Source: http://www.jdsupra.com/post/documentViewer.aspx?fid=cbe7945f-fecb-42a1-a9eb-b7680cdfa5c1
Timestamp: 2017-07-24 21:54:28
Document Index: 153759564

Matched Legal Cases: ['§ 77', '§ 78', '§ 77', '§ 78', '§ 1391', '§ 77', '§ 77', '§ 1391', '§ 78', '§ 240', '§ 78', '§ 240', '§ 10', '§ 78', '§ 78']

Class Action Complaint against Stanford | Adams v. Stanford Group Company | Doug Cornelius - JDSupra
Adams v. Stanford Group CompanyClass Action Complaint against Stanford
This appears to be the first class action filing against Stanford in the wake of a fraud investigation by the SEC. The complaint describes the allegedly aggressive sales efforts undertaken to sell the affiliated bank's CDs. The complaint alleges that the sales efforts misrepresented the safety and security of the CDs. The complaint also alleges that the Stanford affiliated entitles misrepresented their performance and investment returns. The returns are alleged to have been "misleading and inflated."
Download PDF IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION JERRY ADAMS, JERRY EDRINGTON, BEN GOMEZ and MICHAEL HICKS, on behalf of themselves and on behalf of all others similarly situated, PLAINTIFFS, -against-STANFORD GROUP COMPANY, STANFORD FINANCIAL GROUP, STANFORD INTERNATIONAL BANK LTD., STANFORD HOLDINGS, INC., STANFORD CAPITAL MANAGEMENT, LLC, R. ALLEN STANFORD, JAMES DAVIS, LAURA PENDERGEST-HOLT, JAY COMEAUX and JASON GREEN, DEFENDANTS. § § § § § § § § § § § § § § § § § § § § § Civil Action No. CLASS ACTION COMPLAINT JURY TRIAL DEMANDED Plaintiffs, Jerry Adams, Jerry Edrington, Ben Gomez, and Michael Hicks, on behalf of themselves and on behalf of all others similarly situated, as for their complaint against Defendants Stanford Group Company, Stanford Financial Group, Stanford International Bank, LTD., Stanford Holdings, Inc., Stanford Capital Management, LLC (collectively referred to as “Stanford”), R. Allen Stanford, James Davis, Laura Pendergest-Holt, Jay Comeaux and Jason Green (collectively referred to as “individual Defendants”), allege upon personal knowledge as to themselves and their own acts, and upon information and belief as to all other matters, as follows: Casse 4::09--ccvv--00474 D o Dcuomcuemnte 1n t F1il e d iFni lTeXd SinD T oXnS 0D2 /o1n7 /0220/0179 /2P0a0g9e 1 oPf a2g0e 1 of 20 ADAMS, HICKS, on on behalf of §§§§DEMANDED GROUP, INTERNATIONAL PENDERGEST-and §§ Michael and on all others similarly situated, as for their complaint against Stanford Stanford referred as R. Allen Stanford, James Davis, Laura Pendergest-Holt, Jay Comeaux and Jason individual Defendants”), allege upon personal knowledge as and their all other matters, as Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=cbe7945f-fecb-42a1-a9eb-b7680cdfa5c133830-000000-000 Sta 09-02-17 Complaint cf.doc 2 PRELIMINARY STATEMENT 1. Stanford, and the individual Defendants, engaged or participated in the implementation of manipulative devices to falsely report investment returns to customers, made or participated in the making of false and misleading statements, and participated in a scheme to defraud, or a course of business that operated as a massive fraud or a deceit on its customers. Plaintiffs’ claims include fraud based on misrepresentation in connection with the sale of securities in violation of the Securities Act of 1933 and the Securities Exchange Act of 1934. As a result of Defendants’ wrongful conduct and scheme, thousands of investors placed millions of dollars into Stanford’s managed portfolios, including the purchase of “depositor-secured” Certificates of Deposit, and have sustained significant financial losses. 2. This fraud was accomplished though the direction and active participation of the individual Defendants who knowingly violated Securities and Exchange Commission (“SEC”) and FINRA regulatory provisions, and federal securities law. When certain employees of Stanford complained about discrepancies in certain investment results, Stanford, through its officers and directors (including the individual Defendants), knowingly attempted to “cover up” this information, opting instead to hide and obstruct the truth, and Stanford’s duty of compliance with regulatory and statutory law, and its fiduciary duty of full and fair disclosure to its customers. 3. On or about February 17, 2009, the SEC filed its complaint in the United States District Court, Northern District, in Dallas, Texas, No. 3-09CV0298, alleging, inter alia, a myriad of false and misleading practices by Stanford and its individual officers and control persons, in violation of federal securities law. In response to the SEC’s Application for Emergency Relief, the Honorable Reed O’Connor issued a Temporary Restraining Order Casse 4::09--ccvv--00474 D o Dcuomcuemnte 1n t F1il e d iFni lTeXd SinD T oXnS 0D2 /o1n7 /0220/0179 /2P0a0g9e 2 oPf a2g0e 2 of 20 STATEMENT the individual Defendants, engaged or participated in the manipulative devices to falsely report investment returns to customers, made the making of false and misleading statements, a scheme business customers. claims include fraud based on misrepresentation in sale Exchange Act of 1934. conduct and scheme, of placed millions Stanford’s managed including the purchase of and losses. Defendants violated Securities and regulatory law. When certain employees in to opting instead regulatory statutory and its fiduciary duty of full and fair disclosure to its the United States Northern in Dallas, Texas, No. 3-09CV0298, alia, a false and misleading and in federal securities law. In response to the SEC’s Application for Honorable issued a Temporary Restraining Order Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=cbe7945f-fecb-42a1-a9eb-b7680cdfa5c133830-000000-000 Sta 09-02-17 Complaint cf.doc 3 enjoining further violation of federal securities law, freezing the assets of the certain Defendants, ordering the return of assets outside the United States to the jurisdiction of the federal court, and appointing a Receiver to marshal the assets of certain Defendants. JURISDICTION AND VENUE 4. The investments offered and sold by Stanford are “securities” under Section 2(1) of the Securities Act of 1933[15 U.S.C. § 77b], and Section 3(a)(10) of the Securities Exchange Act of 1934[15 U.S.C. § 78c]. 