WASHINGTON (CN) - Federal law does not preclude investors allegedly defrauded by R. Allen Stanford's $7 billion Ponzi scheme from attempting recovery via state class actions, the Supreme Court ruled Wednesday.
For nearly 15 years, Stanford Group Co. and related entities sold certificates of deposit issued by its Antigua-based Stanford International Bank, and then used investor funds to cover its liabilities.
Its eponymous leader was sentenced in 2012 to 110 years in federal prison after a federal jury in Houston, Texas, convicted him on 13 of 14 counts of conspiracy, wire fraud and mail fraud.
Read the full transcript from the Courthouse News Service here.
For a full and open debate on the Stanford Receivership visit the Stanford International Victims Group – SIVG official forum http://sivg.org.ag/
(Reuters) - The
Supreme Court on Wednesday ruled that lawyers, insurance brokers and
others who worked with convicted swindler Allen Stanford cannot avoid
lawsuits by investors seeking to recoup losses incurred in his $7
billion Ponzi scheme.
On a 7-2 vote the court held
that lawsuits filed in state court can go forward. New York-based law
firms Chadbourne & Parke and Proskauer Rose and insurance brokerage
Willis Group Holdings Plc were all sued by former Stanford investors.
The investors also sued financial services firm SEI Investments and
insurance company Bowen, Miclette & Britt.
Writing
for the majority, Justice Stephen Breyer said the Securities Litigation
Uniform Standards Act did not prevent the state lawsuits from
proceeding. The law says that state lawsuits are barred when the alleged
misrepresentations are "in connection with" the purchase or sale of a
covered security.
As the defendants
in the case were not selling securities traded on U.S. exchanges, "it
is difficult to see why the federal securities laws would be - or should
be - concerned with shielding such entities from lawsuits," he wrote.
The
defendants sought Supreme Court review after the New Orleans-based 5th
U.S. Circuit Court of Appeals in March 2012 said the lawsuits brought
under state laws by the former Stanford clients could go ahead.
The
former Stanford clients are keen to pursue state law claims because the
Supreme Court has previously held that similar so-called "aiding and
abetting" claims cannot be made under federal law.
The
class action lawsuits filed by the former investors accused Thomas
Sjoblom, a lawyer who worked at both law firms, of obstructing a
Securities and Exchange Commission probe into Stanford, and sought to
hold the other defendants responsible as well.
The
Obama administration, representing the SEC, sided with the defendants
over the interpretation of the state law in an avowed effort to protect
the agency's own authority to pursue wide-ranging investigations.
The
administration pointed out that the "in connection with" language in
SLUSA that limits state court lawsuits mirrors language in federal law
that gives broad authority of the SEC to pursue such misrepresentations.
Therefore, the administration urged the court to give the phrase a
broad interpretation.
Stanford's
fraud involved the sale of certificates of deposit by his Antigua-based
Stanford International Bank. Much of the litigation centers on whether
these qualified as securities under applicable laws.
The
cases are Chadbourne & Parke LLP v. Troice et al, U.S. Supreme
Court. No. 12-79; Willis of Colorado Inc et al v. Troice et al, U.S.
Supreme Court, No. 12-86; and Proskauer Rose LLP v. Troice et al, U.S.
Supreme Court, No. 12-88. To join the debate click here.
For a full and open debate on the Stanford Receivership visit the Stanford International Victims Group – SIVG official forum http://sivg.org.ag/
By Stephanie Riegel
Published Feb 17, 2014 at 2:38
This month marks five years since investors with the now-defunct Stanford Group—which had a large presence in Baton Rouge—first learned they were victims of a $7 billion Ponzi scheme. And, though R. Allen Stanford has since been convicted and sent to prison for the massive fraud, most of the 28,000 investors who thought they were buying certificates of deposit from Stanford International Bank in Antigua have yet to recoup more than 1% of their lost savings.
Now, adding insult to injury, some local victims are getting emails from a receiver in the case threatening to sue them in connection with claims they filed to recover their funds. "We're being terrorized again after five years," says Blaine Smith, a local Stanford victim, who lost more than $1 million through Stanford and is among those who have received the emails. "It's really kind of sick."
Smith says the emails are coming from Grant Thornton, an Antiguan-based receiver that is supposed to be helping victims recoup lost funds. There is also a U.S. receiver in the case. Smith has filed claims with both.
In his letter, Grant Thornton tells Smith that because he withdrew nearly $22,000 in interest payments from his account with Stanford back in 2008—before the Ponzi scheme had been uncovered by the Securities and Exchange Commission—he must return the money before his claim is processed. "Failure to repay may result in the estate seeking judgment against you," the letter reads.
Smith has been in contact with Angela Kogutt, the head of the Stanford Victims Coalition, which advocates in Washington, D.C., for Stanford victims. In an email to Smith, Kogutt says other victims have also received the email and that she is trying to get to the bottom of the matter.
Smith has also contacted the offices of U.S. Sens. Mary Landrieu and David Vitter, as well as U.S. Rep. Bill Cassidy, who he says have been very supportive and helpful.
Stanford is serving a 110-year prison sentence in Florida, while multiple lawsuits rage on over victim compensation. Kogutt was recently quoted in the national media as saying it could be years before victims recoup any of their lost investments.
Five years after learning they were victims of a $7 billion Ponzi scheme, investors in the Stanford Financial Group say they feel abandoned, even though their losses rival those in the Madoff scam that was revealed two months earlier.
