Stanford International Victims Group are pleased to announce the creation of a new forum which can be found at:
http://sivg.org.ag/
Saturday 8 December 2012
Friday 7 December 2012
Receiver, liquidators end fight over Stanford assets
Ponzi schemer R. Allen Stanford's Antiguan liquidators have agreed to cooperate with his U.S. receiver and federal prosecutors to jointly control the convicted financier's remaining assets, the liquidators said.
The receiver and liquidators have battled for control of Stanford's assets since U.S. regulators seized his companies in February 2009.
The agreement announced Thursday by liquidators Hugh Dickson and Marcus Wide, and independently confirmed by Kevin Sadler, a lawyer for the court-appointed U.S. receiver, clears one of the last obstacles to compensating victims of Stanford's investment scheme.
The parties "reached an agreement in principle that, if finalized and approved by the relevant authorities," would result in coordination of victim claims, increased information sharing and cooperation on asset recovery, Wide and Dickson said in an e-mailed statement.
An estimated 20,000 investors were defrauded of more than $7 billion through a Ponzi scheme that Stanford created around bogus certificates of deposit sold by Antigua-based Stanford International Bank Ltd.
Stanford, 63, was convicted in March of leading the fraud and stealing more than $2 billion to finance a lavish lifestyle and an array of money-losing ventures, ranging from Caribbean resort developments to cricket tournaments.
He is serving a 110-year sentence in a federal prison in Florida as he appeals his conviction and sentence.
Ralph Janvey was appointed receiver by a federal judge in Dallas to marshal Stanford's assets and wind down his companies in the U.S. and abroad. London-based Wide and Dickson were appointed by an Antiguan court to do the same.
"This is a multistep process that will play out over the next several weeks, which is definitely under way," Sadler said. "We're not leaving some disputes to be resolved later."
The Justice Department obtained an administrative freeze on more than $300 million in overseas accounts.
The accord also represents "a resolution of pending disputes concerning funds now frozen in the U.K., Canada and Switzerland, and a release of funds for distribution to Stanford's investor victims," the liquidators said.
Sadler, Janvey's lead lawyer, confirmed in an e-mail that the cooperation accord had been reached but didn't disclose details.
The receiver and liquidators have battled for control of Stanford's assets since U.S. regulators seized his companies in February 2009.
The agreement announced Thursday by liquidators Hugh Dickson and Marcus Wide, and independently confirmed by Kevin Sadler, a lawyer for the court-appointed U.S. receiver, clears one of the last obstacles to compensating victims of Stanford's investment scheme.
The parties "reached an agreement in principle that, if finalized and approved by the relevant authorities," would result in coordination of victim claims, increased information sharing and cooperation on asset recovery, Wide and Dickson said in an e-mailed statement.
An estimated 20,000 investors were defrauded of more than $7 billion through a Ponzi scheme that Stanford created around bogus certificates of deposit sold by Antigua-based Stanford International Bank Ltd.
Stanford, 63, was convicted in March of leading the fraud and stealing more than $2 billion to finance a lavish lifestyle and an array of money-losing ventures, ranging from Caribbean resort developments to cricket tournaments.
He is serving a 110-year sentence in a federal prison in Florida as he appeals his conviction and sentence.
Ralph Janvey was appointed receiver by a federal judge in Dallas to marshal Stanford's assets and wind down his companies in the U.S. and abroad. London-based Wide and Dickson were appointed by an Antiguan court to do the same.
"This is a multistep process that will play out over the next several weeks, which is definitely under way," Sadler said. "We're not leaving some disputes to be resolved later."
The Justice Department obtained an administrative freeze on more than $300 million in overseas accounts.
The accord also represents "a resolution of pending disputes concerning funds now frozen in the U.K., Canada and Switzerland, and a release of funds for distribution to Stanford's investor victims," the liquidators said.
Sadler, Janvey's lead lawyer, confirmed in an e-mail that the cooperation accord had been reached but didn't disclose details.
Thursday 6 December 2012
Joint Statement of the U.S. Receiver (Ralph Janvey), the Joint Liquidators (Marcus Wide and Hugh Dickson), and the U.S. Examiner (John Little)
Joint Statement of the U.S. Receiver (Ralph Janvey), the Joint Liquidators
(Marcus Wide and Hugh Dickson), and the U.S. Examiner (John Little)
Agreement reached in principle
ANTIGUA-December 5, 2012-- After extensive negotiations, and with the input of United States DOJ and SEC representatives, the U.S. Receiver (Ralph Janvey), the Joint Liquidators (Marcus Wide and Hugh Dickson), and the U.S. Examiner (John Little) have reached an agreement, in principle, that, if finalized and approved by the relevant authorities, would result in (a) coordination between the U.S. Receiver and the Joint Liquidators concerning their respective claim processes, (b) increased sharing of information, (c) cooperation with respect to the asset recovery and some of the other litigation efforts, (d) a resolution of pending disputes concerning funds now frozen in the United Kingdom, Canada and Switzerland, and (e) a release of funds for distribution to Stanford's investor-victims.
We are working on finalizing a definitive settlement agreement, which we hope to be able to present in the near future for public comment and court approval. To facilitate their discussions, all of the participants have agreed to keep these negotiations confidential until definitive agreement is reached or the parties conclude that no agreement will be possible. The U.S. Receiver, the Joint Liquidators and the U.S. Examiner have agreed to release this statement so that Stanford victims know that the various participants are continuing to work to reach an agreement that will achieve the goals set forth above. We continue to have your interests at the forefront and we understand the very difficult circumstances you face as victims.
Judge approves Stanford class action lawsuit
By Bill Lodge
Advocate staff writer
A civil suit by 86 defrauded investors was certified by a Baton Rouge judge Wednesday as a class action against Louisiana’s regulator of financial institutions and a Pennsylvania company that compiled customer financial statements on behalf of convicted swindler Robert Allen Stanford.
The ruling by state District Judge R. Michael Caldwell could open the door for some 1,000 investors damaged by Stanford’s fraudulent $7.2 billion scheme to join the suit. Those people now have the option to join the original plaintiffs in seeking judgments against the Louisiana Office of Financial Institutions, or OFI, and the financial services firm of SEI Investments Co.
If investors win that suit, OFI and SEI could share liability for as much as $1 billion in losses in Louisiana, according to estimates by their attorneys.
SEI took investment-performance information from Stanford, now serving a prison term of 110 years, and used it for financial statements that went to investors. But both the Pennsylvania firm and OFI deny failing any obligations to investors.
“I do certify this lawsuit as a class action,” Caldwell told a courtroom populated by former Stanford investors and attorneys for all sides in the litigation.
The judge noted his decision merely opens the door for more defrauded investors to join the lawsuit against OFI and SEI. Additional litigation will be needed to determine whether those investors are entitled to recover any money from the two defendants for allegedly failing an obligation to warn them of indicators of fraud on Stanford’s part.
Many people lost their money, Caldwell said, adding that there were more than 1,000 investor accounts at Stanford Trust Co. in Baton Rouge.
Additional investors’ money was drawn into the scheme through Stanford Group Co. “Some of them lost all of their money,” Caldwell said of the victims. “Some of them lost hundreds of thousands of dollars, and some of them lost millions.”
Phil Preis, lead attorney for the plaintiffs, said Caldwell’s ruling “affords the people of Louisiana their day in court.” Preis said his clients “are overjoyed.”
Zachary resident and Stanford victim Kathy Mier said, “I am very, very, very excited, very happy. Someone has listened, and I’m ready to go on.”
Mier and her husband, Louis Mier, lost $240,000 of their retirement nest egg to Stanford, 62. “
For the first time in a long time, I felt like someone really listened to us, and we’re moving forward with our fight,” Kathy Mier said.
Debbie and Ken Dougherty, of Central, recovered their principal investment in Stanford’s certificates of deposit at his bank on the Caribbean island of Antigua before federal officials shut down his operations in February 2009. But they continue to face demands from a court-appointed receivership in Dallas for return of more than $100,000 in profits.
“I know this is just one hurdle, but it’s huge,” Debbie Dougherty said after Caldwell’s certification of the class action lawsuit. “If we can get something for those folks who got nothing, then this (court fight) will be worth it.”
Attorneys for OFI and SEI, however, said long before Caldwell’s ruling that the government agency and financial services corporation did not violate any obligations to investors and will fight investor claims in court.
“The role of OFI is to regulate, not to ensure that those who invest in companies subject to OFI regulation will never lose money as a result of criminal actions,” OFI attorney David Latham wrote in one court filing.
In May 2011, however, former Stanford employee-turned-whistleblower Charles W. Rawl testified in Washington, D.C., before the House Financial Services Subcommittee on Oversight and Investigations. Rawl told members of Congress that he advised OFI officials of corrupt Stanford practices in 2008.
In late summer 2008, Rawl testified, OFI officials blocked future sale of additional Stanford bank certificates of deposit into Individual Retirement Accounts at Stanford Trust Co.
Preis said after Caldwell’s ruling: “The state examined the trust company. For a period of four years, we allege, they (OFI officials) knew of (Stanford’s) Ponzi scheme.”
A Ponzi is not a legitimate investment program. From beginning to end, it is intended to do nothing more than drain money from investors and transfer those assets to criminals. Early investors are paid dividends in order to attract new investors, whose money prolongs the scheme.
Both the Securities and Exchange Commission and the U.S. Attorney’s Office in Houston alleged in 2009 that Stanford’s operations were fraudulent from the beginning. Federal judges in Dallas and Houston have since agreed with that assessment.
But those court rulings have yet to benefit any defrauded investors. And they did not target any blame toward OFI and SEI.
SEI attorney J. Gordon Cooney Jr. told Caldwell two months ago that SEI did not falsify any information in investors’ financial statements, which routinely showed healthy profits, even as Stanford’s worldwide empire was collapsing.
All financial information used in those statements was provided by Stanford or his employees, Cooney added. He said SEI did not knowingly participate in the dissemination of false information to investors.
Advocate staff writer
A civil suit by 86 defrauded investors was certified by a Baton Rouge judge Wednesday as a class action against Louisiana’s regulator of financial institutions and a Pennsylvania company that compiled customer financial statements on behalf of convicted swindler Robert Allen Stanford.
