A federal district judge on Tuesday delivered a blow to the victims of Allen Stanford's $7 billion Ponzi scheme, rejecting a request for an industry-backed fund to start a court proceeding that could lead to victim compensation.

The Securities and Exchange Commission had sought to force the Securities Investor Protection Corp to start liquidation proceedings for the victims, some of whom lost millions of dollars to the fraud.

The judge found that the SEC did not meet its legal burden of showing why SIPC should be compelled to act.

SIPC, which has handled high-profile liquidations such as Bernard Madoff's Ponzi scheme, contended that Stanford's offshore bank fell outside the scope of its authority.

The law, SIPC argued, limits it to protecting customers against the loss of missing cash or securities in the custody of failing or insolvent SIPC-member brokerage firms.

While Stanford's Texas-based brokerage Stanford Group Company was a SIPC member, its offshore bank was not.