Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Monday, February 13, 2012

District Court Will Decide Dispute between SEC and SIPC in Summary Proceeding

The federal district court for the D.C. Circuit moved a step closer to resolving the unprecedented dispute between the SEC and the Securities Investor Protection Corp. (SIPC) over whether the customers of the Stanford Group Company (SGC), the defunct broker-dealer that was part of Robert Allen Stanford's ponzi scheme, are entitled to the protection from SIPC.  SIPC takes the position that the SGC customers are not covered by the statute because SGC did not perform a custody function for the customers who purchased the CDs issued by the Stanford International Bank.  The SEC originally held this position, but changed its mind in mid-2011, when it delivered to SIPC an analysis that the SGC customers were in need of protection and that SIPC should seek to commence a liquidation proceeding under SIPA.  

On Feb. 9, the court held that the statute authorizes the SEC to bring a summary proceeding for a protective decree and that the full, formal procedures of the Federal Rules of Civil Procedure are not required.  The court asked the parties to brief fully what procedures should apply in the summary proceeding.  SEC v. SIPC (D.D.C. Cir. Feb. 9, 2012)

The district court did address the SEC's contention that its "preliminary determination that SGC has failed or in danger of failing to meet its obligations to customers is not subject to judicial review by this Court."  The court found the SEC's contention "untenable:" "the plain meaning [of the statute] makes the relief available to the SEC contingent upon an affirmative determination that SIPC has refused to commit funds or otherwise protect customers."

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