Five years after Stanford scandal, many victims penniless

By: Scott Cohn

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. 

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/

Stanford Victims Coalition Update Regarding SIPC

Dear SVC Members,

 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/

Angela Shaw Replaced by Ms Reed on OSIC

For those victims who were not aware Ms Shaw has resigned from the OSIC and been replaced by Ms Reed. The "REPORT OF THE OFFICIAL STANFORD INVESTORS COMMITTEE" can be viewed here:

Doc1889_OSIC_ReportReMembership_070813

For a full and open debate on the Stanford Receivership visit the Stanford International Victims Group - SIVG official forum http://sivg.org.ag/

Investors plan appeal of Stanford lawsuit dismissal

Note. This is NOT the lawsuit being brought against the SEC by Kachroo Legal Services.

A federal appeals court will be asked to reverse a Baton Rouge federal judge's dismissal of a lawsuit that claims the Securities and Exchange Commission and a former official knew of Robert Allen Stanford's $7 billion fraud scheme but failed to investigate and stop it, an attorney for some victims said Friday.

 The suit, filed in July by seven Baton Rouge residents and firms, was thrown out June 21 by U.S. District Judge Shelly Dick at the request of the federal government, which argued the SEC enjoys complete discretion in deciding what matters to investigate.

 The suit alleges that Spencer Barasch, a former SEC regional enforcement director in Fort Worth, Texas, was negligent and engaged in deliberate misconduct in failing to investigate the scheme before investors suffered losses. The suit contends Barasch knew of the Stanford scheme but refused to probe it, allowing the continued defrauding of investors.

 In his written ruling, Dick called Barasch's alleged conduct "disturbing" but said the law supports the government's position that there was no statute, regulation or policy that required Barasch to make an enforcement referral to either the National Association of Securities Dealers or the Texas State Securities Board.

 "While the court sympathizes with the losses suffered by the plaintiffs in this matter, plaintiffs have failed to identify any mandatory obligations violated by SEC employees in the performance of their discretionary duties," the judge wrote.

 Ed Gonzales, an attorney for the seven Baton Rouge residents and firms who filed suit in federal district court in Baton Rouge, said an appeal will be filed at the 5th U.S. Circuit Court of Appeals in New Orleans. Those plaintiffs say they lost roughly $3.5 million to the scheme.

 Dick's ruling described the suit's plaintiffs as victims of a Ponzi scheme who lost their investments in Stanford International Bank Ltd.

 The suit alleges the SEC knew in 1997 that Stanford was operating a fraudulent scheme and failed to stop him until February 2009.

 Robert Stanford, 63, of Houston, is serving a 110-year prison sentence for a fraud conviction that followed estimated worldwide losses of approximately $7 billion. About $1 billion of those losses were from about 1,000 investors in the Baton Rouge, Lafayette and Covington areas, according to estimates by state Sen. Bodi White, R-Central, and Baton Rouge attorney Phil Preis, who represents numerous Stanford victims in another lawsuit.

 A Ponzi scheme is a fake investment program. Illegal operators skim most of the money provided by people who believe they are investors.

 Early investors receive dividends that actually are small portions of their personal funds and those of later investors. Stanford's Ponzi scheme attracted investment money for his Stanford International Bank on the Caribbean island of Antigua.

 There are more than 20,000 Stanford victims across more than 100 countries.

Visit the Stanford International Victims Group - SIVG official forum http://sivg.org.ag/

$83.5M Suit Says Willis Group Aided Stanford Fraud

A group of holders of Stanford Financial Group CD accounts claims that Willis Group Holdings Public Limited Co. helped perpetuate Robert Allen Stanford's $7 billion Ponzi scheme, according to an $83.5 million class action removed from Florida state court Monday.

The plaintiffs, 64 citizens of El Salvador, Nicaragua, Panama, the United States and Spain who claim combined losses of more than $83.5 million, say that when they made their investments in Stanford Financial CDs, they relied on “safety and soundness” letters issued by Willis asserting that Stanford International Bank and its products were protected by certain insurance policies and were highly liquid.

