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Saturday, May 18, 2013

What The SEC-SIPC Lawsuit Is All About

Source: Securities Investor Protection Corporation

What The SEC-SIPC Lawsuit Is All About

  • The SEC has brought an unprecedented lawsuit demanding that the Securities Investor Protection Corporation ("SIPC") guarantee the value of offshore certificates of deposit ("CDs") issued by the Stanford International Bank Ltd. in Antigua.
  • SIPC disagrees with the SEC’s position because it is in conflict with the Securities Investor Protection Act, the legislation that created SIPC and has guided it for the last 40 years.
  • SIPC is limited by law to protecting customers against the loss of missing cash or securities in the custody of failing or insolvent SIPC-member brokerage firms. SIPC was not chartered by Congress to combat fraud or guarantee an investment’s value, and its protections also do not cover investments with offshore banks or other firms that are not SIPC members.

Why The Securities Investor Protection Act Does Not Cover The Stanford-Antigua Situation


  • This case is about investments in certificate of deposits ("CDs") issued by the Stanford International Bank Ltd. in Antigua. Stanford International Bank Ltd. is an offshore bank: it is not a SIPC-member brokerage firm and has never been a SIPC member.
  • The Securities Investor Protection Act only covers the custodial function of a SIPC-member brokerage, by offering limited protection to customers against the loss of missing cash or securities when a SIPC-member brokerage firm is holding cash or securities for an investor but fails financially.
  • The Act does not authorize SIPC to protect monies invested with offshore banks or other firms that are not SIPC members. The Act also does not protect investors against a loss in value of a security, including because of mismanagement or fraud.
  • In addition, this case involves CDs that were delivered, not a situation in which a SIPC-member brokerage firm had custody of securities but failed before delivery could occur.


The Facts

  • This case is about investments in CDs issued by the Stanford International Bank Ltd. in Antigua. Stanford International Bank Ltd. is a chartered bank formed under the laws of Antigua and Barbuda. This Antiguan bank is in liquidation in Antigua under the administration of liquidators in Antigua.
  • Stanford International Bank Ltd. advertised interest rates that were higher (often much higher) than banks in the U.S., but its CDs now have the value, if any, of a debt instrument issued by a failed bank.
  • Stanford International Bank Ltd. is not a SIPC-member brokerage firm and has never been a SIPC member.
  • Investors received Disclosure Statements from Stanford International Bank Ltd. stating that these investments were not “covered by the investor protection or securities insurance laws of any jurisdiction such as the U.S. Securities Investor Protection Insurance Corporation….”
SIPC Letter of August 14, 2009 to Ralph S. Janvey, Receiver, Stanford Financial Group Receivership


Stanford - Madoff: The Key Differences

SIPC protection is available for investors who had brokerage accounts directly at Bernard L. Madoff Investment Securities LLC (“Madoff Securities”). Madoff Securities was a SIPC-member brokerage firm. Customer cash and securities were placed in the custody of Madoff Securities and were missing from the customer’s accounts when the firm failed. SIPC protection is thus available to protect customers, within limits, against the loss of their net equity balances.
By contrast, the Stanford case is about CDs that investors purchased from the Stanford International Bank Ltd. in Antigua. Stanford International Bank Ltd. is not a SIPC-member brokerage firm and has never been a SIPC member.
The Securities Investor Protection Act does not authorize SIPC to protect investors against the loss of monies invested with offshore banks or other firms that are not SIPC members. The Act also does not protect investors against a loss in value of a security, including because of mismanagement or fraud. In addition, this case involves CDs that were delivered, not a situation in which a SIPC-member brokerage firm had custody of securities but failed before delivery could occur.


Why SIPC Is Not The FDIC And Does Not Protect Against Securities Fraud


The Federal Bureau of Investigation, state securities regulators and experts have estimated that investment fraud in the U.S. totals $40 billion a year.1 Market manipulation schemes alone generate an estimated $6 billion in losses annually.2
With a reserve of slightly more than $1 billion, SIPC could not continue operations for long if its purpose was to compensate all victims with losses due to investment fraud. SIPC is limited by law to protecting customers against the loss of missing cash or securities in the custody of failing or insolvent SIPC-member brokerage firms.
It is important to understand that SIPC is not the equivalent of the banking industry's Federal Deposit Insurance Corporation ("FDIC") for investment fraud. Congress considered whether to guarantee investment losses and rejected that sort of protection as unrealistic and inappropriate.




For a full and open debate on the Stanford Receivership visit:

http://sivg.org.ag/

The Stanford International Victims Group Forum

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