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Wednesday, 27 April 2011

Stanford Victims might get SIPC

April 27, 2011

The Securities Investor Protection Corp. (SIPC) - touted as a backstop against brokerage losses - can not longer refuse to cover losses by investors in financier Allen Stanford's alleged $7 billion fraud.

People believe their money is protected by SIPC - and they are right!

SIPC is a non-profit corporation funded by its members -- securities broker-dealers -- whose clients get some insurance against loss. SIPC makes good when a brokerage fails.

Literature for the Antigua-based Stanford International Bank, through which Stanford is accused of selling billions of dollars worth of bogus, high-yielding certificates of deposit, bore the SIPC logo, generally regarded as a seal of approval for financial institutions.

Under U.S. law, SIPC repays up to $500,000 in custodial losses to investors whose securities are missing from accounts at member firms. The protection doesn’t extend to investors who’ve got their certificates, even if the securities have been rendered worthless by fraudulent conduct. However the declaration of the forensic accountant Karyl Van Tassel, found that money that was supposed to buy certificates of deposit at Stanford's Antiguan bank was diverted for other purposes.

The 50+ members of Congress who signed the letter to the SEC

We are aware of several issues the SEC staff has raised with respect to whether Stanford Victims qualify for SIPC coverage. It is our understanding that SEC counsel has informally stated that SGC customers are not eligible for SIPC coverage at this time because (1) SGC was merely an introducing broker-dealer, and (2) SIPC is not meant to compensate customers of worthless securities. Before making a formal decision, we request the SEC consider the facts set forth in the Declaration of Karyl Van Tassel (attached hereto as "Exhibit A"), which illustrates how the funds for SGC were generally routed to continue Stanford’s fraudulent business practices, rather then purchasing securities. Read the complete letter here!

Mary L. Schapiro’s response

I assure you that the SEC is taking the situation of the Stanford Victims Coalition ("SVC") members, and all other Stanford victims, very seriously, and is investigating closely their status under SIPA. Commission staff, which has already devoted substantial time and effort on this issue, is striving to complete, as soon as possible, its investigation and review of the relevant facts relating to the Stanford case with a view to determining whether a legal basis exists for a SIPA liquidation of SGC. Read the complete letter here!

Missing or Worthless

Some investors’ lawyers complain SIPC is splitting hairs by limiting coverage to securities that are "missing" instead of rendered worthless by fraud.

"The Madoff clients’ securities were never there, so SIPC covers that loss and has been paying like slot machines," Stanley, who represents Stanford investors, said in an interview. Based on the declaration of the forensic accountant Karyl Van Tassel, Stanford investors should also be covered by SIPC.

Both Ways

"The SEC can’t have it both ways," Malouf said (who represents mostly Latin American investors). "They’re taking my clients’ money and using it to pay non-bank debts. If it is all one company, then there couldn’t have been any CDs purchased from a separate independent bank."

If the SEC believes that "all the Stanford universe is one consolidated entity," Malouf said, then Stanford’s Antiguan certificates of deposit "are exactly what SIPC covers, fraud." In previous similar cases, non-member affiliate companies were also granted with SIPC cover.

SEC spokesman Kevin Callahan declined to comment when asked to clarify the agency’s position on whether Stanford’s businesses should be treated as a consolidated entity.

Friday, 22 April 2011

SEC Absorbs Body Blows But Remains Undefeated in Lawsuits Against It

The SEC has been named as a defendant in a series of unusual lawsuits recently. One of the cases, a lawsuit brought by alleged Ponzi schemer Allen Stanford, was voluntarily dropped last month and now a second case filed by Madoff victims has been dismissed by a federal court.

In 2009, two Madoff investors sued the SEC under the Federal Tort Claims Act alleging that they were damaged by the agency's gross negligence in its oversight, investigations, and examinations of Bernard Madoff and his firm. On Tuesday of this week, Judge Laura Taylor Swain dismissed the case for lack of subject matter jurisdiction. In short, the court ruled that the decisions of the SEC regarding whom to investigate and how to conduct such investigations were discretionary and shielded from suit by sovereign immunity.

The SEC did not escape harsh criticism from the court, however. The court noted that the plaintiffs' allegations described conduct that "defied common sense and reeked of incompetency." It stated that:

“Scandalous and outrageous as Plaintiffs' allegations (and findings of the OIG Report on which they are based) are, Plaintiffs fail to identify any specific, mandatory duty that the SEC violated in its numerous instances of sloppy, uninformed, irresponsible behavior....That the conduct in question defied common sense and reeked of incompetency does not indicate that any formal, specific, mandatory policy was "likely" violated.