“In fact, the Stanford Financial CDs were not CDs at all, but unregistered, unregulated securities sold illegally from Stanford Financial's home base in the United States,” the plaintiffs say in their complaint. “These investments had no insurance and were fraught with risk.”

The case is not the first to lay such accusations against Willis. In 2009, a class of between 1,200 and 5,000 Venezuelan clients sought $1.6 billion over claims they were allegedly lured into the scheme by the insurance brokers’ assurance that Stanford CDs were sound, insured investments. And in another suit that year, Mexican investors implicated Willis, claiming the defendants contributed to a fraud that cost them roughly $1 billion.

Stanford was sentenced in June 2012 to 110 years in prison after being convicted on charges he misappropriated billions of dollars in investor funds, including some $1.6 billion he allegedly moved to a personal account. His $7 billion Ponzi scheme was second only to Bernie Madoff's record-setting scam.

From about August 2004 through 2008, Willis provided Stanford Financial with an undated form letter that said Willis was the insurance broker for Stanford International Bank and had placed directors and officers liability insurance and a bankers blanket bond with Lloyds of London, according to the current complaint.

The letters played a crucial role in Stanford's fraud because Stanford Finanical was an offshore bank and thus not insured by the Federal Deposit Insurance Corp. Willis' letters helped Stanford get around that obstacle by claiming the CDs “were even safer than U.S. Bank-issued CDs because of the unique insurance policies Willis had obtained,” the complaint says.

“The Willis letters were specifically designed to win investors' trust and confidence in Stanford Financial's fraudulent scheme,” the plaintiffs say in their complaint, noting that for investors with more than $1 million in their accounts, Stanford Financial advisors could get personally addressed letters from Willis.

“Willis' message to potential investors was this: Trust us, you can invest with confidence and security in Stanford Financial CDs,” they add.

All of the plaintiffs in the current case made their purchases through Stanford Financial's Miami office, which the complaint says accounted for more than $1 billion in CD sales.

Willis of Colorado Inc. filed the notice of removal of the class action on the grounds of diversity between plaintiffs and defendants, of the Securities Litigation Uniform Standards Act of 1998 and that the Northern District of Texas has exclusive jurisdiction in Stanford receivership cases.

The notice of removal also claims that defendants Willis Group Holdings Public Limited Co. and Willis Ltd., which are based in Ireland and the United Kingdom, respectively, have been fraudulently joined in an effort to defeat diversity jurisdiction. It says that the plaintiffs' claims are on letters issued only by the subsidiary Willis of Colorado and “no reasonable possibility” exists of the plaintiffs recovering damages from the other entities.

Counsel for both sides could not be reached for comment late Tuesday.

The plaintiffs are represented by Luis Delgado and Christopher King of Homer & Bonner PA and Ervin Gonzalez of Colson Hicks Eidson PA.

Willis is represented by Edward Soto of Weil Gotshal & Manges LLP.

The case is Nuila de Gadala-Maria et al. v. Willis Group Holdings Public Limited Co., case number 1:13-cv-21989, in the U.S. District Court for the Southern District of Florida.


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ORDER APPROVING RECEIVER’S INTERIM DISTRIBUTION PLAN

Order Approving Receivers Interim Distribution Plan

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Stanford Judge Approves Interim Distribution to Victims

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).


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What The SEC-SIPC Lawsuit Is All About

Source: Securities Investor Protection Corporation

What The SEC-SIPC Lawsuit Is All About

• The SEC has brought an unprecedented lawsuit demanding that the Securities Investor Protection Corporation ("SIPC") guarantee the value of offshore certificates of deposit ("CDs") issued by the Stanford International Bank Ltd. in Antigua.
• SIPC disagrees with the SEC’s position because it is in conflict with the Securities Investor Protection Act, the legislation that created SIPC and has guided it for the last 40 years.
• SIPC is limited by law to protecting customers against the loss of missing cash or securities in the custody of failing or insolvent SIPC-member brokerage firms. SIPC was not chartered by Congress to combat fraud or guarantee an investment’s value, and its protections also do not cover investments with offshore banks or other firms that are not SIPC members.

