It’s been five years since Allen Stanford’s massive Ponzi scheme unraveled, but his victims, many of them in Louisiana, have failed to get a penny back.
Investors who were similarly swindled by Bernard Madoff in New York, however, qualified for payouts up to $500,000 from the Security Investors Protection Corporation.
Louisiana’s U.S. senators, thirsting either for justice or votes, have taken up the cause. Although they may not be able to spring any money for constituents suckered by Stanford, they can seek a measure of revenge for the SIPC’s refusal to bail out the investors he left in the lurch.
Their target, Sharon Bowen, chairs the SIPC board and has been nominated by President Barack Obama for a seat on the Commodity Futures Trading Commission. Sen. David Vitter, being a Republican, had no hesitation in announcing he would put a hold on Bowen’s nomination. The question was naturally more ticklish for Sen. Mary Landrieu, but she announced a few days ago that she would oppose her party’s nominee, too. The Senate is due to vote this week.
A seat on the futures commission may not sound like a sexy assignment, but it would make Bowen a key player in the national economy after the upheavals of recent years. The commission’s role, according to its website, is to “protect market participants and the public from fraud, manipulation, abusive practices and systemic risk related to derivatives.”
No market participant could be more fraudulent, manipulative or abusive than Stanford, who drew a 110-year sentence for a $7 billion swindle that cost many of his customers their life savings. Madoff got an even longer prison stretch — 150 years — but it is unlikely that Stanford derives any consolation from that.
When the Securities and Exchange Commission directed the SIPC to pay compensation to Stanford’s victims, the answer was “no.” A federal court has ruled the SIPC was right to refuse. Stanford and Madoff may be birds of a feather, but abstruse rules can mean relief for one set of suckers and the poor house for another.
The SIPC says its role is not to step in every time investors are defrauded but to reimburse purchasers of securities held by member brokers who become insolvent. Thus, Madoff’s customers were covered. But Stanford, whose company was not an SIPC member, peddled CDs issued by a bank he set up under the less-than-eagle-eyed gaze of financial regulators in Antigua. The SIPC, a nonprofit funded by the securities industry, concluded it has no obligation to shell out for the victims of an offshore scam.
Stanford’s victims will regard any differences from the Madoff case as maddeningly technical. There is no doubt that many of them are in dire straits, and SIDC President Stephen Harbeck has said their plight distresses him. He adds, however, that it has never been the SIPC’s job to refund the “purchase price of bad investments.”
Caveat emptor should indeed have been the watchword when Sanford came along, for he might as well have had “Huckster” printed on his business cards. The rates he offered on CDs — up to 10 percent — should have been a dead giveaway, but the lure of easy money will always rob the greedy of their senses. Eager investors flocked to Stanford’s Houston brokerage and couldn’t wait to exchange their dollars for worthless pieces of paper.
Stanford, meanwhile, was living high on the hog in Antigua, where he not only built a swanky great bank but paid for a hospital and owned the newspaper. He entertained American politicians and businessmen, traveled by yacht and private plane, dabbled in cricket sponsorship and ran a company with a turnover that exceeded the island’s GDP. When he was exposed as a fraud, so many jobs went out the window that the economy was rocked and the Antiguan governor revoked a knighthood it had bestowed in 2006. He doesn’t go by Sir Allen in the pen.
Although a cautious investor should have been wary of the returns Stanford offered, Madoff’s were too good to be true, too, and it is hard to say one group was more reckless, or greedier, than the other. The rules just look more kindly on Madoff’s victims, and that gives our politicians plenty of scope to cry foul.
Landrieu’s main opponent in the upcoming election, U.S. Rep. Bill Cassidy, R-Baton Rouge, has long cast himself as the Stanford victims’ champion, so we will be hearing a great deal more about their alleged raw deal, whatever happens to Bowen.
James Gill’s email address is firstname.lastname@example.org.