Breakdown of Ralph Janvey's Second Interim Fee

Below is a breakdown of Janvey's Fee's, it is an absolute disgrace and an insult to ALL Victims.

Doc671-4 Appendix to Receivers Second Interim Fee Sch Exh H-K80409

Wednesday, 20 April 2011

Update from the Joint Liquidators of Stanford International Bank - in Liquidation (SIB)

18 April 2011

Following the previous update on 16 December 2010, the Joint Liquidators of SIB, Nigel Hamilton-Smith and Peter Wastell, can confirm that an appeal date in respect of the removal proceedings has not yet been set.

As previously advised, whilst the case continues, the Joint Liquidators remain committed to recovering assets on behalf of SIB investors. They provide further information on the current position of the liquidation as follows:

Current position with investor claims and enquiries

 
The Joint Liquidators have now agreed claims of 12,083 investors totalling over US$4 billion. The adjudication of claims received and enquiries from investors are being processed on a daily basis.

The Joint Liquidators continue to deal with email enquiries, responding to investor queries in both English and Spanish. Investors are now able to view their accounts, register their claims and change their address details via the Online Claims Management System.

All SIB investors, who have not yet registered their claim on the Online Claims Management System, should do so via the website at https://stanford.frpadvisory.com/, where their claims continue to be processed.

Assets located in Antigua, United States (US), Switzerland, Canada and the United Kingdom (UK)

Antigua
The Joint Liquidators are still working with their advisers on a full marketing strategy for the land assets, comprising:

  • the freehold property occupied by the Eastern Caribbean Amalgamated Bank (Formerly Bank of Antigua) at Coolidge,
  • leasehold property known as the Athletic Club,
  • an island known as Pelican Island,
  • an island known as Guiana Island, with approximately 1,500 acres of surrounding lands on the mainland, and
  • two small plots of land at Coolidge.
There are a number of other properties in Antigua that investors have enquired about that are not owned by SIB, which are believed to be owned by other Stanford group companies. However, as the Joint Liquidators are not appointed over the other companies, they have no authority to deal with these assets. One of these companies has laid claim to the Athletic Club and resolution to ownership may be required through the Antiguan Courts.

Any claim that SIB ultimately funded the purchase of the properties not owned by SIB, will need to be made through the Antiguan Courts.

Once a co-operation agreement with the US Receiver (referred to below) is ratified by both courts in the US and Antigua, the Joint Liquidators can request further information on funds flow, to provide sufficient evidence to make a claim through the Antiguan Courts.

United States

As part of the agreement reached with the US Receiver, Mr Ralph Janvey, the Joint Liquidators would withdraw their application for Chapter 15 recognition in the US, and the US Receiver would withdraw his appeals against the decision to appoint the Joint Liquidators, made in April 2009 by the High Court in Antigua.

The co-operation agreement was concluded and is subject to Court approval in both the US and Antigua.

However, this agreement has not yet been approved by the Courts in either Antigua or the US (which is necessary for it to become legally binding), due to the requirement that there first be a resolution to the removal application brought by a Stanford investor.

Subject to the approval of both the Antiguan High Court and the US District Court, the US Receiver will deal with the realisation of the assets of SIB in the US and Canada. The Joint Liquidators will deal with the realisation of the assets of SIB located in Antigua and the UK. The co-operation agreement provides a platform for both parties to share information, to assist in their efforts to realise assets in the countries covered by the agreement.

Switzerland

There are funds held in various bank accounts in Switzerland, totalling approximately US$130 million. The financial regulator in Switzerland, FINMA, has recognised the Antiguan bankruptcy of SIB in preference to the US Receiver. The consequence of this Order means that a Swiss ancillary liquidation run by FINMA has commenced. The Joint Liquidators’ believe this liquidation will look to address the Swiss creditors first and then any balance will be passed to the Antiguan liquidation. The Joint Liquidators are currently in dialogue with FINMA. The decision is open to appeal by the US Receiver and, in addition, the US Department of Justice (DoJ) is also seeking control of the funds as proceeds of crime. The co-operation agreement referred to above does not include the assets held in Switzerland.

