Addressing the U.S. Court of Appeals for the District of Columbia Circuit, the Securities and Exchange Commission maintains that a lower court was wrong to deny the agency’s bid to compel the Securities Investor Protection Corporation to act on behalf of investors who were victimized by the Allen R. Stanford Ponzi scam. Thousands of investors sustained losses as a result of the scheme. Meantime, Stanford is serving 110 years behind bars for running the $7 billion scheme that involved certificate of deposit sales issued by his Stanford International Bank in Antigua.
“Stanford Securities was a Houston-based firm which sold uninsured CD’s issued by foreign firms to investors all over the world,” said Texas securities fraud attorney William Shepherd. “Its founder was tried for securities fraud in a Federal Court and was sentenced to what will be a lifetime without parole in a federal penitentiary. Little has been gotten back by investors who, unlike the victims of the Ponzi scheme perpetrated by Barnard Madoff, have not been able to recover up to a maximum of $500,000 each from SIPC.”
It was last summer that the U.S. District Court for the District of Columbia noted the preponderance of the evidence standard and found that investors that had bought CD’s from Stanford’s Antigua bank were not, under the meaning of the Securities Investor Protection Act, “customers” of Stanford Group Co., which was Stanford’s brokerage firm in the US. Had that court ruled otherwise, SIPC would have to start liquidation proceedings for the broker-dealer and some 21,000 Stanford CD purchasers could have sought reimbursement through SIPC claims.
The SEC, however, is now saying that the district court had concluded improperly that it was up to the Commission to set up its case by a preponderance of the evidence standard. It also maintains that the court made a mistake by depending on a definition for the term “customer” that was an “unduly narrow construction” and to which the agency supposedly did not meet that burden.
The Commission believes that considering that the proceeding was “preliminary, summary,” and the regulatory agency has a supervisory role, it is more appropriate to apply the “probable cause standard applicable to SIPC in initiating liquidation rather than the preponderance standard needed to ensue liquidation. The court also said that in dealing with whether Stanford’s Ponzi scam victims are considered for SIPA purposes “customers,” the district court did not succeed in factoring in the unusual nature of Stanford’s group of companies. Both the Antigua bank and Stanford’s US brokerage belonged to a group of companies that ran as one fraudulent entity that disregarded “corporate boundaries.”
Court Committed Errors In Stanford SIPC Case, SEC Argues, Bloomberg/BNA, January 15, 2013
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Major Newspapers Say Judicial Arbitration by Delaware’s Court of Chancery is Unconstitutional, Institutional Investor Securities Blog, January 15, 2013
Clearing House Association Wants Greater Protections for Clearing Members, Institutional Investor Securities Blog, December 31, 2012