Unlike the Madoff case, in which a court-appointed trustee has said he is well on his way to recovering all of the investors' principal—estimated at $17.5 billion—Stanford victims have recovered less than one penny on the dollar since the Securities and Exchange Commission sued the firm and a court placed it in receivership on Feb. 17, 2009.
"I do have to say the Stanford victims do feel like the stepchildren in the Ponzi world," said Angela Shaw Kogutt, who estimates her family lost $4.5 million in the scam. Shaw heads the Stanford Victims Coalition, which has been trying for years to drum up support in Washington.
Some 28,000 investors—10 times the number of direct investors in the Madoff case—bought certificates of deposit from Stanford International Bank in Antigua, which was owned by Texas financier R. Allen Stanford. Stanford's U.S. sales force had promised the investors—many of them retired oil workers—that the CDs were at least as safe as instruments from a U.S. bank. But a jury later found most of the clients' money financed Stanford's lavish lifestyle instead of the high-grade securities and real estate it was supposed to.
Stanford, who portrayed himself as a self-made billionaire, exuded the American Dream. He claimed to have built his global financial empire from a family insurance business in his rural hometown of Mexia, Texas. A generous contributor to politicians of all stripes, Stanford effectively took over the financial sector in Antigua while nurturing rumors of his unique connections.
But asked directly by CNBC in 2009 about suggestions he was a government informant, Stanford demurred.
"You talkin' about the CIA?" he asked. "I'm not gonna talk about that."
On the eve of the fifth anniversary of the scandal, Dallas attorney Ralph Janvey, appointed by a federal judge to head the receivership and round up assets for the victims, said he feels the victims' pain.
"Even though my team and I have worked hard and made much progress over the last five years, the process of unwinding the fraud and the pace of recovering money have been frustratingly slow," Janvey wrote in an open letter to "all those affected by the Stanford fraud."
In the Stanford case, progress is relative.
Last April, Janvey won court approval to begin distributing $55 million to some investors. In the letter, he said $25 million has already been distributed, another $5.5 million could be paid this month and another $18 million in Stanford assets from Canada could be distributed this year as well.
But the rest of the investors' money was either spent by Stanford or is tied up in litigation. Janvey said some $200 million in assets is in Swiss banks and tied up in the criminal forfeiture process. He has sued dozens of people and institutions that allegedly profited from the Ponzi scheme, seeking more than $680 million. The prospects for recovering anything close to that amount, however, are unclear.
"Asset recovery litigation is difficult, lengthy and expensive," Janvey wrote. "The defendants, many of whom have significant resources, are defending the cases aggressively, and many of the favorable rulings in these cases have already been appealed."
Further complicating matters, victims allege: the Justice Department has not been as aggressive in the Stanford case as it has been in the Madoff case.
Even the federal judge overseeing the Stanford receivership, David Godbey in Dallas, made note of the apparent contrast during a status hearing Jan. 16, a week after authorities announced a $2 billion settlement with JPMorgan Chase for its role in the Madoff scandal.
"I read with interest in the media that JPMorgan Chase is paying the Madoff folks a whole bunch of money. I assume our check will follow shortly," Godbey said, according to a transcript of the hearing.
No fewer than five banks—though not JPMorgan Chase—have been sued in the Stanford case for allegedly facilitating the fraud, but there have been no signs of interest from criminal authorities. A spokesman for the Justice Department did not respond to a request for a comment.
The government did prosecute Allen Stanford and several of his top executives. Stanford, 63, is serving a 110-year sentence at a federal penitentiary in Florida. He has appealed his 2012 conviction on 13 criminal counts, but with his assets frozen and having fired his court-appointed attorney, Stanford is representing himself and filing handwritten legal motions from prison. One was filed March 4, 2013 and another on March 12, 2013.
"I or any other American citizen deserve better than this," he wrote in a filing last March. "The presumed innocent part of our constitution is only a myth in America today."
The pending appeal is yet another complication for Stanford's victims, since approximately $300 million he was ordered to forfeit as a result of his conviction cannot be released until the appeals process is complete.
But one of the biggest sources of frustration for the victims is another stark contrast to the Madoff case.
The Securities Investor Protection Corp. (SIPC), which insures U.S. brokerage accounts, has refused to pay Stanford victims, while qualified Madoff victims are eligible for SIPC's maximum coverage of $500,000 per account.
The SEC sued SIPC in 2012 on behalf of the Stanford investors, arguing they also were entitled to coverage, as Stanford's U.S. brokerage was an SIPC member. But SIPC says its insurance covers only securities, and even if the Stanford CDs are considered securities, they are worthless.
The judge in the case sided with SIPC. A federal appeals panel is considering the SEC's appeal, and victims are anxiously waiting for a ruling.
"I really think the only chance the victims really have to recover something is either years down the road or through SIPC," said Kogutt of the victims' coalition.
Because many of the victims are elderly, there is no time to waste. Since the scandal broke in 2009, 176 of Stanford's investors have died.
Allen Stanford lodged a second appeal on March 12th 2013, this is particularly relevant to victims since approximately $300 million he was ordered to forfeit as a result of his conviction cannot be released until the appeals process is complete.
Allen Stanford intends to represent himself in the appeal, below is the hand written letter Stanford sent to the 5th circuit court of appeals, it makes interesting reading and shows Stanford's state of mind.
To join the debate click here.