Why The Securities Investor Protection Act Does Not Cover The Stanford-Antigua Situation

---

• This case is about investments in certificate of deposits ("CDs") issued by the Stanford International Bank Ltd. in Antigua. Stanford International Bank Ltd. is an offshore bank: it is not a SIPC-member brokerage firm and has never been a SIPC member.
• The Securities Investor Protection Act only covers the custodial function of a SIPC-member brokerage, by offering limited protection to customers against the loss of missing cash or securities when a SIPC-member brokerage firm is holding cash or securities for an investor but fails financially.
• The Act does not authorize SIPC to protect monies invested with offshore banks or other firms that are not SIPC members. The Act also does not protect investors against a loss in value of a security, including because of mismanagement or fraud.
• In addition, this case involves CDs that were delivered, not a situation in which a SIPC-member brokerage firm had custody of securities but failed before delivery could occur.

The Facts

• This case is about investments in CDs issued by the Stanford International Bank Ltd. in Antigua. Stanford International Bank Ltd. is a chartered bank formed under the laws of Antigua and Barbuda. This Antiguan bank is in liquidation in Antigua under the administration of liquidators in Antigua.
• Stanford International Bank Ltd. advertised interest rates that were higher (often much higher) than banks in the U.S., but its CDs now have the value, if any, of a debt instrument issued by a failed bank.
• Stanford International Bank Ltd. is not a SIPC-member brokerage firm and has never been a SIPC member.
• Investors received Disclosure Statements from Stanford International Bank Ltd. stating that these investments were not “covered by the investor protection or securities insurance laws of any jurisdiction such as the U.S. Securities Investor Protection Insurance Corporation….”

SIPC Letter of August 14, 2009 to Ralph S. Janvey, Receiver, Stanford Financial Group Receivership

Stanford - Madoff: The Key Differences

SIPC protection is available for investors who had brokerage accounts directly at Bernard L. Madoff Investment Securities LLC (“Madoff Securities”). Madoff Securities was a SIPC-member brokerage firm. Customer cash and securities were placed in the custody of Madoff Securities and were missing from the customer’s accounts when the firm failed. SIPC protection is thus available to protect customers, within limits, against the loss of their net equity balances.
By contrast, the Stanford case is about CDs that investors purchased from the Stanford International Bank Ltd. in Antigua. Stanford International Bank Ltd. is not a SIPC-member brokerage firm and has never been a SIPC member.
The Securities Investor Protection Act does not authorize SIPC to protect investors against the loss of monies invested with offshore banks or other firms that are not SIPC members. The Act also does not protect investors against a loss in value of a security, including because of mismanagement or fraud. In addition, this case involves CDs that were delivered, not a situation in which a SIPC-member brokerage firm had custody of securities but failed before delivery could occur.

Why SIPC Is Not The FDIC And Does Not Protect Against Securities Fraud

---

The Federal Bureau of Investigation, state securities regulators and experts have estimated that investment fraud in the U.S. totals $40 billion a year.¹ Market manipulation schemes alone generate an estimated $6 billion in losses annually.²
With a reserve of slightly more than $1 billion, SIPC could not continue operations for long if its purpose was to compensate all victims with losses due to investment fraud. SIPC is limited by law to protecting customers against the loss of missing cash or securities in the custody of failing or insolvent SIPC-member brokerage firms.
It is important to understand that SIPC is not the equivalent of the banking industry's Federal Deposit Insurance Corporation ("FDIC") for investment fraud. Congress considered whether to guarantee investment losses and rejected that sort of protection as unrealistic and inappropriate.




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The SEC's Civil Action Against Stanford

  The SEC's Civil Action Against Stanford

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Michigan-based Butzel Long law firm seeks assistance with underfunded pension obligations

LANSING, MI — Butzel Long PC has requested that a federal agency salvage its pension plan that’s underfunded by more than $9 million.

