Monday, 17 August 2009
Stanford Regulators Admit Not Pursuing '03 Fraud Claim
The industry self-regulatory organization that was supposed to police the brokers at the Stanford Financial Group acknowledges that a Stanford employee alleged in 2003 that the company was running a Ponzi scheme, but the organization did not follow up on the claim based of its own policy, which has since been changed.
The disclosure comes in testimony from Daniel Sibears, Executive Vice President of the Financial Industry Regulatory Authority, FINRA, prepared for a Senate Banking Committee hearing on Monday.
In 2003, Stanford advisor Leyla Wydler alleged in an arbitration case that the company was "engaged in a Ponzi scheme to defraud its clients."
Wydler lost the arbitration case, and FINRA is now acknowledging that her allegations of fraud were never passed on to investigators by the FINRA arbitration panel. Sibears' testimony said that prior to this year, FINRA procedure was to review fraud claims in arbitrations involving customers, but not those that involved employment disputes like Leyla Wydler's.
"This was based on an assessment that customer claims were most likely to evidence misconduct leading to investor harm," the testimony says.
Sibears insists in the testimony that "FINRA reviews every customer complaint and regulatory tip it receives." Nontheless, he acknowledged, the procedure involving employment disputes was changed in March of this year. The change came less than a month after the Securities and Exchange Commission sued Stanford, alleging an $8 billion Ponzi scheme.
Sibears' testimony claimed that even if the agency had followed up on Wydler's allegations, it likely would have run into barriers from regulators in Antigua, home of Stanford's offshore bank, where he says officials were less than cooperative in investigating subsequent tips.
After she lost the arbitration in 2004, Wydler brought her concerns to the Securities and Exchange Commission, which launched a formal investigation the following year. But the SEC did not sue Stanford until this year. The agency says it, too, was thwarted by Antiguan regulators, and added the nation's chief financial regulator to its complaint in June.
Hundreds of people attended the Banking Committee hearing, which was held in Baton Rouge, LA, home to a large concentration of Stanford investors. They have complained that regulators were slow to catch the alleged fraud, which affected some 28,000 investors.
The disclosure comes in testimony from Daniel Sibears, Executive Vice President of the Financial Industry Regulatory Authority, FINRA, prepared for a Senate Banking Committee hearing on Monday.
In 2003, Stanford advisor Leyla Wydler alleged in an arbitration case that the company was "engaged in a Ponzi scheme to defraud its clients."
Wydler lost the arbitration case, and FINRA is now acknowledging that her allegations of fraud were never passed on to investigators by the FINRA arbitration panel. Sibears' testimony said that prior to this year, FINRA procedure was to review fraud claims in arbitrations involving customers, but not those that involved employment disputes like Leyla Wydler's.
"This was based on an assessment that customer claims were most likely to evidence misconduct leading to investor harm," the testimony says.
Sibears insists in the testimony that "FINRA reviews every customer complaint and regulatory tip it receives." Nontheless, he acknowledged, the procedure involving employment disputes was changed in March of this year. The change came less than a month after the Securities and Exchange Commission sued Stanford, alleging an $8 billion Ponzi scheme.
Sibears' testimony claimed that even if the agency had followed up on Wydler's allegations, it likely would have run into barriers from regulators in Antigua, home of Stanford's offshore bank, where he says officials were less than cooperative in investigating subsequent tips.
After she lost the arbitration in 2004, Wydler brought her concerns to the Securities and Exchange Commission, which launched a formal investigation the following year. But the SEC did not sue Stanford until this year. The agency says it, too, was thwarted by Antiguan regulators, and added the nation's chief financial regulator to its complaint in June.
Hundreds of people attended the Banking Committee hearing, which was held in Baton Rouge, LA, home to a large concentration of Stanford investors. They have complained that regulators were slow to catch the alleged fraud, which affected some 28,000 investors.
Sunday, 16 August 2009
Who is Ralph Janvey? Stanford's victims know he wants a third
Sir Allen Stanford's attorney doesn't like Ralph Janvey, but that's not surprising. The SEC isn't crazy about him either, and U.S. Judge David Godbey told him, "You know everyone in the courtroom is angry with you," according to a report in USA Today.
