Feb 9 (Reuters) - A federal judge said he has the
authority to decide whether the U.S. Securities & Exchange Commission can compel a brokerage industry protection fund to
let thousands of victims of Allen Stanford's alleged Ponzi
scheme file claims for compensation.
The SEC's effort to force the Securities Investor Protection Corp to initiate a claims procedure for Stanford's victims is
subject to judicial review, Judge Robert Wilkins of federal
court in Washington, D.C., ruled on Thursday.
SIPC, created under a 40-year-old investor protection law
and funded by member firms, has handled liquidation proceedings
for Bernard Madoff's Ponzi scheme and the MF Global
failure. But it has said the law that governs it does not apply
in the case of Stanford, the alleged mastermind of a $7.2
billion Ponzi scheme, because customer assets were kept in an
offshore bank that is not a SIPC member.
The SEC in December filed a court application to force SIPC
to act, saying the court was required to sign off on the
application, but not authorized to review its merits.
Judge Wilkins rejected that position as "untenable," but
sided with the SEC that the matter should be decided in a quick
"summary proceeding" in lieu of full-blown litigation.
The judge told both the SEC and SIPC to brief him on the
underlying issue of SIPC's obligations to Stanford's alleged
victims.
Both sides took a glass-half-full view toward the ruling.
"We are...pleased that the court rejected the idea of
full-blown litigation that could drag on for years and greatly
delay relief to the Stanford investors," Matthew Martens, the
SEC's chief litigation counsel, said in a statement.
Stephen Harbeck, SIPC's president and CEO, said he was
pleased the SEC's application will receive judicial review.
"We are still reviewing the ruling, but SIPC looks forward
to the opportunity to present its next submission in the case,"
Harbeck told Reuters.
Stanford, 61, was arrested in 2009 over charges that he ran
a $7.2 billion Ponzi scheme linked to certificates of deposit
issued by his Antigua-based bank.
SIPC argues that it 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.
While Stanford's Texas-based brokerage was a SIPC member,
its offshore bank was not. And in any case, SIPC says it was not
chartered by Congress to combat fraud or guarantee an
investment's value.
"The ruling seems largely procedural. The court has
essentially struck down the SEC's attempt to say it gets to call
all the shots," said Seton Hall University School of Law
professor Stephen Lubben. "The next question is whether the
court will defer to SIPC or force it to act."
The case is Securities & Exchange Commission v. Securities
Investor Protection Corp, U.S. District Court, District of
Columbia, No. 11-678.
For the SEC: Matthew Martens of the SEC
For SIPC: Edwin U of Kirkland & Ellis
(Reporting By Nick Brown; additional reporting by Sarah N.
Lynch)
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