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News Americas, MIAMI, FL Fri. Sept. 14, 2012: A lawsuit against the Security and Exchange Commissions for alleged negligence over the actions of convicted Ponzi schemer Allen Stanford has been allowed to move forward.

U.S. District Judge Robert Scola Jr. this week allowed a lawsuit filed by Zelaya and George Glantz to go ahead, ruling that the complaint adequately alleges that the SEC failed to do its duty and report the scheme to the Securities Investor Protection Corporation.

The Glantz are claiming in their suit that while SEC regulators concluded that Stanford was engaged in a Ponzi scheme yet still failed to report the alleged activity to the Securities Investor Protection Corporation and approved the company’s annual registration.

“The government’s argument that a determination that Stanford’s company was operating as a Ponzi scheme is not the same as a determination that the company was in or approaching financial difficulty is not convincing,” Scola wrote. “A Ponzi scheme is a ‘fraudulent investment scheme in which money contributed by later investors generates artificially high dividends or returns for the original investors. Money from the new investors is used directly to repay or pay interest to earlier investors, usually without any operation of revenue-producing activity other than the continual raising of new funds.'”

Congress created the SIPC in 1970 to protect investors when a broker-dealer fails. It organizes the distribution of customer cash and securities back to investors and provides insurance coverage up to $500,000 of the customer’s net equity balance.

Investors were swindled by Stanford in a $7 billion Ponzi scheme.

The ruling comes as former Stanford chief investment officer, Laura Pendergest-Holt, was sentenced to three years in jail Thursday as part of a plea agreement reached with federal prosecutors. She had pleaded guilty in June to one count of obstruction of a U.S. Securities and Exchange Commission proceeding in exchange for the sentence.

Stanford, the one-time billionaire, was convicted in March on 13 of 14 fraud-related counts. In June, Hittner sentenced Stanford to 110 years in prison. He is serving his sentence in a prison in Central Florida.

Two other indicted ex-executives – Gilbert Lopez, the ex-chief accounting officer, and Mark Kuhrt, the ex-global controller – are set for trial later this month. A former Antiguan financial regulator was also indicted and awaits extradition to the U.S.

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