5. This Court has jurisdiction over this action, and venue is proper, under Section 22(a) of the Securities Act of 1933[15 U.S.C. § 77v(a)], and Section 27 of the Securities Exchange Act of 1934[15 U.S.C. § 78a]. 6. Venue is proper pursuant to 28 U.S.C. § 1391(b) because the world headquarters of Stanford is located in Houston, Harris County, Texas. Further, a substantial part of the events giving rise to this claim, including solicitation of many individuals who became victims of Defendants’ wrongful conduct occurred in the Southern District of Texas. Moreover, Defendants have, directly or indirectly, made use of the means or instruments of transportation and communication, and the means or instrumentalities of interstate commerce, or of the mails, in connection with the transactions, acts, practices, and courses of business alleged herein. A significant number of the transactions, acts, practices, and courses of business occurred in Stanford’s world headquarters located in Houston, Texas. PARTIES A. Plaintiffs 7. Plaintiff, Jerry Adams, is an individual residing near Stillwell, Cherokee County, Oklahoma. Casse 4::09--ccvv--00474 D o Dcuomcuemnte 1n t F1il e d iFni lTeXd SinD T oXnS 0D2 /o1n7 /0220/0179 /2P0a0g9e 3 oPf a2g0e 3 of 20 violation of federal securities law, freezing the assets the certain Defendants, the United to the jurisdiction marshal AND VENUE 1933[15 U.S.C. § 77b], and Section 3(a)(10) of the Securities Exchange over this action, and venue is proper, under Section the Securities of 1933[15 U.S.C. § 77v(a)], and Section 27 of the Securities S.§ 1391(b) because headquarters Houston, County, Texas. Further, a substantial the this claim, including solicitation of many individuals who became victims of conduct occurred in the Southern District of Texas. Moreover, directly made use the means transportation or or connection the transactions, acts, practices, the transactions, acts, practices, courses business headquarters Jerry residing Cherokee Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=cbe7945f-fecb-42a1-a9eb-b7680cdfa5c133830-000000-000 Sta 09-02-17 Complaint cf.doc 4 8. Plaintiff, Milton Jerald Edrington, is an individual residing in Houston, Harris County, Texas. 9. Plaintiff, Ben Gomez, is an individual residing in Houston, Harris County, Texas. 10. Plaintiff, Michael Hicks, is an individual residing in Wimberley, Hays County, Texas. B. Defendants 11. Defendant, Stanford Group Company (“SGC”), a Texas-based corporation registered with the SEC as a broker-dealer and investment adviser, has 29 affiliated offices. SGC’s principal business consists of sales of securities issued by Stanford International Bank Ltd. (“SIB”), and marketed as certificates of deposit. SGC can be served with process at its principal place of business at 5050 Westheimer, Harris County, Texas. 12. Stanford Financial Group (“SFG”) is a Florida corporation doing business in Texas. SFG can be served with process at its principal place of business at 5051 Westheimer, Harris County, Texas. 13. SIB, which is wholly owned by Defendant R. Allen Stanford purports to be a private international bank domiciled in St. John’s, Antigua, West Indies. SIB does business in the State of Texas through its related Stanford entities, and can be served with process at 5051 Westheimer, Harris County, Texas. 14. Stanford Holdings, Inc. can be served with process at its principal place of business at 5050 Westheimer, Harris County, Texas. 15. Stanford Capital Management, LLC, a registered investment adviser, can be served with process at its principal place of business at 5050 Westheimer, Harris County, Texas. Casse 4::09--ccvv--00474 D o Dcuomcuemnte 1n t F1il e d iFni lTeXd SinD T oXnS 0D2 /o1n7 /0220/0179 /2P0a0g9e 4 oPf a2g0e 4 of 20 Jerald Edrington, an individual residing in Houston, Ben Gomez, residing Houston, is an individual residing in Wimberley, Hays County, Company a Texas-based corporation with broker-29 business (“SIB”), and marketed as certificates of deposit. SGC can be served process place business a Florida corporation doing business SFG can be served process place of business at 5051 Westheimer, wholly owned by Defendant Allen Stanford purports SIB does business and process process principal place of 5050 Westheimer, a registered investment Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=cbe7945f-fecb-42a1-a9eb-b7680cdfa5c133830-000000-000 Sta 09-02-17 Complaint cf.doc 5 16. R. Allen Stanford, a U.S. citizen, is the Chairman of the Board and sole shareholder of SIB and the sole director of SGC’s parent company. R. Allen Stanford can be served with process at his principal place of business at 5050 Westheimer, Harris County, Texas. 17. James M. Davis, a U.S. citizen and resident of Baldwin, Mississippi who offices in Memphis, Tennessee and Tupelo, Mississippi, is a director and chief financial officer of SFG and SIB. James M. Davis can be served with process at his principal place of business at 5050 Westheimer, Harris County, Texas. 18. Laura Pendergest-Holt, is the Chief Investment Officer of SIB and its affiliate Stanford Financial Group. Laura Pendergest-Holt can be served with process at her principal place of business at 5050 Westheimer, Harris County, Texas. 19. Jay Comeaux is a director and Chief of Compliance for SGC. Jay Comeaux can be served with process at his principal place of business at 5050 Westheimer, Harris County, Texas. 20. Jason Green is the President of the Private Client Group of SGC. Jason Green can be served with process at his principal place of business at 5050 Westheimer, Harris County, Texas. STATEMENT OF FACTS AND ALLEGATIONS RELEVANT TO ALL CAUSES OF ACTION A. The Organization 21. Stanford is composed of the above named U.S. companies and its flagship entity, an offshore bank known as Stanford International Bank, Ltd. (“SIB”). All of these companies are controlled by R. Allen Stanford, who is either the founder, chairman, and/or chief executive officer of all related Stanford companies. Casse 4::09--ccvv--00474 D o Dcuomcuemnte 1n t F1il e d iFni lTeXd SinD T oXnS 0D2 /o1n7 /0220/0179 /2P0a0g9e 5 oPf a2g0e 5 of 20 Allen Stanford, a U.S. citizen, is the Chairman of the Board and sole of director of company. Stanford can M. of Baldwin, and Tupelo, Mississippi, is a director and chief financial place business Holt, is the Chief Investment Officer of SIB Laura Pendergest-process is director Chief Jay Comeaux place business Green is the President of the Private Client Jason place business OF TO ALL CAUSES OF ACTION and its flagship known as Stanford International Bank, Ltd. (“SIB”). All of these companies Stanford, who is either the founder, chairman, all related Stanford companies. Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=cbe7945f-fecb-42a1-a9eb-b7680cdfa5c133830-000000-000 Sta 09-02-17 Complaint cf.doc 6 22. R. Allen Stanford, 58, is a Texas billionaire with a reported net worth, according of an estimated $2.2 billion, making him the 205th on Forbes 2008 list of the richest people in the U.S. worldwide. He often refers to the meager beginnings of his father’s insurance business in Mexia, Texas during the Depression, but he equally touts his prominent business and political influence in the twin island Caribbean nation of Antigua and Barbuda, where he was knighted as Sir Allen in 2006, and where his Antiguan-based offshore bank is located. 23. With reported assets of $1 billion in 2001, SIB now has more than $8.5 billion in total assets, according to the bank’s report in December 2008. To do so, R. Allen Stanford and his key management engaged in a campaign to substantially increase SIB assets in Antigua by selling high-yield certificates of deposits to affluent U.S. investors through Stanford’s network of U.S. companies. U.S. investors are actively solicited to purchase SIB-issued CDs through his array of affiliated companies. Stanford Group Company is owned by Stanford Group Holdings, Inc., which is in turn owned by R. Allen Stanford. For all practical and legal reasons, all related companies are owned and controlled by R. Allen Stanford. B. The Stanford International Bank 24. R. Allen Stanford has created a complex web of affiliated companies that exist and operate under the brand Stanford Financial Group (“SFG”). SFG is described as a privatelyheld group of companies that has in excess of $50 billion “under advisement.” 25. SIB, one of SFG’s affiliates, is a private, offshore bank that purports to have an independent Board of Directors, an Investment Committee, a Chief Investment Officer and a team of research analysts. While SIB may be domiciled in Antigua, a small group of SFG employees who maintain offices in Memphis, Tennessee, and Tupelo, Mississippi, purportedly monitor the assets. Casse 4::09--ccvv--00474 D o Dcuomcuemnte 1n t F1il e d iFni lTeXd SinD T oXnS 0D2 /o1n7 /0220/0179 /2P0a0g9e 6 oPf a2g0e 6 of 20 Stanford, a reported to Forbes, of an estimated $2.2 billion, making him the 205th on Forbes 2008 list of the richest He often refers to the meager insurance in business influence in the twin island Caribbean nation of Antigua and Barbuda, where he in 2006, and based of $1 billion $8.5 billion according to the bank’s report in December 2008. in to SIB in Antigua certificates deposits U.S. investors solicited to purchase issued companies. Stanford Group Company turn owned Stanford. For all practical and legal reasons, related owned and controlled by R. Allen Stanford has companies under the brand Stanford Financial Group (“in excess of $50 billion is a private, offshore bank that purports have Board of a analysts. While SIB may be domiciled in SFG who Memphis, Tennessee, the assets. Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=cbe7945f-fecb-42a1-a9eb-b7680cdfa5c133830-000000-000 Sta 09-02-17 Complaint cf.doc 7 26. SIB, an Antiguan bank charted under the laws of the sovereign nation of Antigua and Barbuda, boasts in its promotional literature that “deposit safety” is its “number one priority.” Acting in concert with Stanford’s U.S. based companies, the offshore bank taps into the lucrative U.S. investor market through the conduit of Stanford Group Companies (“SGC”), and its 29 affiliated offices throughout the U.S. In all cases, SGC aggressively pushed its advisors to sell the SIB CD’s program and rewarded them handsomely for their success. C. SGC rushes to fill the SIB coffers. 27. Among the platform of financial products offered by SGC, the sale of SIB CDs offered the greatest incentive to financial advisors. The campaign involved direct pressure on the financial advisors to sell the foreign CDs, coupled with bonus incentives for employees who could generate the greatest number of deposits. The program was aptly named as “The Contest.” An “SIB Scoreboard” was kept, listing each group’s performance in meeting their quota, which determined the size of bonus they would receive. 28. From a 3% referral fee payable to SGC on every SIB CD sold, SGC advisers received a 1% commission if they sold $2 million of SIB CDs in a quarter. They would also receive as much as a 1% trailing commission throughout the term of the CD if they maintained the $2 million per quarter production hurdle. This commission structure provided a powerful incentive for SGC financial advisers to aggressively sell CDs to the U.S. investors, and was used extensively to recruit new advisors to SGC. 29. SGC aggressively expanded its number of financial advisors in the United States. Through this expansion, SIB’s network of representatives who sold CD products grew substantially. According to the Annual Report and information provided to advisors, the total assets at SIB grew exponentially from 2001 to 2008: Casse 4::09--ccvv--00474 D o Dcuomcuemnte 1n t F1il e d iFni lTeXd SinD T oXnS 0D2 /o1n7 /0220/0179 /2P0a0g9e 7 oPf a2g0e 7 of 20 in promotional literature that its one Acting in concert with Stanford’s U.S. based companies, the offshore bank 29 affiliated offices throughout the U.S. In all cases, SGC aggressively pushed program and rewarded their success. to fill financial products incentive to The campaign direct pressure bonus employees number of deposits. “SIB Scoreboard” was kept, each performance payable CD sold, SGC advisers a 1% commission if they sold $2 million of They also much as a 1% trailing throughout the term of per quarter This commission structure SGC financial advisers to aggressively sell CDs to the U.S. investors, and was its number of States. expansion, SIB’s network of representatives who sold CD products grew According to the Annual Report and information provided to advisors, at SIB grew exponentially Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=cbe7945f-fecb-42a1-a9eb-b7680cdfa5c133830-000000-000 Sta 09-02-17 Complaint cf.doc 8 1 Billion – July 2001 – July 2003 2nd Billion in 24 months) 3 Billion – December (3rd Billion in 17 months) 4 Billion – December (4th Billion in 12 months) 5 Billion – October (5th Billion in less than 10 months) By the end of 2007, SIB sold $6.7 billion of CDs, and in its latest report of December 2008, SIB reports over 30,000 clients, representing $8.5 billion in total assets. 