The ruling by state District Judge R. Michael Caldwell could open the door for some 1,000 investors damaged by Stanford’s fraudulent $7.2 billion scheme to join the suit. Those people now have the option to join the original plaintiffs in seeking judgments against the Louisiana Office of Financial Institutions, or OFI, and the financial services firm of SEI Investments Co.
If investors win that suit, OFI and SEI could share liability for as much as $1 billion in losses in Louisiana, according to estimates by their attorneys.
SEI took investment-performance information from Stanford, now serving a prison term of 110 years, and used it for financial statements that went to investors. But both the Pennsylvania firm and OFI deny failing any obligations to investors.
“I do certify this lawsuit as a class action,” Caldwell told a courtroom populated by former Stanford investors and attorneys for all sides in the litigation.
The judge noted his decision merely opens the door for more defrauded investors to join the lawsuit against OFI and SEI. Additional litigation will be needed to determine whether those investors are entitled to recover any money from the two defendants for allegedly failing an obligation to warn them of indicators of fraud on Stanford’s part.
Many people lost their money, Caldwell said, adding that there were more than 1,000 investor accounts at Stanford Trust Co. in Baton Rouge.
Additional investors’ money was drawn into the scheme through Stanford Group Co. “Some of them lost all of their money,” Caldwell said of the victims. “Some of them lost hundreds of thousands of dollars, and some of them lost millions.”
Phil Preis, lead attorney for the plaintiffs, said Caldwell’s ruling “affords the people of Louisiana their day in court.” Preis said his clients “are overjoyed.”
Zachary resident and Stanford victim Kathy Mier said, “I am very, very, very excited, very happy. Someone has listened, and I’m ready to go on.”
Mier and her husband, Louis Mier, lost $240,000 of their retirement nest egg to Stanford, 62. “
For the first time in a long time, I felt like someone really listened to us, and we’re moving forward with our fight,” Kathy Mier said.
Debbie and Ken Dougherty, of Central, recovered their principal investment in Stanford’s certificates of deposit at his bank on the Caribbean island of Antigua before federal officials shut down his operations in February 2009. But they continue to face demands from a court-appointed receivership in Dallas for return of more than $100,000 in profits.
“I know this is just one hurdle, but it’s huge,” Debbie Dougherty said after Caldwell’s certification of the class action lawsuit. “If we can get something for those folks who got nothing, then this (court fight) will be worth it.”
Attorneys for OFI and SEI, however, said long before Caldwell’s ruling that the government agency and financial services corporation did not violate any obligations to investors and will fight investor claims in court.
“The role of OFI is to regulate, not to ensure that those who invest in companies subject to OFI regulation will never lose money as a result of criminal actions,” OFI attorney David Latham wrote in one court filing.
In May 2011, however, former Stanford employee-turned-whistleblower Charles W. Rawl testified in Washington, D.C., before the House Financial Services Subcommittee on Oversight and Investigations. Rawl told members of Congress that he advised OFI officials of corrupt Stanford practices in 2008.
In late summer 2008, Rawl testified, OFI officials blocked future sale of additional Stanford bank certificates of deposit into Individual Retirement Accounts at Stanford Trust Co.
Preis said after Caldwell’s ruling: “The state examined the trust company. For a period of four years, we allege, they (OFI officials) knew of (Stanford’s) Ponzi scheme.”
A Ponzi is not a legitimate investment program. From beginning to end, it is intended to do nothing more than drain money from investors and transfer those assets to criminals. Early investors are paid dividends in order to attract new investors, whose money prolongs the scheme.
Both the Securities and Exchange Commission and the U.S. Attorney’s Office in Houston alleged in 2009 that Stanford’s operations were fraudulent from the beginning. Federal judges in Dallas and Houston have since agreed with that assessment.
But those court rulings have yet to benefit any defrauded investors. And they did not target any blame toward OFI and SEI.
SEI attorney J. Gordon Cooney Jr. told Caldwell two months ago that SEI did not falsify any information in investors’ financial statements, which routinely showed healthy profits, even as Stanford’s worldwide empire was collapsing.
All financial information used in those statements was provided by Stanford or his employees, Cooney added. He said SEI did not knowingly participate in the dissemination of false information to investors.
Tuesday 4 December 2012
Stanford's Coconspirators Guilty of Fraud
By Teresa Ambord
It wasn't our fraud! That was a big part of the overall defense presented by two men accused of helping Texas financier R. Allen Stanford cover his tracks when he bilked trusting investors out of $7 billion. The jury took sixteen hours of deliberation over a three-day period to find the men guilty of conspiracy to hide a massive wire fraud scheme.
Stanford's chief accounting officer, seventy-year-old Gilbert Lopez, and global controller, forty-year-old Mark Kuhrt, were each convicted of nine out of ten wire fraud counts and one count of conspiracy to commit fraud.
The Ponzi scheme
Stanford's fraud involved the selling of bogus certificates of deposit at Stanford International Bank, Ltd. based in Antigua. According to prosecutors, Stanford advised investors that their funds were being put into conservative liquid assets and overseen by international money managers. In reality, evidence showed that Stanford and his finance chief, James M. Davis, controlled about 80 percent of the money. Stanford used the money to pay for yachts, private jets, and waterfront mansions. He also used some to finance his own risky business ventures, like cricket tournaments, a Caribbean airline, and resort developments.
Stanford himself was convicted last March and is now serving 110 years in a Florida federal prison. His attorneys are appealing his sentence. Davis is awaiting sentencing, after he pled guilty and testified against Stanford.
Where do Lopez and Kuhrt fit into the scheme?
Defense attorneys for Lopez and Kuhrt told jurors that their clients never intended to falsify records or break any laws. They relied on investment returns given them by Davis and Stanford. Those figures were used to create what turned out to be false financial statements, which unsuspecting investors relied on. In fact, the attorneys said, Lopez and Kuhrt tried to get Davis to publicly disclose that Stanford himself borrowed most of the funds that were supposed to be in investments, but they were overruled by Davis.
"There's no doubt whatsoever there was a massive fraud going on, but it was a Stanford and Davis fraud, not a Lopez and Kuhrt fraud," said Kuhrt's attorney, Richard Kuniansky.
However, prosecutor Jason Varnado told jurors, "They knew the bank was doing one thing and promising investors another, and they helped hide it. The only explanation for that is a criminal explanation."
Other employees were also involved in tracking the stolen funds, but Lopez and Kuhrt are the last to face criminal trial. Following their convictions, the government recommended allowing the men to remain free on bail until they appear before District Judge David Hittner (who presided over the trial) for sentencing on February 14. However, Hittner ordered both men taken into custody.
"Based on the facts in this case, and this being an international scheme, I believe there are enough potential contacts out there that I decline to allow them to remain free," Hittner said.
Attorneys for both men will appeal.
It wasn't our fraud! That was a big part of the overall defense presented by two men accused of helping Texas financier R. Allen Stanford cover his tracks when he bilked trusting investors out of $7 billion. The jury took sixteen hours of deliberation over a three-day period to find the men guilty of conspiracy to hide a massive wire fraud scheme.
Stanford's chief accounting officer, seventy-year-old Gilbert Lopez, and global controller, forty-year-old Mark Kuhrt, were each convicted of nine out of ten wire fraud counts and one count of conspiracy to commit fraud.
The Ponzi scheme
Stanford's fraud involved the selling of bogus certificates of deposit at Stanford International Bank, Ltd. based in Antigua. According to prosecutors, Stanford advised investors that their funds were being put into conservative liquid assets and overseen by international money managers. In reality, evidence showed that Stanford and his finance chief, James M. Davis, controlled about 80 percent of the money. Stanford used the money to pay for yachts, private jets, and waterfront mansions. He also used some to finance his own risky business ventures, like cricket tournaments, a Caribbean airline, and resort developments.
Stanford himself was convicted last March and is now serving 110 years in a Florida federal prison. His attorneys are appealing his sentence. Davis is awaiting sentencing, after he pled guilty and testified against Stanford.
Where do Lopez and Kuhrt fit into the scheme?
Defense attorneys for Lopez and Kuhrt told jurors that their clients never intended to falsify records or break any laws. They relied on investment returns given them by Davis and Stanford. Those figures were used to create what turned out to be false financial statements, which unsuspecting investors relied on. In fact, the attorneys said, Lopez and Kuhrt tried to get Davis to publicly disclose that Stanford himself borrowed most of the funds that were supposed to be in investments, but they were overruled by Davis.
"There's no doubt whatsoever there was a massive fraud going on, but it was a Stanford and Davis fraud, not a Lopez and Kuhrt fraud," said Kuhrt's attorney, Richard Kuniansky.
However, prosecutor Jason Varnado told jurors, "They knew the bank was doing one thing and promising investors another, and they helped hide it. The only explanation for that is a criminal explanation."
Other employees were also involved in tracking the stolen funds, but Lopez and Kuhrt are the last to face criminal trial. Following their convictions, the government recommended allowing the men to remain free on bail until they appear before District Judge David Hittner (who presided over the trial) for sentencing on February 14. However, Hittner ordered both men taken into custody.
"Based on the facts in this case, and this being an international scheme, I believe there are enough potential contacts out there that I decline to allow them to remain free," Hittner said.
Attorneys for both men will appeal.
Thursday 29 November 2012
Sentence date set for ex-Stanford CFO
by Patsy R. Brumfield/NEMS Daily Journal
James M. Davis, former chief financial officer for the failed Stanford Financial Group Co., will be sentenced Jan. 22 in Houston, Texas, for his admissions in the $7.2 billion scandal.
Davis once lived in Union County and worked out of Stanford offices in Tupelo and Memphis.
In September 2009, he admitted to his part in helping his boss, R. Allen Stanford, carry out a years-long Ponzi scheme on some 20,000 investors worldwide.
Scores of Mississippians were among the victims and have yet to receive any compensation for their losses of life savings and retirement funds invested in certificates of deposit through his Antigua-based Stanford International Bank Ltd.
Many of the investors say they were assured by local financial advisers that their investments were federally insured. They were not, and debates continue in court and on Capitol Hill about who should assist victims.
Before Davis’ sentencing, victims may send written statements or ask to speak to the court.
A court-appointed receiver seized all Stanford and other defendants’ assets to liquidate for a victims fund.
Davis faces up to 30 years in prison but said he hopes for leniency as the government’s key witness against Stanford.
Last March, a jury found Stanford guilty of masterminding the scheme in Houston, where he built his financial empire more than two decades ago.
U.S. District Judge David Hittner sentenced him to 110 years in prison. Hittner also will sentence Davis in Houston.