The Detroit-based firm says it can no longer afford to pay its pension obligations, which were underfunded by $9.1 million as of October, if it wants to continue paying attorneys competitively.

It asked the Pension Benefit Guaranty Corp. to take over the retirement plan. The PBGC is a federal government agency but does not use general tax revenues. Sponsors of defined-benefit plans pay insurance premiums to be covered by the agency.

Butzel Long has offices in Detroit, Ann Arbor, Bloomfield Hills and Lansing. It also has offices in New York and Washington, D.C., along with alliance offices in China and Mexico. It employs about 250 people, including some 135 lawyers.

The firm covers several areas of law and regularly represent clients before the PBGC. It also represents the Michigan Press Association, of which MLive Media Group is a member.

The pension plan has about 460 members. Its market value was nearly $33.4 million in 2011, according to an Internal Revenue Service filing.

Firm President and managing shareholder Justin Klimko said low interest rates, market conditions and longer life expectancies contributed to the plan’s problems.

The firm froze the benefits for all attorneys in 2004 and for other employees in 2007. Since then, there have been no more benefits accrued or new members added to the plan, he said. Employees are now offered a defined-contribution 401(k) plan.

“The size of the future contributions would affect our ability to pay competitive compensation for our people,” Klimko said. “That’s the name of the game in our business.”

Though some companies that apply for relief through the PBGC are facing bankruptcy, Klimko said that’s not the case for Butzel Long.

The PBGC insures about 990 pension plans sponsored by Michigan companies. In 2011 it paid about $384 million to more than 45,000 Michigan retirees in failed plans, according to its website.

Law practice consultant Edward Poll has chided law firms for not meeting their pension obligations.
“You have to know that at some point, you’re obligated to pay that, and if you don’t have the cash set aside to pay that, you’re going to have a problem. To me that’s just mismanagement,” said Poll, owner of Venice, Calif.-based LawBiz Management Co.

Poll said he knows of only a few law firms that have funded pension plans for their attorneys. He said he understands that external factors contribute to underfunding, but said it’s still "irresponsible" to let a plan get to that point.

Most law firms have 401(k) retirement plans. Pensions are more common in government and collective bargaining shops than they are among private employers.

The state of Michigan has been making changes to public employee pensions. Laws impacting long-term state employees and teachers have ended up in court on constitutionality questions.

Automakers also have struggled with pension obligations. Ford Motor Co.’s plan is underfunded by $18.7 billion, The Detroit News reported on Tuesday.

Email Melissa Anders at manders@mlive.com. Follow her on Twitter: 



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Allen Stanford Ordered to Disgorge $6.7 Billion in SEC Case

R. Allen Stanford, the Texas financier convicted last year of leading an investment fraud scheme, was ordered to disgorge more than $6.7 billion by the judge in a U.S. Securities and Exchange Commission lawsuit.

U.S. District Judge David Godbey in Dallas issued the order yesterday against Stanford, his Stanford Group Co. and the Antigua-based Stanford International Bank Ltd.

The order may clear the way for Godbey to grant a court-appointed receiver’s request to make an interim $55 million payout to investors who lost money after buying certificates of deposit issued by the Stanford Bank.

“The fraud perpetrated was obviously egregious, was done with a high degree of scienter, caused billions in losses and occurred over the course of a decade,” Godbey said, using the legal term to describe the mental state of intent to deceive.

A federal jury in Houston convicted Stanford of lying to investors about how their money was being handled.
“The truth is that he flushed it away,” Justice Department lawyer William Stellmach told jurors in his closing arguments at the March 2012 trial. “He told depositors he was using their money in one way and the truth was completely different.”

Stanford, 63, was sentenced to 110 years in prison. Maintaining his innocence, he has appealed the verdict.

Parallel Judgment

Godbey referred to the jury’s guilty finding in granting the SEC’s request he render a parallel judgment in their case filed in February 2009, four months before the financier was indicted. The judge also cited the August 2009 guilty plea by Stanford Group Chief Financial Officer James Davis.