Janvey has been tasked with taking over and cleaning up the wreckage from Stanford's $7 billion Ponzi scheme -- the second largest known disaster of this kind. Along the way, he's managed to piss off everyone he's encountered. The latest "transgression" is his demand for more than $27 million in fees for his team and the consultants he's hired to track down the missing billions of dollars in Stanford's former empire.
More than 20,000 investors are waiting in line for their respective pounds of flesh. And now, they have to wait in line behind the lawyer.
The full request, which hasn't been ruled on yet, consists of $20 million for which Janvey asked in mid-May, covers his team's work through April 12, with another $7.6 million covering the seven weeks that followed.
And, he wants much more ... a third, actually.
Janvey's team stretches to more than 100, and he's asking for 34% of the $81.1 million on hand to compensate these guys. The investors, of course, would walk away with a fraction of their lost money. The SEC is pushing back on the bill, which includes $8.9 million for advisory firm FTI Consulting and $8.4 million for law firm Baker Botts (interesting note: I did a jury duty stint where Baker Botts was defense council ... hopefully it will do better this time).
The SEC objects to $500 an hour rates for FTI ... and $280 an hour to make copies. But, what's the big deal? Digging through and sorting out fraud is not easy. The discounts that clients can usually squeeze out of consultants and attorneys are harder to come by. So, even the 20% discount Janvey's offered doesn't amount to much
Janvey has been tasked with taking over and cleaning up the wreckage from Stanford's $7 billion Ponzi scheme -- the second largest known disaster of this kind. Along the way, he's managed to piss off everyone he's encountered. The latest "transgression" is his demand for more than $27 million in fees for his team and the consultants he's hired to track down the missing billions of dollars in Stanford's former empire.
More than 20,000 investors are waiting in line for their respective pounds of flesh. And now, they have to wait in line behind the lawyer.
The full request, which hasn't been ruled on yet, consists of $20 million for which Janvey asked in mid-May, covers his team's work through April 12, with another $7.6 million covering the seven weeks that followed.
And, he wants much more ... a third, actually.
Janvey's team stretches to more than 100, and he's asking for 34% of the $81.1 million on hand to compensate these guys. The investors, of course, would walk away with a fraction of their lost money. The SEC is pushing back on the bill, which includes $8.9 million for advisory firm FTI Consulting and $8.4 million for law firm Baker Botts (interesting note: I did a jury duty stint where Baker Botts was defense council ... hopefully it will do better this time).
The SEC objects to $500 an hour rates for FTI ... and $280 an hour to make copies. But, what's the big deal? Digging through and sorting out fraud is not easy. The discounts that clients can usually squeeze out of consultants and attorneys are harder to come by. So, even the 20% discount Janvey's offered doesn't amount to much
Saturday, 15 August 2009
Stanford's Latest Appeal: Requesting a New Judge
Citing "unexplained hostility" by the judge in his criminal case, accused fraudster Allen Stanford is asking for a new judge.
Stanford, indicted on 21 felony counts in an alleged $8 billion Ponzi scheme, has had a run of rulings against him by U.S. District Judge David Hittner. Hittner has revoked Stanford's bail, refused to move him to a jail closer to Houston, and denied his request to hire new attorneys.
Now, those attorneys are petitioning the Fifth Circuit Court of Appeals to remove Hittner from the case and reassign it to U.S. District Judge Vanessa Gilmore in Houston, who presided over an earlier Stanford case.
The petition centers on Hittner's ruling last week barring Houston attorney Michael Sydow from appearing for Stanford, and ordering that Sydow have "no further involvement" in the case.
Sydow had hoped to appear along with Washington attorney Robert Luskin to argue for the release of some of Stanford's funds to pay for a defense. But Hittner ruled that because Sydow had not received prior approval to appear, he should be barred from the case for good.
The petition says Hittner is denying Stanford's Constitutional right to the attorney of his choice, and Hittner should be removed from the case.
