WASHINGTON — The U.S. Senate overrode an attempt Tuesday by its two Louisiana members to stand up for victims of the $7 billion-plus Stanford investment scheme, although the defiance was largely symbolic and its futility does not directly affect the efforts of the victims to recover their losses.
The Senate voted 48-46 to confirm President Barack Obama’s nomination of Sharon Bowen to a seat on the federal Commodities Future Trading Commission. Both senators from Louisiana — Democrat Mary Landrieu and Republican David Vitter — voted against Bowen. Democrats supplied all 48 “yes” votes. Landrieu and Democrats Bill Nelson, of Florida, and Jeanne Shaheen, of New Hampshire, and independent Bernie Sanders, of Vermont, joined Vitter and 41 other Republicans voting no.
The CFTC had nothing to do with the Stanford swindle, a Ponzi scheme in which an estimated 1,000 to 2,000 investors in Baton Rouge, Lafayette, Covington and other parts of Louisiana were swindled out of between $500 million and $1 billion. That equates to an average loss of $250,000 to $1 million each.
Bowen is the target of the Louisiana senators’ wrath because she is the acting chairwoman and former vice chairwoman of the Securities Investor Protection Corp., a nonprofit, member-financed entity created by a 1970 federal law. It is SIPC that has riled the senators, the investors and even the federal Securities and Exchange Commission by its refusal to reimburse the Stanford victims for their losses up to the SIPC maximum of $500,000 each.
“It amazes me that we’re here today discussing basically a possible promotion of Ms. Bowen,” Vitter said on the Senate floor. “I can tell you, quite frankly, she does not deserve any promotion, because she has not successfully safeguarded consumers — her job, her mission; instead, she has fought to safeguard Wall Street money from just compensation to the legitimate victims of the Allen Stanford $7.2 billion Ponzi scheme.”
Landrieu issued a statement ascribing her “no” vote to Bowen’s tenure at SIPC as well.
In a role somewhat analogous to the Federal Deposit Insurance Corp., which protects bank depositors from losses due to bank failures, SIPC shields investors from losses suffered when brokerage firms go belly up. It is financed by fees assessed on its members, which include Goldman Sachs, J.P. Morgan and 4,000 other brokerage firms.
In a Ponzi scheme, named for 1920s swindler Charles Ponzi, the operator of the scheme pays returns to early investors by funneling to them the money put in by later investors, rather than with any profits earned by shrewd trading. The apparent high rate of return attracts new investors and reinvestments. Ultimately, the supply of both dries up or regulators intervene and the scheme collapses, by which time the swindler has often disappeared with the money, leaving the investors empty-handed.
In the Stanford scheme, R. Allen Stanford peddled interest-bearing certificates of deposit in offshore banks to 25,000 investors in more than 100 countries. The scheme grew to more than $7 billion before federal investigators arrested Stanford in 2009. He was convicted of fraud in 2012 and is serving a 110-year federal prison term in Florida.
On its website, which devotes a separate section to the Stanford scheme and its aftermath, SIPC says that it is not required to compensate scheme investors because its responsibility is limited to losses suffered when holdings in SIPC member firms disappear due to the insolvency of the firms. Excluded, SIPC says, are losses at nonmember firms and losses due to declining investment value, even in cases of fraud. That would leave out the Stanford scheme, which offered CDs in a bank on the Caribbean Island of Antigua that was not an SIPC member, the site says.
SIPC has said that compensating the Stanford victims could drain its $1.2 billion fund and require higher member assessments.
But investors have argued that the Antigua bank was inextricably entangled with other Stanford institutions in the scheme that were SIPC members. The SEC has backed them by filing a lawsuit against SIPC.
Court rulings so far have upheld SIPC’s position. The defrauded investors are in line only for repayments from assets seized from Stanford of about one cent on the dollar.
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