People believe their money is protected by SIPC – and they are right!
SIPC is a non-profit corporation funded by its members — securities broker-dealers — whose clients get some insurance against loss. SIPC makes good when a brokerage fails.
Literature for the Antigua-based Stanford International Bank, through which Stanford is accused of selling billions of dollars worth of bogus, high-yielding certificates of deposit, bore the SIPC logo, generally regarded as a seal of approval for financial institutions.
Under U.S. law, SIPC repays up to $500,000 in custodial losses to investors whose securities are missing from accounts at member firms. The protection doesn’t extend to investors who’ve got their certificates, even if the securities have been rendered worthless by fraudulent conduct. However thedeclaration of the forensic accountant Karyl Van Tassel, found that money that was supposed to buy certificates of deposit at Stanford’s Antiguan bank was diverted for other purposes.
The 50+ members of Congress who signed the letter to the SEC
We are aware of several issues the SEC staff has raised with respect to whether Stanford Victims qualify for SIPC coverage. It is our understanding that SEC counsel has informally stated that SGC customers are not eligible for SIPC coverage at this time because (1) SGC was merely an introducing broker-dealer, and (2) SIPC is not meant to compensate customers of worthless securities. Before making a formal decision, we request the SEC consider the facts set forth in the Declaration of Karyl Van Tassel (attached hereto as “Exhibit A”), which illustrates how the funds for SGC were generally routed to continue Stanford’s fraudulent business practices, rather then purchasing securities. Read the complete letter here!
Mary L. Schapiro’s response
I assure you that the SEC is taking the situation of the Stanford Victims Coalition (“SVC”) members, and all other Stanford victims, very seriously, and is investigating closely their status under SIPA. Commission staff, which has already devoted substantial time and effort on this issue, is striving to complete, as soon as possible, its investigation and review of the relevant facts relating to the Stanford case with a view to determining whether a legal basis exists for a SIPA liquidation of SGC. Read the complete letter here!
Missing or Worthless
Some investors’ lawyers complain SIPC is splitting hairs by limiting coverage to securities that are “missing” instead of rendered worthless by fraud.
“The Madoff clients’ securities were never there, so SIPC covers that loss and has been paying like slot machines,” Stanley, who represents Stanford investors, said in an interview. Based on the declaration of the forensic accountant Karyl Van Tassel, Stanford investors should also be covered by SIPC.
“The SEC can’t have it both ways,” Malouf said (who represents mostly Latin American investors). “They’re taking my clients’ money and using it to pay non-bank debts. If it is all one company, then there couldn’t have been any CDs purchased from a separate independent bank.”
If the SEC believes that “all the Stanford universe is one consolidated entity,” Malouf said, then Stanford’s Antiguan certificates of deposit “are exactly what SIPC covers, fraud.” In previous similar cases, non-member affiliate companies were also granted with SIPC cover.
SEC spokesman Kevin Callahan declined to comment when asked to clarify the agency’s position on whether Stanford’s businesses should be treated as a consolidated entity.