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Stanford Losses Not Covered by SIPC, Appeals Court Rules

The U.S. Securities and Exchange Commission can’t force a brokerage account insurer to pay victims of R. Allen Stanford’s $7 billion fraud because their purchases weren’t covered, an appeals court ruled. The U.S. Court of Appeals in Washington said the 7,000 investors in certificates of deposit sold by Stanford didn’t qualify as customers of a brokerage who would be insured by the Securities Investor Protection Corp., as the SEC argued. The CDs were bought at Antigua-based Stanford International Bank LLC, which wasn’t a SIPC member, the court said. The Stanford case is the first in which the SEC has gone to court to force SIPC to extend coverage. SIPC, a nonprofit corporation funded by the brokerage industry, has come under criticism from U.S. senators for allegedly favoring its Wall Street members over fraud victims in recent years. More on Bloomberg here.

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