Ms. ROS-LEHTINEN. Mr. Speaker, during the past few years, the financial service industry has endangered the American Dream of capitalism. Each day, we learn more about those who are responsible.
It wasn't small business, the owners of these businesses or the entrepreneurs who harmed us but, rather, the Wall Street firms that manipulated the system and the Securities and Exchange Commission, SEC, that allowed greed to destroy the economy.
SEC Inspector General David Kotz, in his recent report, said that the SEC bears total responsibility for nearly $70 billion of investor losses due to the Stanford and Madoff Ponzi schemes. Thousands of additional innocent victims were allowed to lose their life savings while they mistakenly believed that the SEC was actually regulating the securities market.
What is worse is that, even today, Wall Street is attempting to manipulate the laws to avoid their responsibilities under the 1970 Securities Investor Protection Act, SIPA, and the corporation created to carry it out, the SIPC, the Securities Investor Protection Corporation.
SIPA provides $500,000 of insurance to investors against the fraud or the dishonesty of an SEC-regulated broker. Wall Street supported SIPA because it wanted to encourage investors to allow brokers to hold their securities in their street name.
For example, if you bought securities through Merrill Lynch, instead of your name appearing on the stock certificate, it was held in Merrill Lynch's name. This allowed the brokerage firms to enjoy an enormous amount of additional revenue because they could treat those securities as their own.
The quid pro quo for giving up the protection of having securities in your own name was SIPC insurance. SIPC insurance was created to protect against the dishonest broker who either steals the customer's security or who steals the customer's money and never actually purchases the securities.
Today, 40 years later, Wall Street controls SIPC because the broker-dealers are members of SIPC. As a result, SIPC has spent more money fighting investor claims than it has paid out to investors--therefore, persecuting rather than protecting investors.
SIPC has the power to assess each member firm one-quarter of 1 percent of operating revenues, but instead, it has charged its members--many of whom were large firms--only $150 per year for the privilege of promising millions of customers that they were insured. Thus, Wall Street figured out a way to have its cake and eat it, too. It advertised insurance, but in reality, never funded it; therefore, it could not provide enough funds to cover the victims' claims when Madoff collapsed.
Today, SIPC is paying the trustee and his law firm $1.5 million each week to persecute investors by depriving them of insurance and by threatening to sue those who took mandatory withdrawals from their IRA accounts. I am referring to the clawbacks that Irving Picard, the SIPC trustee, has threatened against thousands of innocent investors, whose only mistakes were to rely upon their SEC broker-dealer confirmations and monthly statements.
SIPC refuses to honor the law's mandate to honor the legitimate expectations of customers who relied upon their confirmations and statements. If investors can't rely upon those documents, the entire stock market could collapse because no customer would ever have proof that he owned any securities.
I am asking that we hold Wall Street responsible for SIPC insurance. Every dollar that SIPC doesn't pay and every dollar that the SIPC trustee claws back increases the IRS theft loss to which an investor is entitled. Thus, after not only paying SIPC premiums for 19 years, Wall Street is cleverly attempting to pass their financial obligation back to the government.
We cannot let this happen.
I am aware that the bankruptcy court has ruled in SIPC's favor on this issue, but as we all know, the court sometimes gets things wrong. Madoff investors are entitled to an immediate amendment to SIPA to clarify that it was never congressional intent that a customer of an SEC-regulated broker-dealer would be subject to a clawback suit.
Under no circumstances, except complicity with a crooked broker, should these investors be subject to clawback litigation. If necessary, I am prepared to propose such legislation. Instead of representing the best interest of the victims, the Madoff trustee is representing SIPC against the victims.
Let's do the right thing for the average American--who works hard, who saves money, and who invests in the stock market with the hope of ultimately retiring on his savings.
Mr. Speaker, I will have further remarks on this important topic, which is of great importance to my constituents, later on next week.