Stanford victims on the losing end of federal ruling

A federal district judge delivered a blow to the victims of R. Allen Stanford’s $7 billion Ponzi scheme today by rejecting a request for an industry-backed fund to start a court proceeding that could lead to victim compensation, Reuters reports. The Securities and Exchange Commission had sought to force the Securities Investor Protection Corp. to start liquidation proceedings for the victims, some of whom lost millions of dollars to the fraud. The judge found that the SEC did not meet its legal burden of showing why SIPC should be compelled to act. SIPC, which has handled high-profile liquidations such as Bernard Madoff’s Ponzi scheme, has long contended that Stanford’s offshore bank fell outside the scope of its authority. The law, SIPC argued, limits it to protecting customers against the loss of missing cash or securities in the custody of failing or insolvent SIPC-member brokerage firms. While Stanford’s Texas-based brokerage Stanford Group Company was a SIPC member, its offshore bank was not. And in any case, SIPC maintains it was not chartered by Congress to combat fraud or guarantee an investment’s value. Sen. David Vitter immediately released a statement decrying today’s ruling. “This is horribly disappointing news, especially since it’s crystal clear that Allen Stanford flagrantly defrauded so many investor victims,” Vitter says. “I will be encouraging Securities and Exchange Commission Chair Mary Schapiro to explore every possible appeal option. The Stanford Ponzi scheme victims should be first in line for protection, not last in line way behind SIPC’s Wall Street members.” Get the full story here.