UPDATE ON THE STATUS OF MORGENSTERN & BLUE'S STANFORD-RELATED CASES, RECOVERY EFFORTS AND OTHER CASE DEVELOPMENTS

Since our last report, we have been busy pursuing recoveries on your behalf. Following is an update on recent developments in the Stanford case, and a discussion of major events that we expect in the coming days.

While the pace of the civil litigation is slower than any of us would like, this is unfortunately typical of all large, complex litigation in the United States. This case is particularly complicated by the parallel criminal proceedings and the international component, including the location of assets outside the United States and the involvement of foreign governments. We are, though, encouraged by recent developments, which have positioned us well to continue our vigorous prosecution of claims on your behalf and to fight for the maximum possible recoveries. While we cannot yet predict the amount of money that our efforts are likely to yield, we can assure you that we are continuing our efforts on all legal fronts, and we are moving closer to our goals of identifying all potential defendants who may be liable for participating in or aiding the Stanford fraud, and to obtaining settlements or judgments to compensate you for your losses.
Claims Process - There is not yet any deadline for you to file claims with the court-appointed receivers in either Texas or in Antigua, although there is a procedure for filing claims in the Antiguan proceeding (you may do so by going to the website at: https://stanford.frpadvisory.com). We are beginning to work (through the Investors Committee) with the Receiver appointed by the court in Texas (the "Receiver") to establish an efficient claims process that will facilitate the submission and adjudication of claims and the distribution of recovered assets. We will alert you immediately when you will be able to submit claims in the U.S. Receivership, and explain to you at that time how to do so.
Investor Committee - As you know, our firm was instrumental in the establishment of an official Stanford Investors Committee to represent the interests of Stanford CD holders in the receivership case and other legal proceedings involving the Stanford companies. Peter Morgenstern serves as one of the members of the committee. The Investors Committee meets telephonically at least once a week, and with the Receiver and his professionals (attorneys, financial advisors, and others) in person at least on a monthly basis.
As contemplated under the Court's order establishing the Investors Committee, the Committee is working cooperatively with the Receiver to review and analyze millions of pages of documents that might support the pursuit of lawsuits against third parties that could benefit Stanford investors. We expect that our review of those documents not only will lead to the filing of new claims on your behalf against as-yet unidentified third-party defendants, but will also significantly bolster our claims against the defendants that we have already sued, including the banks (HSBC, Toronto Dominion Bank, Bank of Houston, Trustmark, and SG Private Banking), Antigua, and the Eastern Caribbean Central Bank.
The establishment of the Investors Committee, and specifically the requirement that the Receiver make documents and other information available to the Investors Committee, should be a great benefit to investors. As such information becomes available to us, we will likely gain a more complete picture of who assisted Stanford in the perpetration of this fraud, how it was accomplished, and identify additional targets for litigation.
The Antigua Litigation - As you know, we filed a class action complaint against the Government of Antigua alleging that it aided and participated in the Stanford fraud, and that it misappropriated Stanford assets without paying compensation to Stanford's victims. We also filed a separate complaint against Antigua, the Eastern Caribbean Central Bank, and the banks that purported to take control of the Bank of Antigua, a Stanford-owned financial institution that was seized without the payment of any compensation to Stanford's victims, whose money was used to establish and fund that bank.
While Antigua long evaded the service of legal papers, we have recently reached an agreement under which Antigua will respond to both civil actions no later than December 1, 2010. We expect that Antigua will argue that it is not subject to the jurisdiction of the United States District Court for the Southern District of Texas, and that it will also argue that it is shielded from liability by the doctrine of "sovereign immunity." We believe that both of those arguments are unfounded, and we will oppose Antigua's anticipated motions to dismiss the civil claims against it.
On a related matter, you may recall that Leroy King, the former head of Antigua's Financial Services Regulatory Commission, was indicted by a federal grand jury in Texas, and is awaiting extradition to the United States. King continues to fight extradition, but we believe that his status will be resolved in the coming months. If and when he is extradited to the United States, we believe that the prosecution against him will result in the disclosure of additional information concerning Antigua's complicity in, and active assistance to, the Stanford fraud. We therefore are continuing to closely monitor developments regarding King's extradition and prosecution.
The Bank Litigation - As you know, last year we commenced litigation against Toronto-Dominion Bank, Trustmark National Bank, Bank of Houston, HSBC Bank PLC, and SG Private Banking (Suisse) S.A. (Societe Generale) alleging that those financial institutions assisted Stanford's fraud, and are legally responsible to the investors for damages incurred as a result. The banks have responded by filing motions to dismiss our complaint on a variety of theories.
Recently, we reluctantly requested that the court stay the civil case against the banks until the conclusion of Allen Stanford's criminal trial. We made this request because a tremendous amount of information concerning the perpetration of the fraud remains under the exclusive control of the prosecutors. Among other things, the prosecutors have (as is typical in all such cases) prohibited access to key witnesses until after they testify at the criminal trial. Much of the key information and testimony supporting the government's case against Allen Stanford is likely to be revealed for the first time at his criminal trial. We expect that a great deal of that evidence will concern the ways the banks that we have sued facilitated the Stanford fraud. For that reason, we believe that we will be in a stronger position to prosecute the claims against the banks after the government presents its case at Mr. Stanford's criminal trial.
All of the bank defendants have opposed our request to stay the case until the conclusion of Allen Stanford's criminal trial. The court has not yet ruled on the motion, but it may do so at any time.
The Dual Receiverships - Unfortunately, the status of the two receiverships (one in Texas, one in Antigua) remains unsettled. As you all know, the courts in Dallas, Texas and Antigua each appointed a separate receiver to collect and distribute Stanford's assets to creditors and investors. For more than a year, the two receivers were litigating around the world, at great cost and expense to you, to determine which receiver should control the proceedings and the limited assets available for distribution. We always believed that this competition was unnecessary and tremendously wasteful.
Before our last update, the receivers jointly sought court approval in Dallas for a "resolution" of their disputes, which would have had the effect merely of perpetuating the dual receivership structure. We did not believe that this structure or the proposed resolution was in the best interests of investors, and we filed a formal objection with the Court. Thereafter, a court in Antigua removed the Antiguan liquidators from their positions, and their firm, Vantis, itself entered into administration proceedings. Hamilton-Smith and Wastell remain the Antiguan liquidators pending further court proceedings and appeals, but they have resigned from Vantis.
The status of the Antiguan liquidators is still uncertain, as is the status of their proposed agreement to perpetuate the dual-receivership structure. We will keep you advised of any new developments and will continue to take appropriate steps to advance your interests.
The Criminal Case - Allen Stanford's criminal trial is scheduled to begin in late January. We expect that the trial will last weeks or months. The documents, testimony, and other information that becomes available at the trial should be tremendously helpful to our efforts to recover settlements and judgments on your behalf.
Political Efforts - We continue to work on political efforts aimed at helping all Stanford investors. Since our last update, Peter Morgenstern has made several more trips to Washington, D.C. to meet with staff members at the U.S. Securities and Exchange Commission, the State Department, Members of Congress, Senators, and their aides, and we are continuing to gain support from U.S. officials for Stanford victims. While the political process is slow and complicated, we are encouraged that Stanford victims are being heard in Washington and that our efforts to obtain relief through the political process will continue.
Other Claims and Actions - We are continuing to investigate and analyze the viability of additional potential legal claims and causes of action to recover funds for your benefit. We have identified a number of potential targets, but because of the preliminary nature of our investigation, and the need not to reveal our strategy to the potential defendants, it is not prudent for us to identify those potential claims or defendants in a widely-distributed client update such as this one. We assure you, however, that we are continuing to pursue all possible sources of recovery as quickly as possible. Peter D. Morgenstern

