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SORRY: Investors In Allen Stanford’s Ponzi Scheme May Get Zero Reimbursement

allen stanford SORRY: Investors In Allen Stanfords Ponzi Scheme May Get Zero Reimbursement


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A federal judge on Tuesday rejected a Securities and Exchange Commission lawsuit seeking relief for investors in R. Allen Stanford’s $7.2 billion Ponzi scheme.

The SEC sued the Securities Investor Protection Corp. in December, trying to force it to compensate investors who lost money in the scheme. SIPC runs an industry-funded reserve fund that protects customers of failed brokerage firms. It claimed the bank in Stanford’s scheme did not qualify. It was the first time the SEC sued SIPC.

U.S. District Court Judge Robert Wilkins rule that the SEC failed to prove that the investors constitute victims under the narrow definition of the law, but he noted that the court is “truly sympathetic” to the plight of investors.

Stanford was sentenced last month to 110 years in federal prison for orchestrating one of the largest Ponzi schemes in U.S. history.

Prosecutors say he used the money from investors who bought certificates of deposit from his bank on the Caribbean island nation of Antigua to fund a string of failed businesses, bribe regulators and pay for a lavish lifestyle that included yachts, a fleet of private jets and sponsorship of cricket tournaments. He reportedly bilked investors from more than 100 countries, telling them their funds were safely invested in stocks, bonds and other securities with high returns.

Judge Wilkins said in his order that Stanford’s sentence may bring some measure of justice to clients, but will not make them financially whole. Still, he maintained that the court has a duty to apply the SIPA statute as written by Congress.

SIPC also said it was sympathetic with those who were taken in by Stanford but insisted that the fund is meant to protect customers against the loss of cash or securities in a failing or insolvent SIPC member brokerage firm. SIPC went on to say in a statement that it was not created to combat misrepresentation or fraud and is gratified that the court agreed with its position.

“This decision notwithstanding, SIPC has great sympathy for the victims of this extraordinary Ponzi scheme that inflicted heartbreaking losses on thousands of people across the world,” SIPC said.

SEC spokesman John Nester said the commission is reviewing the judge’s decision. It has 60 days to decide on an appeal.

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