“The court finds that $5.9 billion is a reasonable approximation of the gains connected to Stanford’s fraud,”Godbey said of the sum he would order disgorged. He then added more than $861 million in interest for a total of $6.76 billion Davis too is jointly liable.

Finally the judge imposed a $5.9 billion penalty on Stanford and a $5 million assessment against Davis, who received a five-year prison sentence.

The court-appointed receiver, Ralph Janvey, asked Godbey this month for permission to begin repaying some of the losses incurred by the more than 17,000 claimants. At an April 11 hearing, the judge told Janvey’s lawyer, Kevin Sadler, he was concerned about doing so before a final order had been entered against Stanford.

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).

To contact the reporter on this story: Andrew Harris in the Chicago federal courthouse at aharris16@bloomberg.net
To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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FOURTH JOINT REPORT OF THE RECEIVER, THE EXAMINER AND THE OSIC CONCERNING PENDING LITIGATION (FOR THE PERIOD ENDING MARCH 31, 2013)

Receiver Report April-2013

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Stanford Victims Aren't Owed SIPC Aid, Ex-SEC Chiefs Say

Two former commissioners of the U.S. Securities and Exchange Commission urged the D.C. Circuit on Monday to affirm a landmark ruling declaring that Securities Investor Protection Corp. doesn't owe compensation to victims of Robert Allen Stanford's $7 billion Ponzi scheme.

Ex-SEC Commissioners Joseph A. Grundfest and Paul S. Atkins said the D.C. Circuit will “dramatically expand the scope of persons covered through SIPC” if it chooses to reverse a lower court's ruling and compel SIPC to pay the fraud victims' claims through a liquidation proceeding.

Grundfest and Atkins said the July decision by U.S. District Judge Robert L. Wilkins should stand because SIPC lacks the authority to provide relief to investors of Stanford's foreign bank Stanford International Bank Ltd.

Grundfest and Atkins said the SEC's argument that an offshore bank should be covered under the Securities Investor Protection Act “contravenes the plain language of the statute, conflicts with the relevant statutory history, and is at odds with more than 40 years of judicial precedent.”

The brief comes nine months after Judge Wilkins ruled that Antigua-based Stanford International was an offshore bank, not a registered broker-dealer, which is what SIPC oversees.

Judge Wilkins' decision was a major blow to victims of the Ponzi scheme, who together lost upwards of $7 billion in certificates of deposit administered by Stanford International. It also carried broader legal significance, marking the first time since the enactment of the SIPA 42 years ago that a federal court had ruled on how much power the SEC has to command a SIPC liquidation.

Because of its precedential nature, a key issue in the Stanford dispute was the standard of proof required of the SEC. The agency argued for a more lenient standard than SIPC did, describing its burden as merely probable cause supported by hearsay.

Judge Wilkins ultimately chose the higher standard requested by SIPC: a preponderance of the evidence. In an SIPC liquidation, an investor must meet a preponderance standard to prove the validity of his or her claim.

In its appellate brief filed in January, the SEC said Judge Wilkins had taken a narrow view of the term “customer.” The agency argued that transactions with Stanford entities should be treated the same way under the SIPA because the company operated “as a single fraudulent enterprise that ignored corporate boundaries.”

“This interpretation of the statute to allow for flexibility in certain circumstances is the correct one, and it is at least a reasonable one that was entitled to deference by the district court,” the SEC said.

But Grundfest and Atkins said in their brief Monday that expanding the “customer” definition was unnecessary and could pose an economic burden to SIPC.

“The SEC's unwarranted expansion of the definition of the term 'customer' would substantially increase the financial exposure of the SIPC fund,” the brief said. “Yet the SEC has presented no economic analysis considering the financial implications of this expanded coverage.”

“The SEC's proposed expansion of SIPC protection, absent even the most rudimentary consideration of any financial consequences, would radically transform SIPA and threaten SIPC's ability to function as Congress intended,” the brief added.