For a full and open debate on the Stanford Receivership visit the Stanford International Victims Group – SIVG official forum http://sivg.org.ag/
Allen Stanford lodged an appeal on March 4th 2013, this is particularly relevant to victims since approximately $300 million he was ordered to forfeit as a result of his conviction cannot be released until the appeals process is complete.
Allen Stanford intends to represent himself in the appeal, below is the hand written letter Stanford sent to the 5th circuit court of appeals, it makes interesting reading and shows Stanford's state of mind.
To join the debate click here.
For a full and open debate on the Stanford Receivership visit the Stanford International Victims Group – SIVG official forum http://sivg.org.ag/
Receiver files 7th Schedule of Payments to be Made Pursuant to the Interim Distribution Plan - On December 4, 2013, the Receiver filed his 7th Schedule of distribution payments with the United States District Court for the Northern District of Texas, Dallas Division. The 7th Schedule will be followed by others, each of which will be submitted by the Receiver on a rolling basis as additional responses to Certification Notices are received and processed.
I apologize for the gap in time between updates, but I have some very exciting news today about a project I have been working on full-time all year—a legislative remedy that should get us SIPC if the bill is passed—regardless of the outcome of the SEC vs. SIPC appeal (which could still go our way). “The Restoring Main Street Investor Protection and Confidence Act,” is being introduced in the House today with a Senate companion bill to follow. A hearing of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises is set for Thursday, November 21 (victims are encouraged to attend and I will be testifying along with another Stanford victim). A Senate Banking Committee hearing will be held as well, but a date has not been set............. To read the Complete Update from SVC Visit: http://sivg.org.ag/topic236.html For a full and open debate on the Stanford Receivership visit the Stanford International Victims Group - SIVG official forum http://sivg.org.ag/
Nov 20 (Reuters) - A bipartisan group of U.S. House and Senate members is seeking to make it easier for investment fraud victims to seek compensation, after investors in Allen Stanford's Ponzi scheme were deemed ineligible under current law to file claims.
The bill, introduced by Louisiana Republican Senator David Vitter, New York Democratic Senator Charles Schumer, New Jersey Republican Rep. Scott Garrett and New York Democratic Rep. Carolyn Maloney, would bestow U.S. securities regulators with greater powers to oversee the process of determining whether customers of failed brokerages qualify for compensation.
The legislative proposal comes as the Securities and Exchange Commission awaits a crucial decision from a U.S. appeals court over the fate of the Stanford victims.
The SEC is trying to get the court to force an industry-backed fund that protects investors to start court proceedings so Stanford victims can file claims to recover a least a portion of the millions they lost.
The Securities Investor Protection Corp., or SIPC, which administers the fund, has refused the SEC's request, saying Stanford investors do not meet the legal definition of "customer" under the federal law designed to protect investors if their brokerage collapses.
SIPC uses funds paid by the brokerage industry to compensate investors in the event of a bankruptcy, such as the one that occurred at Lehman Brothers in 2008.
Allen Stanford was sentenced in 2012 to 110 years in prison for bilking investors with fraudulent certificates of deposit issued by Stanford International Bank, his bank in Antigua.
Many of the investors who purchased the products, however, did so through his Houston, Texas-based brokerage, Stanford Group Co.
SIPC argues that investors in the scheme entrusted their money to the offshore, unregulated Antiguan bank and not to the U.S. broker-dealer. Moreover, it says that Stanford's investors actually did receive their certificates of deposit, as promised, even though they turned out to be virtually worthless.
A federal district judge agreed with SIPC's legal position in July 2012, and tossed out the SEC's lawsuit.
The SEC appealed the ruling before the U.S. Court of Appeals for the District of Columbia in October, and is awaiting a decision.
SIPC's refusal to let Stanford victims file claims has frustrated many lawmakers on Capitol Hill, including Vitter, who has been among the most vocal in fighting for the Stanford victims.
"The Stanford Ponzi scheme devastated many Louisiana families who invested their hard-earned savings in good faith that it would be there for them when they retire," Vitter said in a statement issued on Wednesday.
"Our bill will fix a key problem we've seen with the system, which currently allows SIPC's Wall Street members to benefit economically from the SIPC guarantee while denying the claims of legitimate victims," he added.
The legislative proposal by the four lawmakers will be vetted in a hearing before a subcommittee of the House Financial Services Committee on Thursday.
Among the witnesses scheduled to testify are Stephen Harbeck, the president of SIPC, a representative from Wall Street's leading brokerage trade group, and Angie Kogutt, a Stanford victim in charge of the Stanford Victims Coalition.
The 19-page bill would amend the definition of "customer" to ensure that investors who deposit cash to buy securities can still be covered by SIPC protection, even if the money is initially given to a firm that is not a SIPC member.
It would also give the SEC more authority to force SIPC to act without the need for court approval.
The Securities Exchange Commission (SEC) plays an active role in protecting the rights of investors. Its own mission statement is:
The mission of the Securities and Exchange Commission is to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation.
Yet, in the high-profile Ponzi scheme case of R. Allen Stanford and Stanford Financial Bank, the SEC is finding itself aligned both for and against efforts to recover funds for the benefit of the defrauded victims. Positions taken by the SEC in two different pending litigation matters in the Stanford case may have polar opposite effects on the financial outcome for defrauded investors.
