Investors get caught again
Jean Anne Mayhall isn’t dodging bullets like the crew members of World War II bombers in Joseph Heller’s novel “Catch 22.” But she says she sometimes feels crushing disappointment, like those crew members who survived their quota of death-defying bombing runs only to be told the quota had increased — again and again and again.
“Catch 22, that’s a great comparison,” Mayhall mused.
Mayhall, 60, of Folsom, is among an estimated 1,000 residents in the Baton Rouge, Lafayette and Covington areas who collectively lost approximately $1 billion to convicted swindler Robert Allen Stanford, of Houston.
Mayhall, a co-owner of a pet-identification microchip business near Folsom in St. Tammany Parish, lost $2 million when Stanford’s businesses were shut down by the U.S. Securities and Exchange Commission in February 2009.
SEC officials ruled last year that Mayhall and other Stanford victims are entitled to coverage of as much as $500,000 of their individual losses by the congressionally chartered Securities Investor Protection Corporation. Although Congress created the SIPC, in 1970, its investor insurance is funded entirely by the financial services industry.
SIPC officials last year offered to cover up to $250,000 per Stanford victim. SEC officials filed suit for the whole $500,000 after the SIPC, for the first time in its history, refused a directive from the SEC to provide the coverage.
While Stanford investors placed their money through SIPC-member Stanford Group Co., SIPC attorneys argued in court filings that insurance coverage was negated when the cash was earmarked for nonmember Stanford International Bank.
U.S. District Judge Robert L. Wilkins, of Washington, D.C., ruled July 3 in the SIPC’s favor, leaving investors no coverage for any losses.
“That shocked us,” Mayhall said. “It shocked everybody, members of Congress, victims. I’m sure it shocked the SEC.”
Although Mayhall and other Stanford investors placed their money through brokers for SIPC-member Stanford Group Co., Wilkins said the SEC failed to prove its case against the SIPC.
“If SIPC gets away with this … there’s not an investor in this country who is safe,” Mayhall said.
SIPC officials issued a statement of gratitude for Wilkins’ ruling
“The SEC had taken the unprecedented position that SIPC must provide financial guarantees for investors who chose to purchase (certificates of deposit) issued by an offshore bank in Antigua,” SIPC officials wrote. “If accepted, that position would have rewritten SIPC’s 40-year mandate under the law.”
Many Stanford investors, however, have traced their money to banks in this country, not the Caribbean island nation.
“Our money never went to Antigua,” Mayhall said. “It all stayed here in America, in American banks.”
Stanford, 62, is serving a 110-year prison sentence for an investment scheme his chief financial officer testified was fraudulent from the beginning.
The SEC and U.S. District Judge David Godbey, of Dallas, have ruled that all of Stanford’s companies should be viewed as a single fraudulent entity with $7 billion in worldwide losses.
“Right now, we’re hoping with all our might the SEC will appeal,” Mayhall said.
Mayhall also said the financial services industry may suffer financial pain because of Stanford’s crimes and SIPC’s stance on coverage.
“People watching all this unfold are appalled,” Mayhall said. “I have friends who tell me: ‘I won’t invest my money anywhere now. I’m too afraid.’ ”
Bill Lodge covers federal courts for The Advocate. He can be reached at email@example.com.