Stanford bank official’s description of CDs undermines SIPC argument

Loren Steffy
Chron.com

Testimony in a legal dispute between the U.S. and Antiguan liquidators of the Stanford Financial empire seems to bolster investors’ arguments that Stanford’s certificates of deposit were more securities than traditional bank notes. Stanford’s U.S. investors have argued that because of the unusual nature of Stanford’s CDs, some of their losses from Stanford’s 2009 collapse should be covered by the Securities Investor Protection Corp.

The Securities and Exchange Commission agrees and has ordered SIPC to pay, but SIPC has refused, arguing that Stanford’s CDs weren’t securities. The two sides are now headed to court, in yet another legal standoff involving Stanford’s alleged $7 billion Ponzi scheme.

Documents filed recently in the liquidator case include testimony from Beverly Jacobs, the vice president of customer service for Antigua-based Stanford International Bank. Asked if special rules applied to U.S. investors who purchased the CDs, Jacobs replied that they did. “Clients who were U.S. residents had to qualify as `accredited investors,’” she said. The term is a reference Regulation D of the Securities Exchange Act of 1933, which establishes registration requirements for unregistered stock sales.

The CD purchases “had to be referred to the bank through Stanford Group Company brokerage only, with the financial advisor being a registered broker.” Stanford’s brokerage was a member of SIPC, an industry-funded pool to cover investments missing from customer accounts when member brokerages fail. Stanford used the SIPC insurance to tout the safety of its investments.

The securities industry has argued, in part, that Stanford clients don’t qualify for coverage because they sent their money directly to the Stanford bank. Jacobs testimony shows that wasn’t true. For U.S. investors, all money was funneled through the brokerage accounts and sold by registered brokers. In other words, the CDs were, for all intents and purposes, treated as securities by Stanford and its employees.

Meanwhile, R. Allen Stanford himself is set to appear in court today to determine if he’s competent to stand trial next month. Stanford, who’s been jailed since his arrest in 2009, claim injuries he sustained in prison have wiped out most of his memory. His attorneys plan to call about 10 medical experts, former attorneys and even Stanford’s 81-year-old mother.