SIPC said earlier this month that the terms of its mission were clear: to protect investors when a member brokerage fails, adding that Judge Wilkins' purportedly narrow view of the term 'customer' was appropriate.

“By its terms, the statute does not insure against fraud or investment losses, instead protecting only the 'customer' property that an SIPC-'member' brokerage firm holds in custody when the brokerage fails,” it said.

The corporation also said the SEC's case was unprecedented because it has not made similar requests in proceedings related to the downfall of a major financial institution.

“In 40 years and over 300 liquidation proceedings — including the recent liquidations of Lehman Brothers Inc., Madoff Investment Securities LLC and MF Global Inc. — this is the first the SEC had ever tried to compel a liquidation,” it said.

Stanford was sentenced in June to 110 years in prison for his role in the fraud.

Grundfest and Atkins were joined on the brief by Simon M. Lorne, the former general counsel of the SEC and securities law professors William J. Carney of Emory University School of Law and Kenneth E. Scott of Stanford Law School.

Grundfest and Atkins are represented by Noah Levine, Steven P. Lehotsky, Joshua S. Press and Albinas J. Prizgintas of WilmerHale.

SIPC is represented by Edwin John U, Eugene F. Assaf Jr., John C. O'Quinn, Michael W. McConnell and Elizabeth M. Locke of Kirkland & Ellis LLP.

The case is U.S. Securities and Exchange Commission v. Securities Investor Protection Corp., case number 12-5286, in the U.S. Court of Appeals for the District of Columbia Circuit.

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Louisiana officials want release of SEC report in Stanford case

A Louisiana senator told officials of the Securities and Exchange Commission Friday that he wants immediate release of a year-old report by the commission's inspector general on efforts to recover money for victims of a multibillion-dollar fraud. 

U.S. Sen. David Vitter, R-La., described as incompetent efforts by a court-appointed receiver to find and distribute assets of convicted con man Robert Allen Stanford. 

Stanford, 63, of Houston, is serving a 110-year prison sentence for a fraud conviction that followed estimated worldwide losses of approximately $7 billion. About $1 billion of those losses were from about 1,000 investors in the Baton Rouge, Lafayette and Covington areas, according to estimates by state Sen. Bodi White, R-Central, and Baton Rouge attorney Phillip W. Preis.

 "The fraud caused an absolute tragedy for many Louisiana families who invested their hard-earned retirement savings in good faith that it would be there for them when they retired,"

Vitter said Friday in a letter to Mary Jo White, who chairs the SEC. Vitter said the receiver in the case, Dallas attorney Ralph Janvey, spent $100 million to collect $55 million for Stanford's victims.

 "In the best light, Janvey's actions can only be seen as incompetent," Vitter told White in that letter. He urged White to release the SEC inspector general's report on Janvey, noting that it was completed in March 2012.

 There are more than 20,000 Stanford victims across more than 100 countries.

 A retired Zachary couple, Louis and Kathy Mier, saw $240,000 of their savings stolen by Stanford's fraudulent scheme.

 "Whatever any of our congressmen do to shed light on the truth of what happened, and whatever they can do to help us get our money back and be whole again, would make Louis and me very, very happy," Kathy Mier said Friday.

 John J. Nester, a spokesman for the SEC, said in an email Friday that neither he nor other SEC officials would comment on Vitter's request before White issues a response to the senator's letter.

 U.S. Sen. Mary Landrieu, D-La., released a statement through her staff: "The Stanford victims deserve answers, and the immediate release of the IG's report is the very least the SEC can do."

 U.S. Rep. Bill Cassidy, R.-Baton Rouge, said through his staff: "I strongly urge the SEC … to release the full results of the inspector general's report. The victims of this crime were hard working Louisiana families, and they are entitled to see the details of the report."

 Vitter noted that Janvey, against the SEC's wishes, unsuccessfully sued some Stanford victims in an effort to seize money those victims retrieved before Stanford's operations were shut down in February 2009.

