Allen Stanford the Stanford Group Co. founder accused of leading a $7 billion investor-fraud scheme, can use corporate insurance policy proceeds to pay his defense lawyers, a judge ruled.
U.S. District Judge David Godbey of Dallas, who is hearing a Securities and Exchange Commission lawsuit against the Texas financier, ruled yesterday that he and other Stanford Group executives can draw from Lloyds of London officers’ and directors’ coverage said to be worth at least $50 million.
“The court finds it in the interest of fairness to allow directors and officers to access insurance proceeds to which they are entitled for several reasons,” Godbey said in a ruling posted to his court’s Web site that he said applies to all Stanford defendants. “The potential harm to them if denied coverage is not speculative but real and immediate; they may be unable to defend themselves in civil actions in which they do not have a right to court-appointed counsel.”
Stanford, who faces civil and criminal claims he swindled investors in a scheme involving the sale of certificates of deposit through Antigua-based Stanford International Bank Ltd., was given a federal public defender on Sept. 15 after a U.S. judge hearing his criminal case in Houston found he had no money to pay lawyers.
With a reported net worth of $2.2 billion, Stanford was ranked 205th on Forbes magazine’s 2008 list of richest Americans. He is being held without bail pending trial.
Kent Schaffer
Houston lawyer Kent Schaffer agreed to assist the public defenders’ office at the government pay rate of $110 an hour on Sept. 17. Stanford, who has denied all allegations of wrongdoing, has struggled to retain defense lawyers after his assets were frozen by the Dallas court on Feb. 17 following the filing of the SEC lawsuit.
The agency alleged that Stanford, two associates and three businesses paid early investors “improbable if not impossible” returns on their investments, using money received from later- arriving clients.
A U.S. grand jury in Houston in June indicted Stanford, his chief investment officer, Laura Pendergest-Holt, and three others for their alleged roles in the scheme. They all pleaded innocent. Stanford’s chief financial officer, James Davis, who was charged separately, pleaded guilty on Aug. 27 and is cooperating with the federal investigations.
DeGuerin, Luskin
Several high-priced lawyers have come and gone as Stanford’s attorney, including Houston criminal-defense lawyer Dick DeGuerin and Robert Luskin of Washington-based Patton Boggs.
DeGuerin withdrew in July after a dispute involving how he would be paid. Luskin was denied permission in August to represent Stanford for the limited purpose of helping the financier access money for lawyers.
Luskin, who said in an e-mail that he may continue helping Stanford appeal the denial of his bail, praised the ruling although he said he’s still digesting it.
“Obviously, we’re delighted with the ruling,” Luskin said. “It’s the right result and, much more important for Allen and for the justice system, helps to guarantee that Allen will have the resources to get a fair trial.”
Schaffer said in a phone interview yesterday that while he’s pleased with the ruling, he’s not sure how it will affect his ability to continue representing Stanford. Schaffer said the financier most likely doesn’t qualify for a publicly funded defense after the ruling, as taxpayers shouldn’t have to pay if Lloyd’s will.
‘Tremendous Progress’
“I’d like to stay on the case whether on an appointed or retained basis,” he said. “Now that we’ve been on the case for three weeks and we’ve done a ton of work, we think it’s a very defensible case. We’ve been making tremendous progress, and the further we get into it, the better the case is starting to look.”
Schaffer said he would meet with Stanford tomorrow at the federal prison in downtown Houston to learn whether the financier wants to keep him or change lawyers.
Ralph Janvey, the court-appointed receiver for Stanford’s businesses, had asked Godbey to reserve the Lloyd’s of London proceeds for his use in defending the Stanford companies against claims by investors and creditors.
Receivership Estate
The judge didn’t directly address Janvey’s request to reserve the policies for his use or declare the proceeds part of the receivership estate. Godbey called the receiver’s claim on the coverage “hypothetical” as Janvey hasn’t yet filed any invoices with the insurance carrier and Lloyd’s has filed a separate petition saying it plans to exclude Janvey as the receiver has repeatedly said the Stanford companies were involved in fraud.
“Those are questions for another day,” Godbey said in the ruling.
Kristie Blumenschein, Janvey’s spokeswoman, declined to comment on yesterday’s decision.
As many as 60 Stanford executives and employees are seeking to use the directors’ and officers’ coverage to defray their legal bills, according to Janvey. The receiver has said the coverage may be worth as much as $90 million.
Lawyers for Pendergest-Holt had asked the criminal case judge, David Hittner, to order Lloyd’s underwriters to pay the Stanford defendants’ legal bills.
Judge Hittner
While Hittner hasn’t ruled on Pendergest-Holt’s request, court filings indicate he made direct inquiries to both Janvey and Lloyd’s about whether anything prevented the insurer from paying the defendants’ legal bills. Both the receiver and Lloyds urged Hittner to defer to Godbey on the issue.
Pendergest-Holt’s lawyers said in e-mails yesterday that they are pleased with Godbey’s decision to let them access Stanford’s insurance coverage, a decision one said was “a long time coming.”
“We can now continue to concentrate our efforts on properly defending Ms. Holt without fear of financial ruin,” Dan Cogdell, Pendergest-Holt’s lead lawyer, wrote. “I have already re-submitted my prior bills to Lloyd’s. While I won’t say what the amount I am owed is, I will say it is a lot more than I am comfortable being owed.”
“There are many things to be done in connection with Ms. Holt’s defense that we as her lawyers have deferred due to lack of funds,” Jeffrey Tillotson, the Dallas lawyer assisting in Pendergest-Holt’s civil and criminal defense, said in a separate e-mail. “Ms. Holt hasn’t done anything wrong and has always intended on aggressively fighting the government’s charges. Now she will have some resources available to fight back.”
Cooperating Witness
David Finn, a lawyer for Davis, said the ruling will allow him to continue representing the government’s key cooperating witness.
“It means I will not have to file a motion to withdraw,” Finn said in an e-mail. “I am relieved because I will not have to keep digging into my pocket for expenses not knowing if I’d ever get paid.”
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