stanford investors bought, but the CDs were sold though
Stanford's SIPC-insured brokerage.
Meanwhile, Stanford Financial's founder, R. Allen Stanford, is scheduled to appear at a hearing later
this month to determine if he's competent to begin his criminal trial, which is set to start in January.
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