 "Given the demonstrated incompetence of the court-appointed receiver, it makes you wonder how bad this (inspector general's) report gets," Vitter added. "The Stanford victims deserve to see."

For a full and open debate on the Stanford Receivership visit:

http://sivg.org.ag/

The Stanford International Victims Group Forum

RECEIVER’S FIFTH INTERIM REPORT REGARDING STATUS OF RECEIVERSHIP, ASSET COLLECTION, AND ONGOING ACTIVITIES

  1773 Fifth Interim Report Status of Receivership Asset Collection and Activities

For a full and open debate on the Stanford Receivership visit:

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The Stanford International Victims Group Forum

New Provisional Liquidators Appointed to Stanford Development Company (“SDC”)

Marcus Wide of Grant Thornton (British Virgin Islands) Limited and Hordley Forbes of Forbes and Associates (Antigua) were appointed as the new Joint Provisional Liquidators of SDC by The Eastern Caribbean Supreme Court, High Court of Justice, Antigua and Barbuda as of April 17, 2013.

With extensive years of combined experience, Wide and Forbes provisional joint appointment represents an important step in the management of SDC in and efficient and effective manner and in the recovery of money for the creditor-victims and the employees and other stakeholders. An urgent component of this liquidation are the past due wages that may be due and ordering the books. Accordingly, the newly appointed Joint Provisional Liquidators’ first call to action is to organize and clarify the past due wages and arrange for prompt payment. We ask the SDC employees and the creditor-victims for patience through the transition as the proper amounts owed are determined and the terms of the appointment order is implemented. The Joint Provisional Liquidators are committed to bringing a prompt resolution to this matter in the most efficient and beneficial manner for the interests of the pertinent stakeholders, including the SDC employees.

For a full and open debate on the Stanford Receivership visit:

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The Stanford International Victims Group Forum

SEC Can't Force Help For Stanford Victims, DC Circ. Told

The Securities Investor Protection Corp. asked the D.C. Circuit on Monday to affirm a landmark district court ruling declaring it doesn’t owe compensation to victims of Robert Allen Stanford’s $7 billion Ponzi scheme, suggesting the U.S. Securities and Exchange Commission succumbed to political pressure in bringing the suit.

The SIPC asked the appeals court to affirm U.S. District Judge Robert L. Wilkins’ decision dismissing the agency’s application to compel the SIPC to pay the fraud victims’ claims through a liquidation proceeding.

A top agency official had originally agreed that the SIPC did not owe funds under the Securities Investor Protection Act, SIPC claims, but that changed after U.S. Senator David Vitter, R-La., threatened to block the nominations of two SEC officials in June 2011, the SIPC said.

“The record shows that the SEC's general counsel agreed that SIPA did not apply to the Stanford case,” the SIPC said. “It was only two years later that the SEC sought to force SIPC's hand, apparently bowing to pressure from a U.S. senator,” referencing a June 14, 2011, press release from Vitter.

The corporation, funded by the brokerage industry to cover investors who lose money in failing firms, also claims the SEC didn’t seek a liquidation until two years after its 2009 case against Stanford.

“If the SEC had thought the Stanford fraud was within the scope of what SIPA protects, it was under a legal obligation to notify SIPC immediately,” the SIPC said. “The SEC did not do so, even though it filed an enforcement action against Stanford and secured the appointment of a receiver over U.S. Stanford assets in February 2009.”

On July 3, Judge Wilkins ruled that Stanford's U.S.-based Stanford Group Co. was a member of the SIPC, but that the Antigua-based Stanford International Bank was not. Stanford International Bank Ltd. was an offshore bank, not a registered broker-dealer, which is what the SIPC oversees, Judge Wilkins said.

Judge Wilkins’ decision was a major blow to victims of the Ponzi scheme, who together lost upwards of $7 billion in certificates of deposit administered by Stanford International Bank. It also carried broader legal significance, marking the first time since the enactment of SIPA 42 years ago that a federal court had ruled on how much power the SEC has to command a SIPC liquidation.