30. SIB aggregated all funds from the sale of CDs, and purportedly reinvested those funds pursuant to an investment strategy monitored by a group of analysts in Memphis, Tennessee, who reported to senior investment officers. According to SIB’s Annual Reports for 2005 and 2006, which were signed by R. Allen Stanford and James Davis, the bank invested customer deposits “in a well-balanced global portfolio of marketable financial instruments, namely U.S. and international securities and fiduciary placements.” 31. SIB CD’s are offered in three forms at varying terms: Fixed, Flex and Index Linked. Each CD offers a substantially higher rate of return compared to domestic certificates of deposit. For example, SIB offered 7.45% as of June 1, 2005, 7.878% as of March 20, 2006 for a fixed rate CD based on an investment of $100,000. 32. SGC advisors who questioned how SIB could pay such high rates of return for CD’s compared to U.S. banks were told that the bank’s investment strategy had garnered consistently high investment returns on its portfolio. However, any attempts to discover the specifics of the investment portfolio were rebuffed, and advisors were summarily told that SIB could not disclose the details of its assets or portfolio managers, except to say that the assets were safe in a globally diversified portfolio that was capable of 90% liquidation within 48 hours. 33. To allay advisors’ concerns, and facilitate sale of the foreign CDs, senior management at SGC and SIB had to create the appearance of a stable, liquid, and secure CD, Casse 4::09--ccvv--00474 D o Dcuomcuemnte 1n t F1il e d iFni lTeXd SinD T oXnS 0D2 /o1n7 /0220/0179 /2P0a0g9e 8 oPf a2g0e 8 of 20 -July 2001 2 Billion -July 2003 (Billion in 24 3m oBnilltihosn) -December 2004 (3rd Billion in 17 4m oBnilltihosn) -December 2005 (4th Billion in 12 5m oBnilltihosn) -October 2006 (Billion in less than 10 months) of CDs, and its latest December total assets. the sale CDs, and purportedly reinvested those investment group of analysts in Memphis, who reported to senior investment officers. According to Allen Stanford and James the bank invested “in well-balanced of marketable financial instruments, are Fixed, Flex and Index Each CD offers a substantially higher rate of return compared For example, offered 7.45% as June based how SIB of compared U.S. banks were told that the bank’s investment strategy had garnered high returns on its portfolio. However, any attempts discover disclose its assets portfolio managers, except to say that the assets in a globally that of 48 allay advisors’ concerns, and facilitate sale of the foreign CDs, senior at SGC of Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=cbe7945f-fecb-42a1-a9eb-b7680cdfa5c133830-000000-000 Sta 09-02-17 Complaint cf.doc 9 comparable to the low risk associated with a familiar domestic CD. Advisors were deceived by senior management to make the following misrepresentations which operate as a fraud or a deceit on purchasers of the SIB CDs: • CD is liquid, minimally leveraged, and can be redeemed at any time. • SIB is strongly capitalized with R. Allen Stanford’s own personal funds, and depositor security is the number one priority. • The SIB investment portfolio was monitored by a team of analysts and consistently generates more investment return than is paid out in CD interest and expenses so that the principal is not really ever in jeopardy. • The SIB CDs are secure because of insurance coverage from Lloyd’s and other underwriters, and Excess FDIC. • The SIB investment portfolio is overseen by a regulatory authority in Antigua, and an independent auditor who verified and audited financial statements of SIB. 34. These misrepresentations were false and misleading when made to customers who purchased the SIB CDs. D. SGC and SCM misrepresented performance results in its managed investment program. 35. SGC/SCM induced clients, including non-accredited, retail investors, to invest in excess of $1 billion in its managed investment program called “Stanford Allocation Strategies” (“SAS”) by touting its track record of “historical performance.” SGC/SCM highlighted the purported SAS track record in thousands of client presentation books. 36. SGC/SCM used these impressive, but fictitious, performance results to grow the SAS program from less than $10 million in assets in 2004 to over $1 billion in 2008. 37. SGC/SCM also used the SAS track record to recruit financial advisors away from legitimate advisory firms who had significant books of business. 38. SGC/SCM told investors that SAS has positive returns for periods in which actual SAS clients lost substantial amounts. For example, in 2000, actual SAS client returns ranged Casse 4::09--ccvv--00474 D o Dcuomcuemnte 1n t F1il e d iFni lTeXd SinD T oXnS 0D2 /o1n7 /0220/0179 /2P0a0g9e 9 oPf a2g0e 9 of 20 to the low with a familiar CD. Advisors were deceived misrepresentations of CD is liquid, minimally leveraged, and can be redeemed at SIB is strongly capitalized with R. Allen Stanford’s own personal funds, and depositor priority. The SIB investment portfolio was monitored by a team of analysts and consistently more investment CD interest and expenses The SIB CDs are secure because of insurance coverage from Lloyd’s and other The SIB investment portfolio is overseen by a regulatory authority in Antigua, and an of its managed Strategies” by touting its track record of “historical performance.” SGC/SCM highlighted the impressive, but fictitious, $10 million in to over $1 billion SAS track record to recruit who had books of business. substantial client returns ranged Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=cbe7945f-fecb-42a1-a9eb-b7680cdfa5c133830-000000-000 Sta 09-02-17 Complaint cf.doc 10 from negative 7.5% to positive 1.1%. In 2001, actual SAS client returns ranged from negative 10.7% to negative 2.1%. And, in 2002, actual SAS client returns ranged from negative 26.6% to negative 8.7%. These return figures are all gross of SCM advisory fees ranging from 1.5% to 2.75%. Thus, Stanford’s claims of substantial market out performance were blatantly false (e.g., a claimed return of 18.04% in 2000, when actual SAS investors lost as much as 7.5%). 