Saying he is "truly sympathetic" to victims of Allen Stanford's $7 billion Ponzi scheme, a federal judge in Washington has nonetheless denied a bid to force the Securities Investor Protection Corporation to compensate them.
The SEC , under heavy pressure from the victims and members of Congress, went to court last year to force the coverage from SIPC.
Thousands of investors bought Stanford certificates of deposit from the firm's U.S. broker-dealer, a SIPC member. As a result, the investors and the SEC claimed, they were entitled to insurance payments of up to $500,000.
But U.S. District Judge Robert Wilkens sided with SIPC, which said the CDs were drawn on Stanford's offshore bank in Antigua, which is not a SIPC member.
SIPC argued it does not insure investors against fraud, only theft of securities — and even if the CDs were securities, they were essentially worthless.
Stanford Victims Coalition founder Angela Shaw, who lost $2 million in the scam, called the ruling a major blow to Stanford investors.
The SEC has 60 days to decide whether it will appeal. Spokesman John Nester said the agency is reviewing the judge's ruling.
Allen Stanford was sentenced last month to 110 years in prison.