Investor Alerts and Bulletins

SEC Case Against R. Allen Stanford

May 31, 2011


On June 15, 2011, the Securities and Exchange Commission announced that it had concluded that certain individuals who invested money through the Stanford Group Company are entitled to the protections of the Securities Investor Protection Act of 1970 (SIPA).

In exercising its discretionary authority under SIPA and based on the totality of the facts and circumstances of the case, the Commission asked the Securities Investor Protection Corporation (SIPC) to initiate a court proceeding under SIPA to liquidate the broker-dealer. The Commission authorized its staff to file an action in federal district court under SIPA to compel SIPC to initiate a liquidation proceeding in the event SIPC does not do so.

According to its 2009 complaint, the SEC alleged that Allen Stanford operated a Ponzi scheme in which certain investors were sold certificates of deposit (CDs) issued by Stanford International Bank Ltd. (SIBL) through the Stanford Group Company (SGC). SGC is a SIPC Member.

In an analysis provided to SIPC, the SEC explains that, on the specific facts of this case, investors with brokerage accounts at SGC who purchased the CDs through the broker-dealer qualify for protected "customer" status under SIPA.

The Commission further determined that, in light of all of the facts and circumstances in this case, the customers' claims should be based on their net investment in the fraudulent CDs used to carry out the Ponzi scheme.

A SIPA liquidation proceeding would allow investors with accounts at SGC to file claims with a trustee selected by SIPC. The trustee would decide whether the investors have "customer" claims that are protected by the statute. An investor who disagreed with the trustee's determination could seek court review.

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On March 12, 2009, U.S. District Court Judge David C. Godbey issued an order at the request of Stanford court-appointed receiver Ralph S. Janvey unfreezing approximately 16,000 Stanford investor accounts at Pershing LLC and J.P. Morgan Clearing Corp., unless an exception described in the order applies.

Previously, on March 5, 2009, Judge Godbey issued an order at the receiver's request unfreezing approximately 12,000 Stanford investor accounts held at Pershing LLC. The court's order applies to customer accounts valued at $250,000 or less as of month-end February 2009.

Customers can immediately begin the process of obtaining control of their accounts by arranging to transfer their accounts to a new broker-dealer. To do so, the customer should make arrangements with the new broker-dealer to open a new account.

Typically, the first step in opening a new account is for the customer to obtain and complete an account transfer form and a new account opening form. These forms are available from broker-dealers directly or on their Web sites. The completed forms are then submitted to the new broker-dealer who in turn will provide appropriate instruction to Pershing LLC and J.P. Morgan Clearing Corp. regarding the transfer of the accounts. There is typically a small fee associated with the transfer of accounts from one broker to another.

The court has authorized the release of these accounts unless any of the following conditions apply:

  • They are owned by Stanford shareholders, directors, and certain employees.

  • They are owned for the benefit of Stanford companies.

  • They are managed by Stanford companies.

  • They secure unpaid balances owed by customers or non-purpose loans made to customers.

  • They are related to accounts in any of these categories by social security number, address or other similar indicators.

Investors can contact the receiver at, or visit a Web site created by the receiver at

Last Reviewed or Updated: June 15, 2011