No guarantee of insurance for Stanford execs

Lloyd's of London said a federal judge should not allocate the proceeds of a directors and officers insurance policy for accused swindler Allen Stanford and other executives because they have no guarantee of coverage, according to a court filing on Friday.

A number of Stanford executives, including Stanford and former Chief Investment Officer Laura Pendergest-Holt, have filed claims against the policy issued by Lloyd's.

Stanford and Pendergest-Holt had their assets frozen in February when the U.S. Securities and Exchange Commission filed civil fraud charges, alleging a "massive" Ponzi scheme.

The asset freeze has left the executives unable to pay their defense lawyers, they have said in numerous court filings.

Lloyd's initially agreed to reimburse some "reasonable and necessary legal expenses," for Pendergest-Holt, but Ralph Janvey, the receiver in the case, argued proceeds are assets of the Stanford estate.

He threatened to hold Lloyd's in contempt of court if they made payments to the Stanford executives, court papers show.

In response, lawyers for Pendergest-Holt filed a motion asking U.S. District Judge David Godbey in Dallas, who is overseeing the civil fraud case, to clarify whether the insurance proceeds should go to the receiver.

If the court determines the policy proceeds were assets of the estate, then the funds should be allocated to pay defense costs in accordance with the insurance policy, Pendergest- Holt's motion, said.

But Janvey has also asked the judge to allocate the majority of the insurance proceeds to the receivership.

"While there is an urgent need for this court to address the issue of whether the policies' proceeds are assets of the receivership estate, the court cannot and should not allocate proceeds or rule on who is entitled to coverage under the policies because underwriters do not concede that claims submitted by Holt or the receiver are covered," lawyers said in a filing.

Claims resulting from "money laundering, and from dishonest, fraudulent, or criminal acts, are excluded from coverage, Lloyd's said in court papers.

Stanford and Pendergest-Holt are charged with fraud, conspiracy and obstruction in a 21-count criminal indictment. Prosecutors say they and others duped investors through the sale of $7 billion in fraudulent certificates of deposit.

Both have denied wrongdoing.

Jeffrey Tillotson, a lawyer for Pendergest-Holt said it was clear his client is covered by the Lloyd's policy and he welcomes the involvement of insurance carrier in the matter.

At a court hearing in Dallas on Thursday, Judge Godbey said consideration of the matter was near the top of his list
The civil fraud cases is filed in federal court in Dallas under 3:09-cv-00298-N Securities and Exchange Commission v. Stanford International Bank Ltd et al.