One case, SEC v. SIPC, now pending in the Circuit Court for the District of Columbia, involves a battle between the SEC and the Securities Investor Protection Corporation (SIPC) over whether the defrauded victims are “customers” under the Securities Investor Protection Act (SIPA) and therefore entitled to payment from SIPC. This is the first time that the SEC has ever commenced an action seeking SIPC coverage for investors. The lower court found that the Stanford investors are not entitled to SIPC coverage, but the SEC continues to champion the cause of the investors in the Circuit Court seeking SIPC coverage for them.
The other case, Chadbourne & Park LLP v. Troice et al., involves an appeal to the U.S. Supreme Court over the issue of whether Securities Litigation Uniform Standards Act of 1998 (SLUSA) bars lawsuits by a class of victims against third parties to recover their losses from alleged wrongdoers. The Fifth Circuit held that the claims against two law firms, an insurance brokerage firm and a financial services firm could proceed despite SLUSA. The U.S. Government, on behalf of the SEC and other agencies, filed an amicus brief with the Supreme Court arguing that the investor claims should be barred under SLUSA. If the Government’s position prevails, defrauded victims will be denied recovery on their claims.
In what would be a worst case scenario for the investors, the SEC will lose in SEC v. SIPC so that investors will be denied “customer” status and protection, and the Government’s position in the Chadbourne & Park case will prevail, denying investors the ability to use self-help to sue alleged wrongdoers.
At a quick glance, it seems that the SEC is on the wrong side of the SLUSA fight in Chadbourne & Park, given the potentially adverse consequences for investors if the SEC’s position is adopted. But perhaps the issue has more do with the way that the applicable statutes are written and interpreted than with any intent on the part of the SEC.
In Chadbourne & Park, the principal question to be considered by the Supreme Court is:
Does the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”), 15 U.S.C. 77p(b), 78bb(f)(1), prohibit private class actions based on state law only where the alleged purchase or sale of a covered security is “more than tangentially related” to the “heart, crux or gravamen” of the alleged fraud?
SLUSA prohibits a state law class action alleging a purchase or sale of a covered security “in connection with” an untrue statement or omission of material fact. A “covered class action” is a lawsuit in which damages are sought on behalf of more than 50 people, and a “covered security” is a nationally traded security that is listed on a regulated national exchange. So the question remaining is: What does “in connection with” mean?
The target defendants in the litigation at issue argue that “in connection with” covers the following two factual scenarios that touch “covered securities” in the Stanford case: (1) that Stanford lied to purchasers of CDs and told them that the CDs were backed by investments in stocks; and (2) that some of the CD purchasers must have liquidated stocks in order to purchase the CDs.
The Fifth Circuit did not agree that either of these two scenarios were sufficient to bar claims under SLUSA, holding that the purchase or sale of a covered security must be more than tangentially related “to the ‘heart,’ ‘crux,’ or ‘gravamen’ of the defendants’ fraud.” The Fifth Circuit held that the claims against the defendants could proceed.
The Government, on the other hand, has taken the position in its amicus brief to the Supreme Court that the relevant language of SLUSA was taken from the Securities Exchange Act of 1934 and should be read consistently with similar language in Section 10(b) of the Act. In urging a broad reading of the words “in connection with,” the Government contends that:
[A] broad reading is essential to the achievement of Congress’s purpose in enacting both Section 10(b) and SLUSA. Under Section 10(b), it enhances the SEC’s ability to protect the securities markets against a variety of different forms of fraud. Under SLUSA, it furthers Congress’s objective of preventing the use of state-law class actions to circumvent the restrictions by the PSLRA [Private Securities Litigation Reform Act] and by this Court’s decisions constraining private securities-fraud suits.
In an amicus brief taking the contrary position, 16 law professors directly challenge the concept of broadening the application of SLUSA to include the certificates of deposit purchased by the Stanford investors. They note that the certificates of deposit are not themselves covered securities and argue that therefore SLUSA should be “interpreted in a way that does not preclude investors from using state courts to pursue claims seeking traditional state law remedies for acts that do not involve covered securities within the meaning of the federal securities laws.”
To stress their position that SLUSA should not apply to non-covered bank-issued securities that may be potentially backed by covered securities, the 16 law professors float the following hypothetical class action claims, among others, that they contend would improperly be prohibited under SLUSA if interpreted that broadly:
"A car dealer who lies to customers about the terms of a car loan, where the car loans are securitized in a pool and interests in the pool are sold off as covered securities."
"A credit card company that securitizes credit card balances fails to pay appropriate wages to telephone operators and answering card holder questions, and the operators file a state class action alleging violations of state wage and hour laws."
"A nationally-traded securities clearing firm engages in sex discrimination in compensating clerical workers for work done in the securities office, and the workers file a sex discrimination class action law suit."
In summary, where the Supreme Court draws the lines on the application of SLUSA could have a significant impact on a variety of state law claims that may or may not have much to do with securities. The SEC stands behind a broad reading of SLUSA under the pretense of protecting the securities market, but its position appears to have the consequence of harming, not helping, defrauded victims by blocking state law damage claims.
The issues are undoubtedly complicated, and there are a variety of competing considerations. From the investors’ perspective, however, they can just add this to the list of roadblocks to getting their money back.
On the first day of its new term on Monday, the U.S. Supreme Court appeared divided over whether lawyers, insurance brokers and others who worked with convicted swindler Allen Stanford could avoid lawsuits by investors seeking to recoup losses incurred in his $7 billion Ponzi scheme.
