Freitag, 31. Mai 2013

Stanford Judge Approves Interim Distribution to Victims

By Tom Korosec & Andrew Harris
A plan by a court-appointed receiver to distribute assets recovered from R. Allen Stanford's Ponzi scheme to investors was approved by a federal judge in Dallas.

U.S. District Judge David C. Godbey accepted the plan by Ralph Janvey, the receiver appointed in 2009 to marshal and liquidate Stanford's personal and business assets, to make a $55 million interim distribution to about 17,000 claimants, or about 1 cent for each of the $5.1 billion lost in the fraud scheme.

"We will follow it up in a subsequent distribution as the money comes in," Janvey's attorney, Kevin Sadler of Baker Botts LLP, told Godbey at a court hearing in April.

Ponzi scheme victims of Bernard L. Madoff, who was arrested in December 2008, recovered more than $5.4 billion. Clients of the MF Global Inc. brokerage were paid about $4.9 billion after its parent, MF Global Holdings Ltd., failed in October 2011. Victims of a scheme by Peregrine Financial Group Inc. founder Russell Wasendorf, who prosecutors last year said stole $215 million, received an interim distribution of $123 million.

A federal jury in Houston last year found Stanford, 63, guilty of lying to investors about the nature and oversight of certificates of deposit issued by his Antigua-based bank. The jurors decided he must forfeit $330 million in accounts seized by the U.S. government.

The SEC case is Securities and Exchange Commission v. Stanford International Bank, 09-cv-00298, U.S. District Court, Northern District of Texas (Dallas). The criminal case is U.S. v. Stanford, 09-cr-00342, U.S. District Court, Southern District of Texas (Houston).

To contact the reporter on this story: Andrew Harris in the Chicago federal courthouse at
To contact the editor responsible for this story: Michael Hytha at


Before making distribution payments under the Interim Plan, the Receiver is required to send a Certification Notice to the Investor CD Claimants. This Certification Notice must ask each Investor CD Claimant for certification regarding whether they have applied for or received compensation for their claimed losses from sources other than the Receivership and, if so, the amount of such compensation. Investor CD Claimants must timely respond to this Certification Notice as a condition of receiving payment under the Interim Plan.

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Freitag, 24. Mai 2013


By Michael L. Post
In its opening brief, the Securities and Exchange Commission established that the district court erred both in incorrectly applying a preponderance standard of proof in this preliminary, summary proceeding and in applying an unduly narrow construction of the statutory term "customer" to preclude the possibility of coverage under the Securities Investor Protection Act of 1970 ("SIPA" or the "Act") for investors in the Stanford Ponzi scheme. The arguments made by the Securities Investor Protection Corporation ("SIPC") in response are based on an incorrect view of the nature of this proceeding and a misreading of the relevant statutory scheme, applicable case law, and underlying facts.

Contrary to SIPC's contention, this proceeding will not lead to a final determination of the key question at issue-whether any of the Stanford victims qualify as "customers" under SIPA. Nor did Congress confer greater discretion on SIPC than on the Commission to make the determination whether to seek to initiate a SIPA liquidation proceeding. Given the preliminary nature of the proceeding here, and the statutory relationship between the parties, a probable cause standard of proof is appropriate. Moreover, SIPC's formalistic construction of the term "customer" to preclude the potential for SIPA coverage here erroneously gives effect to both the fraudulent corporate boundaries designed by Allen Stanford to USCA Case #12-5286 Document #1437933 Filed: 05/24/2013 Page 9 of 40 facilitate his scheme and the illegitimate securities sent to investors in furtherance of that scheme.

Nor will the Commission's interpretation of the statutory definition of a "customer" undermine the statutory scheme as SIPC and its amici contend. The Commission is not advocating that every customer of every Stanford entity would have customer status under SIPA. See Brief of the SEC at 49 ("SEC __"). Rather, its position is that in the rare circumstances presented here-where the Stanford entities (including Stanford International Bank, Ltd. ("SIBL") and Stanford Group Company ("SGC")) were operated as a single fraudulent enterprise ignoring corporate boundaries, SGC accountholders who purchased SIBL CDs were solicited by SGC and dealt substantially with SGC employees, and the purported securities issued by SIBL were in reality interests in a Ponzi scheme-SGC accountholders who purchased SIBL CDs through SGC should be deemed to have deposited funds with SGC. This interpretation is the correct one; and it is at least a reasonable one that is entitled to deference.

Even apart from the lack of separateness of SGC and SIBL, the Commission's application should be granted under the Old Naples and Primeline cases.