Laura Pendergest-Holt, a Baldwyn native, was Stanford’s chief investment officer. She admitted to obstructing a federal investigation of her employer and is serving a three-year term in prison.
Last week, another jury found guilty two other former Stanford executives. They have not been sentenced. Davis was a key witness at their trial.
James M. Davis, former chief financial officer for the failed Stanford Financial Group Co., will be sentenced Jan. 22 in Houston, Texas, for his admissions in the $7.2 billion scandal.
Davis once lived in Union County and worked out of Stanford offices in Tupelo and Memphis.
In September 2009, he admitted to his part in helping his boss, R. Allen Stanford, carry out a years-long Ponzi scheme on some 20,000 investors worldwide.
Scores of Mississippians were among the victims and have yet to receive any compensation for their losses of life savings and retirement funds invested in certificates of deposit through his Antigua-based Stanford International Bank Ltd.
Many of the investors say they were assured by local financial advisers that their investments were federally insured. They were not, and debates continue in court and on Capitol Hill about who should assist victims.
Before Davis’ sentencing, victims may send written statements or ask to speak to the court.
A court-appointed receiver seized all Stanford and other defendants’ assets to liquidate for a victims fund.
Davis faces up to 30 years in prison but said he hopes for leniency as the government’s key witness against Stanford.
Last March, a jury found Stanford guilty of masterminding the scheme in Houston, where he built his financial empire more than two decades ago.
U.S. District Judge David Hittner sentenced him to 110 years in prison. Hittner also will sentence Davis in Houston.
Laura Pendergest-Holt, a Baldwyn native, was Stanford’s chief investment officer. She admitted to obstructing a federal investigation of her employer and is serving a three-year term in prison.
Last week, another jury found guilty two other former Stanford executives. They have not been sentenced. Davis was a key witness at their trial.
Tuesday 27 November 2012
Lawsuit by Allen Stanford's victims targets his key helpers
Loren Steffy
Published: Tuesday, November 27, 2012 at 1:00 a.m.
Allen Stanford couldn't have acted alone.
That's the idea behind a lawsuit filed last week by a group of investors he ripped off and the receiver appointed to recover assets for them.
Stanford, of course, was convicted of fraud and is serving 110 years in prison. Two top lieutenants have pleaded guilty, and two others were convicted by a Houston jury last week.
But none possessed the legal, banking and international business expertise to enable Stanford -- a former bankrupt gym owner from Mexia, Texas -- to create a fraud that spanned more than 100 countries and swindled $7.2 billion from about 30,000 investors.
"How could it be that five people alone could do this?" asked Angela Shaw, head of the Stanford Victims Coalition, which represents investors and is a party to the 172-page lawsuit.
Her answer: They had help. They had lawyers.
Stanford's Ponzi scheme, the lawsuit contends, wouldn't have grown so large and enveloped so many without the legal expertise of two law firms, Greenberg Traurig and Hunton & Williams, which collected millions in fees from their Stanford work.
Stanford's longtime outside counsel, Carlos Loumiet, worked for both firms and consistently provided the legal advice Stanford needed to perpetuate his fraud, the lawsuit alleges.
With his lawyers' help, the lawsuit alleges, Stanford hijacked the Caribbean nation of Antigua and used it as a shield for his fraudulent banking and investment businesses, which were run from Houston.
Those people who set that up in Antigua, they were with Stanford from the very beginning," Shaw said. "They precipitated in the whole thing. They set this up, saw it through, and then they all walked away."
Stanford himself acknowledged Loumiet's role, telling the lawyer in a 2006 email that "I wouldn't be where I am today without you," according to the lawsuit.
Loumiet wasn't named as a defendant in the lawsuit, but many of its allegations focus on his actions. When the lawsuit was filed last week, he issued a statement saying, "I have never represented anyone that I knew was engaged in wrongdoing. And, after years of investigations by the federal government and months of trials involving Allen Stanford and his co-defendants, I have not been implicated in any wrongdoing."
The suit seeks $1.8 billion in damages from the firms, which denied the allegations, saying investors are simply trying to "pry open a deep pocket" to repay their losses.
Yet the lawsuit lays out excruciating detail how Loumiet knew Stanford's business was a sham. For example, it notes that Loumiet did the legal work on a deal in which Stanford lent the Antiguan government $30 million in 1994 for a hospital. Another Greenberg partner warned Loumiet of mounting financial problems inside Stanford's bank and expressed concern that Stanford couldn't cover the amount of the loan, according to an email included in the lawsuit.
Unfortunately, this pattern is familiar. Law firms are happy to collect big fees, look the other way while companies commit fraud, then feign ignorance.
For example, Vinson & Elkins and Andrews Kurth wound up paying hefty fines -- $30 million and $18.5 million respectively -- to settle civil claims that they provided the legal grease for Enron Corp.'s fraudulent machinations.
In Southwest Florida, high-profile law firm Holland & Knight agreed in August to pay $25 million to settle a suit accusing it of not reporting illegal activities at Scoop Management hedge funds that Arthur Nadel operated in downtown Sarasota.
For more than 20 years, Stanford dodged almost two dozen investigations in the U.S. and elsewhere. His strategy ran the gamut from finesse to bullying.
Stanford had the charisma that all con men need, but that alone couldn't have created the global veneer of legitimacy that allowed him to fleece thousands of investors and balloon his fraud to historic proportions.
For that, he had help.
Published: Tuesday, November 27, 2012 at 1:00 a.m.
Allen Stanford couldn't have acted alone.
That's the idea behind a lawsuit filed last week by a group of investors he ripped off and the receiver appointed to recover assets for them.
Stanford, of course, was convicted of fraud and is serving 110 years in prison. Two top lieutenants have pleaded guilty, and two others were convicted by a Houston jury last week.
But none possessed the legal, banking and international business expertise to enable Stanford -- a former bankrupt gym owner from Mexia, Texas -- to create a fraud that spanned more than 100 countries and swindled $7.2 billion from about 30,000 investors.
"How could it be that five people alone could do this?" asked Angela Shaw, head of the Stanford Victims Coalition, which represents investors and is a party to the 172-page lawsuit.
Her answer: They had help. They had lawyers.
Stanford's Ponzi scheme, the lawsuit contends, wouldn't have grown so large and enveloped so many without the legal expertise of two law firms, Greenberg Traurig and Hunton & Williams, which collected millions in fees from their Stanford work.
Stanford's longtime outside counsel, Carlos Loumiet, worked for both firms and consistently provided the legal advice Stanford needed to perpetuate his fraud, the lawsuit alleges.
With his lawyers' help, the lawsuit alleges, Stanford hijacked the Caribbean nation of Antigua and used it as a shield for his fraudulent banking and investment businesses, which were run from Houston.
Those people who set that up in Antigua, they were with Stanford from the very beginning," Shaw said. "They precipitated in the whole thing. They set this up, saw it through, and then they all walked away."
Stanford himself acknowledged Loumiet's role, telling the lawyer in a 2006 email that "I wouldn't be where I am today without you," according to the lawsuit.
Loumiet wasn't named as a defendant in the lawsuit, but many of its allegations focus on his actions. When the lawsuit was filed last week, he issued a statement saying, "I have never represented anyone that I knew was engaged in wrongdoing. And, after years of investigations by the federal government and months of trials involving Allen Stanford and his co-defendants, I have not been implicated in any wrongdoing."
The suit seeks $1.8 billion in damages from the firms, which denied the allegations, saying investors are simply trying to "pry open a deep pocket" to repay their losses.
Yet the lawsuit lays out excruciating detail how Loumiet knew Stanford's business was a sham. For example, it notes that Loumiet did the legal work on a deal in which Stanford lent the Antiguan government $30 million in 1994 for a hospital. Another Greenberg partner warned Loumiet of mounting financial problems inside Stanford's bank and expressed concern that Stanford couldn't cover the amount of the loan, according to an email included in the lawsuit.
Unfortunately, this pattern is familiar. Law firms are happy to collect big fees, look the other way while companies commit fraud, then feign ignorance.
For example, Vinson & Elkins and Andrews Kurth wound up paying hefty fines -- $30 million and $18.5 million respectively -- to settle civil claims that they provided the legal grease for Enron Corp.'s fraudulent machinations.
In Southwest Florida, high-profile law firm Holland & Knight agreed in August to pay $25 million to settle a suit accusing it of not reporting illegal activities at Scoop Management hedge funds that Arthur Nadel operated in downtown Sarasota.
For more than 20 years, Stanford dodged almost two dozen investigations in the U.S. and elsewhere. His strategy ran the gamut from finesse to bullying.
Stanford had the charisma that all con men need, but that alone couldn't have created the global veneer of legitimacy that allowed him to fleece thousands of investors and balloon his fraud to historic proportions.
For that, he had help.
Friday 23 November 2012
Convictions of Two Accounting Execs May Wrap Up Prosecutions for Stanford Ponzi Scheme
In federal court in Texas yesterday, prosecutors in the Stanford Financial case won convictions against Gilbert Lopez Jr., the former chief accounting officer for Stanford Financial Group, and Mark Kuhrt, the former global controller of Stanford Financial Group Global Management. The convictions appear to mark the end of the many criminal prosecutions that resulted from the massive Stanford Ponzi scheme that began to unravel in early 2009.
According to a Bloomberg report, both Lopez and Kuhrt were found guilty of 9 of 10 wire fraud counts and one count of conspiracy to commit wire fraud. Prosecutors alleged that the men helped hide the company's scheme that involved bogus certificates of deposit at Antigua-based Stanford International Bank Ltd. Sentencing for Lopez and Kuhrt is set for February 14, and they both face prison terms of more than 20 years. Lawyers for the men acknowledged that there was "massive fraud" going on at the company, but that Lopez and Kuhrt had themselves been deceived by Allen Stanford and the company's former CFO, James Davis.
Earlier this year, Allen Stanford was found guilty by a jury on thirteen counts, including charges of conspiracy, mail and wire fraud, and obstructing a Securities and Exchange Commission investigation, and sentenced to 110 years in prison (along with a personal money judgment of $5.9 billion against him). Davis pleaded guilty back in 2009 to three counts of conspiracy to commit mail, wire, and securities fraud; mail fraud; and conspiracy to obstruct an SEC investigation. He has been cooperating with the government's prosecutions of others such as Lopez, Kuhrt, and former Chief Investment Officer Laura Pendergest-Holt, and has yet to be sentenced.
