Last month, the U.S. Court of Appeals for the District of Columbia Circuit upheld a lower court decision in a case where the SEC had sought to compel the the Securities Investor Protection Corp. to liquidate Stanford Group Co. -- Allen Stanford's U.S.-based broker-dealer. In 2011, SIPC concluded that there was no basis for it to initiate a proceeding to protect customer property under the Securities Investor Protection Act because the Stanford CDs at issue came from the Antigua-based Stanford International Bank. Because the SIPC decision left many investors without any way to recover their Stanford-based losses, the SEC commenced the lawsuit against SIPC, which was reportedly the first legal action the agency had ever taken against SIPC since the fund was established in 1970.

 

Following the July 18, 2014 decision by the appeals court upholding the decision in favor of SIPC, an SEC spokesman stated that the agency was reviewing the court’s decision. In the meantime, however, several members of Congress have weighed in asking the SEC to continue its efforts against the SIPC decision. On the day the decision was issued,  U.S. Sen. David Vitter (R-La.) issued a statement urging the SEC to "continue its fight against SIPC and appeal this decision to the Supreme Court." 

 

This week, numerous members of Mississippi’s congressional delegation (including both U.S. Senators and three members of the House of Representatives), issued a letter asking SEC Chair Mary Jo White to file an appeal with the U.S. Supreme Court in the SIPC case. The letter noted that approximately 7,000 investors in CD's sold by Stanford were hurt by the ruling and that

It is difficult to draw a meaningful distinction between our constituents and the victims of other Ponzi schemes in which the victims were deemed eligible for SIPC coverage. However, investor confidence may suffer if investors perceive that they cannot consistently rely on SIPC to protect them when they are swindled by the owner of a SIPC-member firm.

 

We applaud your efforts to date to seek justice for our constituents, and we encourage you to continue to back the SEC’s original position that many of the Stanford victims are entitled to SIPC coverage. We note, too, that the final outcome in the case will set an important legal precedent.

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