The Commission's position here is also supported by two court of appeals cases expressly holding that customer status under SIPA "does not … depend simply on to whom the claimant handed her cash or made her check payable, or even where the funds were initially deposited." Old Naples, 223 F.3d at 1302; see Primeline, 295 F.3d at 1107. Relying on a different opinion's erroneous description of those cases, SIPC argues that the customers in those case provided money "to an ostensible agent of a broker-debtor." Br. 50 (quoting In re Bernard L. Madoff Inv. Secs., LLC, 708 F.3d 422, 428 (2d Cir. 2013)). In fact, the claimants in Old Naples provided money to a "separate company" that was owned by the same person who owned the SIPC-member introducing broker. 223 F.3d at 1299-1300. And in Primeline, at least some of the claimants provided money directly to companies separately owned by a sales representative of the broker-dealer. See 295 F.3d at 1104.

SIPC also argues that Old Naples and Primeline are distinguishable because they involved a broker that failed to clear a transaction with its clearing broker. Br. 50. But this is a distinction without a difference. As the Commission concluded, what matters is that depositing money with SIBL was "in reality no different than depositing it with SGC." Analysis at 8-9; see SEC 51-54.

Similarly unpersuasive is SIPC's attempt to distinguish Old Naples and Primeline on the ground that the investors there "never received the securities they intended to purchase." Br. 50. The court in Primeline expressly noted that some investors "received fraudulent 'Debenture Certificates'" "[i]n exchange for their cash." 295 F.3d at 1109. Moreover, the physical CDs should be disregarded here. See SEC 54.

Finally, SIPC urges this Court to reject Old Naples and Primeline as being against the supposed "weight of authority." Br. 51. But those cases involved facts most similar to those presented in this case, and SIPC points to no contrary authority in analogous circumstances. For example, in Aozora Bank Ltd., 480 B.R. 117 (S.D.N.Y. 2012), aff'd, 708 F.3. 422 (2d Cir. 2013), cited by SIPC, the investors at issue did not have accounts with the broker-dealer, and did not intend to open accounts with the broker-dealer. See 480 B.R. at 123-24, 128. Rather, their dealings were with independent entities which were not under common ownership and control with the broker-dealer. See id. at 121; see also SEC v. Kenneth Bove & Co., Inc., 378 F. Supp. 697, 698-99 (S.D.N.Y. 1974) (claimants, allegedly at debtor's direction, sent shares of stock to an independent, third-party broker). The Ninth Circuit's decision in Brentwood Securities-which both Old Naples (223 F.3d at 1300) and Primeline (295 F.3d at 1106) cited-is similarly far afield. Unlike here, the investor funds in Brentwood Securities did not get funneled back to the broker-dealer and "[n]othing in the record establishe[d]" that the broker-dealer "had any role at all" in the transactions at issue. 925 F.2d at 328.

SIPC and its amici argue that ruling in the Commission's favor would "transform SIPC into an insurer against every fraudulent scheme implicating a broker-dealer." Br. 47; see SIFMA Br. 20-21; Law Professors Br. 19-20. But the Commission's position depends on the rare factual situation where, among other circumstances, there is a sufficient basis both (1) to disregard the corporate form of the broker-dealer and (2) to disregard the issuance of the purported security to the investor. Moreover, this scenario is substantially similar to recognized "customer" situations, such as where a broker-dealer misappropriates cash deposited with the broker-dealer or takes a deposit of cash but does not purchase any securities for the depositor. See, e.g., In re Bernard L. Madoff Inv. Secs. LLC, 654 F.3d 229, 236 (2d Cir. 2011). Amicus Financial Services Institute ("FSI") contends that covering "all" of the SIBL CD investors' losses would exhaust SIPC's reserve fund (FSI Br. 5), but FSI fails to take account of the facts that (1) many investors did not buy SIBL CDs through SGC and (2) the statute caps at $500,000 each customer's potential SIPC advancement (see 15 U.S.C. 78fff-3(a)).
Related article (Nonmember affiliate company were also granted with SIPC cover): Forensic accountant gives Stanford investors a little hope

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Donnerstag, 16. Mai 2013

Political Contributions

By U.S. Receiver Ralph Janvey
As part of the Receiver's efforts to recover assets for the Receivership Estate, the Receiver analyzed political contributions made by Stanford International Bank, Ltd., Stanford Group Company, Stanford Capital Management, LLC, R. Allen Stanford, James M. Davis and Laura Pendergest-Holt and certain entities they own or control.

As a result of that effort, shortly after the inception of the Receivership, the Receiver sent letters to each recipient of these political contributions requesting that they be returned to the Receiver.