It's not the first time Stanford's attorneys have gone to the Court of Appeals over Hittner's rulings. Still pending is an appeal of Hittner's decision to revoke Stanford's bail, which his attorneys claim also violates his Constitutional rights.
Stanford has been in custody non-stop since the day he was indicted, June 18.
Stanford, indicted on 21 felony counts in an alleged $8 billion Ponzi scheme, has had a run of rulings against him by U.S. District Judge David Hittner. Hittner has revoked Stanford's bail, refused to move him to a jail closer to Houston, and denied his request to hire new attorneys.
Now, those attorneys are petitioning the Fifth Circuit Court of Appeals to remove Hittner from the case and reassign it to U.S. District Judge Vanessa Gilmore in Houston, who presided over an earlier Stanford case.
The petition centers on Hittner's ruling last week barring Houston attorney Michael Sydow from appearing for Stanford, and ordering that Sydow have "no further involvement" in the case.
Sydow had hoped to appear along with Washington attorney Robert Luskin to argue for the release of some of Stanford's funds to pay for a defense. But Hittner ruled that because Sydow had not received prior approval to appear, he should be barred from the case for good.
The petition says Hittner is denying Stanford's Constitutional right to the attorney of his choice, and Hittner should be removed from the case.
It's not the first time Stanford's attorneys have gone to the Court of Appeals over Hittner's rulings. Still pending is an appeal of Hittner's decision to revoke Stanford's bail, which his attorneys claim also violates his Constitutional rights.
Stanford has been in custody non-stop since the day he was indicted, June 18.
Lawyer wants 34% of money recovered in Stanford case
The attorney supposed to clean up what the government says was Texas businessman R. Allen Stanford's multibillion-dollar Ponzi scheme is managing to anger just about every party involved in the case.
The Securities and Exchange Commission and other stakeholders in the complicated and far-flung case say Dallas attorney Ralph Janvey, appointed by the court to track down billions of missing dollars, has instead become a rogue receiver who refuses to cooperate with the SEC.
"You know everyone in the courtroom is angry with you," said U.S. Judge David Godbey at a recent court hearing.
Stanford's attorneys say Janvey is "exceeding his authority." And John Little, the court-appointed examiner who represents the interests of jilted investors, said they feel Janvey's actions have been shocking and outrageous.
The latest flash point has been Janvey's demands for more than $27 million in fees for himself and the team of lawyers and consultants he hired to take over Stanford's business empire and track down the missing billions. The giant paycheck would come from the same pot of money he is amassing that is supposed to be divided among Stanford's allegedly defrauded investors.
The SEC has accused Stanford and some of his top company officials of running a $7 billion scheme by promising inflated returns to more than 20,000 investors on certificates of deposit at his bank in Antigua. Instead of investing the money, Stanford, who faces additional criminal charges in Houston, paid off old investors with deposits from new investors, according to the government.
Godbey has not ruled on Janvey's mid-May request for nearly $20 million, covering work through April 12. Nor has he ruled on Janvey's request last week for another $7.6 million to cover work for a seven-week period from mid-April to the end of May.
Janvey wants to pay himself and the more than 100 lawyers and consultants he has hired to work the case. But his requested share of the pie is 34% of the $81.1 million of cash on hand the receiver has under his control in a bank account, according to court records. While investors will be fortunate to get back just pennies on the dollar, the attorneys could walk away with millions.
Janvey is requesting nearly $800,000 in fees and expenses for his law firm. The bill also covers nearly $8.9 million in fees and expenses for the advisory firm FTI Consulting, and about $8.4 million for the law firm Baker Botts.
The SEC is fighting Janvey's bill, telling the judge it would be "inappropriate" to pay him the $1.1 million a week he asked for in a filing last week.
The agency complained that Janvey is employing too many high-priced lawyers, including nine partners at Baker Botts and six financial consultants from FTI Consulting who were charging at least $500 an hour. SEC lawyers also took issue with a bill from FTI charging $280 an hour for photocopying and creating shipping labels and binders.
Peter Henning, a professor at Wayne State University's law school and former SEC attorney, said Janvey is in a difficult spot because "these are not cheap cases."
