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
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
in December 2009 to explore these matters, and in March 2010 Chairman Kanjorski sent a letter
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
WHERE: 2128 Rayburn House Office Building
Witnesses will be announced at a later date.