SIPC Covers Some Losses for Madoff Investors, But Not Stanford CDs

When retired accountant Peter Kaltman bought $550,000 in certificates of deposit from Stanford International Bank, the brokerage that sold them to him had the Securities Investor Protection Corp. logo on its stationery.

But the SIPC isn't reimbursing him or other brokerage investors for what allegedly are now virtually worthless CDs sold in an $7 billion Ponzi scheme, because the actual certificates weren't stolen and are still in his account, reports Bloomberg.

The SIPC protects investors if actual securities that have been purchased on their behalf were stolen from their accounts. And, although some experts have said that SIPC coverage for fictitious securities that supposedly were purchased but never were is a gray area, the SIPC has also been providing reimbursement to investors in the Bernard Madoff Ponzi scheme who were told they were purchasing securities through his SIPC-member brokerage firm, Bernard Madoff Investment Securities LLC, according to the news agency.

“SIPC has never undertaken to reimburse investors when worthless securities are sold to them,” David Ruder tells Bloomberg. A former chairman of the U.S. Securities and Exchange Commission, he teaches at Northwestern University School of Law.

Earlier related coverage:

ABAJournal.com: "Some Madoff Investors Seek US Bailout; ‘Clawback’ Defenses Outlined"