With the trial of Lopez and Kuhrt now completed, all of the criminal trials from the Stanford case now appear to be wrapped up. The final Stanford scorecard looks like this:
According to a Bloomberg report, both Lopez and Kuhrt were found guilty of 9 of 10 wire fraud counts and one count of conspiracy to commit wire fraud. Prosecutors alleged that the men helped hide the company's scheme that involved bogus certificates of deposit at Antigua-based Stanford International Bank Ltd. Sentencing for Lopez and Kuhrt is set for February 14, and they both face prison terms of more than 20 years. Lawyers for the men acknowledged that there was "massive fraud" going on at the company, but that Lopez and Kuhrt had themselves been deceived by Allen Stanford and the company's former CFO, James Davis.
Earlier this year, Allen Stanford was found guilty by a jury on thirteen counts, including charges of conspiracy, mail and wire fraud, and obstructing a Securities and Exchange Commission investigation, and sentenced to 110 years in prison (along with a personal money judgment of $5.9 billion against him). Davis pleaded guilty back in 2009 to three counts of conspiracy to commit mail, wire, and securities fraud; mail fraud; and conspiracy to obstruct an SEC investigation. He has been cooperating with the government's prosecutions of others such as Lopez, Kuhrt, and former Chief Investment Officer Laura Pendergest-Holt, and has yet to be sentenced.
With the trial of Lopez and Kuhrt now completed, all of the criminal trials from the Stanford case now appear to be wrapped up. The final Stanford scorecard looks like this:
- R. Allen Stanford (former Chairman of Stanford International Bank): Convicted on June 14, 2012 on 13 counts (one count of conspiracy to commit wire and mail fraud, four counts of wire fraud, five counts of mail fraud, one count of conspiracy to obstruct an SEC investigation, one count of obstruction of an SEC investigation and one count of conspiracy to commit money laundering). Sentenced to 110 years in prison.
- Laura Pendergest-Holt (former Chief Investment Officer): Pleaded guilty in June 2012 to obstructing an SEC investigation into Stanford International Bank. Sentenced in September 2012 to 36 months in prison, followed by three years supervised release.
- James M. Davis (former CFO): Pleaded guilty in April 2009, to three counts (conspiracy to commit mail, wire, and securities fraud; mail fraud; and conspiracy to obstruct an SEC investigation). Has not yet been sentenced.
- Gilberto T. Lopez (former Chief Accounting Officer) and Mark J. Kuhrt (former Global Controller of Stanford Financial Group Global Management): Convicted in November 2012 on 9 counts of wire fraud counts and one count of conspiracy to commit wire fraud. Scheduled to be sentenced on February 14, 2012.
- Bruce Perraud (former global security specialist at Stanford Financial Group) and Thomas Raffanello (former global director of security at Stanford Financial Group): Perraud and Raffanello were both acquitted by the judge presiding over the case against them. Prosecutors had alleged that the men conspired to obstruct an SEC proceeding and to destroy documents in a federal investigation.
Tuesday 20 November 2012
US SUPREME COURT TO ACCEPT OR DISMISS SLUSA CASE
There is serious concern over the Slusa Case. As you recall, some defendants have asked the Supreme Court to receive advise from the Executive over accepting or not the Slusa Case. Judge Godbey ruled for SLUSA and the case was taken to the 5th circuit were it was overuled.
IF the Supreme Court accepts the case and rules for it, all existing Class Actions will be dismissed. It will be devastating for all victims and for our legal representatives.
We have been advised that it is NOT unusual for the Court to ask the Solicitor General for his views about wether the court should entertain a discretionary appeal.
In general terms, the Court hears VERY FEW CASES, that are not mandatory, for example a dispute with a foreign country or a constitutional issue. Where the case involves the power of a Federal Agency with expertise in the area this is not unusual, thus the SEC has been asked for its views about whether the Court should take the case. Others also have been asked: the Receiver, the Committee, and the defendants.
Our representatives had two meetings with the SEC and the Solicitor Generals staff and explained WHY THEY BELIEVE THAT THEY SHOULD RECOMMEND AGAINST THE SUPREME COURT ACCEPTING THE CASE.
The meeting happened just last friday.
They have indicated that they will try to make a determination on their position by the end of December.
ALL CASES ARE PENDING ON THIS SITUATION.
IF the Supreme Court accepts the case and rules for it, all existing Class Actions will be dismissed. It will be devastating for all victims and for our legal representatives.
We have been advised that it is NOT unusual for the Court to ask the Solicitor General for his views about wether the court should entertain a discretionary appeal.
In general terms, the Court hears VERY FEW CASES, that are not mandatory, for example a dispute with a foreign country or a constitutional issue. Where the case involves the power of a Federal Agency with expertise in the area this is not unusual, thus the SEC has been asked for its views about whether the Court should take the case. Others also have been asked: the Receiver, the Committee, and the defendants.
Our representatives had two meetings with the SEC and the Solicitor Generals staff and explained WHY THEY BELIEVE THAT THEY SHOULD RECOMMEND AGAINST THE SUPREME COURT ACCEPTING THE CASE.
The meeting happened just last friday.
They have indicated that they will try to make a determination on their position by the end of December.
ALL CASES ARE PENDING ON THIS SITUATION.
Friday 16 November 2012
Stanford Investors Claim Lawyers Enabled $7 Billion Fraud
By Laurel Brubaker Calkins on November 15, 2012
Two of R. Allen Stanford’s former law firms were sued by defrauded investors who claim the lawyers crafted corporate structures that enabled the financier’s $7 billion Ponzi scheme for more than 20 years.
The proposed class-action, or group, lawsuit filed in federal court in Dallas by investors and Stanford’s court-appointed receiver seeks the return of $10 million in legal fees and more than $7 billion in damages from Greenberg Traurig LLP and Hunton & Williams LLP.
These law firms employed Miami attorney Carlos Loumiet, who served as Stanford’s outside general counsel, from 1988 through 2009. Yolanda Suarez, Stanford’s former chief of staff and general counsel, also worked at Greenberg Traurig before joining Stanford Financial Group Co. in 1992. Suarez, a former protégée of Loumiet described in the complaint as Stanford’s “right-hand,” is named as an individual defendant, while Loumiet isn’t.
“Stanford could not have perpetrated this global mass fraud on his own,” Edward Snyder, a lawyer for the Official Stanford Investors Committee, said in the complaint. “Loumiet’s and Suarez’s fingerprints are all over the Stanford fraud scheme from beginning to end.”
Stanford, 62, was convicted in March of orchestrating a scheme built on bogus certificates of deposit at Antigua-based Stanford International Bank Ltd. Evidence at his jury trial showed the Texas financier bribed Antiguan bank regulators and auditors and skirted U.S. securities laws and money-laundering regulations to keep cash flowing to his offshore bank.
“Greenberg Traurig sympathizes with the investors who lost money as a result of Allen Stanford’s fraud, but the firm played no part in causing those losses,” Jim Cowles, an attorney for the firm, said in an e-mailed statement. “This is merely plaintiff’s newest attempt to pry open a deep pocket.”
Cowles said the firm’s “principal legal work” for Stanford occurred prior to 2001, “three years before the sale of the CDs involved in this suit,” when Loumiet left to join the other firm. “On limited matters in which Greenberg Traurig’s attorneys were subsequently consulted, they properly advised Stanford entities” and had no knowledge of Stanford’s fraudulent conduct, Cowles said.
Hunton & Williams said it neither caused or facilitated Allen Stanford’s fraud.
Matthew Rinaldi, Suarez’s attorney, didn’t immediately respond to a voice or e-mail message after regular business hours.
Investors said in today’s complaint that Loumiet and Suarez helped Stanford “hijack” Antigua with bribes and loans so he could “thereafter run it like a corrupt dictatorship” to provide a safe haven for his offshore banking empire.
They claim the two lawyers helped set up Stanford’s U.S. marketing, sales and trust operations to funnel billions of dollars into the Ponzi scheme without attracting the scrutiny of U.S. regulators. The lawyers also structured investments deals Stanford made with funds he stole from the bank, including his extensive Caribbean real estate and venture capital deals, according to the complaint.
“Defendants were subjectively aware of and absolutely indifferent to the risk posed by their conduct,” even when it ran the risk of breaking the law, Snyder said in the complaint.
The case is Janvey v. Greenberg Traurig, 3:12-cv-4641, U.S. District Court, Northern District of Texas (Dallas).
The proposed class-action, or group, lawsuit filed in federal court in Dallas by investors and Stanford’s court-appointed receiver seeks the return of $10 million in legal fees and more than $7 billion in damages from Greenberg Traurig LLP and Hunton & Williams LLP.
These law firms employed Miami attorney Carlos Loumiet, who served as Stanford’s outside general counsel, from 1988 through 2009. Yolanda Suarez, Stanford’s former chief of staff and general counsel, also worked at Greenberg Traurig before joining Stanford Financial Group Co. in 1992. Suarez, a former protégée of Loumiet described in the complaint as Stanford’s “right-hand,” is named as an individual defendant, while Loumiet isn’t.
“Stanford could not have perpetrated this global mass fraud on his own,” Edward Snyder, a lawyer for the Official Stanford Investors Committee, said in the complaint. “Loumiet’s and Suarez’s fingerprints are all over the Stanford fraud scheme from beginning to end.”
Stanford, 62, was convicted in March of orchestrating a scheme built on bogus certificates of deposit at Antigua-based Stanford International Bank Ltd. Evidence at his jury trial showed the Texas financier bribed Antiguan bank regulators and auditors and skirted U.S. securities laws and money-laundering regulations to keep cash flowing to his offshore bank.
$2 Billion
Prosecutors said Stanford took more than $2 billion in depositor funds to finance a lavish personal lifestyle of jets, yachts and cricket tournaments as well as an array of money-losing private enterprises. He is serving a 110-year term in a Florida federal prison while appealing his verdict and sentence.“Greenberg Traurig sympathizes with the investors who lost money as a result of Allen Stanford’s fraud, but the firm played no part in causing those losses,” Jim Cowles, an attorney for the firm, said in an e-mailed statement. “This is merely plaintiff’s newest attempt to pry open a deep pocket.”