New York-based law firms Chadbourne & Parke and Proskauer Rose and insurance brokerage Willis Group Holdings Plc were all sued by former Stanford investors.
They are part of a consolidated case along with two other defendants, financial services firm SEI Investments and insurance company Bowen, Miclette & Brittin, for which the Supreme Court heard a one-hour argument on Monday.
The defendants sought Supreme Court review after the New Orleans-based 5th U.S. Circuit Court of Appeals in March 2012 said the lawsuits brought under state laws by the former Stanford clients could go ahead.
The former Stanford clients are keen to pursue state law claims because the Supreme Court has previously held that similar so-called "aiding and abetting" claims cannot be made under federal law.
The defendants have argued that under the Securities Litigation Uniform Standards Act (SLUSA), the claims cannot be heard under state law either.
The class action lawsuits filed by the former investors accused Thomas Sjoblom, a lawyer who worked at both law firms, of obstructing a Securities and Exchange Commission probe into Stanford, and sought to hold the other defendants responsible as well.
Stanford's fraud involved the sale of certificates of deposit by his Antigua-based Stanford International Bank. Much of the litigation centers on whether these qualified as securities under applicable laws.
Stanford is serving a 110-year prison sentence.
ORAL ARGUMENT
During Monday's oral argument, the justices questioned to what extent a ruling in favor of the plaintiffs would affect the SEC. The Obama administration, representing the SEC, sided with the defendants.
The administration said in court papers it was against the lawsuits because they would conflict with Congress's intent to give the SEC the "ability to protect the securities markets against a variety of different forms of fraud."
Justice Department lawyer Elaine Goldenberg told the justices that lawsuits like those filed by the Stanford investors have "a very particular effect on investor confidence and the integrity of the markets, which is one of the purposes of the securities laws."
Several justices, including Justice Elena Kagan and Justice Stephen Breyer, indicated they would be uncomfortable with allowing such lawsuits to proceed in state court, although they also seemed keen for some kind of limit to federal authority.
Justice Anthony Kennedy, often the swing vote in close cases, questioned whether the claims made by the Stanford investors were any different from similar cases that courts already have determined to be excluded from state law claims.
But Justice Anthony Scalia signaled support for the plaintiffs on the language of the federal law in question, which says that state lawsuits are barred in relation to activity "in connection with the purchase or sale" of a covered security.
"There has been no purchase or sale here," he said.
A ruling in the case is expected before the term ends in late June.
The cases are Chadbourne & Parke LLP v. Troice et al, U.S. Supreme Court. No. 12-79; Willis of Colorado Inc et al v. Troice et al, U.S. Supreme Court, No. 12-86; and Proskauer Rose LLP v. Troice et al, U.S. Supreme Court, No. 12-88.
Potential Unauthorized Claims Made By Attorneys On Behalf of Investors
We have received multiple reports from clients that certain named attorneys have lodged claims with the receiver, purportedly on behalf of clients. These investors, however, have not authorized the attorneys in question to do so - and in some cases have never even heard of them.
If you believe that a claim has been lodged on your behalf without your authorization or knowledge, please get in touch as soon as possible and we can assist you in rectifying the situation and advise you on your rights.
Zelaya vs. United States of America
On May 13, 2013, a telephonic hearing occurred regarding the scope of the deposition that Plaintiffs are entitled to take of the SEC through its designated representatives. The United States objected to all of the subject areas that the Plaintiffs sought to cover at the deposition and further objected to providing any documents in response to the document request that accompanied Plaintiffs' notice of deposition of the SEC. Plaintiffs responded, arguing that the Magistrate Judge authorized Plaintiffs to pursue those subject areas and also to serve the United States with a focused document request. After briefing and oral argument, the Magistrate Judge overruled most of the United States' objections and ruled that the Government must proceed with the deposition and provide Plaintiffs with the information requested in their related document request.
This ruling in our favor enables us to continue our vigorous efforts to expose the negligent acts of the SEC and brings us one step closer to obtaining the information necessary to proving our case.
NAFTA and Other Bilateral Trade Agreement Arbitrations
We have recently become aware of potential new action being pursued by Peter Morgenstern and (separately) Todd Weiler, Edward Snyder and Edward Valdespino on behalf of various investors. These investors have filed a notice of intention to submit a private arbitration against the United States under the arbitration provisions of the various treaties. We are confident, however, that the current action in front of the Federal District Court in Florida against the SEC is preferable for investors for a number of important reasons:
1) NAFTA and other similar agreements ensure that foreign investors are not treated unfavorably compared to domestic US investors. While many of the investors in the Stanford entities were indeed foreign, all of the evidence shows that that they were treated equally as badly as US investors;
2) The treaties seek to ensure that the treatment of foreign investors does not fall below a minimum acceptable standard, as defined in international law. In order to prove that it has, investors pursuing arbitration will have to establish essentially the same facts we have alleged in our Federal Court case. The difference between the proposed arbitration and our court case, however, is that we can rely on the strong discovery mechanisms to force the Government to disclose relevant information, whereas arbitration has much weaker and more limited powers.
3) It appears that participation in this arbitration by Mexican investors may result in their inability to participate in our SEC class action. Please note that there are subsequently three key issues to keep in mind if you are considering joining the arbitration: (1) the timeline and pressure being imposed on investors to make this decision appears unfair; (2) as far as we know, such an arbitration has never previously been taken and therefore no precedent exists for it; and (3) as far as your SEC action is concerned, you may be precluded from participating in the class action and may be considered an opting out of the class action in which you have already invested time, money and resources.