39. SGC/SCM’s management knew that the advertised SAS performance results were misleading and inflated. From the beginning, SCM management knew that the pre-2005 track record was purely hypothetical, bearing no relationship to actual trading. And, as early as November 2006, SGC/SCM investment advisors began to question why their actual clients were not receiving the returns advertised in pitch books. 40. In response to these questions, SGC/SCM hired an outside performance reporting expert, to review certain of its SAS performance results. In late 2006 and early 2007, the expert informed SGC/SCM that the performance results for the twelve months ended September 30, 2006 were inflated by as much as 3.4 percentage points. Moreover, the expert informed SGC/SCM managers that the inflated performance results included unexplained “bad math” that consistently inflated the SAS performance results over actual client performance. Finally, in March 2008, the expert informed SGC/SCM managers that the SAS performance results for 2005 were also inflated by as much as 3.25 percentage points. 41. Despite their knowledge of the inflated SAS returns, SGC/SCM management continued using the pre-2005 track record. In fact, in 2008 pitch books, they presented the backtested pre-2005 performance data under the heading “Historical Performance” and “Manager Performance” along side the audited 2005 through 2008 figures. Casse 4::09--ccvv--00474 D o Dcuomcuemnte 1n t F1il e d iFni lTeXd SinD T oXnS 0D2 /o1n7 /0220/0179 /2P0a0g9e 1 0 P oaf g2e0 10 of 20 2001, actual SAS client returns ranged negative return figures are all of substantial management beginning, SCM management early as questions, SGC/SCM its SAS performance late 2006 that the performance the twelve months ended September by as much as 3.4 percentage points. Moreover, the expert informed included Finally, expert informed SGC/managers performance by as as the inflated SAS returns, SGC/SCM management 2008 pitch books, they presented 2005 data under the heading “Manager Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=cbe7945f-fecb-42a1-a9eb-b7680cdfa5c133830-000000-000 Sta 09-02-17 Complaint cf.doc 11 42. Finally, SGC/SCM compounded the deceptive nature of the SAS track record by blending the back-tested performance with audited composite performance to create annualized 5 and 7 year performance figures that bore no relation to actual SAS client performance. 43. Other than the fees paid by SIB to SGC for the sale of the CD, SAS was the second most significant source of revenue for the firm. In 2007 and 2008, approximately $25 million in fees from the marketing of the SAS program. CLASS REPRESENTATIVE CLAIMS 44. Plaintiff Adams individually entrusted at least $600,000 to Stanford for investment on his behalf based upon materially false and misleading information disseminated by Defendants, to the effect that Stanford was a legitimate enterprise engaged in the lawful brokerage and sale of investment securities, with the purported rates of return on investment. 45. In determining to invest further monies, Adams naturally, reasonably, and justifiably relied upon Defendants’ misrepresentations in deciding to make such investment. 46. As a consequence of Defendants’ fraud as alleged here, Adams has been damaged in an amount to be proven at trial. 47. Plaintiff Edrington individually entrusted at least $400,000 to Stanford for investment on his behalf based upon materially false and misleading information disseminated by Defendants, to the effect that Stanford was a legitimate enterprise engaged in the lawful brokerage and sale of investment securities, with the purported rates of return on investment. 48. In determining to invest further monies, Edrington naturally, reasonably, and justifiably relied upon Defendants’ misrepresentations in deciding to make such investment. 49. As a consequence of Defendants’ fraud as alleged here, Edrington has been damaged in an amount to be proven at trial. Casse 4::09--ccvv--00474 D o Dcuomcuemnte 1n t F1il e d iFni lTeXd SinD T oXnS 0D2 /o1n7 /0220/0179 /2P0a0g9e 1 1 P oaf g2e0 11 of 20 SGC/compounded paid by SAS was most significant of for 2007 and 2008, approximately in fees the the Adams individually entrusted at least Stanford for disseminated Stanford legitimate enterprise in of determining to invest further monies, Adams naturally, reasonably, and relied upon Defendants’ misrepresentations deciding to make fraud as alleged here, Adams has been Edrington individually entrusted at least Stanford for disseminated Stanford legitimate enterprise in of determining invest further monies, Edrington naturally, reasonably, and relied upon Defendants’ misrepresentations deciding to make a consequence Defendants’ as alleged here, Edrington has been Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=cbe7945f-fecb-42a1-a9eb-b7680cdfa5c133830-000000-000 Sta 09-02-17 Complaint cf.doc 12 50. Plaintiff Gomez individually entrusted at least $250,000 to Stanford for investment on his behalf based upon materially false and misleading information disseminated by Defendants, to the effect that Stanford was a legitimate enterprise engaged in the lawful brokerage and sale of investment securities, with the purported rates of return on investment. 51. In determining to invest further monies, Plaintiff Gomez naturally, reasonably, and justifiably relied upon Defendants’ misrepresentations in deciding to make such investment. 52. As a consequence of Defendants’ fraud as alleged here, Plaintiff Gomez has been damaged in an amount to be proven at trial. 53. Plaintiff Hicks individually entrusted at least $500,000 to Stanford for investment on his behalf based upon materially false and misleading information disseminated by Defendants, to the effect that Stanford was a legitimate enterprise engaged in the lawful brokerage and sale of investment securities, with the purported rates of return on investment. 