SIPC to defend itself against SEC lawsuit over Stanford losses

The Securities Investor Protection Corporation says it will defend itself against a lawsuit filed Monday by the U.S. Securities and Exchange Commission that would force the SIPC to compensate many investors who lost money in the $7.2 billion Ponzi scheme allegedly run by Texas financier R. Allen Stanford. “We have great sympathy for the victims of this extraordinary Ponzi scheme that inflicted heartbreaking losses on thousands of people across the world,” says SIPC Chairman Orlan M. Johnson in a statement released today. “But SIPC must adhere to the requirements established by Congress. After careful and exacting analysis, we believe the SEC’s theory in this case conflicts with the Securities Investor Protection Act, the law that created SIPC and has guided it for the last 40 years.” The suit filed Monday marks the first time the SEC has sued the SIPC. About three months have passed since the SIPC said it would rule on whether or not those who lost money in the Ponzi scheme would be reimbursed up to $500,000 per claim. The SEC determined five months ago that at least some victims of the scam are entitled to SIPC protection. The SIPC, however, has informally advised since 2009 that its protections weren’t available for Stanford investors. “SIPC is not the equivalent of the FDIC for investment fraud,” says SIPC President Stephen P. Harbeck. “Congress considered whether to guarantee investment losses and rejected that sort of protection as unrealistic and inappropriate. The SEC is demanding protection for what we believe to be ineligible claims under the Securities Investor Protection Act.”