Indicted financier Allen Stanford, accused a year ago by federal authorities of running a $7 billion Ponzi scheme, has lost his fortune, his yachts and the right to use his own name -- and he hasn’t faced a jury yet.
As the jailed Texas businessman awaits trial, a court- appointed receiver has liquidated his businesses, two boats, six planes and stakes in a boutique hotel and golf course. The sell- off is part of an effort to recover more than $700 million in cash and assets the receiver has located to compensate investors allegedly bilked by Stanford, according to court filings.
“Even if Stanford is acquitted, he’ll have lost everything and get out of jail a pauper,” his criminal-defense lawyer, Kent A. Schaffer, said in an interview. “I’ve seen money and property taken away from somebody after he’s convicted, but I’ve never seen somebody wiped out pretrial.”
The receiver, Ralph Janvey, recovered $145.1 million as of Feb. 11. Out of that amount, operating expenses, receivership costs and fees have drained 40 percent, or $57.8 million, according to his law partner, Kristie Blumenschein. The possibility that Stanford may be acquitted has nothing to do with the liquidation of his assets, Blumenschein said.
“A criminal conviction of Stanford is not required or even legally relevant to whether the Stanford businesses should be under the control of a receiver,” she said. “The Stanford entities were hopelessly insolvent, and the outcome of Stanford’s criminal trial cannot change that basic fact.”
Worth $2.2 Billion
Stanford, 59, was ranked 205 on Forbes magazine’s 2008 list of the richest Americans with a net worth of $2.2 billion. The founder of Stanford Financial Group, based in Houston, he has denied accusations that he cheated investors by operating a Ponzi scheme through bogus certificates of deposit at Antigua- based Stanford International Bank Ltd.
The U.S. Securities and Exchange Commission sued Stanford for fraud and seized his businesses on Feb. 17, 2009. He has been in custody since a 21-count indictment was filed against him by a Houston federal grand jury in June. He faces a trial tentatively scheduled for Jan. 24.
“There’s close to a lynch-mob atmosphere” surrounding disgraced executives such as Stanford and convicted New York swindler Bernard Madoff, said David Kornblau, former chief litigation counsel for the SEC’s Enforcement Division, now a partner at Washington-based Covington & Burling LLP. “It creates a risk that the defendant is going to be irreparably harmed before he’s had a chance to vindicate himself in court.”
Stanford also lost the honorary knighthood given him by the Antiguan government for his economic development efforts there, where Stanford’s bank was located. The island country’s parliament stripped him of the title in November.
Lost His Name
Among the assets disposed of by Janvey was Stanford’s right to use his name on his businesses, which the receiver gave up to settle a trademark-infringement lawsuit with Stanford University that predated the financier’s arrest.
The university, near Palo Alto, California, claimed in a 2008 complaint that the use of “Stanford” in connection with financial services and the sponsorship of sporting events was confusing to the public.
Stanford’s lawyers in turn accused the university of creating “the illusion of overlap,” arguing in court papers that the differences between the university and the financial company prevented any confusion.
Janvey, named receiver in the SEC case against Stanford in early 2009, settled the suit by surrendering Allen Stanford’s right to use his name on Stanford Financial Group, Stanford Group Co. “and any other trade name containing the word Stanford,” the university’s lawyer Patrick Dunkley said.
Underpriced Assets
Some of the Stanford holdings sold off by the receiver garnered less than the jailed financier said they were worth, according to his attorneys.
Dick DeGuerin, Stanford’s now-former lawyer, said last year that his client’s private-equity investments were worth more than $1.9 billion. Janvey estimated in an October court filing the investment portfolio would sell for less than $32 million.
As of Feb. 11, Janvey had sold $38.4 million in Stanford assets and investments, including the financier’s stakes in an Israeli development fund for $4.1 million, a luxury Houston hotel for $2.7 million and a Jack Nicklaus-designed golf course and country club near Memphis, Tennessee, for $3 million. He’s evaluating offers on additional holdings that may bring in another $12.7 million, Blumenschein said.
Two Eagles
Janvey received a $2.5 million offer for Stanford’s 112- foot yacht, the Sea Eagle, and a $150,000 offer for a smaller boat, the Little Eagle, according to court papers. He returned five corporate jets to their lender and sold a sixth plane, raising about $5 million from the sale of Stanford’s air fleet.
The receiver sold Stanford’s Panamanian bank and brokerage for $13.5 million after Venezuela nationalized and sold his operations in that country, which kept the $112 million in proceeds. Janvey said he expects to get another $8 million from the liquidation of Stanford’s remaining Latin American operations.
Janvey has begun selling Stanford’s corporate real estate, and he estimated in October the U.S. properties may raise $29 million. Among them are Stanford’s $7.3 million Houston headquarters, a $1 million airport hangar and a $1.3 million condominium occupied by Stanford’s adult daughter.
The receiver slashed the monthly operating cost of the 149 Stanford businesses in liquidation from $18.5 million to $454,000, partly by closing all U.S. and Mexican offices of Stanford Group Co., the flagship broker-dealer unit, Blumenschein said.
Antiguan Millions
Nigel J. Hamilton-Smith, a receiver for the bank appointed by the Antiguan government, has said more than $150 million in additional assets have been located in that country.
These include restaurants, tourist and sporting facilities such as a cricket ground intended for international competition, and the Antiguan island of Guiana, where Stanford planned a resort.
Janvey said he has located about $335 million in cash and equivalent Stanford-related investments overseas, primarily in the U.K., Switzerland and Canada. Some of those foreign assets are also claimed by the Antiguan receiver and the U.S. Justice Department.
John Nester, an SEC spokesman, and Justice Department spokeswoman Laura Sweeney declined to immediately comment on the status of Stanford and his holdings.
“Right now he feels like everything he’s worked a lifetime to build is gone, and he’s right,” said defense lawyer Schaffer. “If we ultimately recover his freedom, that’s a lot, but that’s all we’ll get.”
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