Canada

The Joint Liquidators made an application under the Bankruptcy & Insolvency Act in Canada for recognition of its appointment and control of the funds held in the country. At the same time, the US Receiver made the same application. During September 2009, the Superior Court of Quebec concluded that the US Receiver should be recognised as the office holder to whom control of the funds in Canada should be passed.

Legal counsel for the Joint Liquidators considered that the decision provided by the Court was erroneous and, accordingly, submitted an appeal that was heard during December 2009. The Court of Appeal upheld the initial decision of the Superior Court. The funds in Canada remain frozen following proceedings issued by the Attorney General in Ontario, Canada, again in relation to the monies being regarded as proceeds of crime.

Once again, the co-operation agreement referred to above, subject to Court approval, would mean the Joint Liquidators withdraw from any further litigation over the Canadian assets.

United Kingdom

The Court of Appeal upheld the judgment in favour of the Joint Liquidators that the Centre of Main Interest (COMI) of SIB is Antigua and Barbuda and that the funds held in the UK should come under their control.

The Court of Appeal also determined that the funds should remain subject to a restraint order granted in favour of the Serious Fraud Office (SFO) on behalf of the DoJ. The DoJ has sought that the funds be restrained, as they consider that the funds are proceeds of crime. In relation to a criminal restraint, the funds will remain restrained in the U.K and subject to the jurisdiction of the UK criminal court.

The Joint Liquidators consider that the decision to continue the criminal restraint is incorrect and creates a further delay in funds being available for return to the creditors of SIB. A hearing date for the application for leave to apply to the UK Supreme Court, in order to lift the restraint order, will not be made until resolution of the removal application brought by a Stanford investor.

The co-operation agreement referred to above, subject to Court approval, would mean the US Receiver will withdraw from any further litigation over the UK assets.

Dividend Prospects for Creditors

Until the recognition proceedings have been concluded and the land assets in Antigua are sold the Joint Liquidators are unable, at this stage, to estimate the level or timing of a distribution to creditors. However the assets traced to date are valued under US$1 billion against depositor liabilities of US$7.2 billion and although our investigations are ongoing we anticipate that there will be a significant shortfall to creditors.

Tuesday, 19 April 2011

Weston Calls for FSRC

This is an interesting article from the Caribarena. Note the highlighted sections where the minister is asking about the report into the FSRC!

Antigua St John's - Opposition Senator Lennox Weston spoke at length on Monday against the need for additional board members to be added to the Financial Regulatory Services Commission (FSRC), and called for the release of the controversial report into the Commission ordered following the R Allen Stanford debacle.

Weston told the Upper House, "The government is our government. It is our money that the government is spending, and the prime minister gave an undertaking to Parliament and to the nation that he would review the sector, and he would table the results, and let the chips fall where they may."

He said it now seemed that the UPP administration intends to keep the contents of the review away from the public.

"Now it seems as if, what is before us is indicating that the government intends to keep its review a secret. Whatever the review says... that we hear that is very bad, it intends to keep it a secret from the people of Antigua & Barbuda, although we are faced with all these pending charges, and all kinds of lawsuits against us ..."


Weston noted, however, that with Stanford investors intent on suing Antigua & Barbuda for its perceived role in the financier's workings, the government was leaving the door open for these investors to reveal information "piece by piece" in the American press, with Antigua & Barbuda lacking the means to defend its reputation.

"The Americans always say, get ahead of the news," Weston noted. "Get it out early, and move on. ... This is not a time when we can hide information. ... We can't control information by tabooing it. And this has been going on for way too long."

Weston, along with other opposition senators, cried down the government's proposal to increase the FSRC board from four members to seven, saying the bill did not adequately explain the need for this.

Subsequent government senators, including Joanne Massiah and Dr Edmond Mansoor, posited that this was a necessary move to allow the FSRC to handle its additional responsibility to regulate non-banking financial institutions including the credit unions.

Sunday, 17 April 2011

SEC Chief Won't Offer Any False Hopes

Mary Schapiro had this to say after running the Securities and Exchange for more than two years: "I'd like to move beyond the question of whether regulation is necessary."

This is the woman who President Obama hired to clean up rampant financial fraud.

This is the regulator who was to inspire confidence following the worst economic crisis since the Great Depression.

This is the pit bull who was to build shattered trust after the SEC blatantly ignored warnings about Ponzi schemer Bernie Madoff and missed so many other white-collar schemes.

But Schapiro went to Dallas last week to tell a bunch of business editors and writers that she wishes she wouldn't have to argue about whether regulation is even necessary.