The Receiver has also pursued litigation to recover certain political contributions. As of May 16, 2013, the Receiver had received $1.8M in returned contributions. A list of contributions returned voluntarily or as a result of litigation is below:
Source Amount
Shelby for US Senate $ 14,000
Barney Frank for Congress Committee $ 1,000
Arcuri for Congress $ 4,000
Neugebauer Congressional Committee $ 2,000
Marsha Blackburn for Congress $ 1,000
Friends for Harry Reid $ 8,000
David Scott for Congress $ 1,500
Freedom Funds - Mike Crapo, Honorary Chairman $ 1,000
Chris Dodd for President $ 11,500
Friends of Chris Dodd $ 16,000
Friends of Mark Warner $ 2,500
Minnick for Congress $ 2,300
Lloyd Doggett for Congress $ 2,000
Alexander for Senate 2014, Inc. $ 3,000
Collins for Senator $ 2,500
Friends of Jay Rockefeller $ 5,000
Campaign Account of Robert Wexler $ 2,500
Mel Watt for Congress $ 3,000
Friends of John Boehner $ 5,000
Pete Olson for Congress $ 3,300
Charles Boustany Jr. MD for Congress $ 1,500
People for Patty Murray $ 2,000
Dave Camp for Congress $ 2,000
Wicker for Senate $ 8,800
Tiberi for Congress $ 2,000
Friends of Max Baucus $ 1,000
McCaul for Congress $ 1,000
Boccieri for Congress $ 2,300
Every Republican is Crucial-ERIC PAC $ 3,000
John McCain 2008, Inc $ 2,300
Friends of Bennie Thompson $ 2,500
Friends of John Tanner $ 2,500
Evan Bayh Committee $ 2,000
Friends of Mary Landrieu $ 2,500
Bachus Reelection $ 2,000
Friends of Senator Schumer $ 4,000
Halvorson for Congress $ 2,300
Putnam for Congress $ 2,500
Mike McMahon for Congress $ 2,550
Hatch Election Committee $ 2,100
Bill Nelson for U.S. Senate $ 9,100
Friends for Gregory Meeks $ 6,600
Charles A. Gonzalez Congressional Campaign $ 5,000
Democratic Senatorial Congressional Committee $ 950,000
National Republican Congressional Committee $ 238,500
Democratic Congressional Campaign Committee $ 202,000
Republican National Committee $ 128,500
National Republican Senatorial Committee $ 83,345
Total $ 1,764,995

In February 2010 and May 2011, the Receiver sent letters to those recipients of political contributions who had yet to return them, requesting that they return an aggregate of $1.3 million in contributions as soon as possible. A list of the contributions that still remain outstanding is below:
New Jersey Democratic State Committee $ 10,000
Representative Pete Sessions (R-TX) $ 10,000
Senator John Cornyn (R-TX) $ 6,000
Americans for a Republic Majority PAC $ 5,000
Delegate Donna Christensen (D-USVI) $ 5,000
KPAC (affiliated with Senator Kay Bailey Hutchinson of Texas) $ 5,000
Lone Star Fund $ 5,000
Senator Barack Obama (D-IL) (presidential campaign) $ 4,600
Representative Dan Maffei (D-NY) $ 4,550
Representative Richard Neal (D-MA) $ 4,000
Greg Davis for Congress $ 3,500
Leadership PAC 2006 $ 3,000
Representative James E. Clyburn (D-SC) $ 3,000
Representative Rahm Emanuel (D-IL) $ 3,000
Representative Eric Massa (D-NY) $ 2,550
Former Senator John Sununu (R-NH) $ 2,500
Representative John Lewis (D-GA) $ 2,500
Representative Paul Kanjorski (D-PA) $ 2,500
Representative Timothy Johnson (R-IL) $ 2,500
Senator Gordon Smith (R-OR) $ 2,500
Senator Mitch McConnell (R-KY) $ 2,500
Senator Richard J. Durbin (D-IL) $ 2,500
LEADPAC $ 2,000
Representative Donald Payne (D-NJ) $ 2,000
Representative Ileana Ros-Lehtinen (R-FL) $ 2,000
Representative Kevin Brady (R-TX) $ 2,000
Representative Vern Buchanan (R-FL) $ 2,000
Senator Jack Reed $ 2,000
Senator Patty Murray (D-WA) $ 2,000
Representative Kendrick Meek (D-FL) $ 1,500
Representative Peter King (R-NY) $ 1,500
Representative Sam Johnson (R-TX) $ 1,500
Representative Steve Cohen (D-TN) $ 1,500
Former Senator Elizabeth Dole (R-NC) $ 1,000
Representative Joe Barton (R-TX) $ 1,000
Representative Shelley Moore Capito (R-WV) $ 1,000
Senator Byron L. Dorgan (D-ND) $ 1,000
Senator Maria Cantwell (D-WA) $ 1,000
Senator Pat Roberts (R-KS) $ 1,000
Total Campaign Contributions Requested Be Returned $ 117,700

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Dienstag, 7. Mai 2013

Canadian lawyer sues U.S. government over Allen Stanford ponzi scheme

Todd Weiler May 7, 2013
By Drew Hasselback

Investors lost billions in the ponzi scheme orchestrated by Texas tycoon Allen Stanford, and now a Canadian lawyer believes he has an innovative legal strategy to recover funds for victims of the fraud who reside outside the United States.