Cowles said the firm’s “principal legal work” for Stanford occurred prior to 2001, “three years before the sale of the CDs involved in this suit,” when Loumiet left to join the other firm. “On limited matters in which Greenberg Traurig’s attorneys were subsequently consulted, they properly advised Stanford entities” and had no knowledge of Stanford’s fraudulent conduct, Cowles said.
Hunton & Williams said it neither caused or facilitated Allen Stanford’s fraud.
‘Legally Baseless’
“This lawsuit is factually and legally baseless and an overreach by Stanford Financial Group’s understandably frustrated investors attempting to recoup their unfortunate losses,” the Richmond, Virginia-based firm said in an e-mailed statement.Matthew Rinaldi, Suarez’s attorney, didn’t immediately respond to a voice or e-mail message after regular business hours.
Investors said in today’s complaint that Loumiet and Suarez helped Stanford “hijack” Antigua with bribes and loans so he could “thereafter run it like a corrupt dictatorship” to provide a safe haven for his offshore banking empire.
They claim the two lawyers helped set up Stanford’s U.S. marketing, sales and trust operations to funnel billions of dollars into the Ponzi scheme without attracting the scrutiny of U.S. regulators. The lawyers also structured investments deals Stanford made with funds he stole from the bank, including his extensive Caribbean real estate and venture capital deals, according to the complaint.
“Defendants were subjectively aware of and absolutely indifferent to the risk posed by their conduct,” even when it ran the risk of breaking the law, Snyder said in the complaint.
The case is Janvey v. Greenberg Traurig, 3:12-cv-4641, U.S. District Court, Northern District of Texas (Dallas).
Statement from Kachroo Legal Services
We are preparing another update specifically addressing the status of our lawsuit against the government and all the work we have conducted after the Court denied the government’s motion to dismiss. However, to clarify, the Court’s order was an initial ruling that allowed our lawsuit to go forward into the next stage, which is where we attempt to prove our claims against the government. It was a groundbreaking ruling because all other lawsuits were dismissed immediately upon filing and were not allowed to go forward. We are now in the next stage of the litigation where we seek documents from the other side in order to prove our claims. Our update will address the status of this stage of the litigation. If you have any other questions, please feel free to contact me directly. I am happy to speak with you via email or we can discuss over the phone. You can reach me (212) 372-8939.
The Court’s order was an initial ruling that allowed our lawsuit to go forward into the next stage, which is where we attempt to prove our claims against the government. It was a groundbreaking ruling because all other lawsuits were dismissed immediately upon filing and were not allowed to go forward. We are now in the next stage of the litigation where we seek documents from the other side in order to prove our claims.
And how long does that procedure may take
The deadline to complete this stage of the litigation (called “discovery”) is March 1, 2013. There are a few other stages of the litigation after discovery, during which each side will argue that a judgment should be entered in their favor and the case should not proceed to a trial. If the court disagrees with both sides, then it will go to a full trial. The trial date is now set for October 21, 2013.
Stanford investors, receiver file suit against two law firms
By Mike Tolson | November 15, 2012 | Updated: November 15, 2012 11:16pm
A group of investors victimized by R. Allen Stanford's $7 billion Ponzi scheme along with the court-appointed receiver tasked with obtaining Stanford's remaining assets filed a $1.8 billion lawsuit Thursday against two law firms which they claim share responsibility for the swindle.
Receiver Ralph Janvey along with several named investors filed the federal class-action lawsuit in Dallas that pointed a finger at Miami banking attorney Carlos Loumiet. Loumiet was not named as a defendant, but two law firms where he worked - Greenberg Traurig and Hunton & Williams - were alleged to have designed the "architecture" of the scheme and co-opted government officials in the Caribbean island nation of Antigua whose complicity was essential.
Offshore banking
Stanford Financial Group sold what it called certificates of deposit that provided higher rates of return than typical CDs available from American financial institutions.
The money flowed into an elaborate offshore banking enterprise that was more difficult for U.S. regulators to scrutinize. The scheme lasted for two decades before it collapsed amid a federal investigation in 2009.
Stanford himself lived on Antigua and enjoyed a lavish lifestyle unwittingly fueled by thousands of investors who believed their money was safe.
Also named as a defendant was Yolanda Suarez, a former Stanford employee characterized as Loumiet's onetime protege.
"As a partner at Greenberg Traurig and then Hunton & Williams, Carlos Loumiet helped design the basic architecture of the Ponzi scheme by helping Stanford establish and operate unlicensed foreign bank offices in the U.S. and essentially hijacking the sovereign island nation of Antigua through the use of political corruption, loans made with funds stolen from Stanford's investors, and even writing the laws that governed Stanford International Bank's operations," said plaintiff attorney Ed Snyder, who filed the complaint, in a prepared statement.
Denies impropriety
Loumiet denied any wrongdoing.
"I can say that I have never in my long career knowingly helped any client commit any wrongdoing," Loumiet said in a prepared statement. "I have never represented anyone that I knew was engaged in wrongdoing. And after years of investigations by the federal government and months of trials involving Allen Stanford and his codefendants, I have not been implicated in any wrongdoing."
Likewise, the two named law firms said they had no idea what was going on. Hunton & Williams called the suit "factually and legally baseless and an overreach by Stanford Financial Group's understandably frustrated investors."
The attorney for Greenberg Traurig, Jim Cowles, said the lawsuit is just one more in a series of legal actions intended to "pry open a deep pocket" in order to compensate victims.
"Greenberg Traurig is not responsible for the fraud committed by Stanford," Cowles said.
Janvey's suit, however, says Loumiet was not just a lawyer but a longtime Stanford confidante who was relied on to get the scheme up and running and keep it that way.
"In the final analysis Loumiet and Suarez succeeded for 21 years in enabling Stanford Financial to effectively operate free of governmental regulations and oversight and completely outside the law," the lawsuit states.
"Loumiet's and Suarez's fingerprints are all over the Stanford Ponzi scheme from beginning to end, and to tell the story of Loumiet's and Suarez's involvement with Stanford is to tell the story of the Stanford Financial Group itself."
Loumiet now works at a different law firm in Miami.
Suarez lives in Miami and could not be reached for comment.
Thursday 15 November 2012
Stanford Accountants Helped Hide Ponzi Scheme, U.S. Argues
By Laurel Brubaker Calkins on November 14, 2012
Two former accounting executives at Stanford Financial Group Co. should be convicted of helping Texas financier R. Allen Stanford conceal the theft of billions of dollars from investors at his offshore bank, U.S. prosecutors told a Houston jury.
The government asked jurors to reject claims by ex-Chief Accounting Officer Gilbert Lopez, 70, and former Global Controller Mark Kuhrt, 40, that they were duped by Stanford and his finance chief into creating false financial statements, which investors relied on to buy $7 billion of fraudulent certificates of deposit from Antigua-based Stanford International Bank Ltd.
“Gil Lopez and Mark Kuhrt were faced with the same choice over and over again, to either help Allen Stanford lie to his customers and misuse their money or say ‘I don’t want to be part of it,’” prosecutor Jeffrey Goldberg said during closing arguments today. The men chose to “keep it secret and actively work to keep others from finding out about it.”
Lopez and Kuhrt, who went on trial on Oct. 17, are the last two Stanford executives to be criminally tried for their roles in a Ponzi scheme built on bogus CDs. Early investors were paid above-market returns with funds taken from later investors, and the accountants helped cover up the Stanford bank’s insolvency for years before U.S. securities regulators seized the operation in early 2009 on suspicion of fraud, prosecutors said.
Federal prosecutors told jurors that Lopez and Kuhrt meticulously tracked about $2 billion that Stanford “sucked out” of the bank to fund risky private ventures including Caribbean airlines, resort developments and international cricket tournaments. The accountants didn’t disclose these loans or additional funds that Stanford took to underwrite a lavish personal lifestyle of private jets, yachts and waterfront mansions, the government said.
Stanford told CD buyers their money was invested in conservative liquid assets and overseen by international money managers. Evidence at his jury trial showed that Stanford and his top deputy, finance chief James M. Davis, secretly controlled more than 80 percent of the bank’s investments, much of which was loaned to Stanford or used to underwrite his other businesses.
Jack Zimmermann, Lopez’s lawyer, also made the argument that Lopez and Kuhrt weren’t in the loop.
“Was there one witness who came here and told you Gil Lopez had access to the real numbers?” Zimmermann asked.
Jurors heard Lopez, Kuhrt and Davis testify during the four-week trial. Davis pleaded guilty to his role in the scheme in 2009, testified against Stanford at his trial and is awaiting sentencing.
Goldberg showed the jury two Power Point slides of what he claimed were lies Lopez and Kuhrt told under oath. All of these lies, he said, were told to protect “the hot secret, the criminal secret” that “the source of Mr. Stanford’s money and lifestyle was the bank” and the $2 billion of investors’ money the financier took for personal use.
The accountants’ lawyers said their clients testified truthfully and urged jurors not to believe Davis, whom Kuniansky called “one of the most despicable human beings.”
“A lying defendant is a prosecutor’s dream, but they didn’t ask him one question,” Zimmermann said. “Why not try to trip him up?”
Lawyers for Lopez and Kuhrt told jurors the accountants relied on investment returns provided by Stanford and Davis and never intended to create false financial records or break any laws. The accountants also lobbied Davis to disclose Stanford’s borrowings to investors and were overruled, they said.
The accountants’ lawyers said Stanford was consolidating the private ventures he funded with investors’ cash onto the bank’s balance sheet in late 2008 and early 2009. The accountants were prevented from completing the rollup by the government seizure of Stanford’s companies, their lawyers said.
If convicted of all charges, each of the men faces a possible sentence of more than 20 years in prison.
The case is U.S. v Lopez, 4:09-cr-0342, U.S. District Court, Southern District of Texas (Houston).
Two former accounting executives at Stanford Financial Group Co. should be convicted of helping Texas financier R. Allen Stanford conceal the theft of billions of dollars from investors at his offshore bank, U.S. prosecutors told a Houston jury.
The government asked jurors to reject claims by ex-Chief Accounting Officer Gilbert Lopez, 70, and former Global Controller Mark Kuhrt, 40, that they were duped by Stanford and his finance chief into creating false financial statements, which investors relied on to buy $7 billion of fraudulent certificates of deposit from Antigua-based Stanford International Bank Ltd.
“Gil Lopez and Mark Kuhrt were faced with the same choice over and over again, to either help Allen Stanford lie to his customers and misuse their money or say ‘I don’t want to be part of it,’” prosecutor Jeffrey Goldberg said during closing arguments today. The men chose to “keep it secret and actively work to keep others from finding out about it.”