"The idea that regulation is per se counterproductive, the idea that it is always a net negative, stands reality on its head," she said at an annual conference of the Society of American Business Editors and Writers, or Sabew.

"We have seen over the years what happens when financial markets are poorly regulated--they are prone to crashes, runs, manipulation and fraud. Investors are left unprotected, market structures become unstable and businesses are poorly served."

"This happens over and over again. And yet, despite these lessons, even basic, common-sense regulations are too often bitterly contested affairs."

This reminded me of the time Officer Friendly came to my kindergarten class to explain why we need traffic lights and crossing guards.

Imagine an Attorney General having to defend the existence of drug laws. Or an Army General having to justify guns?

Schapiro is supposed to be the nation's top cop on white-collar crimes, and this is how far she has come?

"Too often, in our discussion about financial reform, advocates have taken extreme positions--that all regulation is intrinsically bad, or inherently good."

Yes, just turn on the TV. Free market, good. Regulation, bad. But when regulators chime into this very simplistic discussion, they allow their opponents to frame all the arguments.

This is especially disappointing following Shapiro's remarks before Sabew in April 2009 in Denver, Colo., where she took questions targeting her agency's absentee-landlord approach to regulation.

"In the short time I've been chairman, I have begun efforts to revitalize the agency," she said then. "I have let it be known far and wide that things must change."

But what has changed? Executives still pay the SEC millions for the privilege of stealing billions, typically without admitting guilt.

And now Schapiro is crying poverty. The SEC could be self-funded through the fees it raises, yet it must go to Congress each year to plead for an annual appropriation.

Last year, it collected nearly $1.5 billion in fees, but received a $1.1 billion appropriation. Schapiro wants to up that to $1.4 billion to hire 780 more people to boost the agency's enforcement efforts and carry out new Dodd-Frank financial reforms. Without the increase, it'll be the same sad story.

"We can get the rules written," Schapiro said. "What we are not going to be able to do is operationalize them."

Republicans in Congress have had an easy time smacking down Schapiro for the SEC's missteps leading up to the financial crisis. Gut the agency. Then complain about its incompetence. It's the American way.

But Schapiro has given her opponents plenty of new ammunition. One example, she's had to explain David Becker, her agency's former top legal counsel. Becker worked on compensation issues for Madoff victims, even though he inherited a Madoff account from his late mother.

Schapiro also leased a million square feet of office space last July for the expanded agency she envisioned. But she did this without first securing the funds from Congress. Now, she's subleasing the space as fast as she can, and much of her new digs remain vacant.

This gives Republicans another chance to bring up one of their favorite topics: government waste.

The worst of it, though, is that instead of being a hard-bitten regulator, Schapiro has apparently become an apologist for regulations.

"Admittedly, individual regulations can be ill- or well-conceived, effective or ineffective," she said. "They impact market participants in different ways; costs and benefits can be hard to measure; and balancing competing interests is a delicate task. And, naturally, those who fear their profits will suffer may decide to fight even the most meaningful reform."

What does Schapiro hope to achieve in parroting the most cliche" sound bytes of her critics, besides her next inside-the-beltway job?

"Where we see the greatest risk to the investing public, that's where we will put our resources," Schapiro said. "We also need to be transparent about what we are not doing so there's not a false sense of comfort that the SEC isn't everywhere, when clearly we won't be."

SEC Chairwoman Under Fire Over Ethics Issues

The Securities and Exchange Commission took a beating two years ago for failing to detect Bernard L. Madoff’s multibillion-dollar Ponzi scheme during the decades that he ran it.

Now, its chairwoman is coming under Congressional fire for hiring as the S.E.C.’s general counsel someone with a Madoff financial interest — David M. Becker, who participated in matters involving how the scheme’s victims would be compensated.


The revelations about Mr. Becker’s role have raised fresh questions about ethical standards and practices at the agency, where Mary L. Schapiro was brought in as chairwoman two years ago with a mandate to strengthen its enforcement unit. Ms. Schapiro will appear before Congress on Thursday to discuss the matter. Questions about Mr. Becker arose last month after Irving H. Picard, the trustee overseeing the Madoff case, sued him and two of his brothers to recover $1.5 million of the $2 million they had inherited in 2004 from a Madoff investment by their late mother. Mr. Becker’s financial ties to Madoff had not been publicly disclosed until that suit.

