Stanford victims to get compensation
Friday June 17 2011 | 02:00 AM

After two years of fighting various entities to recoup the money they lost in Allen Stanford’s alleged US$8 billion fraud, some of the investors have scored a major victory with US regulators agreeing that they should be compensated by a fund backed by the brokerage industry.

The US Securities and Exchange Commission (SEC) said yesterday that they’re entitled to get money back from the Securities Investor Protection Corporation (SIPC), which handles claims for investors if their brokerage firm fails. 

Those who bought certificates of deposit (CDs) from the Antigua-based Stanford International Bank (SIB), through Stanford's US brokerage arm Stanford Group Company (SGC), will be the ones to benefit.

In an analysis provided to the SIPC the SEC explains that, on the specific facts of the case, the investors with brokerage accounts at SGC who purchased the CDs through the broker-dealer qualify for protected “customer” status under the Act.

The SEC has therefore asked the SIPC to initiate a court proceeding under the Securities Investor Protection Act of 1970 (SIPA) to liquidate the brokerage. A SIPA liquidation proceeding would 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 disagrees with the trustee’s determination could seek court review.

The SEC’s announcement comes nearly two years after the SIPC said it did not think the victims were eligible to file claims. The Commission has been criticised for taking so long to reach a decision.

In reaching its determination, the SEC cited the conclusions in the report of the court appointed-receiver for SGC, who noted that the many companies controlled and directly or indirectly owned by Stanford “were operated in a highly interconnected fashion, with a core objective of selling” the CDs.

Among other things, the receiver also noted that “corporate separateness was not respected within the Stanford empire…Money was transferred from entity to entity as needed, irrespective of legitimate business need. Ultimately, all of the fund transfers supported the Ponzi scheme in one way or another, or benefitted Allen Stanford personally.”

The Commission further determined that, in light of all of the facts and circumstances in this case, the customers’ claims should be based on their net investment in the fraudulent CDs used to carry out the Ponzi scheme.