"But there is a concern that it for firms becomes free billing," Henning said.
Securities experts say the relationship between receivers and the SEC is typically more cooperative than contentious. But the friction in this case led the agency, which recommended Janvey for appointment, to try to get a court order stripping him of some of his authority, a motion which was denied.
SEC lawyers acknowledged that they were unable to recall ever before trying to rein in a receiver.
"It is very unusual for there to be this level of conflict between the receiver and the SEC," said Kelly Crawford, a securities lawyer who four times has been a court-appointed receiver. "The SEC remains a watchdog for investors even after the receiver appointment, and if the SEC believes he is not acting in the best interests of investors by charging exorbitant fees ... they are going to step in."
SEC officials declined to publicly discuss their displeasure with Janvey. Rose Romero, the agency's regional director in Fort Worth, said only that the SEC's job is to "look out for the interests of the investors. As with all cases, we are aggressively carrying out this mission in the Stanford case."
For his part, Janvey replied in court papers that "skilled professional services are inherently costly." He said he and the firms he hired are working at a 20-percent discount.
At a recent court hearing, he said this was the first time in his career that he has been in a dispute with the SEC. He also pointed out that he does work for the SEC, but answers to the court.
Janvey's lawyer did not return a message left by the Associated Press. Through his PR firm, for which the receiver requested $165,000 in fees and expenses, Janvey pointed to court documents in which SEC attorney Kevin Edmundson discussed an inability to work out areas of disagreement, but added that "We still want the receiver. We still support the receiver."
One of the impasses is over whether Janvey is targeting innocent investors by going after their original investments in CDs at Stanford's bank in Antigua, as the SEC believes. Janvey has filed lawsuits for $925 million that he is trying to recover from 650 investors and former financial advisers — a move known as a "clawback." The SEC said many of those investors are innocent victims.
Janvey said he is trying to increase the pot of money and make everyone share equally in the losses.
But securities lawyers and the SEC say such a tactic victimizes investors a second time. Last month, Godbey ruled against Janvey, who has taken the issue of whether he can claw back principal to a federal appeals court. Experts in securities law said Janvey's strategy is unusual and unfair.
"To go after principal is just enlarging the number of victims unnecessarily and unwisely," Crawford said.
In addition to the civil case against Stanford in Dallas, he and four executives of his now defunct Stanford Financial Group are accused of orchestrating the massive Ponzi scheme in a criminal indictment in Houston. Investigators said Stanford secretly diverted more than $1.6 billion in investor funds as personal loans to himself.
Stanford and executives Laura Pendergest-Holt, Gilberto Lopez and Mark Kuhrt pleaded not guilty to various criminal charges in Houston, including wire and mail fraud, in a 21-count indictment issued June 18. The three Stanford executives are free on bond while Stanford himself remains jailed in the Houston area.
James Davis, ex-chief financial officer for Stanford's business empire, has been cooperating with prosecutors and is free on bond.
The Securities and Exchange Commission and other stakeholders in the complicated and far-flung case say Dallas attorney Ralph Janvey, appointed by the court to track down billions of missing dollars, has instead become a rogue receiver who refuses to cooperate with the SEC.
"You know everyone in the courtroom is angry with you," said U.S. Judge David Godbey at a recent court hearing.
Stanford's attorneys say Janvey is "exceeding his authority." And John Little, the court-appointed examiner who represents the interests of jilted investors, said they feel Janvey's actions have been shocking and outrageous.
The latest flash point has been Janvey's demands for more than $27 million in fees for himself and the team of lawyers and consultants he hired to take over Stanford's business empire and track down the missing billions. The giant paycheck would come from the same pot of money he is amassing that is supposed to be divided among Stanford's allegedly defrauded investors.
The SEC has accused Stanford and some of his top company officials of running a $7 billion scheme by promising inflated returns to more than 20,000 investors on certificates of deposit at his bank in Antigua. Instead of investing the money, Stanford, who faces additional criminal charges in Houston, paid off old investors with deposits from new investors, according to the government.