Todd Weiler, who specializes in international law, believes that "unconscionable negligence and/or manifest incompetence" on the part of U.S. regulators may have breached the foreign investor protection provisions of several international trade treaties signed by the U.S. government.
Todd Weiler claims the U.S. government breached international trade treaties by failing to protect foreign investors from Allen Stanford's $7-billion ponzi scheme. Peter J. Thompson/National Post
If this had happened to Americans in Mexico, there'd be no doubt that those Americans would be bringing a NAFTA claim against Mexico

A request for arbitration and statement of claim the London, Ont. lawyer has delivered to the U.S. Department of State alleges that the U.S. Securities and Exchange Commission was aware of problems at the Stanford Group of Companies (SGC) and at Stanford Financial Group (SFG) as early as 1997. Yet in a "shocking and egregious failure," SEC officials failed to shut Stanford down until 2009, the claim alleges.

Mr. Weiler alleges that the U.S. refused to take steps to shut Stanford down earlier because U.S. officials believed the majority of Stanford's victims were not U.S. nationals. The Canadian lawyer argues that international trade treaties, among them the North American Free Trade Agreement, require that the U.S. government treat investors from all signatory countries equally, regardless of their residency.

"If this had happened to Americans in Mexico, there'd be no doubt that those Americans would be bringing a NAFTA claim against Mexico, and that they would deserve to win," Mr. Weiler said in an interview. "The Americans have for 100 years used these agreements and other policies to bring other governments to heel and make sure they get this kind of protection and legal security."

The U.S. State Department web site shows that it has received notice of legal actions Mr. Weiler has filed on behalf of Stanford victims from Guatemala, Costa Rica, Dominican Republic, Uruguay, Chile and Peru, and which are brought under various trade agreements the U.S. has signed with those countries. However, the U.S. government has not yet acknowledged on the web site that it has received the NAFTA claim that Mr. Weiler has filed on behalf of Mexican and Canadian residents. All the claims contain allegations that have yet to be proven at a hearing.

A high-flying Texas businessman who built a series of financial institutions in the United States and the Caribbean, Stanford was eventually arrested and charged with fraud in 2009. He had been known as "Sir Allen Stanford" in recognition of his services to the government of Antigua and Barbuda. He was tried in U.S. federal court and sentenced to 110 years in prison upon his conviction for fraud in 2012. His knighthood was revoked in 2010.

Investors who placed funds with Stanford International Bank received "certificates of deposit" or CDs that were supposed to be low risk investments that offered generous returns. The scheme took in more than US$7-billion. Some 21,000 investors from around the world were taken in.

SEC officials, who are responsible for protecting the investments of investors, acted with unconscionable negligence
Stanford trial Stanford's activities caught the attention of U.S. regulators as early as 1997, a mere two years after the Stanford Group of Companies registered with the SEC in 1995, according to a report completed in 2010 by David Kotz, who was at the time the SEC's inspector general. The NAFTA claim filed by Mr. Weiler relies on that report, which concluded that the SEC could have sought legal action to shut down Stanford years earlier than it did.
A high-flying Texas businessman who built a series of financial institutions in the United States and the Caribbean, Stanford was eventually arrested and charged with fraud in 2009. Aaron M. Sprecher/Bloomberg
"SEC officials, who are responsible for protecting the investments of investors such as the claimants against criminal enterprises such as SFG, acted with unconscionable negligence and or manifest incompetence, causing millions of dollars of losses to the claimants as a result," the claim states.

Because Mr. Weiler's claim is structured as a proposed international arbitration, the legal action is open only to non-U.S. residents from countries with which the U.S. has signed trade agreements. Mr. Weiler says the action, which he is bringing in conjunction with several other lawyers from the United States, could include "several thousand" clients.

Other third parties have been targeted for their connection to Stanford. Liquidators of Stanford International Bank have sued Toronto-Dominion bank in Quebec and other jurisdictions on the theory that, as Stanford's banker, TD should have known the Texan businessman was up to no good. TD denies the allegation.

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