Source: http://stanfordfraud.blogspot.com/2013/02/
Timestamp: 2019-04-22 22:14:23+00:00

Document:
It has been more than four years since the District Court for the Northern District of Texas appointed Ralph Janvey as Receiver for the Stanford Entities-shutting down what the SEC alleged to be a $7 billion Ponzi scheme. In that time, R. Allen Stanford and some of his associates have been tried and convicted in criminal courts, while hundreds of civil lawsuits continue to creep forward. Most of the civil suits are consolidated for pretrial purposes into MDL 2099, in the Northern District of Texas. This litigation alert will briefly address the criminal convictions, followed by an update on the SLUSA appeal that KRCL wrote about in April. Lastly, this alert will report on some of the new complaints filed by the Receiver and the Official Stanford Investors Committee in February.
On June 14, 2012, Judge Hittner of the Southern District of Texas sentenced R. Allen Stanford to 110 years in federal prison for various counts of fraud, conspiracy, and obstruction. The court also imposed a $5.9 billion judgment against Stanford individually. Stanford has appealed the conviction to the Fifth Circuit Court of Appeals.
Stanford's conviction and judgment followed a six-week trial at which his former chief financial officer, James Davis, testified against Stanford as part of a plea agreement. The court sentenced James Davis to five years in prison and imposed a $1 billion money judgment.
Laura Pendergest-Holt, Stanford's former chief investment officer, plead guilty to obstruction and received a sentence of 36 months in prison and no monetary judgment.
On February 14, 2013, the court sentenced Gilbert Lopez, Stanford's former chief accounting officer, and Mark Kuhrt, the former controller, to 20 years in prison. These defendants have signaled their intentions to appeal.
The Lopez and Kuhrt sentences bring an end to the criminal trial proceedings, other than those related to Leroy King, an Antiguan banking regulator whom prosecutors are attempting to extradite to the United States for trial.
As we have previously written, the Securities Litigation Uniform Standards Act of 1998 ("SLUSA") prohibits state-based securities class actions if the claims allege "a misrepresentation or omission of a material fact in connection with the purchase of a covered security." Judge Godbey in the Northern District of Texas previously ruled that the plaintiffs' claims, which related to CDs issued by Stanford International Bank, were sufficiently related to "covered securities" to warrant SLUSA preemption.
On appeal, the Fifth Circuit reversed the district court, holding that SLUSA preemption does not apply and breathing life back into the plaintiffs' claims.
Last month, the United States Supreme Court granted certiorari to review the SLUSA issue. The Supreme Court granted certiorari in spite of opposition from the Solicitor General, who wrote in an amicus brief that the facts presented are too peculiar to provide any assistance to lower courts that may later face SLUSA preemption issues.
The Supreme Court will hear oral argument in the October 2013 Term. If the high court reverses the Fifth Circuit, the plaintiffs' claims that are based on state law securities violations will be dismissed, significantly diminishing the plaintiffs' ability to recover against financial services defendants.
The Official Stanford Investors Committee is a court-appointed group consisting of seven members that purportedly represent a "cross-section of the Stanford victims' community." The Receiver assigned certain of its claims to the Committee, which has brought suits in its own name and has also intervened in some lawsuits.
Despite the uncertainty created by the pending SLUSA appeal, the Committee has recently increased its litigation activity. On February 15, 2013, the Committee filed three complaints with the MDL Court-a complaint in intervention and two original complaints.
The Committee filed the complaint in intervention in Rotstain v. Trustmark National Bank, HSBC Bank PLC, The Toronto-Dominion Bank, and Bank of Houston, No. 3:09-cv-2384. Rotstain is a purported class action brought by victims of Stanford's purported Ponzi scheme. The Receiver and the Committee had previously intervened, but had not alleged claims directly against the defendant banks until this filing. The Committee alleges various claims related to fraudulent transfers, conversion, and conspiracy. The Committee also seeks punitive damages for the banks' alleged participation or abetting of Stanford's fraudulent scheme.
On the same day, the Committee filed an original complaint styled The Official Stanford Investors Committee v. Bank of Antigua, et al., No. 3:13-cv-0762. In this action, the Committee seeks recovery from eight foreign banks for claims similar to those alleged in the Rotstain matter. The Committee alleges that the Antiguan government and its monetary regulator, the Eastern Caribbean Central Bank, were complicit in and integral to Stanford's fraud. According to the complaint, the Antiguan government's seizure of the Bank of Antigua (a Stanford-controlled entity) resulted in the dissemination of Stanford assets to various Caribbean-based banks. The Committee seeks to recover these assets, alleged to be in the tens or hundreds of millions of dollars, under theories of fraudulent transfer and conversion.
