Source: Forbes (Timothy Spangler)
This week, the Securities and Exchange Commission (SEC) held that certain individuals who invested money through the Stanford Group Company, the US broker-dealer that was owned and used by Allen Stanford in connection with his Ponzi scheme, will be entitled to the protections of the Securities Investor Protection Act of 1970 (SIPA). The SEC alleged that Stanford operated a Ponzi scheme in which certain investors were sold certificates of deposit (CDs) issued by Stanford International Bank Ltd. (SIBL) through the Stanford Group Company (SGC).
The SEC exercised its discretionary authority under SIPA, and requested that the Securities Investor Protection Corporation (SIPC) initiate a court proceeding under SIPA to liquidate the broker-dealer. SGC is a SIPC Member.
The SEC decided that investors with brokerage accounts at SGC, who purchased the CDs through the broker-dealer, qualify for “customer” status under SIPA. The report of the court appointed-receiver for SGC had noted that corporate separateness was not respected by Stanford, and that many of his companies “were operated in a highly interconnected fashion, with a core objective of selling” the CDs.
A SIPA liquidation proceeding will allow investors with accounts at SGC to file claims with a trustee selected by SIPC. The trustee would decide whether the investors have “customer” claims that are protected by the statute. An investor who disagreed with the trustee’s determination could seek court review.
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