## Facts

- Stanford Group Company (SGC), a registered broker-dealer and SIPC member, marketed certificates of deposit issued by Stanford International Bank, Ltd. (SIBL), a foreign bank that was not a SIPC member.
- Investors purchased SIBL CDs in large numbers; when the scheme collapsed, billions in investor funds were missing.
- Investors typically paid SIBL directly (by check to SIBL or wire to SIBL accounts), often without funds passing through SGC’s accounts.
- SGC account records commonly reflected only notations that a customer held a SIBL CD; SGC did not hold the CDs or related assets in custody.
- Investors received CD confirmations and statements from SIBL, and SIBL (not SGC) was obligated to repay principal and interest.
- After the collapse, the SEC requested that SIPC initiate a SIPA liquidation of SGC so CD purchasers could seek SIPA “customer” protection.
- SIPC refused, reasoning that CD purchasers were not “customers” because SGC did not receive, acquire, or hold their cash or securities and acted only as an intermediary for a non-member product.
- The SEC petitioned the U.S. District Court for the District of Columbia to compel SIPC to apply for a protective decree and commence a SIPA liquidation of SGC.

## Issues

1. Whether investors who purchased SIBL CDs through SGC qualified as “customers” of SGC under SIPA.
2. Whether, in reviewing SIPC’s refusal to act, the court was required to defer to the SEC’s interpretation of “customer,” or instead to apply independent statutory interpretation with only persuasive weight given to the SEC’s views.

## Decision

- The court denied the SEC’s petition to compel SIPC to initiate a SIPA liquidation of SGC.
- The court held that SIBL CD purchasers were not SIPA “customers” of SGC because SGC did not hold their cash or securities in a custodial capacity.
- The court rejected the SEC’s “de facto customer” theory based on marketing, investor expectations, and the broker-dealer’s involvement.
- The court declined to give controlling deference to the SEC’s interpretation and found SIPC’s narrower, custody-based reading consistent with SIPA’s text, structure, and history.

## Legal Principles

- SIPA “customer” status generally requires entrustment of cash or securities to the broker-dealer for trading or custodial holding, reflected in property “received, acquired, or held” by the broker-dealer in that capacity.
- An investor’s reasonable belief, broker marketing, or the presence of account notations does not substitute for the broker-dealer’s possession or control of the claimant’s cash or securities.
- SIPA is a limited protection regime focused on customer property held by failed broker-dealers; it is not a general compensation fund for all securities-fraud losses connected to a SIPC member.
- When Congress provides an express judicial-review mechanism to resolve disputes between agencies and SIPC, the court determines statutory meaning; the SEC’s position may receive respect only to the extent it is persuasive.

## Conclusion

The court held that purchasers of CDs issued and held by a non-member foreign bank were not SIPA “customers” of the SIPC-member broker-dealer that marketed the CDs because the broker-dealer did not custody the investors’ funds or securities, and it therefore refused to compel SIPC to commence a SIPA liquidation.


Sec. & Exch. Comm’n v. Sec. Inv. Prot. Corp., 872 F. Supp. 2d 1 (D.D.C. 2012)