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In the legislative scrum of Congress, winning means building a broad coalition. That's why victims of Bernard Madoff and accused Texas Ponzi schemer R. Allen Stanford are banding together to lobby for something neither group is influential enough to secure alone: a law that would help them recover some of their money.
Each group suffered losses that, for different reasons, aren't covered by the federal Securities Investor Protection Corp., which safeguards investment accounts against fraud or bankruptcy. Many of the Madoff victims are so-called "winners" who withdrew more money from the funds than they put in but want to be paid restitution for phantom returns they thought they were earning; the SIPC has refused to honor those claims. The Stanford victims aren't eligible for the fund, the SIPC says, because they bought their fraudulent securities from a foreign bank—Stanford's products were issued by a bank in Antigua—even though his firm had U.S. operations and made payments to the SIPC.
Realizing that a broader geographic base of support could improve their chance of success, investors defrauded by Madoff, mostly East Coast, Jewish, and backed by Democrats on the Senate Banking Committee, have linked up with the largely Christian, Sunbelt residents victimized by Stanford, who are supported by Republicans on the panel. Together, the groups hope to persuade the Senate to require brokerage firms to pay about $4 billion in additional fees to the SIPC, and to get the fund to grant them up to $500,000 each in compensation.
"We had been trying for a year, breaking our necks to get attention from Democratic members," says Angela Shaw, 40, of Dallas, whose family lost $4.5Â million investing with Stanford. "Working together, maybe [we] will be heard."
Even after joining forces, the victims have a tough fight ahead. Stephen P. Harbeck, president of the SIPC, says his fund has enough money to cover all legally permissible claims up to the $500,000 maximum. "Speaking only for myself, I cannot see where it would be good policy to change the law to pay fictional, contrived investment profits in a Ponzi scheme," he says. The Senate Banking Committee has not met formally to discuss the compensation request; the House in December passed a measure without restitution.
In the Senate, the Stanford victims found support among banking panelists from hard-hit Southern states, including ranking member Richard Shelby (R-Ala.)and David Vitter (R-La.), says Shaw. She needed Democratic votes, so an aide to Vitter suggested she join forces with Helen Davis Chaitman, 68, a New York-based lawyer with Becker & Poliakoff who lost her life savings to Madoff and is leading the effort on behalf of her fellow victims.
Senate Banking Committee Chairman Chris Dodd (D-Conn.) is sympathetic to their cause, Chaitman says, as are Senators Charles Schumer (D-N.Y.), Jack Reed (D-R.I.), and Robert Menendez (D-N.J.).
Madoff pleaded guilty to a $65Â billion fraud and is now serving a 150-year prison sentence. Stanford was indicted in June of defrauding at least 30,000 investors of $7 billion through a Ponzi scheme that sold allegedly bogus certificates of deposit. Stanford, in jail awaiting trial, denies the charges.
Chaitman, who started her campaign on behalf of 350 Madoff victims about eight months ago and has since met with more than 70 lawmakers or their staff, vows not to quit. "Someone has to stand up to Wall Street at some point," she says.