Posted Sep 10, 2012 05:24 pm CDT
Rejecting a claim that the judicial branch lacks jurisdiction to tell the U.S. Securities and Exchange Commission what to do when fraud is suspected, a federal judge in Miami has given the green light to a lawsuit brought against the SEC by investors who say they lost millions in the massive swindle for which R. Allen Stanford is now serving a 110-year prison sentence.
If, as the plaintiffs contend in their suit, the SEC did know that Stanford was running a Ponzi scheme, the SEC had a duty to inform the Securities Investor Protection Corp., U.S. District Judge Robert Scola ruled Friday, according to the New York Post and Reuters.
The SIPC is an industry-funded group that deals with frauds on investors.
The SEC’s claim that it didn’t know about Stanford’s $6 billion to $7 billion Ponzi scheme can potentially be addressed in a summary judgment motion, should the government opt to make such a motion, the judge said.
The SEC’s inspector general said in a March 2010 report that the commission had known since 1997 that Stanford’s operation probably was a Ponzi scheme, the Reuters article notes.
The SEC argued that it has discretion to determine how to handle suspected fraud, but on that point the judge did not agree: “The duty to report, following the finding of financial difficulty, does not involve any element of judgment or choice,” Scola said.
Attorney Gaytri Kachroo, who represents the plaintiffs in the case, told Reuters that “This is a historic ruling showing that the SEC can finally be held accountable for not notifying SIPC.”
The judge dismissed another cause of action in the case, agreeing with the SEC that it had discretion to decide if Stanford’s company’s annual investment adviser registration should be denied.
A spokeswoman for the SEC declined to comment when contacted by Reuters.
ABAJournal.com: “Federal Judge Sentences Onetime Billionaire Allen Stanford to 110 Years in Long-Running $6B Fraud”
ABAJournal.com: “Fed’l Judge Nixes SEC Suit, Says SIPC Not Liable for Bank CDs Bought by Victims of Stanford Swindle”