The U.S. Supreme Court has ruled that brokerage customers cannot force such proceedings, but that the SEC has the authority to do so.

Because of its precedential nature, a key issue in the Stanford dispute was the standard of proof required of the SEC. The agency argued for a more lenient standard than the SIPC did, describing its burden as merely probable cause supported by hearsay. Judge Wilkins ultimately chose the higher standard requested by the SIPC: a preponderance of the evidence. In an SIPC liquidation, an investor must meet a preponderance standard to prove the validity of his or her claim.

In its appellate brief filed in January, the SEC said Judge Wilkins had taken a too-narrow view of the term "customer." The agency argued that transactions with both Stanford entities should be treated the same way under SIPA because the company operated “as a single fraudulent enterprise that ignored corporate boundaries.”

“This interpretation of the statute to allow for flexibility in certain circumstances is the correct one, and it is at least a reasonable one that was entitled to deference by the district court,” the SEC said.

The SEC added that it was not seeking customer status for all Stanford investors, but only for those who held accounts with Stanford Group Co., purchased fraudulent certificates of deposit through SGC and deposited funds with Stanford International Bank Ltd.

But SIPC said Monday that the terms of its mission were clear: to protect investors when a member brokerage fails, adding that Judge Wilkins' purportedly narrow view of the term 'customer' was appropriate.

"By its terms, the statute does not insure against fraud or investment losses, instead protecting only the 'customer' property that an SIPC-'member' brokerage firm holds in custody when the brokerage fails,” the corporation added.

The corporation also said the SEC’s case was unprecedented because it has not made similar requests in proceedings related to the downfall of a major financial institution.

“In 40 years and over 300 liquidation proceedings — including the recent liquidations of Lehman Brothers Inc., Madoff Investment Securities LLC, and MF Global Inc. — this is the first the the SEC had ever tried to compel a liquidation. '

Stanford was sentenced in June to 110 years in prison for his role in the fraud.

SIPC is represented by Edwin John U, Eugene F. Assaf Jr., John C. O'Quinn, Michael W. McConnell and Elizabeth M. Locke of Kirkland & Ellis LLP.

The case is U.S. Securities and Exchange Commission v. Securities Investor Protection Corp., case number 12-5286, in the U.S. Court of Appeals for the District of Columbia Circuit.

For a full and open debate on the Stanford Receivership visit:

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The Stanford International Victims Group Forum

US District Court approves Settlement Agreement and Cross-Border Protocol

Before the Court is the Amended Joint Motion of the SEC, the Receiver, the Examiner, and the Official Stanford Investors Committee to Approve the Settlement Agreement and Cross-Border Protocol [Doc. 1793 in SEC v. Stanford, 09-CV-298, Doc. 189 in In re: Stanford International Bank, 09-CV-721]. The Court has reviewed the Motion, any responses and replies, and the applicable authorities. The Court finds the Motion to be well taken. Therefore, the Motion shall be and is hereby GRANTED. It is therefore ORDERED that the Settlement Agreement and Cross-Border Protocol, entered into by and among the SEC, the Department of Justice, the Receiver, the Examiner, the Official Stanford Investors Committee, and the Joint Liquidators shall be and is hereby APPROVED. The parties to the Case are hereby authorized to perform in accordance with their rights and obligations as outlined in the Settlement Agreement and Cross-Border Protocol.

For a full and open debate on the Stanford Receivership visit:

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Antiguan Courts Ratify Agreement Between Janvey & GT

Good news for ALL victims!! 

Today I attended the Antiguan courts with Marcus Wide, Edd Davis and four other lawyers.

I am pleased to inform you that the agreement between the parties has been ratified by the Antigua courts. Let us all hope that when the agreement goes before judge Godbey later this week no individuals attempt to block this agreement which has the support of the vast majority of victims.

For a full and open debate on the Stanford Receivership visit:

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The Stanford International Victims Group Forum

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:

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The Stanford International Victims Group Forum