Last year, the Securities Investor Protection Corporation (“SIPC”) concluded to the grave disappointment of many Stanford investors that there was no basis for SIPC to initiate a proceeding to protect customer property under the Securities Investor Protection Act (“SIPA”). The SEC subsequently released its own contrary findings on the matter, and stated that certain individuals who invested money through Stanford Group Company were entitled to the protections of SIPC. The agency therefore directed SIPC to initiate a court proceeding under SIPA to liquidate SGC, which would allow investors with accounts at SGC to file claims with a trustee selected by SIPC.
SIPC, however, asked a court to determine if the SEC's directive was correct, arguing that the SEC was wrong in its position that SIPC must provide financial guarantees for investors who chose to purchase CDs issued by an offshore bank in Antigua. SIPC stated that this position would have rewritten SIPC's 40-year mandate under the law. On July 3, 2012, U.S. District Court Judge Robert Wilkins sided with SIPC, ruling that "the SEC had failed to meet its burden in proving that the victims of the Ponzi scheme constitute 'victims' eligible for compensation by the Securities Investor Protection Corp.," according to the WSJ. The SEC has 60 days to decide whether it will file an appeal.
In a statement this week, SIPC stated that it was "gratified that the court has now agreed with its position" but expressed its "great sympathy for the victims of this extraordinary Ponzi scheme that inflicted heartbreaking losses on thousands of people across the world." SIPC's CEO Stephen Harbeck stressed that SIPC opposed paying Stanford victims only "reluctantly after great deliberation."
Angela Shaw, director of the Stanford Victims Coalition, told the WSJ that the court's ruling was "absolutely shocking." She stated that "[t]he only entity that Stanford owned that we gave our money to was a SIPC-member broker dealer, and he's been convicted in the U.S. of using the broker-dealer to steal investor funds."