54. In determining to invest further monies, Hicks naturally, reasonably, and justifiably relied upon Defendants’ misrepresentations in deciding to make such investment. 55. As a consequence of Defendants’ fraud as alleged here, Plaintiff Hicks has been damaged in an amount to be proven at trial. CLASS ACTION ALLEGATIONS 56. Plaintiffs bring this action pursuant to Rules 23(a) and 23(b)(3) of the Federal Rules of Civil Procedure on behalf of the following: a. All persons and/or entities who purchased securities and CDs sold by or through Defendant Stanford, or other selling agents affiliated with Stanford, from as early as the January 1, 2000 until February 17, 2009 inclusive (the “Class Period”), excluding Defendants and all officers and directors of Defendants during the Class Period (the “Class”). Casse 4::09--ccvv--00474 D o Dcuomcuemnte 1n t F1il e d iFni lTeXd SinD T oXnS 0D2 /o1n7 /0220/0179 /2P0a0g9e 1 2 P oaf g2e0 12 of 20 Gomez individually entrusted at least Stanford for disseminated Stanford legitimate enterprise in of determining invest further monies, Plaintiff Gomez naturally, reasonably, relied upon Defendants’ misrepresentations to make of Gomez has Hicks individually entrusted at least $500,000 his behalf based upon materially false and misleading information disseminated by to Stanford a legitimate enterprise lawful of determining to invest further monies, Hicks naturally, reasonably, and relied upon Defendants’ misrepresentations deciding to make of Plaintiff has been this action pursuant Rules the Federal of the following: persons purchased CDs affiliated Stanford, as as 1, 2000 until Class Period”), excluding Defendants “Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=cbe7945f-fecb-42a1-a9eb-b7680cdfa5c133830-000000-000 Sta 09-02-17 Complaint cf.doc 13 Excluded from the Class are: (1) all persons or entities whose claims against Defendants with respect to securities purchased and invested by that person have been finally adjudicated, individually or on a classwide basis, in litigation or arbitration, before any court or arbitration tribunal; and, (2) all persons or entities who have entered into valid releases with Defendants covering all of the wrongs alleged in this Complaint. To the extent that any person has not had all of his claims with respect to securities purchased and invested in finally adjudicated or finally released, the Class includes said person(s), but only to the extent of unadjudicated and/or unreleased claims arising from damages suffered as a result of an investment in any of the Investments. Also excluded from the Class are Defendants, members of the immediate family of any Defendant, and their legal representatives, heirs, successors or assigns. The Class satisfies the requirements of Rule 23(a) and 23(b)(3), Federal Rules of Civil Procedure: • Numerosity. During the Class Period, numerous different securities were sold to 30,000 or more individuals and/or entities. The number of the Class members is estimated to be in the thousands. • Typicality. The losses to Plaintiffs were caused by the same events and courses of conduct that give rise to the claims of the other members of the Class. • Common Questions. Among the questions of law and fact common to the Class are: (a) whether Defendants violated Section 10b and Rule 10b-5 of the Securities Exchange Act of 1934, 15 USC § 78a, fraudulently Casse 4::09--ccvv--00474 D o Dcuomcuemnte 1n t F1il e d iFni lTeXd SinD T oXnS 0D2 /o1n7 /0220/0179 /2P0a0g9e 1 3 P oaf g2e0 13 of 20 b. all persons entities whose claims securities purchased person have been adjudicated, or on a classwide or arbitration, before tribunal; and, (2) all persons or entities who have entered valid releases Defendants the extent not had all respect securities and invested in finally or released, said person(s), but only to and/or unreleased claims arising from suffered as a an c. the Class are of any Defendant, and their legal representatives, heirs, successors d. of Procedure: Class securities or The number the losses Plaintiffs were caused by the same events of Among of violated Section 10b Rule 5 Exchange Act of 78a, fraudulently Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=cbe7945f-fecb-42a1-a9eb-b7680cdfa5c133830-000000-000 Sta 09-02-17 Complaint cf.doc 14 inducing Plaintiffs and the Class to purchase investments marketed by Stanford through the use of materially false and misleading Monthly Account Statements, sales materials and oral presentations; (b) whether Defendants violated the provisions of the Securities Exchange Act Section 10(b) and Rule 10b-5 by knowingly or with severe recklessness providing substantial assistance in connection the violations of Securities Exchange Section [15 78j(and Rule C.F.R. § 240.10b-5] alleged whether Defendants violated the provisions of the Securities Exchange Act Section 12 by knowingly or with severe recklessness communicating material misstatements and/or omissions that were disseminated by use of the means and instruments of transportation or communication in interstate commerce or of the mails; and (d) whether Defendants violated the provisions of the Securities Exchange Act Section 17(a) by knowingly or with severe recklessness (a) employing devices, schemes or artifices to defraud; (b) obtaining money or property by means of untrue statements of material fact or omissions to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and Casse 4::09--ccvv--00474 D o Dcuomcuemnte 1n t F1il e d iFni lTeXd SinD T oXnS 0D2 /o1n7 /0220/0179 /2P0a0g9e 1 4 P oaf g2e0 14 of 20 and the Class to purchase materially false and misleading Account Statements, sales materials and oral provisions of the Securities Act 10(b) and Rule 10b-5 by knowingly providing with the violations of Securities Exchange Act Section 10(b) [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. § 240.10b-5] alleged herein; (c) provisions of the Securities Section by knowingly or with severe material misstatements and/or disseminated use of the means and transportation or communication in interstate provisions of the Securities Section by knowingly or with severe employing devices, schemes or artifices to obtaining money