(CN) – A federal judge rejected the Securities and Exchange Commission’s unprecedented attempt to aid victims of Allen Stanford’s $7 billion Ponzi scheme via the Securities Investor Protection Act.
Against the commission’s urging, the Securities Investor Protection Corp. (SIPC) refused to pursue liquidation proceedings that would protect some of the victims of the brokerage firm, Stanford Group Company.
Allen Stanford was sentenced to 110 years in prison for stealing billions in a Ponzi fraud focused on the sale of Stanford Group-marketed certificates of deposit issued by Stanford International Bank in Antigua.
The SIPC is authorized to help customers of failed brokerage firms by filing for liquidation proceedings and protective decrees in federal court.
But it was debated whether the Securities Investor Protection Act covers Stanford Group customers who bought certificates of deposit.
The SEC filed suit in December, asking a Washington federal judge to compel the SIPC to commence liquidation proceedings in the Northern District of Texas. The application is a first since the law was conceived in 1970.
U.S. District Judge Robert Wilkins refused to compel liquidation proceedings last week after ushering forward proceedings earlier this year.
Though the Stanford Group belonged to the SIPC, Wilkins said it would be a stretch to cover investors who actually deposited their money with nonmember Stanford International Bank.
“The court is truly sympathetic to the plight of the SGC clients who purchased the SIBL CDs and now find themselves searching desperately for relief,” Wilkins wrote. “Robert Allen Stanford’s 110 year sentence may bring some measure of justice to the SGC clients, but it will not make them financially whole. But this court has a duty to apply the SIPA statute as written by Congress, and, as other courts have done, this court also has a duty to construe narrowly the ‘customer’ definition of the statute. For the foregoing reasons, the SEC has failed to meet its burden, by a preponderance of the evidence, of proving that SIPC has ‘refus[ed] … to commit its funds or otherwise to act for the protection of customers of any member of SIPC.’ Indeed, because the issue turns on uncontested facts and an interpretation of law, the court holds that the SEC would have failed to meet even the lesser burden of probable cause.”