Our action has already overcome the key initial hurdle and has a defined path towards a successful verdict. We know from our case that, in order to overcome the Government's position on these claims, extensive discovery is necessary. We do not believe that the procedural intricacies of a NAFTA international arbitration, including the limited means of discovery, provide the best avenue for recovery against the Government. We believe the risk of being disqualified from participating in our SEC action far outweighs the potential for obtaining a successful judgment against the Government in the NAFTA international arbitration.
The Investor Committee
We have learned that significant changes to the Investor Committee composition have been occurring over the course of the past few months. KLS will take this matter into serious consideration moving forward in its full representation of investor claims before the Dallas Receiver.
- The KLS Stanford Team
Visit the Stanford International Victims Group - SIVG official forum http://sivg.org.ag/
By Tom Korosec & Andrew Harris - May 30, 2013 9:42 PM GMT-0400
A plan by a court-appointed receiver to distribute assets recovered from R. Allen Stanford’s Ponzi scheme to investors was approved by a federal judge in Dallas.
U.S. District Judge David C. Godbey accepted the plan by Ralph Janvey, the receiver appointed in 2009 to marshal and liquidate Stanford’s personal and business assets, to make a $55 million interim distribution to about 17,000 claimants, or about 1 cent for each of the $5.1 billion lost in the fraud scheme.
“We will follow it up in a subsequent distribution as the money comes in,” Janvey’s attorney, Kevin Sadler of Baker Botts LLP, told Godbey at a court hearing in April.
Ponzi scheme victims of Bernard L. Madoff, who was arrested in December 2008, recovered more than $5.4 billion. Clients of the MF Global Inc. brokerage were paid about $4.9 billion after its parent, MF Global Holdings Ltd., failed in October 2011. Victims of a scheme by Peregrine Financial Group Inc. founder Russell Wasendorf, who prosecutors last year said stole $215 million, received an interim distribution of $123 million.
A federal jury in Houston last year found Stanford, 63, guilty of lying to investors about the nature and oversight of certificates of deposit issued by his Antigua-based bank. The jurors decided he must forfeit $330 million in accounts seized by the U.S. government.
The SEC case is Securities and Exchange Commission v. Stanford International Bank, 09-cv-00298, U.S. District Court, Northern District of Texas (Dallas). The criminal case is U.S. v. Stanford, 09-cr-00342, U.S. District Court, Southern District of Texas (Houston).
Eighty-nine investors defrauded by imprisoned financier Robert Allen Stanford are seeking $115 million from seven insurance companies in addition to claims that could total as much as $1 billion against the Louisiana Office of Financial Institutions and SEI Investments Co. Stanford, who was indicted by a federal grand jury for frauds exceeding $7 billion, is currently serving 115 years behind bars.
According to reports emanating out of the United States, six of the insurers responded earlier in March by transferring the investors’ four-year-old state court suit to Baton Rouge federal court, action the investors have fought hard in the past.
“We feel confident that this case should not be removed to federal court, because the state court has already ruled on it and granted the investors class-action status,” said Phillip W Preis, Baton Rouge attorney for the investors.
The investors sued OFI and Pennsylvania-based SEI in 19th Judicial District Court in Baton Rouge in 2009. That was soon after the Securities and Exchange Commission shut down Stanford’s worldwide operations and alleged his investment programme was nothing more than a fraudulent scheme.
However, a federal judge in Dallas, where the SEC had filed its complaint, yanked the Louisiana investors’ suit into his Texas court and then dismissed the case, a US online news site, The Advocate, reported.
It added that the Dallas judge ruled in 2011 that the Baton Rouge investors’ suit violated a Securities Litigation Uniform Standards Act prohibition against state court litigation that could negatively affect the nation’s financial markets.
Last year, however, a three-judge panel of the US 5th Circuit Court of Appeals overruled the Dallas judge and concluded that investors could pursue recovery of their losses in Baton Rouge state court.
“That returned the investor claims to state District Judge Michael Caldwell, who held hearings on disputed allegations that OFI knew of Stanford’s misdeeds and should have warned investors, as well as a complaint that SEI ignored a duty to tell investors that Stanford’s assets were grossly overvalued,” The Advocate reported.
“Caldwell issued a judgment last year that certified the investors’ suit as a class action, meaning that all people who lost investments at Stanford Trust Co’s Baton Rouge office could join the suit as plaintiffs against SEI, OFI, and now SEI’s seven insurers.”
Caldwell has not yet scheduled a trial for the case, The Advocate said.
The US Supreme Court has agreed to hear arguments on appeals of related Stanford investor cases in October.
The six insurers that transferred the dispute last month to US District Judge James J Brady are: Allied World Assurance Co (US) Inc, Continental Casualty Co, Arch Insurance Co, Indian Harbor Insurance Co, Nutmeg Insurance Co, and certain underwriters at Lloyd’s of London.
Those insurers told Brady a seventh firm - Endurance Specialty Insurance Ltd of Bermuda - did not join their motion because Endurance officials had not yet been served with a copy of the investors’ suit.
For a full and open debate on the Stanford Receivership visit:
In a huge step forward for R. Allen Stanford’s cheated investors and creditors, a settlement aims to break the logjam over who is entitled to $300 million worth of frozen assets around the world.
