Opinion ID: 221659
Heading Depth: 2
Heading Rank: 1

Heading: Stanford, the Receiver, and Adams

Text: This appeal shares its background facts with this Court's prior Adams opinion: This case arises out of an alleged multi-billion-dollar Ponzi scheme perpetrated by the Stanford companies. ... According to the SEC, the companies' core objective was to sell certificates of deposit (CDs) issued by [SIB]. Stanford achieved and maintained a high volume of CD sales by promising above-market returns and falsely assuring investors that the CDs were backed by safe, liquid investments. For almost 15 years, [SIB] represented that it consistently earned high returns on its investment of CD sales proceeds, ranging from 12.7% in 2007 to 13.93% in 1994. In fact, however, [SIB] had to use new CD sales proceeds to make interest and redemption payments on pre-existing CDs, because it did not have sufficient assets, reserves and investments to cover its liabilities. The SEC filed suit against R. Allen Stanford, [SIB], and related companies on February 16, 2009. At the SEC's request, the district court issued a temporary order restraining the payment or expenditure of funds belonging to the Stanford parties. The district court also appointed [the Receiver] for the Stanford interests and granted him the power to conserve, hold, manage, and preserve the value of the receivership estate. 588 F.3d at 833. At the time the SEC filed suit, Stanford should have held assets of greater than $7 billion, but actually held assets of less than $1 billion. Post-appointment, the Receiver froze millions of dollars in assets. These frozen accounts allegedly contained funds dispersed by Stanford as purported interest on CDs, reimbursement of CD principal, or compensation to former Stanford employees. After time for review and assessment, the district court set a date to thaw the frozen assets and ordered the Receiver to complete his review. Id. The Receiver subsequently filed a series of claims, naming hundreds of CD investors and the Employee Defendants as relief defendants, and seeking to recover funds from the frozen accounts. The district court severed the investor defendants from the Employee Defendants. The Receiver sought a preliminary injunction to continue the freeze as to the investor defendants, which the district court granted in part and denied in part, maintaining the freeze of the accounts of various CD investors who had received payments of interest on their CDs. In Adams, the Fifth Circuit vacated the district court's grant of a preliminary injunction. Id. at 835. The Adams Court found that the CD investors could not be properly named as relief defendants because the CD investors had actual ownership interests in the CDs and any proceeds of the CDs. Id. at 834-35. This Court did not address the Employee Defendants' frozen accounts.