04/15/10

Speier Supports Legislation to Improve Relief for Victims of Madoff and All Ponzi Schemes

Washington, D.C.--With the former clients of Bernie Madoff still reeling from their massive losses and some facing the prospect of being sued for what little money they have left, Congresswoman Jackie Speier (San Francisco/San Mateo) joined several members of Congress to introduce a bill today that would improve and expand investor protections and insurance coverage to the victims of all Ponzi schemes.

The Ponzi Scheme Investor Protection Act would increase the number of Ponzi scheme victims eligible for insurance payments by imposing new requirements on the Securities Investor Protection Corporation (SIPC), which Congress created in 1970 to recover assets investors lose through failed brokerage firms. SIPC has been criticized for not providing adequate assistance to investors who were duped by Bernard Madoff, Allen Stanford and other Wall Street Ponzi swindlers.

“The Securities Investor Protection Corporation failed miserably to protect thousands of direct and indirect investors victimized by Bernie Madoff and instead has further victimized those who placed their trust in regulators at the SEC and the assurances provided by SIPC,” said Speier. “This legislation offers a constructive approach that will bring some relief to the investors whose lives have been turned upside down by these events.”

Rep. Speier joined U.S. Representatives Gary Ackerman (D-NY), Peter King (R-NY), Ron Klein (D-FL), Dan Maffei (D-NY), and Ed Perlmutter (D-CO).  All are members of the House Financial Services Committee.

Under the measure, SIPC would be required to provide up to $100,000 worth of insurance coverage to indirect investors in Ponzi schemes – those investors who invested through feeder funds and/or other indirect sources. Presently, SIPC only provides coverage to direct investors (the amount of which is up to $500,000 per investment).

The legislation would also restrict the ability of SIPC to “clawback” funds from victims of Ponzi schemes. Currently, SIPC is permitted to “clawback” or take back assets from investors defrauded by Ponzi schemes regardless of whether or not they had any involvement in or knowledge of the fraud. Under the bill, SIPC would be prohibited from clawing-back any money from victims unless the bilked investor was proven to be complicit or negligent in their participation in the Ponzi scheme in bankruptcy court. This provision would also be extended to trustees appointed to liquidate assets in those large Ponzi schemes already discovered, including Irving Picard in the Madoff liquidation.

In addition, the bill would mandate SIPC, within 30 days of the discovery of a Ponzi scheme with customer investment in excess of $1 billion, to submit to the House Financial Services Committee, the Senate Banking Committee and the Secretary of the Treasury, its expected timeline for the consideration of claims. If SIPC fails to consider claims within this timeline, the Secretary of the Treasury would be permitted to require SIPC to make claim payments with interest.

If enacted, the legislation would apply retroactively to any Ponzi scheme discovered with customer investments of more than of $1 billion.

An additional provision of the bill would also require indirect investors in a Ponzi scheme who receive a SIPC insurance payment to waive their right to sue their feeder fund.

The Ponzi Scheme Investor Protection Act has been referred to the House Financial Services Committee, where it is now pending.