When Stanford’s Ponzi scheme was exposed in 2009 and his business went under, it spawned a global hunt for his many assets to repay his investors and creditors. But those involved in the search—U.S. government agencies, a U.S.-court appointed receiver and the liquidators of Stanford’s Antiguan bank—fought in courts across the world over who controlled the various assets.
The settlement, announced last week and subject to the approval of several courts in the coming weeks, will resolve the years-long battle. It will also speed efforts to return money to those who invested in certificates of deposit issued by Stanford International Bank, a scheme through which Stanford ultimately cheated investors out of $7 billion. Stanford used investors’ cash to further the fraud and fund a lavish lifestyle in which he accumulated real estate, yachts and other assets around the world.
The U.S. receiver warned in court papers that if the settlement isn’t approved, “millions of dollars in assets that could otherwise be distributed to the victims of the Stanford Ponzi scheme will remain tied up in the courts.”
Some of the specific deal terms include handing over $44 million of assets frozen in the U.K. to the Antiguan liquidators, which they’ll distribute to victims in that court proceeding. The liquidators will get another $36 million from the U.K. to fund their continued search for more assets.
More than $132.5 million that was found in Switzerland and $23 million in Canada will be forfeited to the U.S. Department of Justice, which will allow that to be distributed through the U.S. receivership. Antiguan victims will get another $60.5 million from Switzerland.
The settlement doesn’t allow the distribution of any of the $300 million in frozen assets to be paid to two government creditors, the Internal Revenue Service and Antiguan government.
The settlement is subject to the approval of the U.S. District Court in Dallas, the Antiguan court and London’s Central Criminal Court.
Convicted last year of fraud, conspiracy and other criminal charges, Stanford is now serving a 110-year prison sentence. He has insisted he did nothing wrong and has appealed his conviction and sentence.
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HOUSTON — Investors in a $7 billion Ponzi scheme orchestrated by former Texas tycoon R. Allen Stanford could finally begin getting back some of what they lost in the next few months, after a recovery process that has dragged on for more than four years.
Investors — some of whom lost their life savings — will see only a pittance of what they put into the scheme. But the process got a boost this week as parties that had been battling each other for control of about $300 million in frozen foreign bank accounts and other assets once owned by Stanford reached an agreement to work together.
“The freeing up of funds ... is a good thing,” Angela Shaw, a Dallas-area woman who founded the Stanford Victims Coalition after three generations of her family lost $4.5 million in the fraud, said Friday.
In a Ponzi scheme, money from new investors is used to pay old ones. Prosecutors said Stanford persuaded investors to buy certificates of deposit, or CDs, from his bank on the Caribbean island nation of Antigua then used the money to fund a string of failed businesses, bribe regulators and pay for his lavish lifestyle. Stanford, 62, was convicted last year on 13 fraud-related counts and sentenced to 110 years in prison.
Stanford’s financial empire once spanned from the U.S. to Latin America and the Caribbean. In the wake of its collapse, a U.S. judge in Dallas and an Antiguan court both appointed people to try to recover assets. The U.S. Justice Department also undertook its own effort.
This week’s agreement consolidates the efforts to take control of assets frozen in Canada, Switzerland and the United Kingdom.
“Without the ... agreement, the (parties) will be forced to expend substantial time, energy and money fighting over the Stanford assets,” attorneys for Ralph Janvey, the receiver appointed by a judge in Dallas to oversee the recovery efforts, wrote in a court motion filed this week.
Edward Davis Jr., one of the attorneys for the Antiguan liquidators, said the agreement is the “beginning of relationship that allows for everyone to be rolling in the same direction.”
British retiree Kate Freeman, who lost $820,000 in Stanford’s scheme, said she believes the agreement is a positive step.
“This will help all of the victims,” Freeman said in a telephone interview from her home in Antigua. “This will put a little bit of money in everyone’s pocket.”
Freeman said the agreement will provide the liquidators in Antigua needed funds to pursue lawsuits against individuals and organizations who aided Stanford’s fraud.
The first distribution to investors will probably come from the U.S. receiver, who in January announced a plan to make an initial distribution of $55 million. That plan is still waiting for approval by a federal judge, but that could happen within the next month or two, officials say.
As of the end of January, Janvey had collected more than $230 million. But he had also racked up more than $119 million in fees and expenses, leaving about $111 million for investors.
Investors have criticized the amount of fees and expenses that have been tallied by the recovery process. Attorneys for Janvey have defended the expenses, saying the collapse of Stanford’s business empire required an expensive clean up.
The Antiguan liquidators have retained control of about $227 million in assets, mostly in land once owned by Stanford, Davis said. That money won’t be available for distribution until the land is sold.
The initial distribution from the liquidators will likely come by this summer from funds recovered from the United Kingdom, he said.
The amount investors will ultimately get back is expected to be small — probably about 1 percent of what they put in.
“If you’ve saved your whole life and invested $300,000, you are only getting back $3,000,” Shaw said.
Andrew Stoltmann, a Chicago-based attorney who specializes in investment fraud, said such small recoveries are the norm.
“Unfortunately these sorts of recoveries are kind of the nature of the beast when it comes to Ponzi schemes,” he said.
