Thursday, September 23, 2010
The House Financial Services Subcommittee on Capital Markets held a hearing today on Assessing the Limitations of the Securities Investor Protection Act. Witnesses included:
Mr. Joseph Borg, Director, Alabama Securities Commission
The Honorable Orlan Johnson, Chairman of the Board, Securities Investor Protection Corporation
Mr. John Coffee, Adolf A. Berle Professor of Law, Columbia Law School
Mr. Ira Hammerman, Senior Managing Director and General Counsel, Securities Industry and Financial Markets Association
Mr. Steven Caruso, Partner, Maddox, Hargett, & Caruso
Here is some excerpts from Rep. Kanjorski's opening statement:
The victims of [Madoff's fraud] believe that SIPC has fallen short in meeting its responsibilities, and they want more change. I do, too.
We have many questions to explore today. For example, although SIPA’s protections do
not currently extend to the customers of investment advisers, we must explore the issue of
expanding SIPA’s coverage as investment advisers may also commit fraud.
In any serious efforts to reform SIPA, we must also consider what responsibility SIPC
has to honor the broker statements that customers receive. SIPC has denied the claims of
customers based on the seemingly legitimate paperwork provided to them by their brokers, yet
SIPC expects customers to use those very same statements to report unauthorized trading in their
accounts. This inconsistency is unacceptable, and we must work to resolve it.
Investor trust, for which SIPA was designed to preserve, has been seriously eroded by
SIPC’s narrow interpretations of its statutory mandate. While SIPC’s actions may follow the
letter of the law, many would argue that SIPC has ignored the spirit of the law. We therefore
must consider the best way to change the tone at SIPC and refocus this body on maintaining
confidence in the financial system and promoting investor protection. To the extent possible, we
ought to also explore how SIPC could learn from the success of the Federal Deposit Insurance
Corporation in maintaining the public’s trust.