The Louisiana congressional delegation and 40 other federal lawmakers are asking the Securities and Exchange Commission to require securities brokers and dealers to cover some of the enormous investor losses in the Robert Allen Stanford fraud case.
U.S. Rep. Bill Cassidy, R-Baton Rouge, said Tuesday the proposal is directed at the Securities Investor Protection Corp., a nonprofit established by Congress in 1970.
SIPC’s funding is provided by member brokers and dealers — and if the SEC acts on the congressional proposal, those brokers and dealers would face increased assessments.
The SEC did not immediately respond Tuesday.
The commission has absolute authority to order SIPC to provide up to $500,000 for each of the more than 4,000 Stanford investors in this country who did not work for Stanford companies, Cassidy said.
SIPC, however, has maintained the Stanford investors were not covered by the corporation.
Stanford, 59, is in federal custody in Houston, where he is under indictment for masterminding frauds that claimed more than $7.2 billion from retirees and other investors in Louisiana and other states and countries.
As much as $1 billion of that loss was suffered by investors in the Baton Rouge, Lafayette and Covington areas, according to estimates by Baton Rouge lawyer Phillip W. Preis and state Rep. Bodi White, R-Central.
“These families worked hard, saved their money, and did their homework,” Cassidy said in a written statement Tuesday. “Many were presented with evidence that their investments were covered by SIPC, and SIPC is the logical place to turn for appropriate restitution.”
Blaine Smith, a Baton Rouge resident who lost $1.5 million to the alleged Stanford frauds, said SIPC officials have denied claims by Stanford investors because most losses were deposits earmarked for an offshore bank.
But Smith said investor bank statements provide evidence that Stanford and his employees never forwarded the money to his bank on the Caribbean island of Antigua.
Instead, Smith said, investors’ money was deposited at banks in Houston, Memphis and elsewhere in the United States.
“Our money never left the country,” Smith said.
While the SIPC has denied coverage for Stanford investors, it has provided $534 million for victims of the frauds perpetrated by Bernard L. Madoff, a confessed New York criminal serving a 150-year prison term. Madoff’s frauds involved more than $50 billion.
SIPC says on its Web site that coverage provided for Madoff’s victims thus far is $14 million more than all other cases covered since the corporation’s founding in 1970.
Cassidy said in an interview Tuesday that SIPC officials justified the disparity between its treatment of Madoff and Stanford investors by reasoning that all of Madoff’s investments were fictitious.
Cassidy added, however, that the value of Stanford’s assets was equally fictitious. Cassidy said some Caribbean properties purchased for less than $70 million were inflated on Stanford ledgers by more than $2 billion.
The Baton Rouge-based lawmaker also said the SEC erred by entering a confidential consent agreement with Stanford long before his operations were shut down by the commission in February.
That agreement, Cassidy said, required Stanford to remove references to “SIPC member” from brochures provided to potential investors.
Investors would have been better protected from fraud, Cassidy said, if the SEC had issued a public announcement that Stanford had been falsely claiming his firms were SIPC members.
“Investor confidence has been shattered in the wake of numerous financial frauds over the past few years, most notably the Stanford and Madoff … schemes,” Cassidy and 48 other lawmakers said in a letter sent Tuesday to Mary L. Schapiro, who chairs the SEC.
“Accordingly, we ask for your reconsideration of SIPC coverage,” the legislators wrote Schapiro.
The letter was signed by all nine members of the Louisiana delegation, as well as nine other senators and 31 additional House members.
The group is made up of 30 Republicans and 19 Democrats from 18 state
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