Investors who lost money in Stanford CD's may be entitled to compensation
By Sean Sweeney on June 19, 2011
The SEC has concluded that because of the Ponzi scheme orchestrated by Allen Stanford, it is going to exercise its right to file an action forcing the liquidation of the Stanford Group Company (SGC) under the Securities Investor Protection Act of 1970 (SIPA) and will be defining certain purchasers of Stanford CD's through SGC as protected customer status under SIPA.
Allen Stanford, through Stanford International Bank Ltd. (SIBL) perpetrated an $8 billion Ponzi scheme through the sale of of Certificates of Deposits (CDs) which paid slightly higher than market rates. One estimate puts the victims of the Ponzi scheme at nearly 28,000 investors.
The SEC stated in a press release dated June 15, 2011,
In exercising its discretionary authority under SIPA and based on the totality of the facts and circumstances of the case, the Commission asked the Securities Investor Protection Corporation (SIPC) to initiate a court proceeding under SIPA to liquidate the broker-dealer.As a part of the US Courts website bankruptcy section, it explains,
Typically, when a brokerage firm fails, the Securities Investor Protection Corporation (SIPC) arranges the transfer of the failed brokerage's accounts to a different securities brokerage firm. If the SIPC is unable to arrange the accounts' transfer, the failed firm is liquidated. In that case, the SIPC sends investors either certificates for the stock that was lost or a check for the market value of the sharesIn exercising this power to force liquidation of SGC under the Securities Investor Protection Act, the SEC stated in its press release that it is defining certain purchasers of the Stanford CD's as protected "customers" stating,
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.The SEC's decision to qualify certain purchasers of Stanford CD's as protected "customers" is important as the trustee that will be put in place under the SIPA is directed by 15 U.S.C. 78fff-2(c)(1) to pay out any funds recovered in the liquidation in the following order:
- to SIPC in repayment of advances made to the extent they were used to recover securities apportioned to customer property;
- to customers of the debtor on the basis of their net equities;
- to SIPC as subrogee for the claims of customers; and
- to SIPC in repayment of advances made by SIPC to transfer or sell customer accounts to another SIPC member firm.
It seems there is a chance that investors who lost money as a result of Allen Stanford's ponzi scheme may have the chance to get more in return for their investment than just the news of the beating Stanford suffered at the hands of fellow inmates last fall.
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