property by means of untrue of omissions state material facts in order made, in light under which Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=cbe7945f-fecb-42a1-a9eb-b7680cdfa5c133830-000000-000 Sta 09-02-17 Complaint cf.doc 15 (c) engaging in transactions, practices or courses of business which operate or would operate as a fraud or deceit. • Adequate Representation. The representative Plaintiffs will fairly and adequately protect the interests of the Class. Plaintiffs have retained experienced counsel qualified in class action litigation that are competent to assert Class members’ interests. • Superiority. A class action is superior to other available methods for the fair and efficient adjudication of this controversy. Individual damages to any one investor may be relatively small, making the expense of non-class litigation prohibitive or impractical for Class members. Moreover, in light of the disclosures of the SEC, additional lawsuits are likely to be filed. An overall resolution is preferable to the result of inconsistent litigations dealing with individual investors. CAUSES OF ACTION FIRST CLAIM FIRST CLAIM FOR RELIEF (Violations of § 10(b) of the Securities Exchange Act and of Rule 10b-5) 57. Plaintiffs repeat and reallege each and every allegation contained in the foregoing paragraphs as if set forth fully herein. 58. As more fully set forth in the factual allegations above, Defendants, through the use of the mails and the means and instrumentalities of interstate commerce, fraudulently induced Plaintiffs and the Class to purchase investments, being marketed by Stanford through the use of materially false and misleading Monthly Account Statements, sales materials and oral presentations. Casse 4::09--ccvv--00474 D o Dcuomcuemnte 1n t F1il e d iFni lTeXd SinD T oXnS 0D2 /o1n7 /0220/0179 /2P0a0g9e 1 5 P oaf g2e0 15 of 20 Representation. The representative Plaintiffs will and protect the of Class. have retained qualified that are competent class superior other available adjudication of this controversy. Individual damages making the expense or impractical for Class members. of SEC, additional lawsuits are likely filed. preferable result of inconsistent litigations OF ACTION FOR RELIEF of § repeat as if set forth fully set forth in the factual allegations above, Defendants, the mails and the means and instrumentalities of interstate commerce, fraudulently and the Class false and misleading Monthly Account Statements, sales Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=cbe7945f-fecb-42a1-a9eb-b7680cdfa5c133830-000000-000 Sta 09-02-17 Complaint cf.doc 16 59. Defendants knowingly transmitted to Plaintiffs and the Class and disseminated, directly and through its agents, materially false and misleading statements, as more fully described above, describing and recommending the purchase of the securities purchased by Plaintiffs and the Class. 60. At the time of the misstatements and omissions described above, Defendants knew or should have known that such statements were materially false and misleading and omitted facts required in order to make the statements made, in light of the circumstances under which they were made, not misleading, but knowingly or recklessly made such statements to Plaintiffs and the Class in order to induce them to purchase the investments. 61. Plaintiffs and the Class reasonably relied upon the information provided to them and statements made by Stanford and its agents recommending the purchase of the securities. At the time of such investments, Plaintiffs and the Class had no knowledge that the information and recommendations provided by Defendants contained material misstatements and omissions. 62. Plaintiffs and the Class would not have purchased the securities but for the materially false and misleading information provided to them by Defendants. 63. As a result of their investments, Plaintiffs and the Class have been damaged and their original investment capital has been substantially depleted. SECOND CLAIM AS TO STANFORD, DAVIS, COMEAUX, PARRISH AND PENDERGEST-HOLT Aiding and Abetting Violations of Securities Exchange Act Section 10(b) and Rule 10b-5 64. Plaintiffs repeat and reallege each and every allegation contained in the foregoing paragraphs as if set forth fully herein. 65. In addition to violating the provisions of the Securities Exchange Act Section 10(b) and Rule 10b-5, Stanford, Davis, Pendergest-Holt, Comeaux, and Green, in the manner set Casse 4::09--ccvv--00474 D o Dcuomcuemnte 1n t F1il e d iFni lTeXd SinD T oXnS 0D2 /o1n7 /0220/0179 /2P0a0g9e 1 6 P oaf g2e0 16 of 20 Plaintiffs and the Class and disseminated, through its agents, materially false and misleading statements, as securities purchased and the time of the misstatements and omissions described above, Defendants should have known that such statements false and misleading and order to make the statements the circumstances were made, misleading, knowingly or recklessly made such statements and the Class order to induce them to purchase and made by Stanford recommending of and misstatements Class not have purchased but the to them Defendants. their investments, Plaintiffs and the Class have been damaged investment capital has been and Abetting Violations of Securities Exchange Act Section 10(repeat as if set forth fully addition to violating the provisions of the Securities Exchange Section Pendergest-Comeaux, and the manner Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=cbe7945f-fecb-42a1-a9eb-b7680cdfa5c133830-000000-000 Sta 09-02-17 Complaint cf.doc 17 forth above, knowingly or with severe recklessness provided substantial assistance in connection with the violations of Securities Exchange Act Section 10(b) [15 U.S.C. § 78j(b)] and Rule 10b-5 alleged herein. 66. For these reasons, Stanford, Davis, Pendergest-Holt, Comeaux, and Green aided and abetted violations of Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5. THIRD CLAIM (Violations of Section 12 of the Securities Act) 67. Plaintiffs repeat and reallege each and every allegation contained in the foregoing paragraphs as if set forth fully herein. 68. Defendants sold the securities to Plaintiffs by means of oral and written communications, which contained material misstatements and/or omissions and were disseminated by use of the means and instruments of transportation or communication in interstate commerce or of the mails. 