Lopez and Kuhrt, who went on trial on Oct. 17, are the last two Stanford executives to be criminally tried for their roles in a Ponzi scheme built on bogus CDs. Early investors were paid above-market returns with funds taken from later investors, and the accountants helped cover up the Stanford bank’s insolvency for years before U.S. securities regulators seized the operation in early 2009 on suspicion of fraud, prosecutors said.
Appealing Verdict
Stanford, 62, was convicted in March of masterminding the fraud scheme and is serving a 110-year sentence at a federal prison in Florida. He is appealing the verdict and his sentence.Federal prosecutors told jurors that Lopez and Kuhrt meticulously tracked about $2 billion that Stanford “sucked out” of the bank to fund risky private ventures including Caribbean airlines, resort developments and international cricket tournaments. The accountants didn’t disclose these loans or additional funds that Stanford took to underwrite a lavish personal lifestyle of private jets, yachts and waterfront mansions, the government said.
Stanford told CD buyers their money was invested in conservative liquid assets and overseen by international money managers. Evidence at his jury trial showed that Stanford and his top deputy, finance chief James M. Davis, secretly controlled more than 80 percent of the bank’s investments, much of which was loaned to Stanford or used to underwrite his other businesses.
‘Massive Fraud’
“There’s no doubt whatsoever there was a massive fraud going on, but it was a Stanford and Davis fraud, not a Lopez and Kuhrt fraud,” Richard Kuniansky, Kuhrt’s lawyer, told jurors today. Stanford and Davis “withheld everything that was obviously criminal from their so-called partner in crime,” he said.Jack Zimmermann, Lopez’s lawyer, also made the argument that Lopez and Kuhrt weren’t in the loop.
“Was there one witness who came here and told you Gil Lopez had access to the real numbers?” Zimmermann asked.
Jurors heard Lopez, Kuhrt and Davis testify during the four-week trial. Davis pleaded guilty to his role in the scheme in 2009, testified against Stanford at his trial and is awaiting sentencing.
Goldberg showed the jury two Power Point slides of what he claimed were lies Lopez and Kuhrt told under oath. All of these lies, he said, were told to protect “the hot secret, the criminal secret” that “the source of Mr. Stanford’s money and lifestyle was the bank” and the $2 billion of investors’ money the financier took for personal use.
The accountants’ lawyers said their clients testified truthfully and urged jurors not to believe Davis, whom Kuniansky called “one of the most despicable human beings.”
‘Trusted Them’
“The government is trying to attach criminality to all these complicated accounting issues,” Kuniansky said. “Looking in hindsight, of course there are things he should’ve done differently. But at that point in time, he trusted them.”Zimmermann asked jurors to question why the government didn’t cross examine Lopez when he testified, “especially since they believed he was lying.”“A lying defendant is a prosecutor’s dream, but they didn’t ask him one question,” Zimmermann said. “Why not try to trip him up?”
Lawyers for Lopez and Kuhrt told jurors the accountants relied on investment returns provided by Stanford and Davis and never intended to create false financial records or break any laws. The accountants also lobbied Davis to disclose Stanford’s borrowings to investors and were overruled, they said.
‘Accounting Principle’
“Gil Lopez didn’t believe it was illegal not to disclose”loans Stanford took from the bank, as he considered it an internal dispute over accounting principles, Zimmermann said.“A violation of an accounting principle or practice is not a violation of criminal law.”The accountants’ lawyers said Stanford was consolidating the private ventures he funded with investors’ cash onto the bank’s balance sheet in late 2008 and early 2009. The accountants were prevented from completing the rollup by the government seizure of Stanford’s companies, their lawyers said.
If convicted of all charges, each of the men faces a possible sentence of more than 20 years in prison.
The case is U.S. v Lopez, 4:09-cr-0342, U.S. District Court, Southern District of Texas (Houston).
Wednesday 17 October 2012
110 years for Allen Stanford
ABOUT THE AUTHOR: Tim Prudhoe TEP is a Partner and Barrister at Kobre & Kim LLP
On 14 June 2012, financier and cricket mogul Allen Stanford was sentenced to 110 years in jail, having been convicted on 13 of 14 charges against him arising from his involvement in a USD7 billion Ponzi scheme.
While the legal saga is far from over, financial realities may spell a US victory. The recent US decision on (or, more specifically, against) the application for, in effect, primacy of the Antiguan liquidation in respect of Stanford International Bank (SIB) goes a long way towards making the assets of all Stanford entities available to all creditors of those entities, including the US Internal Revenue Service (the IRS). Excluding any reversal on appeal, the adverse implications for the (many) victims of the Stanford Ponzi scheme run through SIB are certain to be dire.
It is a depressing, post-Madoff world where a fraudulent scheme as large as USD7 billion seems barely newsworthy. However, the Stanford saga, and in particular the recent decision for Chapter 15 recognition of the Antiguan liquidation as the main insolvency proceedings, continues to have significant implications for cross-border insolvency, with a particular focus on international financial centres (so-called offshore tax havens).
The Stanford US receivership (note, not bankruptcy) decision of 30 July 20121 deals with many issues, including determination of the centre of main interest (COMI) for a company involved in cross-border insolvency proceedings. It found in favour of the US receiver, dismissing the Antiguan attempt for ‘main proceedings’ status, and instead granting it ‘foreign non-main proceedings’ (i.e. ancillary) status. Notice of the Antiguan liquidators’ appeal against that decision was filed on 7 August 2012.
110-year sentence
The jury trial in Houston (US v Stanford 09-cr-342, US District Court, Southern District of Texas) lasted six weeks, with Stanford’s lawyers arguing that the scheme was the design of his Chief Financial Officer and requesting a mere 44-month sentence. In contrast, US Department of Justice prosecutors recommended the statutory maximum of 230 years, stating ‘[it]will not get anyone their money back but on sleepless nights they will know that [Stanford] got the maximum’. During his 40-minute statement in court Stanford denied culpability, saying ‘I’m not here to ask for sympathy or forgiveness or to throw myself at your mercy… I did not run a Ponzi scheme. I didn’t defraud anybody.’ The presiding judge, David Hittner, described Stanford’s actions as ‘egregious criminal frauds’, while one victim spokeswoman, Angela Shaw of the Stanford Victims Coalition, stated that Stanford ‘stole more than millions… he stole our lives as we knew them’. Stanford’s sentence is 40 years shorter than that handed down to Bernard Madoff, whose Ponzi scheme was estimated at USD17.3 billion. However, Shaw stated that Stanford’s conduct was worse than that of Madoff because he preyed on middle-class rather than wealthy investors.
From the perspective of extracting value for the many victims, the real battle over where the insolvency proceedings should be heard is still being played out. The Antiguan liquidators have already managed to halt efforts by the US Department of Justice (DoJ) to repatriate tens of millions of dollars of frozen Stanford assets to the US from the UK, Canada and Switzerland. The oral hearing on the Chapter 15 application made to the US courts by the Antiguan liquidators for recognition of Antigua as the foreign main proceeding took place in early December 2011. The adverse effect of a protracted wait for a decision was such that on 23 July 2012 a formal court pleading was actually filed solely to ask the Court for a decision2. Subject to the pending appeal, this decision will be key to the future direction of the Stanford saga as we move past the fate of Stanford himself.
Under Chapter 15, an application can be made for insolvency proceedings in another jurisdiction to be recognised as a ‘foreign proceeding’ in the US. Section 101(23) of the Bankruptcy Code defines a foreign proceeding as ‘a collective judicial or administrative proceeding in a foreign country… under a law relating to insolvency… in which… the assets and affairs of the debtor are subject to control or supervision by a foreign court for the purpose of… liquidation’. Section 1517(b) provides that a foreign proceeding ‘shall be recognised… if it is pending in the country where the debtor has the center of its main interests; [n.b. which was refused in the decision of 30 July 2012] or… if the debtor has an establishment within the meaning of section 1502 in the foreign country where the proceeding is pending’. This second scenario (foreign non-main) was the limited recognition granted in the 30 July 2012 order.
The fight between the US court-appointed receiver and the Antiguan liquidators over which jurisdiction has the main insolvency proceedings will now continue on appeal. Unless that appeal succeeds, the Antiguan liquidators will not be able to assume the rights of a US bankruptcy trustee in US courts.
The decision of the Texas Court covers 60 pages, of which 46 are devoted to the discussion of ‘foreign main’ versus ‘foreign non-main’. From page 16 onwards there is a helpful review of the following:
As is well known, this issue was previously examined in the Stanford English High Court decision5 and then by the English Court of Appeal6, with both courts ultimately holding that the COMI was Antigua rather than the US. The courts also held that the Antiguan proceeding was the ‘foreign main proceeding’. Although this gave the Antiguan liquidators rights to SIB’s assets, these rights were quickly blocked by the restraint order granted in favour of the DoJ. Both the DoJ (via its agent the Serious Fraud Office) and the Antiguan liquidators appealed to the Supreme Court and the judgment is still pending (although the Antiguan liquidators were granted a USD20 million loan from the SIB assets to fund their proceedings). It will be interesting to see what the Supreme Court’s interpretation of the COMI test will be.
The term COMI has not been defined in any of the legislation governing cross-border insolvency: the UK Cross Border Insolvency Regulations 2006, the Model Law, the relevant provisions of the EU Insolvency Regulation (the Regulations) or the US Bankruptcy Code. The presumption under Article 16 of the Regulations that a company’s registered office is its COMI is often called into question if a company’s operations are handled elsewhere. In the case of the UK Stanford litigation, it was found that this presumption could not be rebutted. The registered office of SIB, its headquarters, accounting departments, human resources departments and 88 of the bank’s 93 employees were all based in Antigua and were subject to Antiguan regulation. Most of the bank’s senior managers resided in the US or the US Virgin Islands and board meetings were usually held by telephone. The bank’s network had a global reach; its investors were not purely US based, and assets were held in the US, the UK, Switzerland and Canada.
A favourable decision in Texas would have been a real game changer for the Antiguan liquidators, granting control over the funds already frozen in UK and Switzerland.
‘It is axiomatic that a corporation is a legal entity existing separate and apart from the persons composing it and entities related to it. However, courts equally accept that they should disregard the corporate form where that form was the means to a subversive end.’ (Page 20 of the judgment.)
