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Is the Securities Investor Protection Corporation (SIPC) a Mere Facade?

Posted by Larry Doyle on August 11, 2009 4:55 PM |

What good is insurance if after the storm you do not get paid? What good is insurance if the premiums charged are so badly mispriced that they misrepresent and do not cover the embedded risks? Welcome to the world of the Securities Investor Protection Corporation.

Is SIPC a mere facade presented by the Wall Street titans?

Let’s get the take of those who recently relied upon SIPC to fulfill its obligations. To whom do I refer? The victims of the Madoff scam.

If these investors were not protected, then how are we to believe that other investors will be protected on a going forward basis?

Why do I make that statement? None other than current head of the SEC Mary Schapiro addressed this topic in recent Congressional testimony. In a press release put out by Madoff victims, Schapiro admitted that SIPC did not have sufficient funds to pay all of the Madoff claims.

Who funds SIPC? The Wall Street banks. Yes, those banks that have been printing massive revenues and believe that they are back to ‘business as usual.’ Why aren’t the premiums immediately increased on these institutions to properly compensate Madoff victims?

To the extent that certain Madoff investors were aware of the Ponzi scam, obviously they should not receive restitution. I have to believe that number is in the distinct minority.

Given the general lack of confidence in our financial regulators,(the SEC and FINRA) would Congress have the heart and courage to take on the financial behemoths on Wall Street in an attempt to protect the investing public?

These questions and issues lie at the core of badly needed financial regulatory reform. Yes, that reform which seems to be on the back burner now that the markets have rebounded and Wall Street is printing money once again.

Make no mistake, though, that pot is still boiling and these questions need to be fully addressed and answered to the public’s satisfaction.

For a deeper understanding of these questions from the perspectives of the victims of the Madoff scam, please read this recent press release from the Bernard Madoff Victims Coalition. Click on the image below to access a PDF of the full 2-page press release. Let me know what you think.

LD

  • Richard Friedman

    An deeper understanding of why SIPC was created and its purpose leads to a better understanding of the current situation. Clearly, in simpler times, Stephen Harbeck, the President of SIPC is on record supporting the investors who got burnt when their legitimate expectations were that stocks were being purchased and confirmations to that effect were being issued.

    The great and sad irony here is that if SIPC was never created there would not have been a “Bernard Madoff.” The SIPA Act of 1970 was needed for investors to have enough confidence in their brokers so that the brokers could keep the stock certificates of their customers in street name. Madoff’s Ponzi scheme relied upon that fact. If Madoff had to actually make purchases and deliver the certificates to his investors, then there is no Ponzi Scheme. Only by keeping it in street name could he come up with the fabrication that he was making purchases.

    So, SIPA (SIPC) gave “license” for Madoff to pull off the greatest Ponzi scheme ever, and now that it has been exposed, how does SIPC protect the investors who were defrauded? It doesn’t! It victimizes them again by either cheating them out of the amount they are supposed to get back under the original law, or it sues investors in the form of clawbacks!

    I think this world has gone nuts….because as things stand now, he is getting away with it. When asked about what law he is following, he has only replied that he is doing what is “fair and equitable,” never once quoting a law, never once saying to whom it is “fair and equitable.” “Fair and equitable” to his law firm who he chose to administer matters, pulling in a cool million dollars a week!!! His firm will clear nearly $50 million this year and nobody knows what they are doing. Nobody knows if their time sheets are real. Instead, they are checking back at phony Madoff statements for the last 30 years so that each investor can be told that they are entitled to practically nothing.

    The fraud perpetrated by Irving Picard, in some respects, is worse than the one done by Madoff. Madoff does what criminals are “supposed” to do. He steals. Picard, on the other hand portrays himself as the protector of the Madoff investors who got burnt. He’s been earning his millions by not paying victims, while distorting the law, and lying to hte media.

    Thank you for this opportunity to express myself.

    • Larry Doyle

      Richard,

      I am glad you found Sense on Cents and share these insights to enlighten all who read this. I can only hope that at the end of this saga, the real truth and total transparency are revealed.

      Thanks.

  • stanfordsforgottenvictims

    What Madoff victims fail to realise is that IF they are lucky enough to get SIPC cover, it will only apply to a small number of victims. Foreign investors are excluded from cover and those who invested directly with Madoff may also be excluded. If SIPC cover is given to the lucky few, it will be at the expense of the majority because SIPC is a loan and the rules and regulations of SIPC state clearly that any payment is recouped from the receiver and estate of the Defendants. This means that those who are paid will be taking the money the receiver has collected away from the rest of the victims. It would appear that either the Madoff victims do not know this or the ones that do are keeping quiet until they get paid. If changes are going to be made to allow payment to Madoff (and Stanford) victims, then they need to include a “statement of comfort” for the remaining victims to state that they will not go after the money the receiver has collect to the detriment of the remaining victims.






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