Janvey Stops Stanford ‘End Run’ to Tap Lloyd’s Coverage in U.K.

R. Allen Stanford’s court-appointed receiver persuaded a U.S. judge to block the accused Ponzi scheme mastermind’s bid to access insurance funds to pay his lawyers at a hearing today in London Chancery court.

Ralph Janvey, who was placed in charge of Stanford’s financial empire, told a Dallas judge the Texas financier is trying “a blatant attempt to end run this court” by asking the U.K. court to order the insurer to pay over Janvey’s objections. U.S. District Judge David Godbey yesterday ordered Stanford to withdraw his petition from the London court.

“It appears that Stanford is purporting to seek relief before another tribunal relating to the policies,” Godbey wrote in an order posted on his court’s Web site. “Such actions by Stanford both violate the terms of this court’s prior orders, as well as threaten to interfere with this court’s jurisdiction over the policies.”

Janvey has been fighting Stanford’s efforts to unlock frozen assets or access his Lloyd’s of London liability insurance to hire lawyers to defend against civil and criminal allegations he swindled investors of more than $7 billion through bogus certificates of deposit at Antigua-based Stanford International Bank Ltd.

‘Very Unfortunate’

“The court’s order is entirely appropriate,” Janvey said yesterday in a statement issued by his spokeswoman, Kristie Blumenschein. “It is very unfortunate that Mr. Stanford and his attorneys continue to engage in conduct which needlessly increases the costs of litigation to the receivership.”

Stanford, 59, who denies any wrongdoing, is in jail in Texas awaiting trial on 21 felony charges that mirror civil fraud claims filed by the U.S. Securities and Exchange Commission. He is recovering from a Sept. 24 fight with another inmate that left him with a concussion, two black eyes and a broken nose, said Kent Schaffer, Stanford’s criminal-defense lawyer.

“He was beaten up,” Schaffer said. “I don’t know what the circumstances are that led to the fight or why they kept him in the hospital until Sunday morning.”

Yesterday, U.S. District Judge David Hittner, who is presiding over Stanford’s criminal case in Houston, granted the defendant’s request for a transfer from a private Texas jail to a federal facility closer to his lawyers in downtown Houston.

Sworn Statements

Janvey filed copies of sworn statements that Stanford’s lawyers submitted last week to the British court, seeking an emergency hearing in London to force the receiver to stop interfering with payment by Lloyd’s of some fees to Stanford’s lawyers under the liability policy. Janvey claims the bulk of the policy coverage should be reserved for his use to defend Stanford’s companies against claims.

British lawyer Simon Peter Kamstra, in a statement dated Sept. 23, told the British court that the SEC and the U.K.’s Serious Fraud Office have no objection to Stanford obtaining legal defense funds through the Lloyd’s policy. The SEC, which has opposed letting Stanford access frozen funds to hire attorneys, hasn’t taken a position on Stanford’s access to insurance proceeds in papers filed with the Dallas judge.

Stanford faces “at least 49 separate United States proceedings,” as well as lawsuits in Switzerland, Israel, Panama, Venezuela, Mexico, Canada, Malaysia and Singapore, Kamstra said in his statement to the British court. Because Stanford hasn’t been represented by lawyers at most of these proceedings, judgments are being entered against him in several cases, Kamstra said.

Stanford was assigned to the federal public defender’s office in Houston two weeks ago by the judge overseeing his criminal case when the financier couldn’t say he had access to any funds for his defense. Kamstra mentioned that to the U.K. court, too.

Frozen Funds

Godbey has rejected Stanford’s requests for at least $10 million in frozen funds unless he can prove the money isn’t tainted by fraud. Godbey hasn’t ruled on requests over who can access Lloyds’ coverage that could be worth $90 million. More than 60 former employees of Stanford Financial Group, including its founder, have asked to draw on the policy.

Stanford’s British lawyers asked the U.K. court to order Janvey to drop his objections to Lloyd’s paying Stanford’s attorneys and to stop interfering with the payments.

Some Lloyd’s of London underwriters joined Janvey’s request to block Stanford’s attempt to obtain insurance coverage through the U.K. court proceeding today, according to documents filed yesterday in federal court in Dallas.

‘Threatening’ Letter

The underwriters said Stanford’s civil lawyers had sent them a Sept. 22 letter “threatening” legal action if they didn’t begin to pay Stanford’s legal bills immediately. Their lawyer, Daniel Lane of Akin, Gump, Strauss, Hauer & Feld LLP asked Godbey to rule on the issue “so the underwriters will not risk entry of competing and inconsistent orders” from the British court.

Hittner signed an unrelated order yesterday regarding Stanford’s legal team. He blocked Schaffer and the federal public defender’s Houston office from representing the financier on any appellate issue that arose before they were appointed as Stanford’s taxpayer-funded defense counsel on Sept. 16.

