Stanford Investors May Have a Second Life

Posted by Ernest E. Badway on February 21, 2013

The SEC has decided to appeal a district court decision denying the SEC's application to force SIPC to pay Staford investors.  See SEC v. SIPC, D.D.C., No. 1:11-mc-00678-RLW, 8/31/12, and http://www.scribd.com/doc/81297680/Judge-Wilkins-Opinion-re-SEC-SIPC-Case.

The SEC believes that these investors should be protected by SIPC insurance.  However, the court's decision held that the investors did not invest through the broker-dealer, but the bank portion of Standford's operation.  SIPC does not intend on giving into the SEC's machinations, claiming the SEC's theory is unprecedented. 

This is the first time the SEC has ever initiated such a suit.  The result should be very interesting.

SEC Grants Capital Relief to Owners

Posted by Ernest E. Badway on February 08, 2013

In an interesting no-action letter presented by FINRA, the SEC staff granted relief in that where FINRA saw multiple class ownerships where some of these classes indicate almost a relationship between a broker dealer and a customer, the staff would permit such ownership classes without it affecting SEC Exchange Act Rule 15c3-3.

The SEC would allow such arrangements so long as there is an outside lawyer’s opinion letter indicating it was a good legal standing, that the person is actually an equity participant in the firm, the relationship between the person and the brokerage is spelled out in writing, and that their investment is not considered protected under the securities Laws or Securities Investors Protection Act, this person must reaffirm this in writing each year, and the registered person is appropriately registered.

This no-action letter will permit those who wish to invest in broker dealers who seem to be customers are in fact owners.  See Financial Industry Regulatory Authority, SEC No-Action Letter, (12/10/12), and http://sec.gov/divisions/marketreg/mr-noaction/2012/finra-121012-15c3-1.pdf.