Securities Law Blog

The Securities Investor Protection Corp. (SIPC) discovered Monday March 8, 2010 that a web site called i-sipc.com was mimicking the SIPC web site, sipc.org. Using the name International Securities Investor Protection Corp., “I-SIPC”, the site modeled itself after the SIPC site. It copied both the structural design and artwork in an alleged attempt to obtain sensitive information or money from victims of the Bernard Madoff Ponzi scheme.

The real SIPC works to restore funds to investors with assets in the hands of bankrupt and otherwise financially troubled brokerage firms. The SIPC will act as trustee or an independent court-appointed trustee in a brokerage solvency case to recover funds. Since the collapse of the Madoff scam, the SIPC has been providing funds up to $500,000 to certain investors who lost money. In order to utilize the organizations services, the victims provide their financial and other personal information.

The fake copycat group claims to be based in Geneva, as well as having ties to the United Nations and the International Monetary Fund. The site published images of stacks of U.S currency totaling $1.3 billion which was claimed to have been recovered in Malaysia in collaboration with Interpol. In an attempt to further legitimize its claims, the site posted alleged statements from Madoff victims who reported receiving funds from I-SPIC. The quotes were later found to have been lifted from a New York Times article and taken out of context.

“Investors who lose money in widely publicized schemes are often targeted by con artists looking to cash in on the victim’s desire to recover losses,” said Lori Schock, Director of the SEC’s Office of Investor Education Advocacy. “Victims of fraudulent schemes should be aware that such refund schemes commonly exist, and can be perpetrated through copycat web sites that appear similar to those of actual regulators or other organizations.”

According to SIPC President, Stephen Harbeck, SIPC learned of the phony site when an individual contacted the organization asking about the legitimacy of the I-SPIC. The individual had contacted I-SPIC via email, and received a response directing him to send $1,000 to an offshore account. Since the reported incident, the phony site has been disabled.

The appellate body of the Financial Industry Regulation Authority (FINRA) issued a ruling dismissing the charges against two senior personnel of Knight Securities, Kenneth Pasternak and John Leighton. The National Adjudicatory Council (NAC) reversed an earlier FINRA Hearing Panel decision that found the former CEO and the head of the firm’s Institutional Sales Desk, responsible for supervisory failures.

The original charges filed against Mr. Pasternak and Mr. Leighton stemmed from a March 2005 charging memorandum which alleged that “Pasternak and Leighton did not take reasonable steps to ensure that Knight Securities’ leading institutional sales trader adhered to ‘industry standards’ when executing orders for institutional customers.”

The NAC determined that FINRA failed to satisfy its burden of proof in relation to the 2005 allegations. According to the NAC, the evidence presented by FINRA did not support the claim that Mr. Pasternak and Mr. Leighton failed provide reasonable supervision, nor did it support allegations that Mr. Pasternak did not respond appropriately to “red flags” in relation to the sales trader’s execution of institutional customer orders.

The $100,000 fines, and other sanctions imposed on the two men were vacated by the NAC’s ruling.