‘… disallowing corporate disregard doctrines would proliferate recognition of foreign proceedings that have no real or rightful interest in liquidating the real estate. Proliferating corporate fictions in the Chapter 15 context would also protect sinister characters such as Ponzi schemers who may target offshore jurisdictions to run their fraudulent empires.’ (Page 23 of the judgment.)
Judge Golbey was careful to cite authority for this approach in not only the 5th Circuit of Appeals (i.e. the one encompassing Texas) but also the 1st, 7th, 9th and 11th Circuits as well. The absence of consolidated financials among the various Stanford entities was rejected as insignificant on the basis that the financial statements were manufactured or altered fraudulently anyway.
Secondly, the presumption as to registered office equating to COMI was taken as (i) rebutted by the US receiver and (ii) insufficiently proved as being Antigua. The COMI analysis to be extracted is as follows:
Physical structures there.578 Antiguan clients: 31 individual and 547 trust and corporate entities (2 per cent of total SIB customers and 4 per cent of total monies invested) 3 SIB employees carried out functions in relation to three types of accounts, credit cards, loan facilities, letters of credit, letters of guarantee and private banking services.4 SIB issued loans to the Antiguan government.
This equated to ‘a measurable amount of local business in Antigua sufficient to have an establishment there’ (p53 of the judgment)
.
Recognition in this much more limited way (i.e. as an ancillary proceeding, lacking primacy, real power and any practical abilities other than a recognised basis by which to seek US court relief) did not come without heavy criticisms of the Antiguan liquidators for the following (p54 onwards in the judgment)
:
On the basis of these criticisms only limited relief was granted to the Antiguan liquidators, for example the taking of evidence: ‘[t]his limited relief facilitates the Joint Liquidators’ US discovery needs related to the Antiguan liquidation’. This was made conditional on the following:
Further, the US Court was not troubled by the fact that permission for any of these requirements would be necessary in the Antiguan context:
‘To the extent that the Joint Liquidators require a court order from Antigua to comply with the above conditions, the Court leaves it up to the Joint Liquidators to attempt to obtain one. This Court will not modify its conditions simply because the Joint Liquidators are unable to secure the authority to comply.’
The Antiguan liquidators could be forgiven for feeling somewhat shell-shocked, and it will be interesting to see the reaction of the Antiguan Court on the necessary application(s).
On the part of the Antiguan liquidators, their latest ‘Communication to Creditors’ (dated 20 July 2012) reveals their perspective on the proceedings and requests patience from the investors:
‘The question to ask yourself is, “Do I want a small return at some future date, when the appeal process undertaken by Stanford in the US has run its course?” or “Do I want an earlier distribution recognizing that a small part will be invested to significantly increase my ultimate recovery?”’
Those questions now appear irrelevant in light of the recent Texas decision. The more pertinent question is now whether there will be any assets left to distribute now that the creditor pool has been aggregated by the US Court.
On 14 June 2012, financier and cricket mogul Allen Stanford was sentenced to 110 years in jail, having been convicted on 13 of 14 charges against him arising from his involvement in a USD7 billion Ponzi scheme.
While the legal saga is far from over, financial realities may spell a US victory. The recent US decision on (or, more specifically, against) the application for, in effect, primacy of the Antiguan liquidation in respect of Stanford International Bank (SIB) goes a long way towards making the assets of all Stanford entities available to all creditors of those entities, including the US Internal Revenue Service (the IRS). Excluding any reversal on appeal, the adverse implications for the (many) victims of the Stanford Ponzi scheme run through SIB are certain to be dire.
It is a depressing, post-Madoff world where a fraudulent scheme as large as USD7 billion seems barely newsworthy. However, the Stanford saga, and in particular the recent decision for Chapter 15 recognition of the Antiguan liquidation as the main insolvency proceedings, continues to have significant implications for cross-border insolvency, with a particular focus on international financial centres (so-called offshore tax havens).
The Stanford US receivership (note, not bankruptcy) decision of 30 July 20121 deals with many issues, including determination of the centre of main interest (COMI) for a company involved in cross-border insolvency proceedings. It found in favour of the US receiver, dismissing the Antiguan attempt for ‘main proceedings’ status, and instead granting it ‘foreign non-main proceedings’ (i.e. ancillary) status. Notice of the Antiguan liquidators’ appeal against that decision was filed on 7 August 2012.
110-year sentence
The jury trial in Houston (US v Stanford 09-cr-342, US District Court, Southern District of Texas) lasted six weeks, with Stanford’s lawyers arguing that the scheme was the design of his Chief Financial Officer and requesting a mere 44-month sentence. In contrast, US Department of Justice prosecutors recommended the statutory maximum of 230 years, stating ‘[it]will not get anyone their money back but on sleepless nights they will know that [Stanford] got the maximum’. During his 40-minute statement in court Stanford denied culpability, saying ‘I’m not here to ask for sympathy or forgiveness or to throw myself at your mercy… I did not run a Ponzi scheme. I didn’t defraud anybody.’ The presiding judge, David Hittner, described Stanford’s actions as ‘egregious criminal frauds’, while one victim spokeswoman, Angela Shaw of the Stanford Victims Coalition, stated that Stanford ‘stole more than millions… he stole our lives as we knew them’. Stanford’s sentence is 40 years shorter than that handed down to Bernard Madoff, whose Ponzi scheme was estimated at USD17.3 billion. However, Shaw stated that Stanford’s conduct was worse than that of Madoff because he preyed on middle-class rather than wealthy investors.
From the perspective of extracting value for the many victims, the real battle over where the insolvency proceedings should be heard is still being played out. The Antiguan liquidators have already managed to halt efforts by the US Department of Justice (DoJ) to repatriate tens of millions of dollars of frozen Stanford assets to the US from the UK, Canada and Switzerland. The oral hearing on the Chapter 15 application made to the US courts by the Antiguan liquidators for recognition of Antigua as the foreign main proceeding took place in early December 2011. The adverse effect of a protracted wait for a decision was such that on 23 July 2012 a formal court pleading was actually filed solely to ask the Court for a decision2. Subject to the pending appeal, this decision will be key to the future direction of the Stanford saga as we move past the fate of Stanford himself.
Procedural history of the SIB insolvency
Of the many steps in the complicated procedural background to the insolvency, the following are particularly noteworthy:- 16 February 2009: the US Securities and Exchange Commission (SEC) applied successfully to the Northern District Court of Texas for an order appointing a US receiver over the assets of SIB and Stanford.
- April 2009: two orders issued by the UK High Court froze all SIB assets held in the UK following an application by the Serious Fraud Office, acting on behalf of the DoJ. The US was granted a similar restraint order for around USD140 million of assets held in Switzerland.
- 15 April 2009: the Court of Antigua granted an order for the liquidation of SIB and for the appointment of Mr Wastell and Mr Hamilton-Smith as its joint liquidators. This order meant that all of the assets of SIB, wherever situated, were vested in the Antiguan joint liquidators.
- 22 April 2009: the Antiguan liquidators applied to the High Court in England under Article 15 of the Model Law for an order for recognition of the Antiguan liquidation of SIB as the ‘foreign main proceeding’.
- 8 May 2009: the US receiver also applied to the English High Court for recognition of the US receivership of SIB.
- June 2009: the competing recognition applications of the Antiguan joint liquidators and the US receiver were heard by Lewison J. He accepted the application of the Antiguan liquidators and dismissed that of the US receiver.
- 25 February 2010: the English Court of Appeal3 held that the US receiver was not a ‘foreign proceeding’ within the meaning of that expression as defined in Article 2(1) of the Model Law (and that the Antiguan liquidation was a foreign proceeding). It held that SIB’s COMI was Antigua.
- 12 May 2011: the High Court of Justice for Antigua and Barbuda appointed Marcus Wide and Hugh Dickson of Grant Thornton as the new liquidators for SIB (the Antiguan liquidators).
- 5 December 2011: the Antiguan liquidators applied to the US District Court seeking recognition of a foreign main proceeding.
- 16 January 2012: Gloster J, in the Central Criminal Court in London, upheld the restraint order but ruled that the Antiguan liquidators should be granted a USD20 million line of credit from the assets to help fund the liquidation and realisations.
- 23–25 January 2012: SIB applied to the UK Supreme Court for permission to appeal the freezing order. The respondent applied for permission to cross-appeal in respect of the decision of the Court of Appeal to quash the original order.
- 15 February 2012: the UK Supreme Court granted permission to appeal. Judgment on the freezing order is unlikely to be given before 2013.
- 10 April 2012: the same Texas judge hearing the recognition application by the Antiguan liquidators issued a request for evidence (a letter of request) to the English Court, the basis for which was to completely ignore the current primacy of the Antiguan liquidation.
- 3 July 2012: Judge Robert Wilkins for the US District Court for the District of Columbia ruled against the SEC, which wanted the Securities Investor Protection Corp (SIPC) to start liquidation proceedings for the victims4. The SIPC previously handled high-profile liquidations such as Madoff’s Ponzi scheme but here maintained that it did not have jurisdiction over Stanford’s offshore bank. Although the Texas-based brokerage Stanford Group Company was a SIPC member, SIB was not. The judge agreed and found that the SEC did not meet its legal burden of showing why the SIPC should be compelled to act. The SEC has 60 days to decide whether or not to appeal the judge’s ruling; the agency is said to be ‘reviewing the decision’.
Statutory framework for cross-border insolvency
The legal framework within the US for recognition of cross-border insolvency is Chapter 15 of the Bankruptcy Code, which is based on the UNCITRAL Model Law. It came into force in 2005 and has been successfully invoked many times, especially since the financial crisis of 2008 (Fairfield Sentry, BVI and New York; Millennium Global Emerging Credit Master Fund, Bermuda and New York).Under Chapter 15, an application can be made for insolvency proceedings in another jurisdiction to be recognised as a ‘foreign proceeding’ in the US. Section 101(23) of the Bankruptcy Code defines a foreign proceeding as ‘a collective judicial or administrative proceeding in a foreign country… under a law relating to insolvency… in which… the assets and affairs of the debtor are subject to control or supervision by a foreign court for the purpose of… liquidation’. Section 1517(b) provides that a foreign proceeding ‘shall be recognised… if it is pending in the country where the debtor has the center of its main interests; [n.b. which was refused in the decision of 30 July 2012] or… if the debtor has an establishment within the meaning of section 1502 in the foreign country where the proceeding is pending’. This second scenario (foreign non-main) was the limited recognition granted in the 30 July 2012 order.
