[StBernard] Kanjorski Announces September Hearing to Assess Limitations of the Securities Investor Protection Act

[Westley Annis]

Kanjorski Announces September Hearing to Assess 

Limitations of the Securities Investor Protection Act

 

Washington, DC - Congressman Paul E. Kanjorski (D-PA), the Chairman of the
House Financial Services Subcommittee on Capital Markets, Insurance, and
Government Sponsored Enterprises, announced today that he will convene a
September hearing to assess the limitations of the Securities Investor
Protection Act (SIPA), a law that works to return money and securities to
the customers of failed brokerages.  The hearing comes at the request of
Congressman Gary L. Ackerman (D-NY), the Vice Chairman of the Capital
Markets Subcommittee, and builds on legislation recently enacted into law.
This Capital Markets Subcommittee hearing will be the second in the 111th
Congress on SIPA.

 

"The many complaints of investors after the failure of Lehman Brothers and
the Madoff Ponzi scheme, along with a number of court rulings, make it clear
that Congress needs to explore a comprehensive overhaul of SIPA," said
Chairman Kanjorski.  "As part of these efforts, we must also ensure that the
Securities Investor Protection Corporation, the entity charged with
implementing SIPA, follows the spirit of the existing law and works to
protect the best interests of investors.  Unfortunately, SIPC has denied the
claims of customers based on statement balances provided to them by their
brokers, yet SIPC expects customers to use those very same statements to
report unauthorized trading in their accounts.  This paradox results in a
customer's statement being meaningless whenever it could harm SIPC, but not
when it harms the customer.  We need to explore this inconsistency further."

 

"Now that Congress has completed its overhaul of the nation's financial
industry, it's time to address the shortcomings of SIPA," said Vice Chairman
Ackerman.  "The Securities Investor Protection Corporation has a
responsibility and a mandate to provide insurance against broker-dealer
failures, but their response to the Madoff fraud and other Ponzi schemes has
been totally inadequate.  Thousands of innocent victims remain destitute
from financial frauds because SIPC is determined to pay out as few claims as
possible.  SIPC's obdurate refusal to provide coverage to indirect investors
becomes even more infuriating given that, for more than a decade, SIPC,
funded by broker-dealers, in turn afforded millions and millions of dollars
in insurance coverage to them for less than most Americans pay for an auto
insurance policy."

 

Recent market scandals have exposed faults in SIPA.  As a result, the
landmark Dodd-Frank Wall Street Reform and Consumer Protection Act
<http://financialservices.house.gov/singlepages.aspx?NewsID=3&RBID=775>
contains several provisions to raise the minimum assessments paid by
brokerages to fund SIPC, increase customer cash advance limits, and provide
coverage for futures held in investors' portfolio margin accounts.
Nevertheless, Chairman Kanjorski is committed to exploring the need for
further statutory reforms.  Previously, the Capital Markets Subcommittee
held a hearing
<http://financialservices.house.gov/Hearings/hearingDetails.aspx?NewsID=1115

>  in December 2009 to explore these matters, and in March 2010 Chairman

Kanjorski sent a letter
<http://kanjorski.house.gov/index.php?option=com_content&task=view&id=1731&I
temid=128>  urging the SIPC's reform task force to look comprehensively at
how best to protect investors.

 

"Reforming SIPC and expanding the agency's protections are essential to
restoring equity and dignity to the victims of Ponzi schemes, as well as
ensuring that future victims of broker-dealer failures and frauds are better
protected by the assurances SIPC was intended to provide," added Vice
Chairman Ackerman.  "I look forward to this important hearing, and hope it
will lead to increased protections and improved insurance coverage for the
innocent victims of Ponzi schemes that SIPC has left behind."

 

Chairman Kanjorski concluded, "In short, this hearing will build upon
reforms that recently became law by exploring the work of the SIPC task
force and examining proposals to further modify SIPA.  As markets change, so
must our laws.  I therefore believe that it is very important for Congress
to consider whether SIPA's current framework adequately protects investors
who now trade in a market that differs dramatically from the structure that
existed when SIPA became law in 1970.  Individual investors will gain
greater confidence in our capital markets when they know that SIPC is fully
committed to placing investors' interests first."

 

 

WHO:             House Financial Services Subcommittee on Capital Markets,
Insurance, and Government Sponsored Enterprises

WHAT:           Hearing Entitled "Assessing the Limitations of the
Securities Investor Protection Act"

WHEN:           Thursday, September 23, 2010

                        10:00 a.m.

WHERE:         2128 Rayburn House Office Building

 

 

Witnesses will be announced at a later date.

 

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