Madoff and Stanford Investors Push for SIPC Reform


Written on November 19, 2013 – 10:24 pm | by ibkent

Could the third time be the charm?  Victims of Allen Stanford and Bernie Madoff have been waiting literally years for Congress to act on the insufficient protection given to investors in SIPC protected securities firms.  The first hearings were held in early 2009 at which time the organization’s President, Stephen Harbeck, told Congress that all investors in the Madoff fraud would be covered by the federally mandated SIPC insurance.  Yay us.  Since then, Madoff investors have had to run a veritable gauntlet of governmental and quasi governmental agencies seeking relief despite Mr. Harbeck’s public pronouncements.   Rather than paying out the mandated payments, the SIPC-appointed bankruptcy trustee has billed SIPC nearly $1 billion to fight these claims furthering a policy that Gretchen Morgenson wrote about in her 2000 New York Times article article entitled, “Investor Beware: Many Holes Weaken Safety Net for Victims of Failed Brokerages.”

Multiple hearings have been held since 2009 and marker bills introduced: Congressmen preening for the cameras, grandstanding for constituents. But nothing.  Somehow something feels different this time.  Is it the bipartisan support? Is it the partnership between the Madoff and Stanford victims? Not sure.

HR  3482, “Restoring Main Street Investor and Protection Act”  was introduced just a few days ago by Congressman Scott Garrett R-NJ and Congresswoman Carolyn Maloney D-NY and a dozen Members of Congress from both sides of the aisle.  Make no mistake – this  is NOT a bailout. A bailout implies use of tax dollars.  SIPC is a not for profit membership organization and its funds are acquired solely through member assessments. ZERO TAX DOLLARS AT RISK.  And who are those members?  Wall Street banks and investment houses, of course. If only SIPC had assessed an appropriate amount over the years as directed multiple times by both the General Acounting Office and the US Congress, rather than $150 PER YEAR PER FIRM for the right to place the SIPC logo on their statements, then the funds would have been available.

Both Madoff and Stanford victims have been victims of a government system gone awry — and amok. Laws that were put in place to protect investors are now ironically, being used against them.  The SEC, with oversight over SIPC, directed SIPC to pay their claims. SIPC has resisted and now the SEC is suing this quasi governmental organization.

This bill will:

  • Prevent clawback of innocent investors.
  • Mandate SIPC coverage of up to $500,000 bas on final account statement.
  • Insist that future Trustees be selected from a panel of SEC approved Trustees, rather than be SIPC-appointed.
  • Make the Securities and Exchange Commission the absolute authority over SIPC
  • No longer give the trustee the sole discretion to value an account.

To quote Congressman Garrett:

“By reforming and modernizing the Securities Investor Protection Act (SIPA) of 1970, we will ensure greater equity for victims of fraud, enhance efficient functioning of U.S. securities markets for main street investors, and strengthen the oversight and accountability of the Securities Investor Protection Corporation (SIPC).  Given that physical securities are no longer individually mailed to customers, investors must be able to trust the SIPC seal of approval and have confidence in the account statements they receive.”

If you want to assist in the effort to strenghten consumer protection for your investments,  please visit www.protectyourinvestments.rallycongress.com

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