Scope of SIPC Protection Reaffirmed
The Securities Investor Protection Corporation has issued a statement with respect to the court decision in the SEC suit seeking protection under the Securities Investor Protection Act for Stanford International Bank CD investors.
This litigation was an unprecedented matter. The SIPC entered into this process reluctantly and after great deliberation because the issues at stake were so fundamental to its mission.
As SIPC said from the beginning, the SEC had taken the unprecedented position that SIPC must provide financial guarantees for investors who chose to purchase CDs issued by an offshore bank in Antigua. If accepted, that position would have rewritten SIPC’s 40-year mandate under the law.
The SIPC’s responsibility is to protect customers against the loss of missing cash or securities in the custody of failing or insolvent SIPC member brokerage firms.
It was not created by Congress to combat misrepresentation or fraud or to guarantee an investment’s value. SIPC is gratified that the court has now 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 protects customers against the loss of missing cash and/or securities in their customer accounts when a SIPC member broker-dealer fails financially. SIPC either acts as a trustee or works with an independent court-appointed trustee in a brokerage insolvency case to recover funds.
The statute that created SIPC provides that customers of a failed brokerage firm receive all non-negotiable securities – such as stocks or bonds – that are already registered in their names or in the process of being registered. At the same time, funds from the SIPC reserve are available to satisfy the remaining claims for customer cash and/or securities custodied with the broker for up to a maximum of $500,000 per customer. This figure includes a maximum of $250,000 on claims for cash.
Going forward, SIPC will continue its mission to protect the custodial function of a member firm in liquidation under the Securities Investor Protection Act. This means that SIPC protects customers against the loss of their securities and cash that are missing from the customer’s brokerage account.