In addition, the Committee filed suit directly against the nation of Antigua and Barbuda, in a case styled The Official Stanford Investors Committee v. Antigua and Barbuda, No. 3:13-cv-0760. In this Complaint, the Committee levies its most serious accusations against the Antiguan government, alleging that the country "became a 'blood brother' to Stanford" and that key government officials "were literally Stanford's partners in crime." By this action, the Committee seeks to recover almost one hundred million dollars in unpaid loans made by Stanford to the government of Antigua and Barbuda.
The Receiver also filed a new lawsuit on February 15, 2013. In Janvey v. Pablo M. Alvarado, et al., No. 3:13-cv-0775, the Receiver seeks to recover from 23 former directors and officers of various Stanford entities for breach of fiduciary duty. The suit essentially alleges that the directors and officers either knew of the fraud or facilitated the fraud by ignoring numerous "red flags." Laura Pendergest-Holt, Mark Kuhrt, and Gilberto Lopez are among the defendants.
KRCL will continue to monitor the Stanford litigation closely.
The consolidated cases are Chadbourne & Park LLP v. Troice, No. 12-79; Willis of Colorado, Inc. v. Troice, No. 12-86; and Proskauer Rose LLP v. Troice, No. 12-88.
WASHINGTON, D.C. – This week, Congressman Bill Cassidy, M.D. (R-LA) and Congressman Ted Deutch (D-FL) re-introduced the Improving Security for Investors and Providing Closure Act, or Improving SIPC Act of 2013. The legislation would provide victims of Ponzi schemes a quicker path to financial restitution, including those harmed by R. Allen Stanford and the Stanford Financial Group.
This legislation creates an avenue for SIPC to offer individual Stanford victims a one-time payment of up to $500,000.00, to at least partially recoup them of their losses. Stanford victims who accept the offer would consequently exclude themselves from any further claims against the SIPC fund. Stanford victims who wish to continue their lawsuits against SIPC can bypass this option and continue those suits. In summary, this legislation allows both parties to settle on existing claims for a negotiated amount, as both SIPC and countless victims reportedly hoped to do as early as 2011.
Additionally, since all settlements for Stanford victims would come from the SIPC fund, no taxpayer money will be required to fund this legislation and no increase to the national debt will occur if enacted.
R. Allen Stanford’s receiver and investors’ committee sued Antigua, the Eastern Caribbean Central Bank and 23 former Stanford Financial Group Co. executives over allegations they aided the financier’s $7 billion fraud.
The Official Stanford Investors Committee seeks repayment of at least $90 million in documented loans Stanford made to the dual-island nation of Antigua and Barbuda and accuses its elected officials of having been “Stanford’s partners in crime.” The nation’s leaders shielded Stanford’s scheme and traded choice real estate for as much as $230 million in loans that haven’t been repaid, according to the lawsuit.
Stanford, 62, was convicted in March of masterminding a Ponzi scheme that defrauded investors through the sale of bogus certificates of deposit at his Antigua-based Stanford International Bank Ltd. He is serving a 110-year sentence in a Florida federal prison as he appeals his verdict and sentence.
Evidence at Stanford’s trial showed he bribed Antiguan banking regulator Leroy King to falsify audits certifying the bank’s investment returns and mislead U.S. securities regulators investigating the former Texas billionaire’s operations. Stanford was also allowed to underwrite and participate in banking reform legislation that Antigua claimed had cleaned up its corrupt offshore banking industry, according to trial evidence. Antigua has so far failed to extradite King to face criminal charges in the U.S.
The investors on Feb. 15 separately sued the Eastern Caribbean Central Bank, which nationalized Stanford’s other island financial institution, the Bank of Antigua, after the U.S. Securities and Exchange Commission seized Stanford’s enterprise on suspicion of fraud in February 2009.
The ECCB in turn parceled out ownership in the bank to the government of Antigua and to other Caribbean banks in what the investors called “a second act of brazen thievery.” The head of ECCB’s monetary council at the time was Antiguan Minister of Finance Errol Cort, who was both King’s supervisor and one of Stanford’s personal attorneys, according to court papers.
“The considerable value of the Bank of Antigua, believed to be in the tens or hundreds of millions of dollars, should be distributed as compensation to its rightful owners, Stanford’s victims and creditors,’’ the committee said in court papers.
Tom Bayko, Antigua’s attorney, didn’t immediately respond to voice or e-mail messages seeking comment on the lawsuit. In an earlier suit, Bayko said Antigua was protected from such litigation by foreign sovereign immunity.
Officials at the ECCB didn’t immediately return telephone or e-mail messages seeking comment on the lawsuit.
