(Bloomberg News) The fund set aside to aid customers of failed brokerage firms would be drained if it's forced to cover investors' losses in the fraud of R. Allen Stanford and similar cases, said Stephen Harbeck, president of the Securities Investor Protection Corp.
The U.S. Securities and Exchange Commission has taken SIPC, a nonprofit corporation funded by the brokerage industry, to court demanding that it help Stanford customers. SIPC argued in U.S. District Court in Washington last month that there is no basis to require it to guarantee investments with an entity that isn't a member, in this case Antigua-based Stanford International Bank Ltd.
SIPC, funded by assessments from member firms, hasn't previously drawn from its $2.5 billion Treasury line of credit, Sharon Y. Bowen, SIPC's acting chairman, told lawmakers.
In June, the SEC ordered SIPC to start a process that could grant as much as $500,000 for each of the more than 7,000 Stanford clients -- the same maximum it offers in any case.
Stanford was convicted of fraud yesterday in what prosecutors said was a $7 billion scheme involving bogus certificates of deposit at his Antigua-based bank.