Senator blocks SEC nominees in dispute over relief for alleged Ponzi scheme victims

June 14, 2011

A member of the Senate is blocking President Obama’s nominees for two seats at the Securities and Exchange Commission until the agency decides whether victims of an alleged Ponzi scheme are entitled to financial relief.

Sen. David Vitter (R-La.) said Tuesday that he will hold up the nominations until the SEC decides whether victims of an alleged multibillion-dollar scam by R. Allen Stanford qualify for a form of insurance through an organization called the Securities Investor Protection Corp.

The SIPC, created by the government and overseen by the SEC, covers investors’ losses in accounts at failed brokerage firms up to certain limits, in much the way the FDIC insures bank deposits.

Stanford investors have been calling for SIPC coverage, but their claim is in question because the alleged fraud involved both a brokerage and another entity not covered by the SIPC.

The SEC has been reviewing the issue, and SEC Chairman Mary L. Schapiro has recently said the agency is close to a decision.

Vitter accused the agency of moving too slowly.

“We’ve known for some time that the SEC waited far too long to take action against Allen Stanford, and now they’re dragging their feet in responding to the victims,” Vitter said in a statement.

“I will continue to hold them accountable — including holding up these nominations -- until these fraud victims get an up-or-down answer from the SEC” so they can appeal in court if necessary, Vitter said.

Stanford’s alleged victims include many residents of his home state of Louisiana, Vitter said.

Bringing a new commissioner into the SEC’s decision-making could delay a ruling, Vitter said.

Obama has nominated Democratic SEC commissioner Luis A. Aguilar to a second term. He also nominated Republican lawyer Daniel M. Gallagher Jr. to fill a Republican opening.

Gallagher formerly held a number of jobs at the SEC, including advising then chairman Christopher Cox, an appointee of President George W. Bush.

Gallagher is a partner at the law firm WilmerHale, where he has advised companies regulated by the SEC.

The hold does not prevent the Senate Banking Committtee from advancing the nominations to the full Senate, and committee chairman Tim Johnson (D-S.D.) plans to hold a vote in the next few weeks on sending them to the Senate floor, said a Democratic aide who spoke on condition of anonymity because of the matter’s sensitivity.

The nominations come at a time when the SEC is struggling to implement the sweeping Wall Street overhaul that Congress enacted last year in response to the financial crisis.

The SEC said last week that it would miss a July target date to write key rules implementing the Dodd-Frank Act and would therefore give Wall Street a temporary reprieve.

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