US agency responds to lawsuit in Stanford case

The United States Securities Investor Protection Corporation (SIPC) says it will strongly defend a lawsuit filed by the Securities and Exchange Commission (SEC) in an effort to help customers who lost money in an alleged multibillion-dollar Ponzi scheme ran by disgraced Texas financier Allen Stanford.

Stanford, who owned the Antigua-based Stanford International Bank (SIB), is being held in a Houston jail awaiting trial in the alleged scheme that defrauded thousands of investors through high-yield certificates of deposit (CDs) at the SIB.

Stanford faces 14 criminal counts related to the investment business. The SEC has also filed a civil suit against him.

Orlan Johnson, SIPC chairman, said that while the agency has "great sympathy for the victims of this extraordinary Ponzi scheme that inflicted heartbreaking losses on thousands of people across the world", it must adhere to the requirements established by the US 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," he said in a statement.

The lawsuit seeks reim-bursement for customers from Stanford-owned Stanford Financial Group (SFG).

The SEC and SIPC have been sparring in recent months over whether Stanford customers are eligible for protection under its rules.

SIPC backs customer accounts at brokerage firms against failure much like the Federal Deposit Insurance Corporation (FDIC) insures bank deposits.

Unlike the FDIC, however, SIPC does not regulate brokerage firms or conduct examinations of their businesses and accounts. The investor protection corporation is an industry-backed group financed by assessments on brokerage firms.

Stanford Financial, owned and operated by Allen Stanford, managed more than US$7 billion of customer money that was supposed to be invested in safe, high-yielding certificates of deposit.

In 2009, US federal authorities seized the bank, and the SEC described the company in a court filing as a "massive Ponzi Scheme" in which Stanford allegedly used the proceeds from 21,500 customers in part to finance a lavish lifestyle.