Donnerstag, 25. März 2010

Ben Barnes Sued for $5 million by Stanford Receiver

March 25, 2010
By Stanford Receiver
Democratic lobbyist and former Texas Lieutenant Gov. Ben Barnes has been slapped with a $5 million lawsuit over lobbying and consulting services he provided to R. Allen Stanford, the indicted financier accused of running a multibillion-dollar Ponzi scheme.

The suit was filed on Mar. 15 by Ralph Janvey, the receiver appointed by the court to recoup the investors' losses. It alleges that Barnes raked in millions doing consulting and lobbying work for Stanford's fraudulent investment empire since 2005. Stanford is accused of bilking tens of thousands of investors out of nearly $8 billion, in one of the largest phony investment schemes of all time.

Barnes's attorney, Jay Madrid, said that the lawsuit was baseless because his client was unaware that Stanford's businesses were illegitimate at the time the services were provided. "This lawsuit is without merit and creates a dangerous precedent for service providers in all fields," said Madrid in a written statement. "This is particularly true of those who deal in good faith with entities that have all the characteristics of legitimate enterprises but who after-the-fact become subject to receiverships, bankruptcies or similar business failings."

But the lawyer for the court-appointed receiver said that that argument does not absolve Barnes of responsibility. "In a fraudulent transfer action, lack of knowledge of the fraud is not a defense," attorney Kevin Sadler told the NLPC over email. He said that Barnes must prove that he was both unaware of the fraud and that the services he provided to Stanford were equivalent in value to the fees he collected.

"Barnes will not be able to establish the affirmative defense of objective good faith and reasonably equivalent value. His services left creditors of the Stanford entities with nothing of value," wrote Sadler.

The lawsuit alleges that in many cases Barnes's company "performed services [for Stanford] that simply furthered the Ponzi scheme." This work reportedly included consulting Stanford on how to reduce his personal federal income taxes through the Virgin Islands tax incentive laws and providing investment advice. The lawsuit also says that marketing work done by Barnes for Stanford's businesses "had the unfortunate effect of attracting new victims to [Stanford's] fraudulent investment scheme."

Barnes, a heavy-hitter in Democratic political circles, is no stranger to financial scandals. While serving as Texas Lt. Gov. the early 1970s, allegations that Barnes and other state politicians accepted bribes for political favors surfaced in an incident known as the Sharpstown scandal. Barnes was never charged, but the episode helped contribute to his exit from career politics.

Now a successful lobbyist, Barnes is still very much involved in the political arena. Last September, he hosted a Democratic Congressional Campaign Committee fundraiser for House Speaker Nancy Pelosi (D-CA) at his home in Austin, TX. Barnes and his wife have given $249,800 in political contributions in 2010, with 100 percent of those contributions going toward Democratic candidates, according to Open Secrets.

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Samstag, 20. März 2010

Judge mulls bankruptcy for Stanford fraud case

March 20, 2010
By The Advocate
A Dallas federal judge is considering whether to continue a receivership searching for $7.2 billion in investments alleged to have been stolen by jailed promoter Robert Allen Stanford, of Houston.

U.S. District Judge David C. Godbey said last month that he may turn the case over to a bankruptcy court.

The issue is important to hundreds of residents in the Baton Rouge, Lafayette and Covington areas because as much as $1 billion of their money vanished last year when federal authorities shut down Stanford's worldwide operations.

Across the globe, more than 25,000 investors lost money to Stanford, 60, who has remained in federal custody since June. He is scheduled for trial in January.

Investors and attorneys are divided as to whether bankruptcy would provide more money to devastated victims than the receivership.

Jean Anne Mayhall, of Folsom, is a partner in a small business. She saw the firm's pension plan lose more than $1 million in the Stanford collapse.

Mayhall said Friday that moving the Stanford receivership into bankruptcy possibly could help defrauded investors persuade the Securities Investor Protection Corp. to cover some of their losses.

Although SIPC has provided more than $500 million to victims of convicted fraud artist Bernard Madoff, of New York, the broker-dealer-funded non-profit has refused to help Stanford victims.

"The very first rule is that the (Stanford) companies must be liquidated," Mayhall said, adding that placement of the Stanford firms into bankruptcy would be the first step toward liquidation.

Once in bankruptcy, Mayhall said, SIPC possibly could be persuaded to cover losses up to $500,000 per individual account.

Blaine Smith, of Baton Rouge, agreed. Smith lost about $1.5 million in retirement savings to Stanford.

"Bankruptcy court is where they should have gone in the first place," Smith said.

But Phillip W. Preis, a Baton Rouge attorney for more than 100 Stanford victims, said Friday that transfer of the case to bankruptcy court would cost investors more of their salvaged funds. And, he added, the move probably would not persuade SIPC officials to extend coverage to the Stanford case.

"I don't see it happening," Preis said.

Preis said SIPC helped Madoff victims because their money was never invested in anything. Madoff just pocketed investors' cash and sent them phony earnings statements.

Stanford invested his clients' money, but lied about the kinds of investments that he made and the thefts that he allegedly committed, Preis said.

The kinds of frauds Stanford is accused of committing are much more common than that of Madoff, Preis said. So, opening the door to that type of coverage would bankrupt SIPC, he said.

In Dallas, Godbey has listened to additional arguments, a transcript of a recent court hearing shows.

Attorneys for the Securities and Exchange Commission and the court-appointed receiver, as well as an examiner representing the interests of all investors, asked Godbey not to throw the case into bankruptcy. All argued that such action would further drain assets recovered by the receiver for investors.

But Gregory A. Blue, a New York attorney representing hundreds of Stanford victims, argued that bankruptcy proceedings could be no more expensive than the receivership team put together by Dallas attorney Ralph S. Janvey.

Since the receivership was established 13 months ago, Janvey has recovered less than $200 million while billing the receivership estate for more than $40 million in fees and expenses, court records show.

"Bankruptcy is not the magic bullet," Kevin Sadler, an attorney for Janvey, told the judge. "Bankruptcy, I believe, would lead to serious delay, serious costs, and deplete the (receivership) estate."

Janvey then received support from one of his most vocal critics — Dallas attorney John J. Little, the court-appointed examiner representing the interests of Stanford victims.

"Let me just say, from the investors' viewpoint, if this were a popular vote, the receiver (Janvey) would lose," said Little, who repeatedly has criticized Janvey's efforts as too expensive.

But Little added: "I can't convince myself that moving to bankruptcy will somehow make life better for the investors at the end of the day."

Blue then said Little should be replaced by a creditors' committee if the case remains in receivership.

Blue told Godbey that various investor groups disagree as to whether the case should continue in receivership or be moved to bankruptcy court.

The disagreements are too serious for one person to handle, Blue added.

An example, Blue said, is the divide between the majority of investors who lost most or all of their savings, and several hundred who were lucky enough to recover all of their money before the SEC closed Stanford down.

Last year, Janvey twice attempted to claw back nearly $900 million from the innocent winners over the opposition of the SEC.

Janvey wanted to distribute the winners' money among all the Stanford investors. But Godbey and the 5th U.S. Circuit Court of Appeals ruled against him.

"There are winners and losers in the clawback," Blue told Godbey. "The people who are the losers on that undoubtedly would want to see the money clawed back. The people who are winners don't."

Bankruptcy rules are different from those for federal district courts, so Preis was asked Friday whether a transfer to bankruptcy court could re-open the clawback issue.

"A ruling of the 5th Circuit is binding," Preis said. "That would be binding against the bankruptcy trustee just like it was against Janvey in his receivership."

Godbey took the matter under study last month. A check of court records Saturday showed that the judge had not yet ruled on the issue.

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