Mr. Becker said that he advised Ms. Schapiro and the chief ethics officer of his financial interest in a Madoff investment account, “either shortly before or after” joining the agency in February 2009.

Last Friday, H. David Kotz, the agency’s inspector general, announced that he would investigate the potential conflicts in Mr. Becker’s role as a Madoff recipient who was also the S.E.C.’s general counsel and senior policy director involved in decisions relating to the Ponzi scheme. Ms. Schapiro requested the review, a commission spokesman said.

Lawmakers have also asked Ms. Schapiro for details of her discussions with Mr. Becker about his Madoff account when she hired him in 2009. Ms. Schapiro missed a deadline on Monday for those responses. An S.E.C. spokesman said Ms. Schapiro declined to comment on Tuesday.

“One of the things the S.E.C. does is hold companies to a very high standard with regards to transparency and disclosure,” said Representative Randy Neugebauer, Republican of Texas, who is one of four Republican lawmakers asking Ms. Schapiro about her dealings with Mr. Becker and his disclosures. “We think it’s important that the same integrity exists within the S.E.C., ensuring that people working there do not have conflicts of interest and that here is a process to vet those issues and make sure they are taken care of in a way that gives confidence.”

Perhaps the most significant Madoff matter involving Mr. Becker is a proposed reversal of the agency’s recommendation on how to compensate victims of the scheme, according to two people briefed on the S.E.C.’s discussions who asked not to be identified because they were not authorized to discuss the matter. While the agency had agreed on a deal that would return to investors only the money they had put into their Madoff accounts, Mr. Becker argued that the commission should change its stance to allow victims to keep some of the gains their investments had generated, since the investment would have grown somewhat over time even in a low-interest account. The Becker family would benefit from this approach.

Mr. Becker did not return a call for comment.

In correspondence with lawmakers late last month, Mr. Becker also said that he alerted the ethics office about his family’s Madoff investment again that May after he received a letter from a number of law firms representing Madoff victims asking that the commission change its proposed compensation formula. Among the issues are whether Madoff investors who withdrew money before the fraud was exposed must return some of their proceeds — and if so, how much — to other investors.

“I recognized that it was conceivable that this issue could affect my financial interests because the issue could affect the trustee’s decision to bring clawback actions against persons like me,” Mr. Becker wrote in response to lawmakers. The ethics officer approved his participation, he said. That officer reported directly to Mr. Becker and spent only 25 minutes reviewing the matter, according to Congressional staff members briefed on the discussions who requested anonymity because they also were not authorized to discuss the matter publicly.

Congressional investigators want to know if Mr. Becker and Ms. Schapiro took all the necessary steps outlined in government ethics rules. Under the United States code, for example, Ms. Schapiro may have been required to make a written determination that Mr. Becker’s financial interest was not substantial enough to affect his job performance. A spokesman for the S.E.C. said that such a waiver would not be required unless Mr. Becker had been found to have a substantial financial conflict.

Congress also asked Ms. Schapiro whether she discussed Mr. Becker’s Madoff account with other staff members or commissioners and if she took up the matter with officials in the federal government’s Office of Government Ethics, or the commission’s ethics counsel.

“As the government official responsible for appointing Mr. Becker to his position in 2009, what steps did you take to manage the appearance of or actual conflict of interest presented by Mr. Becker’s financial interest in the Securities Investor Protection Corporation’ liquidation?” asked a March 1 letter signed by four Republican members of the House Financial Services Committee. They are Spencer Bacchus of Alabama, Jeb Hensarling of Texas, Scott Garrett of New Jersey and Mr. Neugebauer.

In any Ponzi scheme, there are victims who withdraw money before the fraud is exposed. There are many such Madoff investors and determining how much they may keep is being sorted out in two places. Some investors are fighting in court to be entitled to the amount of money on their final Madoff statements, though they have been unsuccessful so far. Another battle involves how much customers can be compensated by the Madoff trustee and the Securities Investor Protection Corporation, a government entity that helps recover money for customers of failed brokerage firms. The S.E.C. oversees SIPC; neither matter has been decided.

Mr. Becker’s late mother, Dorothy, invested $500,000 with Mr. Madoff’s company; when she died in 2004, her three sons transferred the money into a new account at the firm. The next year, the investment was worth $2.04 million and they withdrew it. Mr. Picard said that the family should be allowed to keep the original $500,000 investment but return $1.54 million — all of the gain — to compensate other victims.

