“The more you learn about what’s going on down [on Wall Street], the more you learn is that it’s not a safe place to invest,” said Boston University economist Lawrence Kaltikoff.
You get blindsided in a wreck, and you expect your insurance company to pay.
Your bank goes belly up, and you expect the Federal Deposit Insurance Corporation to reimburse your losses up to $250,000.
Your stock broker fails, and you expect the Securities Investor Protection Corporation to be good for your losses up to $500,000.
But five years after Allen Stanford’s $7 billion fraud on his investors, SIPC has paid them nothing.
“I call Wall Street ‘Fraud Street’ these days,” said Boston University economist Lawrence Kaltikoff. “Because the more you learn about what’s going on down there, the more you learn is that it’s not a safe place to invest.”
Not safe, he said, because the SIPC — which is supposed to protect investors when brokerages fail — has done nothing to protect the victims of Allen Stanford.
“If SIPC wasn’t behind Stanford, he never would have been able to run a business as he did,” said Mary Oliver.
She and scores of others went to Stanford’s office in The Crescent office building in Dallas and invested their 401k money back in 2008. The seal of the Securities Investor Protection Corporation was on her broker’s business card, and on the office door.
The market was nervous, and SIPC insurance was a prime inducement to place her money with Stanford.
Five years later, the SIPC claims all those Stanford losses aren’t its problem. In fact, the SIPC says investors who lose money in some brokerage failures could actually owe money to the SIPC.
In addition, this summer a federal appeals court upheld a ruling that what Allen Stanford sold investors weren’t Wall Street securities, but certificates of deposit. Therefore, the SIPC should not be on the hook for the investor losses.
It was all in the small print, the SIPC argued.
“The Allen Stanford victims were supposed to read somewhere in 30 pages of documents when they signed up that their investments were [certificates of deposit], and not covered by SIPC,” Kaltikoff said. “I think [the] SIPC should be ashamed of themselves. I would be embarrassed to be doing what they’re doing.
“I couldn’t sleep at night to do that to people who’ve already been victimized,” he added.
Mary Oliver joined the Stanford Victims Coalition, which went to Washington to try to change the law. Their goal: To make SIPC more responsive to fraud, and to get some of their money back.
House Bill 3482, which would do that, has been knocking around Congress for a year. It’s been held up in the House Financial Services Committee, chaired by Rep. Jeb Hensarling of Dallas.
Hensarling is a big recipient of campaign donations from the brokerage industry, which funds SIPC insurance through premiums. Those premiums could potentially go up if the SIPC were reformed.
In the 2013-14 election cycle, Hensarling received $41,000 from two Wall Street brokerages alone.
We asked him for an interview to discuss House Bill 3482. He was “unavailable.”
In a written statement, Hensarling said he sympathizes with the Stanford victims, but “concerns regarding SIPC’s actions […] are best addressed by the courts.”
He blamed the Stanford debacle on regulatory failures by the Securities and Exchange Commission.
“When Congress reconvenes early next year, I expect there will be a renewed debate about the purpose and scope of SIPC,” Hensarling said in the statement.
It’s been five years since the Stanford fraud came to light. So far, investors have received one penny for every dollar they’ve invested.
None of it came from the SIPC.
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For a full and open debate on the Stanford receivership visit the Stanford International Victims Group – SIVG official Forum http://sivg.org.ag/