This story must have slipped through the crack in Jon Corzine's prison-soap nightmare.
The porn-addled SEC blew the Stanford case in the face of multiple internal warnings, and typically, they respond in face-saving fashion by trying to steal billions from taxpayers to cover losses for Stanford investors, who do not qualify for reimbursement under government guidelines. Countdown for the SEC to petition the White House to circumvent the ruling starts now...
The SEC loses its attempt to raid Securities Investor Protection Corporation (SIPC) funds in the Stanford case.
Before Americans lose too much respect for the federal judiciary, they might consider Judge Robert Wilkins, who last week affirmed that the taxpayer safety net around financial services still has limits. Judge Wilkins is a 2010 Obama appointee to the U.S. District Court for the District of Columbia. He rejected an effort by the Securities and Exchange Commission to turn a modest federal insurance program into a boundless compensation scheme for defrauded and disappointed investors.
The SEC was seeking to force the government-created Securities Investor Protection Corporation (SIPC) to assist thousands of victims defrauded by R. Allen Stanford. Stanford was recently sentenced to 110 years in prison for operating a $7 billion Ponzi scheme.
While Judge Wilkins noted that he was "truly sympathetic to the plight" of these victims, he also noted that the plain language of the law does not allow compensation from SIPC. This program, which collects insurance premiums from the securities industry, only covers investors in cases when assets disappear from their accounts at participating U.S. brokerages. If assets are still in the accounts but turn out to be worth nothing, SIPC doesn't cover the loss. If customers decide to take a flier on certificates of deposit issued by a bank in Antigua, as the Stanford victims tragically did, SIPC can't help them, just as it doesn't refund money to investors who buy shares before a company goes bankrupt.
The SEC, as SIPC's overseer, must know all this. But the SEC wants to deflect attention from its own failure to stop Stanford, even after the agency's examiners had raised red flags since the 1990s.
SIPC is an insurance program funded by industry premiums, but everyone knows where SIPC would look for help if it is forced to make payouts beyond its resources. Judge Wilkins has done a service to investors by reminding them that they cannot count on government to protect them all or even most of the time.