Stanford Investors Entitled to SIPA Protection Per SEC

The Securities and Exchange Commission (SEC) has issued a news release stating that certain investors involved in the Stanford Financial Group Ponzi scheme will be entitled to protection under the Securities Investor Protection Act (SIPA), according to the SEC release and the Houston Chronicle. The Securities Investor Protection Corporation (SIPC) is going to be liquidating the assets of Stanford Financial Group, which is a member of SIPC, at the request of the SEC.

The SEC provided an analysis to the SIPC stating that based upon the specific facts of this case, investors with brokerage accounts at Stanford who bought CDs through the broker dealer would qualify for protection under SIPA. The rationale was that the many companies included in the Stanford Group were operating in a highly interconnected way with the main objective being the sales of the CDs. The SEC concluded that investors’ claims would be based upon their net investment in the fraudulent CDs used in the Ponzi scheme and that claims could be filed with a trustee selected by SIPC. In the event that SIPC does not take the initiative to file liquidation proceedings, the SEC will likely file an action in federal district court under SIPA compelling them to do so.

In a related matter, U.S. District Judge David Hittner announced this week that the trial of Allen Stanford will be yet again delayed. The incarcerated financier was declared incompetent to stand trial earlier in the year due to his addiction to prescription medications and it was scheduled to begin September 12, 2011 in Houston. Now the trial is being delayed again until January 2012 because the treating physicians in a federal prison hospital in Butner, NC have said he is still not competent to go to trial.

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