Update on the Status of Morgenstern & Blue's Stanford Related Cases and Recovery Efforts and Other Case Developments

Client Update

Stanford Ailing, but in court

R. Allen Stanford appeared ill during a court appearance Wednesday as lawyers discussed possible trial dates for him and others accused of running a $7 billion fraud.

Stanford was thinner than in previous appearances. He spit blood into a water cup while sitting in court. Senior U.S. District Judge David Hittner asked Stanford if he needed attention, but he said he was all right.

“It's some sort of illness, we're not sure what,” said his lawyer, Kent Schaffer . He said his client speaks to no one but prison guards and his lawyers, and it's taking an emotional and physical toll.

Stanford has had surgery for an aneurysm in his leg since he was jailed and was hospitalized after a fight with another inmate. He is being held without bail as a possible flight risk because of international connections and ability to get funds.

Schaffer complained about Stanford's treatment in the downtown Houston Federal Detention Center, saying he's held in solitary confinement, isn't getting adequate medical attention and can't see or phone his family.

A spokesman for the federal Bureau of Prisons could not be reached for comment on that claim.

Stanford, a Texas native who has lived mostly in the Caribbean for many years, founded Houston-based Stanford Financial Group. He faces 21 counts of conspiracy, fraud, bribery and obstruction of justice.

He and co-defendants are accused of cheating investors who bought certificates of deposit issued by Stanford International Bank on the Caribbean island of Antigua, and sold through Stanford Financial Group companies.

Three of Stanford's codefendants are free on bail and wore street clothes for Wednesday's court hearing, while their ex-boss sat nearby shackled and in green jail clothes.

Lawyers on both sides estimated the trial could take four months. Prosecutor Gregg Costa asked for a trial date no later than next October.

Research time a concern
But defense lawyers said they haven't had time to dig into the government's 5 million pages of documents and need weeks before they even know when they can be prepared for trial.

Mike Sokolow, the public defender appointed to handle Stanford's case, officially withdrew Wednesday. Schaffer, a private lawyer also appointed, said he will stay on now that a Dallas judge overseeing a civil fraud case against Stanford and others has said an insurer can pay for their defense.

Others likely covered
Stanford's criminal co-defendants who appeared in court Wednesday — former Stanford company executives Laura Holt, Gilbert Lopez and Mark Kuhrt — also should be covered by the company insurance policy.

Costa said the fifth defendant, Leroy King, a bank regulator in Antigua, is under house arrest there and the government hopes he will be extradited in time to participate in the trial.