Investors Lose Suit Against Clearing Firm for Ponzi Losses

Today, a FINRA arbitration panel announced that it had denied an $80 million claim by investors against Pershing LLC for losses due to the infamous Stanford Ponzi-scheme.

The thrust of the claim was that Pershing LLC, as the clearing firm for the epically fraudulent broker-dealer Stanford Group (which collapsed in 2009), should have recognized that it was dealing with a major league scam. Also at issue were certain alleged gaps in Pershing’s required due diligence when it came to reviewing the CDs that Pershing cleared for Stanford.

Clearing Firm Accountability in Investment Fraud

Alas, the panel decided against the 85 mostly older investors who had put their faith along with millions of dollars in their retirements savings into Stanford. While we are not privy to the details of the case, and while we respect the arbitration panel’s decision (which, as is customary in FINRA arbitration, arrives without an explanation), we cannot help but remark that it may be time for FINRA to hold clearing firms and custodians like Pershing, who make millions and millions of dollars clearing transactions for scams like the Stanford Group, more accountable for their role in supporting and processing fishy broker-dealers and investments.

After all, in February the US Supreme Court ruled that Stanford’s victims could go ahead and take legal action against secondary actors in the scheme, like law firms and financial services companies. Surely, the Court also intended to send a message to firms that profit from but refuse to be held accountable for frauds that they may not enjoy immunity for much longer...

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