Stanford's Victims Still Waiting For SEC Decision on SIPC COver

Scott Cohn
Senior Correspondent, CNBC

The Securities Investor Protection Corporation, the agency that insures U.S. brokerage accounts, said it is still deciding whether to reverse an earlier decision to deny coverage to tens of thousands of investors in Allen Stanford's alleged $7 billion Ponzi scheme.

SIPC had promised a decision this week, after the Securities and Exchange Commission earlier this year threatened a lawsuit if SIPC continued to deny the coverage.

The SIPC board has been meeting since Thursday, but in a statement Friday, Chairman Orlan Johnson said the board "is continuing its careful review of the many and complex issues in the Stanford case."

As a result, some 30,000 investors remain in limbo. A court-appointed receiver who has been rounding up assets since Stanford's financial empire was shut down in early 2009 has so far recovered just pennies on the dollar. For many investors, the SIPC coverage represents their only hope of recovering much of anything.

"It is very disappointing to have even further delays in recovering the life savings of thousands of middle class retirees after waiting more than two and a half years for the protections Congress intended for SIPC to provide," said Angela Shaw of the Stanford Victims Coalition in a statement e-mailed to CNBC.

The agency initially refused to cover the Stanford accounts because the certificates of deposit at the heart of the alleged scam were drawn on Stanford's offshore bank in Antigua. But the investors, and eventually the SEC, argued the CDs were sold by Stanford's registered broker-dealer in the U.S.

In June, the SEC, under heavy pressure from investors and members of Congress, called on the SIPC board to reverse its decision, and threatened to sue SIPC in federal court if it refused.

"Credible evidence shows that Stanford structured the various entities in his financial empire...for the principal, if not the sole, purpose of carrying out a single fraudulent Ponzi scheme," SEC staffers wrote, meaning there was no distinction between Stanford's Indian bank and his U.S. broker dealer.

In response, SIPC promised its board would decide at its September 15 meeting whether to reverse itself.

In today's statement, SIPC chairman said, "We fully appreciate the gravity of this matter and remain committed to reviewing it thoroughly and with all deliberate speed."

An SIPC spokesperson would not say how soon a decision would be made.