GO
Loading...

Stanford victims not able to file claims: Court

Indicted financier R. Allen Stanford exits the Bob Casey Federal Courthouse in Houston, Texas.
Aaron M. Sprecher | Bloomberg | Getty Images
Indicted financier R. Allen Stanford exits the Bob Casey Federal Courthouse in Houston, Texas.

A U.S. appeals court dealt a blow to the victims of Allen Stanford's Ponzi scheme on Friday, ruling that they are not eligible under federal law to file claims seeking compensation for their losses.

The decision by the U.S. Court of Appeals for the District of Columbia Circuit also marks a major loss for the Securities and Exchange Commission and is likely to be precedent-setting.

Read MoreDespite exposure of Madoff fraud, new Ponzi schemes emerge

The SEC was seeking to overturn a lower court's decision from 2012 in which a federal judge rejected a request by the agency to force the Securities Investor Protection Corp (SIPC) to start court proceedings for the fraud victims, some of whom lost millions of dollars.

"In declining to grant the SEC's requested relief, the district court expressed that it was 'truly sympathetic to the plight' of the victims,'' wrote Judge Sri Srinivasan in the unanimous opinion.

``We fully agree. But we also agree with the district court's conclusion...,'' Srinivasan wrote.

A representative for the SEC and a spokeswoman for the coalition of Stanford investors who lost their money could not be immediately reached for comment on the decision.

Read MoreSupreme Court denies four cases

The case marks the first time that the SEC, which oversees the SIPC, has ever filed a lawsuit against the nonprofit corporation to try and force it to start a court liquidation proceeding.

Photo: Bryce Duffy|Stone Sub|Getty Images

The SIPC, which was created by Congress, administers an industry-backed fund that is used to compensate investors if their brokerage collapses.

In a brokerage liquidation, a trustee winds down the business and returns securities and other assets to customers and creditors.

Over the years SIPC has handled high-profile liquidations, including Bernard Madoff's Ponzi scheme.

Read MoreMadoff's sons may be under scrutiny

But in the case of the Stanford victims, SIPC has said these investors did not qualify as "customers'' under the law.

Image Source | Digital Vision | Getty Images

The law, SIPC argued, limits it to protecting customers against the loss of missing cash or securities in the custody of failing or insolvent SIPC-member brokerage firms.

While Stanford's Texas-based brokerage Stanford Group Company was a SIPC member, its offshore bank was not. SIPC also said it was not chartered by Congress to combat fraud or guarantee an investment's value.

Allen Stanford was convicted of fraud and sentenced in June 2012 to 110 years in prison for bilking investors with fraudulent certificates of deposit issued by Stanford International Bank, his bank in Antigua.

—By Reuters

Contact Law

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More