June 16, 2011
SEC Concludes that Some Stanford Investors are Entitled to SIPA Protections
The SEC concluded that certain individuals who invested money through the Stanford Group Company are entitled to the protections of the Securities Investor Protection Act of 1970 (SIPA) and 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.
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.
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