By Andrew Harris and Laurel Brubaker Calkins
(Updates with comment from lawyer for Antiguan-appointed receiver in sixth paragraph.)
U.S. and Antiguan-appointed receivers for R. Allen Stanford’s holdings vied in court for control of his assets as investors await payment for losses in his alleged $7 billion fraud scheme.
U.S. District Judge David Godbey in Dallas today is hearing evidence and arguments from attorneys for Ralph Janvey -- whom he appointed almost three years ago to marshal and liquidate Stanford’s business and personal holdings -- and from lawyers for executives of the global auditing firm Grant Thornton chosen by an Antiguan court for the same task.
At the heart of Stanford’s alleged fraud are certificates of deposit sold by his Antigua-based Stanford International Bank Ltd. to about 28,000 investors. That makes the island nation the legal center of interest, the two Grant Thornton receivers contend. Janvey’s lawyer, Kevin Sadler, disagreed.
“The last thing this receivership needs, the last thing that investors need, is two liquidators of the bank here in the U.S.,” Sadler told Godbey. “It duplicates work that has already been done.”
The claims and distributions could be coordinated between the U.S. and Antiguan receivers, said Gregory Grossman, lawyer for the Grant Thornton liquidators. “For reasons that have been mystifying to me, we have been unable to reach a joint protocol.”
“I’m sad to hear the mediation didn’t work,” Godbey told the attorneys. “I’m sadder that the money going to this to pay lawyers is not going to compensate the victims.”
The U.S. Securities and Exchange Commission in February 2009 sued Stanford, alleging that he and his employees lied about the CDs, telling investors the proceeds were invested in safe, liquid assets.
Lavish Spending
In reality, the SEC said, Stanford was spending that money to fund illiquid real estate ventures, a life of wealth and the operation of more than 130 companies, including his Houston- based broker dealer, Stanford Group Co. Later-arriving investors’ money was allegedly being used to pay off earlier investors.
The financier, who had been knighted by the government of Antigua and Barbuda, has been jailed as a flight risk since his June 2009 indictment by a U.S. grand jury in Houston. Among the allegations is a claim he bribed an Antiguan banking regulator to ignore irregularities.
Trial Jan. 23?
Stanford, who maintains his innocence, is scheduled to be tried on Jan. 23. At a hearing this week in Houston, defense lawyers and U.S. prosecutors are asking a judge to determine his mental fitness to stand trial. Stanford says he suffered severe memory loss in a jailhouse beating. Prosecutors say he’s faking.
“Only 20 per cent of Stanford’s victims are Americans,” Edward Davis, one of the attorneys for Grant Thornton executives Marcus Wide and Hugh Dickson, said in a phone interview before today’s hearing. “This was not a U.S.-centric fraud, although there were U.S.-centred parts. This was an offshore fraud.”
Dickson and Wide are seeking global control of Stanford’s assets, he said, with no role for the U.S. receiver.
“It’s not like they found a bunch of new money,” Sadler said before the hearing. “What are they going to do that will put new money in the investors’ pockets?”
Janvey has recovered more than $114 million in cash and $96 million in assets while spending about $102 million winding up Stanford’s operations and pursuing litigation, according to a report submitted to Godbey last month.
Amounts Recovered
The Grant Thornton receivers said in a Dec. 7 online briefing to investors said they recovered $3.2 million in Panama, obtained a freeze on real estate holdings worth $70 million and were working to recover $9 million in assets in Columbia.
“Our costs will be significantly lower with significantly higher assets,” said Davis, of Miami-based Astigarraga Davis Mullins & Grossman PA.
Antiguan law requires his clients to set up an investor distribution system, even if it duplicates the one that Janvey establishes, Davis said.
The Antiguan estate will be able to distribute more than $300 million of Stanford’s European bank funds, which are claimed by both receivers, Davis said. Custody of the funds, now frozen at the request of the U.S. Justice Department, were awarded to Antiguan control by U.K. and Swiss courts, as well as proceeds realized from the sale of Stanford’s considerable Antiguan real estate and resort properties, he said.
Getting and Spending
Stanford’s Antiguan bank “generated the money” through its CD sales, Davis said. He called the financier’s U.S. operations “the companies that spent the money.”
Opposing the Antiguan receivership’s bid for primacy, the SEC filed papers Dec. 5 with Godbey, arguing that the Stanford Ponzi scheme was Houston-born.
“The evidence is overwhelming that Stanford’s fraud (and, in fact, Stanford International Bank even if viewed in isolation) was orchestrated from the United States,” attorneys for the agency said.
Janvey and Dallas lawyer John J. Little, appointed by Godbey to advocate for investors, agreed. In a court filing last week, they said the centre of interest in the Stanford case ought to remain in the U.S.
“It is clear that the entire Stanford enterprise, including SIB, was run from the United States,” they said.
So far, those claiming they lost money with Stanford have received no pay-out.
At Victims’ Expense
“Millions of dollars have been spent litigating these jurisdictional issues -- all at the expense of the victims,” attorney Peter D. Morgenstern, a member of the Godbey-sanctioned Stanford investors’ committee, said in letter to the Justice Department last month.
The liquidation proceeding is In re Stanford International Bank Ltd., 3:09-cv-00721, U.S. District Court, Northern District of Texas (Dallas). The criminal case is U.S. v. Stanford, 4:09- cr-00342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank, 3:09-cv-00298, U.S. District Court, Northern District of Texas (Dallas).
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