SEC Ruling on Standard Ponzi Incites a Conflict with Investor Fund

8/4/2011

 

Two years ago, when R. Allen Stanford’s assets were frozen by regulators and filed a case against him for running a Ponzi scheme worth $7 billion, around 20,000 were left wondering whether or not they would ever get their investments back.

Today, the Securities and Exchange Commission (SEC) and a federally chartered investor protection organization are fighting over whether the clients of Stanford should be entitled for payments just like in the case of the victims of Bernard Madoff. The argument highlights how the regulations can get totally vague when politics clashes with securities law.

The organization – the Securities Investor Protection Corp, which is also known as SPIC – has been adamant in its position that the law does not provide for payouts to the investors in the case of the circumstances of the Stanford case. Initially, the staff of the SEC agreed. However, according to five people who had knowledge of the matter, the analysis was later rejected by SEC Chairman Mary Schapiro, as well as two other commissioners, who ordered it redone.

The SEC told SIPC on June 15 to begin a process that could hand out as much as $500,000 to each of the qualified Stanford investor. SEC surprised SIPC further by threatening to file a lawsuit if it fails to carry out the plan.

Stephen Harbeck, the president of SIPC and who has been with group for 36 years, said that the action of the SEC “is highly unusual,” and the filing of a case would be unprecedented.

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