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Coda to a CD scam

By Sheyna Steiner · Bankrate.com
Wednesday, June 15, 2011
Posted: 3 pm ET

In 2009, Allen Stanford was arrested for running an $8 billion investment scam. He sold extremely high-yielding, yet fake, CDs to unwitting investors.

Naturally, many of those optimistic CD buyers ended up losing their shirts when the operation was busted.

On Wednesday, the Securities and Exchange Commission, or SEC, announced that some of those investors will be getting their money back.

From the press release:

The Commission further determined that, in light of all of the facts and circumstances in this case, the customers' claims should be based on their net investment in the fraudulent CDs used to carry out the Ponzi scheme.

A SIPA (or Securities Investor Protection Act) liquidation proceeding would allow investors with accounts at SGC to file claims with a trustee selected by SIPC. The trustee would decide whether the investors have "customer" claims that are protected by the statute. An investor who disagreed with the trustee's determination could seek court review.

SIPC is somewhat similar to the FDIC but for brokerages. It stands for the Securities Investor Protection Corp.

That doesn't sound like the aggrieved parties will be guaranteed restitution but it may be something.

CDs are generally one of the safest investment vehicles available. That makes them appealing bait for scammers to use. If you see an offer for dizzyingly high CD rates, think twice before reaching for your checkbook.

Read the blog post "More ways to sniff out a CD scam" for more on staying safe when shopping for a CD.

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6 Comments
R. Gonzalez
June 20, 2011 at 9:46 am

If people want to invest money, invest it in a business.. That is safer than cd's

Sheyna Steiner
June 17, 2011 at 8:37 am

This is exactly why this scam was so insidious. As with Bernie Madoff, Stanford was a respected businessman with all the trappings of wealth and authority.

Many of the people he ripped off were non-US citizens and as I understand the story, he promised them the safety of the U.S. banking system while promising U.S. investors extremely high yields.

The Stanford International Bank did not operate like a normal bank and provided very little information about how they could offer such high returns.

That should certainly have been a red flag.

J Christopher
June 16, 2011 at 10:33 pm

What were they thinking?

_
June 16, 2011 at 1:32 pm

Why would anyone buy a CD that is not insured by the FDIC?

J Christopher
June 15, 2011 at 10:52 pm

Oh man, folks suckered by fake CDs? If it sounds too good to be true......