Ralph Janvey, Stanford’s court-appointed receiver, filed another lawsuit on Feb. 15 claiming breach of fiduciary duty lawsuit by 23 former directors and officers of Stanford’s operations, including three executives convicted of furthering the fraud scheme. The suit seeks return of all compensation from these individuals, some of whom have been previously sued by the receiver on similar claims.
“Many directors and officers simply looked the other way, while others actively assisted Stanford in defrauding thousands of people out of billions of dollars,’’ Kevin Sadler, Janvey’s lead lawyer, said in the filing in Dallas federal court. They “put their continued employment and substantial compensation ahead of the best interests of the entities they were hired to serve,” he said.
The cases are The Official Stanford Investors Committee v. Antigua and Barbuda, 3:13-cv-0760; The Official Stanford Investors Committee v. Bank of Antigua, 3:13-cv-0762; Janvey v. Alvarado, 3:13-cv-0775. All are in U.S. District Court, Northern District of Texas (Dallas).
The main criminal case is U.S. v. Stanford, 09-cr-342, U.S. District Court, Southern District of Texas (Houston).
Two former Stanford Financial Group executives were each sentenced to 20 years in prison for aiding convicted financier Robert Allen Stanford in perpetuating a massive Ponzi scheme, the Department of Justice said.
Gilbert T. Lopez Jr., former chief accounting officer of Stanford Financial Group Co., and Mark J. Kuhrt, former global controller of Stanford Financial Group Global Management, were convicted by a Houston federal jury in November of last year.
The men, both from Houston, were convicted of one count of conspiracy to commit wire fraud and nine counts of wire fraud, the DOJ said.
Judge David Hittner of the Southern District of Texas, who presided over the trial, sentenced Mr. Lopez and Mr. Kuhrt to serve three years of supervised release and ordered Mr. Lopez to pay a $25,000 fine, along with the prison terms. He also found that both men committed perjury at trial.
Evidence presented at the trial showed that Mr. Lopez and Mr. Kuhrt were aware of and tracked Stanford's misuse of Stanford International Bank's assets, kept the misuse hidden from the public and from almost all of Stanford's other employees, and worked behind the scenes to prevent the misuse from being discovered, the DOJ said.
Jack Zimmermann, lead counsel for Mr. Lopez, told Dow Jones Newswires that he is "very disappointed." The sentence was expected to be closer to that of James Davis, former finance chief of Stanford Financial who last month was given five years in jail for his role in the scheme. Mr. Zimmermann described Mr. Davis as the architect of the fraud. He plans to appeal the conviction.
Lawyers for Mr. Kuhrt weren't immediately available for comment.
Former Texas businessman Mr. Stanford is serving a 110-year sentence for stealing billions of dollars in investors' money and investing much of it in unprofitable private businesses he controlled. Laura Pendergest-Holt, Stanford's former chief investment officer, is serving a three-year sentence.
The Receiver hereby submits for the Court’s consideration the following information regarding the status of the Receivership, asset collection efforts, and other ongoing activities. Unless otherwise stated herein, the information in this report is current as of January 31, 2013. The Receiver will supplement this report as circumstances develop or if the information herein materially changes.
The total amount of cash collected by the Receiver — including, but not limited to, remaining operating income streams, asset liquidation, and recovery of assets and funds from third parties — was approximately $230.2 million as of January 31, 2013. The total of all cash on hand was $111 million, which is net of the cash outflows discussed in more detail below in Section II of this report. Of this amount, $8 million was restricted and $103 million was unrestricted.
Cash Balances & Trailing Revenue: The cash balances recovered by the Receiver shortly following his appointment on February 17, 2009 totaled approximately $63.1 million. In addition, the Receivership has collected roughly $5.3 million in cash associated with income earned prior to the inception of the Receivership.
Private Equity: The Receiver has recovered approximately $37.5 million in net cash proceeds from the liquidation of private equity investments and expects to receive approximately $300,000 more from closed or pending private equity liquidations. In addition, the Receiver’s financial advisor is continuing to market the remaining investments in Stanford’s private equity portfolio, which has an estimated value of up to $6.7 million.
Real Estate: The Receiver has recovered approximately $18.7 million in net cash proceeds from the liquidation of real estate, including the recent Holly Springs sale [see Doc.1695]. Although the Receiver’s real estate brokers are continuing to market other properties in Stanford’s real estate portfolio, the Receiver is unable to estimate the potential recovery from the liquidation of those properties at this time.
Watercraft and Airplanes: The Receiver has recovered approximately $8.0 million from the disposition of airplanes owned or leased by Stanford and from the sales of the Sea Eagle yacht, the Little Eagle yacht, and the Robust Eagle tugboat.