Schaffer said in a phone interview that the order will keep him from asking a full panel of judges at the U.S. Court of Appeals in New Orleans to review Hittner’s June 30 order denying Stanford bail on the grounds he might flee. A three-judge appellate panel already denied Stanford’s request to have the bail denial overturned, and his request for en-banc review must be filed at the New Orleans court by Oct. 8, Schaffer said.

Robert Luskin and Christina Sarchio, attorneys with Washington-based Patton Boggs LLP who filed an earlier appeal for Stanford on the bail issue, didn’t immediately return calls or e-mails seeking comment on whether they will continue working for the jailed financier.

Stanford Victims file Class Action Suit against Trustmark National Bank, HSBC Bank PLC, The Toronto-Dominion Bank, SG Private Banking (SUISSE) S.A.

STANFORD VICTIMS FILE CLASS ACTION SUIT AGAINST TRUSTMARK NATIONAL BANK, HSBC BANK PLC, THE TORONTO-DOMINION BANK, SG PRIVATE BANKING (SUISSE) S.A., AND BANK OF HOUSTON

HOUSTON, TX - Victims of Stanford International Bank, Ltd., part of the Stanford Financial Group, filed a class action lawsuit in Texas state court in Houston on August 23, alleging that Trustmark National Bank, HSBC Bank PLC, The Toronto-Dominion Bank, SG Private Banking (Suisse) S.A., and Bank of Houston "provided essential assistance to Stanford in one of the largest financial crimes in history."

The class action petition alleges that the banks conspired with Stanford to commit fraud. The plaintiffs seek more than $7 billion in damages. The lawsuit also seeks to recover all of the fees paid to the banks by Stanford under the Uniform Fraudulent Transfers Act.

The plaintiffs are represented by the New York law firm of Morgenstern & Blue, LLC, which last month filed a class action complaint against the Commonwealth of Antigua and Barbuda alleging that the island nation conspired with Stanford and protected Stanford's banking activities from scrutiny by the Securities and Exchange Commission and other regulators.

The case is Rotstain v. Trustmark National Bank, Harris County (Houston), cause number 2009-53845.

Contact: Peter D. Morgenstern
pmorgenstern@mfbnyc.com
(212) 750-6776

HSBC acted as Correspondant Bank to Stanford

While no Stanford financial company had any presence in the UK, they used the British banking system through HSBC London as their correspondent bank for all deposits in Sterling and Euros.

Most people around the world are aware of HSBC bank. HSBC gave SIB an aura of respectability which simply wasn’t appropriate or warranted.

Having looked at the money laundering regulations introduced throughout the European Economic Area (EEA) in 2007 which were passed into British law as Statutory Instrument 2007 number 2157, there are a couple of points to be noted:

1) The regulations state: A credit institution (“the correspondent”) which has or proposes to have a correspondent banking relationship with a respondent institution (“the respondent”) from a non-EEA state must—(a) gather sufficient information about the respondent to understand fully the nature of its business; (b) determine from publicly-available information the reputation of the respondent and the quality of its supervision. As you may be aware, the British government had revoked the banking license of Alan Stanford’s Guardian International Bank situated on Montserrat which would usually undermine one’s ‘reputation’ in banking. Further SIB was audited by an unknown auditor.

2) The regulations also state: A credit institution must not enter into, or continue, a correspondent banking relationship with a shell bank….A “shell bank” means a credit institution, or an institution engaged in equivalent activities, incorporated in a jurisdiction in which it has no physical presence involving meaningful decision-making and management, and which is not part of a financial conglomerate or third-country financial conglomerate. You might be aware that the US receiver has issued a statement indicating that the mind and management of SIB was solidly placed in the US and not in Antigua. Further SIB was not part of Stanford Financial Group. It was an affiliate.

While there is little doubt that the subtleties of the Stanford situation have only come to light after the US Securities and Exchange Commission’s freeze on all Stanford assets, the Uk governemnt were aware that this "bank" was being monitored and were in fact monitoring SIB them selves. HSBC is an enormous bank with many more resources to hand than individual investors. Further, agreeing to be a correspondent bank for all Euro transactions with a bank outside of the EEA should add an additional responsibility to undertake thorough due diligence given the ability to transfer funds freely within the EU and EEA.

How was it possible for HSBC to have become the correspondent bank for all Sterling and Euro deposits given the exercise of due diligence expected from correspondent banking with offshore entities and the history that Allen Stanford had with the British banking authorities.

The Foreign and Commonwealth Office comments to the recent BBC Panorama programme on Alan Stanford said that the ‘UK government does take financial malpractice very seriously and issues regular advice on countries and jurisdictions where there may be serious deficiencies in regulation. It is for companies and the financial professionals they employ to act on this advice with all due diligence’. Presumably, the last part of this comment would apply to HSBC.

There have been many blunders it seems in the case of discovering what was at the heart of Allen Stanford’s financial empire. We, as UK depositors with the bank, can only hope that all of those involved will participate in helping us recover our investments. One part of this is for HSBC (and the various insurance policies it holds) to step up to its part in the scheme and to assist those who deposited funds through them.