If the S.E.C. gets its way, Mr. Becker and his brothers would be allowed to keep more than that to compensate them for the time the money was invested with Mr. Madoff. How much more is unknown because details of the commission’s proposal have not been disclosed.

After Madoff: Most Notable Ponzi ScamsHalf of Madoff Losses Have Been Recovered: TrusteeMadoff Case: No Ruling for Mets, Other Madoff Victims
Both SIPC and Mr. Picard, the trustee for the Madoff estate, have proposed that the customers who withdrew funds before the fraud was uncovered should be allowed to keep only as much money as they put in. Initially, the full commission agreed and approved that approach in early 2009, according to the two people briefed on the discussions.

Mr. Becker joined the commission in February that year. By spring, he began meeting with lawyers for Madoff customers seeking a different formula. They wanted to let longer-term investors keep more money than those who had money with Mr. Madoff for shorter periods. Mr. Becker apparently dismissed arguments that investors were entitled to the amounts Mr. Madoff had listed on their final statements.

In the summer of 2009, Mr. Becker did reverse the commission’s earlier decision, however. His legal staff came up with a new proposal to reflect the length of time the money was invested, and the commissioners approved it at the end of the year. Some at the agency who worked with SIPC expressed dissent about the change, according to the people briefed on the deliberations.

Stephen P. Harbeck, the chief executive of SIPC, confirmed that his investor protection unit and the S.E.C. had initially agreed that victims should be able to keep only the money they had originally put into the Madoff firm. “Then they refined their opinion,” he said on Monday, referring to the S.E.C. He said that he did not know who had pushed for the change.

The S.E.C.’s definition, Mr. Harbeck said, would benefit anyone who withdrew more money from their Madoff accounts than they had put in. Mr. Becker’s family would be among them.

This story originally appeared in the The New York Times

Andrews Kurth Sued for Malpractice Over Allen Stanford Work

A former client is accusing Andrews Kurth of malpractice, negligence, and breach of contract in a suit filed on Wednesday in state court in Houston.
In a 24-page complaint, Walton Houston Galleria Office, L.P., a Houston-based real estate investment firm backed by billionaire Neil Bluhm, claims Andrews Kurth neglected to inform the company about an SEC investigation into another one the firm's clients, R. Allen Stanford.

Stanford served as the head of Stanford Financial Group (SFG), a Houston-based financial services company that federal prosecutors now claim was actually a $7 billion Ponzi scheme. (Court proceedings against Stanford, who faces securities fraud and money laundering charges, were temporarily postponed in January after a judge found Stanford too mentally unstable to stand trial.)

The civil complaint states that SFG took out space in a key Walton property, the Galleria Towers in The Galleria development in Houston, and engaged in lease and sale negotiations for the property. Andrews Kurth represented both SFG and Walton in those negotiations in 2005, according to the complaint, after Walton agreed to let its lawyers advise both sides of the deal. But the transaction fell through and Stanford sued Walton in late 2005. After SFG collapsed in 2009, Walton was still tied up in the litigation and couldn't sell the property, which cost it millions in attorneys' fees and lost lease revenue, the company claims.

Walton's suit against Andrews Kurth comes one year after a report by the SEC's inspector general criticized the conduct of current Andrews Kurth corporate governance head Spencer Barasch, a former assistant director of the regulator's regional office in Fort Worth that was investigating Stanford for fraud. The report recommended Barasch face possible sanctions and disbarment for his role making decisions to "quash investigations" of Stanford's alleged crimes and then representing the accused Ponzi schemer just months after leaving the SEC. (Click here for a copy of the inspector general's report.)

Walton's complaint against Andrews Kurth claims that Barasch told colleagues that the firm should represent Stanford in the SEC's inquiry in June 2005. That is allegedly when Andrews Kurth became aware of the Ponzi scheme, money laundering, and other illegal activities occurring at SFG. The firm continued to depict SFG as a legitimate entity to Walton, one with which it could conduct business, according to the complaint. Andrews Kurth represented Walton from 2004 until January 2008.

Walton is seeking damages of at least $10 million from Andrews Kurth for malpractice and other professional negligence as a result of allegedly concealing information about Stanford and SFG.

Thomas Ajamie, managing partner of Houston firm Ajamie, is representing Walton in the case, along with partner Dona Szak. Ajamie declined to comment on the suit. (The American Lawyer profiled Ajamie, a former Baker Botts partner, last year for his work winning a $112 million RICO claim on behalf of security company ADT.)