The fight between the US court-appointed receiver and the Antiguan liquidators over which jurisdiction has the main insolvency proceedings will now continue on appeal. Unless that appeal succeeds, the Antiguan liquidators will not be able to assume the rights of a US bankruptcy trustee in US courts.
The decision of the Texas Court covers 60 pages, of which 46 are devoted to the discussion of ‘foreign main’ versus ‘foreign non-main’. From page 16 onwards there is a helpful review of the following:
- The right to sue and be sued in US courts, as well as the authority to apply directly to the US courts for other relief (such as stays, injunctions, examine witnesses) is an automatic result of recognition as ‘foreign main’, but not automatically for ‘foreign non-main’ proceedings.
- The Antiguan Stanford proceeding had the necessary ‘collective’, judicial, foreign and insolvency nature by which to satisfy the Chapter 15 test.
- The test – at least from the US perspective – for COMI is widely cast.
COMI
In general terms, the English position is a rebuttable presumption that the COMI will match the jurisdiction of the company’s registered office. Again in general terms, the position under US Chapter 15 is more expansive, with the registered office having only evidential value, and control and management of assets carrying much more weight.As is well known, this issue was previously examined in the Stanford English High Court decision5 and then by the English Court of Appeal6, with both courts ultimately holding that the COMI was Antigua rather than the US. The courts also held that the Antiguan proceeding was the ‘foreign main proceeding’. Although this gave the Antiguan liquidators rights to SIB’s assets, these rights were quickly blocked by the restraint order granted in favour of the DoJ. Both the DoJ (via its agent the Serious Fraud Office) and the Antiguan liquidators appealed to the Supreme Court and the judgment is still pending (although the Antiguan liquidators were granted a USD20 million loan from the SIB assets to fund their proceedings). It will be interesting to see what the Supreme Court’s interpretation of the COMI test will be.
The term COMI has not been defined in any of the legislation governing cross-border insolvency: the UK Cross Border Insolvency Regulations 2006, the Model Law, the relevant provisions of the EU Insolvency Regulation (the Regulations) or the US Bankruptcy Code. The presumption under Article 16 of the Regulations that a company’s registered office is its COMI is often called into question if a company’s operations are handled elsewhere. In the case of the UK Stanford litigation, it was found that this presumption could not be rebutted. The registered office of SIB, its headquarters, accounting departments, human resources departments and 88 of the bank’s 93 employees were all based in Antigua and were subject to Antiguan regulation. Most of the bank’s senior managers resided in the US or the US Virgin Islands and board meetings were usually held by telephone. The bank’s network had a global reach; its investors were not purely US based, and assets were held in the US, the UK, Switzerland and Canada.
Proliferating corporate fictions would protect sinister characters such as Ponzi schemers who may target offshore jurisdictions to run their fraudulent empires
While awaiting a ruling in Texas on the Chapter 15 recognition application, the Antiguan liquidators filed, in support of their position, a decision on the issue of COMI on 3 July 2012. This was the decision of 25 June 2012 to uphold the Bankruptcy Court’s ruling in In Re Millennium Global Emerging Credit Master Fund Ltd, 11 CIV 7865-LBS, which affirmed that: ‘(i) each debtor has a “center of main interest”; (ii) that the “center of main interest” is discerned objectively; and (iii) that the debtor’s recognition as a foreign main proceeding was not manifestly contrary to the public policy of the United States.’ In the Millennium case the Court held that it is the petitioner’s burden to show that the debtor’s COMI is the location of the foreign proceedings or, alternatively, that the debtor has an establishment in that place.A favourable decision in Texas would have been a real game changer for the Antiguan liquidators, granting control over the funds already frozen in UK and Switzerland.
The Texas Court’s reasoning on COMI
First, the Court was prepared to apply the ‘corporate disregard’ doctrine (i.e. to step around the issue of separate corporate personality) to the (many) Stanford entities, and did so on the basis of the acknowledged fraud. It therefore applied COMI analysis to the aggregated Stanford entities and in doing so applied ‘federal principal place of business’ doctrines:‘It is axiomatic that a corporation is a legal entity existing separate and apart from the persons composing it and entities related to it. However, courts equally accept that they should disregard the corporate form where that form was the means to a subversive end.’ (Page 20 of the judgment.)
‘… disallowing corporate disregard doctrines would proliferate recognition of foreign proceedings that have no real or rightful interest in liquidating the real estate. Proliferating corporate fictions in the Chapter 15 context would also protect sinister characters such as Ponzi schemers who may target offshore jurisdictions to run their fraudulent empires.’ (Page 23 of the judgment.)
Judge Golbey was careful to cite authority for this approach in not only the 5th Circuit of Appeals (i.e. the one encompassing Texas) but also the 1st, 7th, 9th and 11th Circuits as well. The absence of consolidated financials among the various Stanford entities was rejected as insignificant on the basis that the financial statements were manufactured or altered fraudulently anyway.
Secondly, the presumption as to registered office equating to COMI was taken as (i) rebutted by the US receiver and (ii) insufficiently proved as being Antigua. The COMI analysis to be extracted is as follows:
- Important that the COMI is ascertainable to third parties: insolvency is a foreseeable risk and a debtor’s potential creditors must be able to calculate permissible risk.
- COMI determination is based on the debtor’s administration, management and operations, along with whether reasonable and ordinary third parties can discern where the debtor is conducting these various functions.
- The test (at least in the US context) is analogous to the ‘principal place of business analysis’ or ‘nerve centre’ test7, and the registered office might give (at best) insight.
- The factual findings against the Antiguan liquidators were (p50 of the judgment):
- SIB was only nominally headquartered in Antigua.
- SIB’s major activities, certificates of deposit sales and fund investment took place outside Antigua, and a substantial number of the aggregated Stanford entities were headquartered outside Antigua.
- The senior management of the aggregated Stanford entities based outside of Antigua (and in the US).hThe primary assets of the Stanford entities were held outside Antigua.
- Most of the investor victims/creditors reside outside Antigua.jThe Texas Court is the jurisdiction locus (i.e. hub) of the Stanford entities.
- The nerve centre of the Stanford entities is in the US.
Runner-up prize for Antigua: ‘foreign non-main proceeding’
This was not sought in the petition and did not have to be. A favourable finding on ‘foreign non-main proceedings’ from the US perspective requires a ‘local place of business’ in that jurisdiction, and this was found in respect of Antigua:Physical structures there.578 Antiguan clients: 31 individual and 547 trust and corporate entities (2 per cent of total SIB customers and 4 per cent of total monies invested) 3 SIB employees carried out functions in relation to three types of accounts, credit cards, loan facilities, letters of credit, letters of guarantee and private banking services.4 SIB issued loans to the Antiguan government.
This equated to ‘a measurable amount of local business in Antigua sufficient to have an establishment there’ (p53 of the judgment)
.
Recognition in this much more limited way (i.e. as an ancillary proceeding, lacking primacy, real power and any practical abilities other than a recognised basis by which to seek US court relief) did not come without heavy criticisms of the Antiguan liquidators for the following (p54 onwards in the judgment)
:
- The prior liquidators’ behaviour in Canada in terms of destroying computer records;
- Efforts to unseat the US receiver as recognised foreign representative in Canada;
- Challenges to DoJ criminal seizures in Canada, the UK and Switzerland;
- The preference for a US bankruptcy rather than the current receivership (criticised by the US Court as the basis for delay and disruption).
- The Antiguan liquidators making available to the US receiver and the US Securities and Exchange Commission (SEC) any and all records the Antiguan liquidators have;
- The Antiguan liquidators attempting (by ‘best efforts’) to allow the US receiver reciprocal rights in the Antiguan courts;
- The Antiguan liquidators not disrupting the efforts of the US receiver or the SEC;
- The Antiguan liquidators not duplicating their efforts;
- The Antiguan liquidators not initiating US court actions, but instead consulting with the US receiver and attempting to adopt a common claims and distribution process for victims.
‘To the extent that the Joint Liquidators require a court order from Antigua to comply with the above conditions, the Court leaves it up to the Joint Liquidators to attempt to obtain one. This Court will not modify its conditions simply because the Joint Liquidators are unable to secure the authority to comply.’
The Antiguan liquidators could be forgiven for feeling somewhat shell-shocked, and it will be interesting to see the reaction of the Antiguan Court on the necessary application(s).
Location of the assets and next steps, pending the outcome of the appeal by the Antiguan liquidators
It is believed that SIB has around USD8 billion in assets located all over the world, with 92 per cent of these assets yet to be traced. This sum is made up of 30,000 depositors in 100 different countries. 15.74 per cent of these depositors are US nationals, representing 22.21 per cent of the actual investments. Depositors from Latin America represent 71.17 per cent of total depositors and 58.56 per cent of investments. Before the decision of 30 July 2012, it was thought that these figures speak for themselves on this issue of whether it is accurate for insolvency proceedings to be carried out in the US and whether dealings with victims of the scheme should be characterised as necessarily US-centric.On the part of the Antiguan liquidators, their latest ‘Communication to Creditors’ (dated 20 July 2012) reveals their perspective on the proceedings and requests patience from the investors:
‘The question to ask yourself is, “Do I want a small return at some future date, when the appeal process undertaken by Stanford in the US has run its course?” or “Do I want an earlier distribution recognizing that a small part will be invested to significantly increase my ultimate recovery?”’
Those questions now appear irrelevant in light of the recent Texas decision. The more pertinent question is now whether there will be any assets left to distribute now that the creditor pool has been aggregated by the US Court.
- Northern District Court of Texas (Dallas) Civil Action 3:09-CV-00721-N (Judge Godbey), 30 July 2012
- ‘The lack of a ruling is causing severe prejudice to the [Antiguan joint liquidators]. Among other things, the absence of a ruling is:
- Re Stanford International Bank Ltd (In Liquidation) [2010] EWCA Civ 137
- SEC v Stanford International Bank Ltd and Others, Civil Action No 3:09–CV–0298–N
- In Re Stanford International Bank Ltd [2009] EWHC 1441 (Ch)
- In Re Stanford International Bank [2010] EWCA Civ 137
- Which itself was subject to recent (2010) review in the US Supreme Court decision of Hertz Corp v Friend, 130 S Ct 1181, 1192