Godbey has not ruled on Janvey's mid-May request for nearly $20 million, covering work through April 12. Nor has he ruled on Janvey's request last week for another $7.6 million to cover work for a seven-week period from mid-April to the end of May.
Janvey wants to pay himself and the more than 100 lawyers and consultants he has hired to work the case. But his requested share of the pie is 34% of the $81.1 million of cash on hand the receiver has under his control in a bank account, according to court records. While investors will be fortunate to get back just pennies on the dollar, the attorneys could walk away with millions.
Janvey is requesting nearly $800,000 in fees and expenses for his law firm. The bill also covers nearly $8.9 million in fees and expenses for the advisory firm FTI Consulting, and about $8.4 million for the law firm Baker Botts.
The SEC is fighting Janvey's bill, telling the judge it would be "inappropriate" to pay him the $1.1 million a week he asked for in a filing last week.
The agency complained that Janvey is employing too many high-priced lawyers, including nine partners at Baker Botts and six financial consultants from FTI Consulting who were charging at least $500 an hour. SEC lawyers also took issue with a bill from FTI charging $280 an hour for photocopying and creating shipping labels and binders.
Peter Henning, a professor at Wayne State University's law school and former SEC attorney, said Janvey is in a difficult spot because "these are not cheap cases."
"But there is a concern that it for firms becomes free billing," Henning said.
Securities experts say the relationship between receivers and the SEC is typically more cooperative than contentious. But the friction in this case led the agency, which recommended Janvey for appointment, to try to get a court order stripping him of some of his authority, a motion which was denied.
SEC lawyers acknowledged that they were unable to recall ever before trying to rein in a receiver.
"It is very unusual for there to be this level of conflict between the receiver and the SEC," said Kelly Crawford, a securities lawyer who four times has been a court-appointed receiver. "The SEC remains a watchdog for investors even after the receiver appointment, and if the SEC believes he is not acting in the best interests of investors by charging exorbitant fees ... they are going to step in."
SEC officials declined to publicly discuss their displeasure with Janvey. Rose Romero, the agency's regional director in Fort Worth, said only that the SEC's job is to "look out for the interests of the investors. As with all cases, we are aggressively carrying out this mission in the Stanford case."
For his part, Janvey replied in court papers that "skilled professional services are inherently costly." He said he and the firms he hired are working at a 20-percent discount.
At a recent court hearing, he said this was the first time in his career that he has been in a dispute with the SEC. He also pointed out that he does work for the SEC, but answers to the court.
Janvey's lawyer did not return a message left by the Associated Press. Through his PR firm, for which the receiver requested $165,000 in fees and expenses, Janvey pointed to court documents in which SEC attorney Kevin Edmundson discussed an inability to work out areas of disagreement, but added that "We still want the receiver. We still support the receiver."
One of the impasses is over whether Janvey is targeting innocent investors by going after their original investments in CDs at Stanford's bank in Antigua, as the SEC believes. Janvey has filed lawsuits for $925 million that he is trying to recover from 650 investors and former financial advisers — a move known as a "clawback." The SEC said many of those investors are innocent victims.
Janvey said he is trying to increase the pot of money and make everyone share equally in the losses.
But securities lawyers and the SEC say such a tactic victimizes investors a second time. Last month, Godbey ruled against Janvey, who has taken the issue of whether he can claw back principal to a federal appeals court. Experts in securities law said Janvey's strategy is unusual and unfair.
"To go after principal is just enlarging the number of victims unnecessarily and unwisely," Crawford said.
In addition to the civil case against Stanford in Dallas, he and four executives of his now defunct Stanford Financial Group are accused of orchestrating the massive Ponzi scheme in a criminal indictment in Houston. Investigators said Stanford secretly diverted more than $1.6 billion in investor funds as personal loans to himself.
Stanford and executives Laura Pendergest-Holt, Gilberto Lopez and Mark Kuhrt pleaded not guilty to various criminal charges in Houston, including wire and mail fraud, in a 21-count indictment issued June 18. The three Stanford executives are free on bond while Stanford himself remains jailed in the Houston area.
James Davis, ex-chief financial officer for Stanford's business empire, has been cooperating with prosecutors and is free on bond.