69. Plaintiffs and the Class, without knowledge of the falsity of Defendants’ statements and of the material omissions in the written materials provided by Defendants including, but not limited to, Monthly Account Statements and other misrepresentations made by Defendants, as described above, and reasonably believing such statements to be true and complete, purchased investments from Defendants. 70. Plaintiffs and the Class would not have purchased the investments but for the materially false and misleading information provided to them by Defendants. 71. By virtue of the foregoing, Plaintiffs and the Class have been damaged and are entitled to damages and other relief for Defendants’ violations of Section 12 of the Securities Act as alleged herein. Casse 4::09--ccvv--00474 D o Dcuomcuemnte 1n t F1il e d iFni lTeXd SinD T oXnS 0D2 /o1n7 /0220/0179 /2P0a0g9e 1 7 P oaf g2e0 17 of 20 or with severe recklessness provided substantial assistance of Securities Holt, violations Act CLAIM Section repeat as if set forth fully sold securities Plaintiffs by means of oral and written contained material misstatements and/or omissions and were by means transportation communication and the Class, without knowledge of the falsity of Defendants’ and of written materials provided by Defendants not limited to, Monthly Account Statements and other misrepresentations as above, and believing to and and the Class not have purchased to them Defendants. virtue of the foregoing, Plaintiffs and the Class have been damaged and and other relief for Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=cbe7945f-fecb-42a1-a9eb-b7680cdfa5c133830-000000-000 Sta 09-02-17 Complaint cf.doc 18 FOURTH CLAIM Violations of Section 17(a) of the Securities Act 72. Plaintiffs repeat and reallege each and every allegation contained in the foregoing paragraphs as if set forth fully herein. 73. Defendants, directly or indirectly, singly or in concert with others, in the offer and sale of securities, by use of the means and instruments of transportation and communication in interstate commerce and by use of the mails, have: (a) employed devices, schemes or artifices to defraud; (b) obtained money or property by means of untrue statements of material fact or omissions to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and (c) engaged in transactions, practices or courses of business which operate or would operate as a fraud or deceit. 74. As part of and in furtherance of this scheme, Defendants, directly and indirectly, prepared, disseminated or used contracts, written offering documents, promotional materials, investor and other correspondence, and oral presentations, which contained untrue statements of material fact and which omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading. 75. Defendants made the referenced misrepresentations and omissions knowingly or grossly recklessly disregarding the truth. 76. For these reasons, Plaintiffs and the Class have been damaged, and are entitled to damages and other relief for Defendants’ violation of Section 17(a) of the Securities Act as alleged herein.. Casse 4::09--ccvv--00474 D o Dcuomcuemnte 1n t F1il e d iFni lTeXd SinD T oXnS 0D2 /o1n7 /0220/0179 /2P0a0g9e 1 8 P oaf g2e0 18 of 20 Section repeat as if set forth fully directly concert others, or means untrue of in made, in light under which and (c) engaged transactions, and furtherance this scheme, directly or contracts, written documents, materials, omitted to state material facts necessary order to make the statements the and omissions knowingly Plaintiffs and other relief for violation the Securities as Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=cbe7945f-fecb-42a1-a9eb-b7680cdfa5c133830-000000-000 Sta 09-02-17 Complaint cf.doc 19 PLAINTIFFS DEMAND TRIAL BY JURY WHEREFORE, Plaintiffs, on behalf of themselves and all others similarly situated, request the following procedural orders and demand judgment against Defendants, equitable relief and damages, as follows: An order certifying the proposed class of investors, together with any necessary or appropriate subclasses, under Federal Rules of Civil Procedure Rule 23, and appointing Plaintiffs and their counsel to represent the Class; Compensatory damages in an amount to be sufficient to compensate each Class member for their losses; Consequential damages in an amount to be determined at trial; 4. Disgorgement and restitution of all earnings, profits, compensation and benefits received by Defendants as a result of their unlawful acts and practices; Costs and disbursements of the action; Reasonable attorneys’ fees; and Such other and further relief as this Court may deem just and proper. Casse 4::09--ccvv--00474 D o Dcuomcuemnte 1n t F1il e d iFni lTeXd SinD T oXnS 0D2 /o1n7 /0220/0179 /2P0a0g9e 1 9 P oaf g2e0 19 of 20 DEMAND TRIAL BY JURY Plaintiffs, on behalf of themselves and all others similarly situated, procedural orders and demand judgment against Defendants, equitable follows: 1. the proposed class investors, any necessary under Federal Rules of Civil Rule 23, and appointing Plaintiffs 2. in to compensate each 3. in determined trial; earnings, profits, compensation result of acts 5. of 6. 7. Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=cbe7945f-fecb-42a1-a9eb-b7680cdfa5c133830-000000-000 Sta 09-02-17 Complaint cf.doc 20 Respectfully submitted, MIKE O’BRIEN, P.C. By: /s/Mike O’Brien Mike O’Brien State Bar No. 15170200 14355 Highway 105 Washington, TX 77880 Telephone: (713) 222-0088 Facsimile: (713) 222-0088 FLEMING & ASSOCIATES, L.L.P. By: /s/George M. Fleming George M. Fleming State Bar No. 07123000 Sylvia Davidow State Bar No. 05430551 Chris Fonville State Bar No. 24039310 1330 Post Oak Blvd., Suite 3030 Houston, TX 77056-3104 Telephone: (713) 621-7944 Facsimile: (713) 621-9638 ATTORNEYS FOR PLAINTIFFS Casse 4::09--ccvv--00474 D o Dcuomcuemnte 1n t F1il e d iFni lTeXd SinD T oXnS 0D2 /o1n7 /0220/0179 /2P0a0g9e 2 0 P oaf g2e0 20 of 20 TX L.L.77056-Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=cbe7945f-fecb-42a1-a9eb-b7680cdfa5c1
Reference Info: Pleadings | Federal, 5th Circuit, Texas | United States Send
Second Amended Complaint by the SEC against Stanford