The Securities Investor Protection Corp.’s emergency fund is not available to people who were fleeced of billions of dollars by Houston swindler Robert Allen Stanford, an appellate court has ruled.
The decision by the U.S. Circuit Court of Appeals for the District of Columbia rocked people who invested with Stanford’s companies from Baton Rouge to the Atlantic and Pacific coasts.
“Nobody takes any great pleasure in this,” SIPC President Stephen Harbeck said Monday. “But this was just outside the scope of the (SIPC) law.”
SIPC was created by Congress in 1970 to protect investor money placed with brokerages that failed without ever having purchased the securities selected by their customers. SIPC’s member brokers pay annual fees into the safety net intended to protect such investors.
Stanford, 64, is serving a 110-year prison term for his 2012 conviction on multiple counts of mail and wire fraud related to between $5.5 billion and $7 billion in losses by more than 20,000 investors in the U.S. and more than 100 other countries.
Stanford’s victims won’t get any SIPC relief the way victims of New York swindler Bernard Madoff did. Madoff confessed in 2008 to stealing more than $17 billion from his investors over a period of decades and is serving a 150-year prison term.
Many of Madoff’s victims have benefited from SIPC’s decision to cover their individual losses up to the maximum permissible level of $500,000.
Harbeck confirmed Monday that SIPC has thus far paid $1.7 billion on Madoff claims and expenses of the court-appointed receiver searching for recoverable Madoff assets.
What’s the difference in the two cases? In the writings of SIPC officials and federal judges thus far, it’s the type of lies told by the two different sets of criminals and the reactions of the two sets of victims.
“Madoff’s brokerage firm (falsely) told customers that they (the SIPC-covered brokers) were going to have custody of their money,” Harbeck said.
In the Stanford case, “the customers told the brokerage firm (Stanford Group Co.) to send the money to Antigua (and Stanford International Bank),” Harbeck said. “That’s why we didn’t take the Stanford case.”
The U.S. Securities and Exchange Commission ordered SIPC officials years ago to provide coverage to defrauded Stanford investors, but the SIPC refused to comply.
The SEC filed suit against SIPC but lost in federal district court in Washington, D.C. The SEC then asked the U.S. Circuit Court of Appeals for the District of Columbia to reverse the district court.
The three-judge appellate panel — Chief Judge Merrick B. Garland and Circuit Judges Sri Srinivasan and David B. Sentelle — acknowledged that SIPC-member Stanford Group Co. “played an integral role in a multibillion-dollar financial fraud carried out through a web of (Stanford) companies.”
Noted those three judges: “SGC’s financial advisers counseled investors to purchase certificates of deposit from an Antiguan bank that was part of the same corporate family.”
But that bank in the Caribbean Sea was not covered by SIPC, the judges added. So, they upheld the district court’s decision not to order proceedings that could result in SIPC protections for Stanford investors.
On Monday, SEC spokesman Kevin J. Callahan was asked whether the commission would appeal for reversal of the circuit panel’s decision.
Callahan said commission attorneys and other staff members were reviewing the circuit court decision. Callahan then said: “No further comment at this time.”
Stanford victims in the Baton Rouge, Covington and Lafayette areas long have argued that their money never went to Antigua. They contended their money went to banks in Houston and Memphis, Tennessee, and that they provided their checks to Stanford Group Co. brokers in this country.
“There was no customer contract with (Stanford International Bank), only with (Stanford Group Co.),” said Angie Kogutt, a resident of the Dallas area and founder and director of the Stanford Victims Coalition.
Added Kogutt: “If our money had gone to purchase the (Stanford International Bank certificates of deposit), the statement about the securities not being covered would be a valid point.”
However, Kogutt said, “As the SEC has said, the money was instead stolen in a Ponzi scheme.”
The appellate panel noted: “We resolve the case based on the stipulated facts.”
SIPC’s Harbeck said the SEC stipulated early in the case that Stanford victims signed statements acknowledging “they knew their money was going to Antigua and not protected by SIPC.”
“Those are the facts the SEC examined and agreed to,” Harbeck added. “We had no evidence to the contrary.”
Baton Rouge attorney Phillip W. Preis represents dozens of Stanford victims in litigation against companies alleged to have assisted Stanford in his criminal scheme.
“It’s really a shame that the Madoff victims have received SIPC coverage and the Stanford victims have not,” Preis said. “Both involved securities purchases that in fact did not occur.”