Latin American Assets: The Receiver has been able to liquidate assets in Panama, Ecuador, and Peru, resulting in a recovery of approximately $12.9 million. Moreover, the Receiver is pursuing the recovery of up to $10.2 million in additional Latin American assets.
Miscellaneous Asset Sales: The Receiver has recovered approximately $2.2 million from the sale of miscellaneous assets — including, but not limited to, furniture, coins, vehicles, and assorted equipment.
Litigation: The Receiver has fraudulent-transfer, unjust-enrichment, and other claims pending against numerous defendants, through which the Receiver seeks the recovery of approximately $700 million. The Receiver has identified at least an additional $1.1 million in international litigation claims. Asset recovery litigation is difficult, protracted, and expensive.
Nevertheless, such claims are the single largest potential source of funds which may be recovered for the benefit of Stanford’s victims. Although the Receiver has thus far received approximately $15.5 million from settlements and other litigation efforts (including over $2.2 million received from the political committee defendants in Case No. 3:10-CV-0346-N) and has secured an injunction to hold another approximately $25 million, the amount that the Receiver ultimately is able to collect from defendants is uncertain and may be less than the amounts claimed. The Receiver will continue to work towards appropriate and reasonable settlements, where possible, in order to maximize the net recovery to the Receivership Estate. A detailed report regarding the status of the Receiver’s many litigation claims is found in the Third Joint Report of the Receiver, the Examiner and the Investors Committee Concerning Pending Litigation (For the Quarter Ending September 30, 2012) [see Doc. 1716], and related litigation issues are discussed in the Report of the Examiner and Receiver Addressing Matters Assigned to Magistrate Judge Frost [see Doc. 1720].
Return of Political Contributions: The Receiver has identified approximately $1.9 million in political contributions made by Allen Stanford and related entities. The Receiver has requested the return of these contributions from over 90 politicians, political action committees, and congressional committees. Through January 31, 2013, $1,770,380 has been returned (including the principal amount of the contributions that were part of the over $2.2 million received from the political committee defendants discussed above).
Coins and Bullion Inventory: The Receiver has approximately $200,000 in remaining coins and bullion inventory relating to the coins and bullion operations.
Overseas Cash: The Receiver has identified approximately $310 million in cash, assets, and other investments in foreign accounts, including accounts in Canada, the United Kingdom, and Switzerland. The Receiver cannot ascertain the exact current value of these assets, which are subject to forfeiture proceedings, because those funds are not currently subject to the Receiver’s control or direct monitoring. The Receiver is working with the Department of Justice and the Joint Liquidators in Antigua in an effort to reach agreement concerning the release and distribution of these assets.
Other Inflows & Assets: The Receivership has collected approximately $66.8 million through the liquidation of other investment accounts held on behalf of Stanford, including approximately $5.0 million held on behalf of Stanford Trust Company; $1.0 million from the liquidation of Bank of Antigua accounts; $46.7 million through the liquidation of Stanford accounts at Pershing and of various investment funds held on Stanford’s behalf; $8.4 million through the recovery of additional cash balances; and $5.7 million received via other inflows, including, but not limited to, rental and interest income, cash flows from other liquidated bank accounts, and restricted funds and interest thereon. The Receiver estimates that he may recover up to $2.5 million in additional assets held in U.S. banks and brokerages.
From February 17, 2009 through January 31, 2013, the total amount of Receivership cash outflows — comprising professional fees and expenses, as well as other types of expenses — was approximately $119.2 million.
Expenses Other than Professional Fees: The total amount of all payments made by the Receiver for expenses other than professional fees was approximately $53.3 million. This figure comprises the following approximate amounts: $26.7 million in personnel expenses and other employee expenses; $3.8 million in insurance expenses; $3.5 million in taxes; $1.6 million in general and administrative expenses; $2.4 million in telecommunications expenses; $5.2 million in occupancy expenses; $2.5 million in settled claims; and $7.7 million in other expenses. As previously explained in the Fourth Interim Report [see Doc. 1630 at 5-7], these expenses have decreased dramatically as the Receivership has progressed.
Professional Fees and Expenses: As of January 31, 2013, the professional fees and expenses paid to the Receiver and his professionals total approximately $63.3 million.
Approximately half of this amount was paid in the first year of the Receivership ($30.9 million from the first quarter of 2009 through the first quarter of 2010) to wind down operations and institute necessary legal actions to protect and benefit the Estate.
Furthermore, the Receivership Estate has paid (per Court approval) the Examiner’s expenses and legal fees totaling approximately $1.9 million through January 31, 2013. Also per Court direction, the Receivership Estate has paid a total of approximately $600,000 in attorneys’ fees, expert fees, and expenses incurred by the Official Stanford Investors Committee (the “OSIC”) through January 31, 2013.

References: v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v.