An amici
brief filed by renowned law professors supports the industry-backed Securities
Investor Protection Corp. in its dispute with the Securities and Exchange
Commission over the liquidation of convicted Ponzi schemer R. Allen Stanford’s
brokerage firm.
Phyllis
Skupien (Westlaw Journal Securities Litigation and Regulation).
In an
appeal before the District of Columbia U.S. Circuit Court of Appeals, the SEC
seeks. to force the SIPC to liquidate Stanford Group Co. for the benefit of
investors.
Like Bernard Madoff’s Ponzi scheme, which cost investors an
estimated $17 billion, Allen Stanford’s fraud dwarfed most others and is
estimated to have cost investors over $7 billion.
The SEC says Stanford’s victims are entitled to protection
under the Securities Investor Protection Act, 15 U.S.C. § 78aaa, which
compensates investors when their brokers become insolvent.
Prior proceedings
In 2009 the SEC charged Stanford and Stanford Group, which
is currently in court-ordered receivership, with violating federal securities
laws. SEC v. Pendergest-Holt et al., No. 09-CV-298, complaint filed (N.D. Tex. Feb.
17, 2009).
Stanford was sentenced to 110 years in prison in a related
criminal proceeding last year for defrauding investors with fraudulent
certificates of deposit issued by Stanford International Bank, his bank in
Antigua. United States v. Stanford et al., No. 09-CR-00342, defendant sentenced
(S.D. Tex., Houston June 14, 2012).
According to the SEC’s suit against the SIPC, the agency
directed the SIPC in June 2011 to initiate proceedings to liquidate the
Stanford Group, but the SIPC has refused to do so.
In July 2012 U.S. District Judge Robert L. Wilkins of the
District of Columbia denied the SEC’s request for an order compelling the
liquidation, and this appeal followed.
Not ‘customers’
The SIPC maintains it has no responsibility to the investors
because the SEC cannot show that the Stanford Group ever physically possessed
their funds at the time of their purchases.
The amici brief supports the SIPC and says the investors
were not “customers” of the domestic broker-dealer because they lent money to
the offshore Antigua bank — a foreign institution not subject to regulation
under U.S. law.
The amici brief was filed by Professor Joseph A. Grundfest of
Stanford Law School, former SEC Commissioner Paul S. Atkins, former SEC General
Counsel Simon M. Lorne, Emory Law School professor William J. Carney and
Stanford Law School professor emeritus Kenneth E. Scott.
They say the SEC’s actions would dramatically expand the
scope of persons covered by the SIPC and should be rejected.
The SEC’s proposal to “deem” purchasers of CDs issued by a
foreign bank to be “customers” of a domestic broker-dealer is contrary to the
Securities Investor Protection Act and is “at odds with 40 years of judicial
precedent,” the amici say.
The SEC’s expansion of the definition of the term “customer”
would substantially increase the financial exposure of the SIPC fund, they add.
The agency has presented no economic analysis for the
implications of this expanded coverage, the professors say, noting that the
industry itself must pay fees to support the SIPC fund.
The professors urge the appeals court to reject the SEC’s “unprecedented
interpretation” of the term “customer” and affirm Judge Wilkins’ decision.
The Securities Industry and Financial Markets Association
and the Financial Services Institute also filed amici briefs supporting the
SIPC.
Securities
and Exchange Commission v. Securities Investor Protection Corp., No. 12-5286,
amici brief filed (D.C. Cir. Apr. 19, 2013)
Source: http://sivg.org/forum/view_topic.php?t=eng&id=69
For a full and open debate on the Stanford Receivership visit the Stanford International Victims Group - SIVG official forum http://sivg.org/forum/
