Some of alleged swindler Allen Stanford's investors, including baseball star Johnny Damon, will see their funds returned after a U.S. appeals court ruled the receiver in the fraud case may not sue them.
Ralph Janvey, the receiver in the Stanford civil fraud case, had filed a lawsuit to recover "clawback" proceeds from several hundred investors in the firm's offshore bank, which prosecutors say is at the heart of a $7 billion Ponzi scheme.
Stanford, 59, faces civil and criminal charges for leading the alleged scheme related to certificates of deposit (CDs) issued by Stanford International Bank Ltd in Antigua.
Janvey has argued that Stanford clients who redeemed their CDs in the weeks before civil fraud charges were filed, unfairly cashed out and were paid with money stolen from other investors.
But the Fifth Circuit Court of Appeals in New Orleans said in a ruling late on Friday that Janvey had no right to sue the investors and the funds, which have been frozen by a lower court's order since February, should be released.
"We were pleasantly surprised that the receiver has indicated his intent to release the money and not pursue further appeals in this matter," Gene Besen, an attorney who helped recoup $9.5 million for seven current and former Major League Baseball players.
Other baseball players snared by the alleged Stanford fraud who will have their funds released include famed former major league pitcher Greg Maddux and J.D. Drew, an outfielder with the Boston Red Sox.
Stanford Financial Group sponsored numerous leagues and teams in such sports as cricket, golf, tennis, basketball, polo and sailing.
About $275 million in proceeds from certificates of deposit have been frozen in accounts at Bank of New York Mellon Corp's (BK.N) Person LLC, JP Morgan Chase & Co (JPM.N) and SEI Investments Co (SEIC.O), according to court documents.
"The Receiver will continue to carry out his duty to recover assets traceable to the Stanford fraud for the benefit of all investors by pursuing recovery of, where cost justified, improper and/or preferential payments of estate funds," a lawyer for Janvey said in an email.
The U.S. Securities and Exchange Commission, which filed the civil fraud charges, had also opposed Janvey's lawsuit, saying it penalized innocent investors.
"He (Janvey) viewed these funds, which were already frozen, as low-hanging fruit and the Fifth Circuit slapped him back on this money grab," Jacob Frenkel, a former SEC enforcement lawyer and now a partner at Shulman, Rogers, Gandal, Pordy & Ecker.
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