Federal securities regulators have sued a brokerage industry backed fund on behalf of victims who lost money in Allen Stanford’s alleged $7 billion Ponzi scheme and have yet to recover any funds.
The U.S. Securities and Exchange Commission asked a federal court on Monday to order the Securities Investor Protection Corp. (SIPC) to begin a proceeding that would allow Stanford investors to file claims for coverage with the fund.
“Because SIPC has declined to take steps to initiate the proceeding for the protection of Stanford customers, the commission filed suit today asking a court to compel it to do so,” the SEC said in a statement.
Stanford, 61, was arrested in 2009 and faces a 14-count criminal indictment over an alleged $7 billion scheme linked to certificates of deposit issued by his Antigua-based bank. The SEC has also filed civil charges against him.
SIPC, which handles claims for investors if their brokerage fails, previously said in 2009 it did not believe Stanford customers who bought certificates of deposit (CDs) through the U.S. brokerage arm of Stanford’s company were eligible to receive compensation because the customers, rather than the brokerage, held custody of the CDs.
“We have great sympathy for the victims, but after a thorough examination of our statute, we don’t believe that Congress gave us the authority to act in this instance,” Stephen Harbeck, president and chief executive of SIPC, said.
The CDs were all issued by Stanford’s offshore bank in Antigua and marketed through U.S. and international brokerage offices.
The SEC rejected SIPC’s argument in June and issued a statement that called on SIPC to institute a liquidation proceeding. The SEC had said it would be forced to file a court action if SIPC did not comply.
(Reporting by Anna Driver in Houston; editing by Carol Bishopric)