By Sarah N. Lynch
WASHINGTON (Reuters) - A hearing in federal court on Tuesday gave the victims of Allen Stanford's alleged Ponzi scheme little clarity after a federal judge said he needed more time before deciding whether an industry-backed fund should be forced to let the investors file claims.
The case before the U.S. District Court for the District of Columbia centers on a dispute between the U.S. Securities and Exchange Commission and the Securities Investor Protection Corp, a non-profit corporation that helps investors recover missing funds in the event a brokerage fails.
Stanford, 61, was arrested in 2009 over charges that he ran a $7.2 billion Ponzi scheme linked to certificates of deposit issued by his Antigua-based bank.
His criminal trial began on Monday in Texas. U.S. prosecutors told the jury on Tuesday that Stanford used lies and bribes to steal customers' hard-earned savings.
The SEC in December took formal legal action to try and force SIPC to launch a liquidation proceeding in Texas so that the victims of Stanford's alleged scheme may file claims.
SIPC is standing by its decision not to intervene on behalf of Stanford investors, saying its governing law does not apply to the Stanford bank.
In a three-hour hearing in Washington on Tuesday, a lawyer for the SEC urged the court to compel SIPC to launch a liquidation proceeding.
The SEC also sought to convince District Judge Robert Wilkins that he should leave it to another court to rule on the merits of whether or not certain customers will be eligible for compensation.
"We are not saying a court will never decide the customer question," said Matthew Martens, the chief litigation counsel for the SEC. "There is a time and place for such a determination."
SIPC argues it is limited by law to protecting customers against the loss of missing cash or securities in the custody of failing or insolvent SIPC-member brokerage firms. And while Stanford's Texas-based brokerage was a SIPC member, its offshore bank was not.
Eugene Assaf, outside counsel for SIPC from Kirkland & Ellis, said the SEC is trying to punt the matter down to Texas because the agency knows it does not have the facts to back up its argument.
"One of the facts they rely on is from a coalition of people who invested. That is at best double or triple hearsay," said Assaf. "I am skeptical when I don't see facts laid out the way they are normally laid out between litigants."
SIPC said if the judge decides to order it to start a liquidation proceeding, then it in turn will be forced to litigate each matter claim by claim, a process that will cost its fund a lot of money.
Wilkins, who asked skeptical questions of both sides during the hearing, said he would try to rule soon.
Angela Shaw, the founder and director of the Stanford Victims Coalition which says it can show investor money never went to Stanford's bank and was misspent by the brokerage arm, said she was a bit disappointed by Tuesday's hearing.
"I'm confused. There seems to be no sense of urgency," said Shaw, who flew in from Texas for the hearing. "It's going to take time the victims don't have."
(Reporting By Sarah N. Lynch; Editing by Tim Dobbyn)