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On January 23, 2013, the District Court entered a summary judgment order in favor of the Receiver finding that the Receiver is entitled to recover from Stanford investors any funds they were paid in excess of the principal they deposited in the Stanford fraud scheme. The Court ruled that the net winner investors' contracts with Stanford are void and unenforceable and that the investors did not provide value for amounts they received from Stanford in excess of the amounts they deposited. As a result, the Court held that that allowing the net winner investors "to keep their fraudulent above-market returns in addition to their principal would simply further victimize the true Stanford victims, whose money paid the fraudulent interest." Although the District Court's order is not a final judgment, the District Court certified the order for appeal, which means that it will likely be appealed in the near future to the US Court of Appeals for the Fifth Circuit.
The Receiver is pleased with the Court's ruling today that those investors who profited from the Stanford ponzi scheme do not have the right to retain those profits. This decision represents an important milestone in the very long and difficult process of unwinding the massive Stanford ponzi scheme. In his ruling, Judge Godbey agreed with the Receiver's position that the fictitious interest payments that Stanford made to investors on their Stanford International Bank certificates of deposit simply represented money taken from one set of investors and paid to another; it was just part of Stanford's efforts that kept the ponzi scheme going for well over a decade.
Based on his investigation, the Receiver identified over $220 million in net winnings or fictitious interest that was paid to over 800 investors. The Receiver intends to use this ruling to pursue recovery of these funds for the benefit of the thousands of investors who sustained significant losses on their Stanford CDs. Once recovered, these funds can be distributed to the victims of the Stanford fraud, which would be in addition to the $55 million that the Receiver has already proposed for distribution. Click here to view the Order.
The Receiver is continuing to pursue recovery through litigation of other funds that can be distributed to victims, and he continues to work cooperatively with the U.S. Department of Justice and the Antiguan-appointed Liquidators to reach a final agreement to make available for distribution approximately $300 million in funds and assets currently frozen in foreign countries.
For a full and open debate on the Stanford Receivership visit: http://sivg.org.ag/
By Laurel Brubaker Calkins and Andrew Harris on October 17, 2012
Two accountants accused of helping R. Allen Stanford swindle investors in a $7 billion Ponzi scheme are set to begin the last criminal trial stemming from the plot with opening statements in federal court in Houston. Stanford Financial Group Co. Chief Accounting Officer Gilbert Lopez, 70, and Global Controller Mark Kuhrt, 40, face 10 counts of wire fraud and one count of conspiracy to commit wire fraud, which could send them to prison for more than 20 years if convicted by a jury. The men pleaded not guilty when they were indicted with the Texas financier in June 2009. “Kuhrt and Lopez fabricated the financial statements that enabled Stanford to lie to investors about the circumstances surrounding their investments,” Robert Khuzami, enforcement director for the U.S. Securities and Exchange Commission, said in a statement the day the men were indicted. Stanford, 62, was convicted in March of misappropriating more than $1.7 billion from investors who bought bogus certificates of deposit from Antigua-based Stanford International Bank Ltd. The former Texas billionaire is now serving a 110-year sentence in federal prison in Florida. He is appealing his verdict and sentence. Stanford told investors their money was invested in conservative liquid assets. Evidence at his jury trial showed he was actually siphoning cash to fund risky private equity ventures, speculative real estate developments, cricket tournaments and a lavish personal lifestyle that included a fleet of private jets, yachts and multiple mansions.
Primary Evidence
The primary evidence against Lopez and Kuhrt are e-mails in which they discussed Stanford’s unreported loans and how to value certain assets to disguise that debt in the months before U.S. securities regulators seized Stanford’s businesses in February 2009. Lopez, Kuhrt and James M. Davis, who was Stanford’s chief financial officer, discussed in these messages how to repeatedly flip a Caribbean resort property among Stanford entities so that its value could be inflated from $63.5 million to $3.2 billion in a matter of months, according to the indictment. The inflated value was intended to plug the hole in the books caused by Stanford’s personal loans and bad investments, prosecutors have said. Lopez and Kuhrt also helped represent to investors that Stanford made a $741 million capital contribution to bolster the bank’s balance sheet in late 2008, when “Stanford did not make such capital contributions,” prosecutors have said. Lawyers for Lopez and Kuhrt said during a 2011 court proceeding over legal-defense insurance coverage that the accountants were only following orders from Stanford and Davis and never intended to break any laws.
Draft Form
The accountants’ lawyers have said prosecutors are misconstruing documents that were in draft form at the time regulators seized the company. They claim that Stanford and his accountants were in the process of consolidating the private enterprises Stanford funded with investor loans onto the bank’s balance sheet, and that they were prevented from completing the rollup by the government shutdown. Davis pleaded guilty to his role in the fraud scheme in 2009, testified against Stanford at trial and is awaiting sentencing. Laura Pendergest Holt, Stanford’s investment chief, pleaded guilty in June to obstructing a federal investigation into Stanford’s companies and was sentenced to three years in prison. As of May 31, more than 20,000 Stanford CD investors had received nothing from about $220 million that court-appointed receiver Ralph Janvey has recovered from the sale of Stanford’s corporate and personal assets. About $108 million of that recovery has gone to cover the U.S. receivership’s expenses and windup costs on Stanford’s sprawling business empire. An additional $335 million in Stanford assets have been identified in banks in the U.K., Switzerland and Canada. Janvey is fighting for control of those assets with a rival Antiguan-appointed receiver, who has spent about $20 million pursuing Stanford assets on behalf of defrauded investors. The case is U.S. v Lopez, 4:09-cr-00342, U.S. District Court, Southern District of Texas (Houston).