A spokeswoman for Andrews Kurth declined to comment on the Walton suit, citing the firm's policy of not discussing pending litigation. Murray Fogler, a partner at Houston's Beck Redden & Secrest, is representing the firm in the litigation.

Andrews Kurth has publicly defended Barasch, who remains with the firm despite the possibility of criminal charges being filed against him. Last month eight Stanford investors sued the SEC, citing the "negligent supervision of Barasch by his SEC supervisors," according to a complaint filed in that case.

"Spencer Barasch served the SEC with honor, integrity and distinction," Andrews Kurth managing partner Robert Jewell said in a statement at the time. "We disagree with the characterization of Mr. Barasch's involvement put forth by the inspector general in his report last year in regard to the [SFG] matter."

Barasch's supporters claim that he's been made a scapegoat by federal regulators under fire for not catching Stanford sooner. But he's not the only lawyer to face scrutiny following the fallout from SFG's collapse.
Adams and Reese and Louisiana firm Breazeale, Sachse & Wilson were named as defendants in February in one of several suits filed by an official investors committee working with the court-appointed receiver for SFG

Grizzlies Sued Over Stanford Funds; More Money Sought From Memphis Hospitals

The court-appointed receiver for disgraced financier R. Allen Stanford’s empire, along with an official group of Stanford investors, has added another Memphis name to the group of entities they’re suing.

They also want more money from two Memphis entities they’ve already sued.

On Thursday, Stanford receiver Ralph Janvey filed a joint suit against the owners of pro basketball teams the Houston Rockets and the Memphis Grizzlies.

That suit seeks the recovery of almost $1.6 million in allegedly sham CD proceeds from Stanford.

The suit says that investigation is continuing and that the final amount might be higher. It does not break the amount down between the two NBA teams.

Meanwhile, the Stanford Investors Committee filed suit in February against St. Jude Children’s Research Hospital; its fundraising arm, ALSAC; and the Le Bonheur Children’s Hospital Foundation.

That suit sought to recover at least $7.3 million in Stanford funds.

The same day the Grizzlies were sued, an amended complaint was filed against the hospital entities asking for more money.

The “official Stanford Investors Committee” in the amended complaint says it has now identified almost $12 million in Stanford funds paid to the ALSAC-related defendants and at least $1.5 million to Le Bonheur.

All the sides in the ALSAC-related case have met for at least one mediation session. A court form shows the April 7 session was unsuccessful.

Lafayette Stanford investors sue SEC

The Securities and Exchange Commission and one its former officials, Spencer Barasch, were sued Thursday for negligence and misconduct by Baton Rouge attorney Edward Gonzales on behalf of nine Lafayette area investors who lost money in Allen Stanford's alleged $8 billion Ponzi scheme.

According to Gonzales, and as many as 50 plaintiffs are expected to join the suit, Robert J. Dartez LLC, et al v. the United States of America, filed in federal court in Dallas. “The others will be added as their six-month waiting periods [from date of filing an administrative claim] pass,” he says. The nine local clients are seeking almost $19 million, but Gonzales says his clients lost as much as $66 million in the alleged fraud.

Barasch, now a partner at the Dallas law firm Andrews Kurth, worked for the Fort Worth office of the SEC, at one time serving as head of its enforcement program. The suit alleges that it was under his watch that Allen Stanford swindled billions out of investors. Stanford, 61, remains in jail awaiting trial on criminal charges. He denies any wrongdoing.

About a year ago, an SEC inspector general’s 151-page report held Barasch up as a poster child for an agency now established to have missed one of the biggest investor scams of all time. The report found that for years he looked the other way on Stanford’s behalf. The suit cites the IG report, which noted other improper acts by Barasch, saying that he “sought to represent Stanford on three separate occasions … and represented Stanford briefly in 2006 before he was informed by the SEC Ethics Office that it was improper to do so.”

According to the suit, “[Stanford International Bank] and its affiliated or related companies, including Stanford Group Company (SFG), were known at all times material by the SEC to be participants in a massive Ponzi scheme, and the SEC, which has a mandate to protect the public interest, in this case had both the authority and the duty to put an end to this scheme.” If not for the "negligent acts and omissions, misconduct, and breaches of duty by Barasch and his SEC supervisors," and other “inexcusable” acts of negligence by SEC employees, his clients would not have lost their investments, Gonzales claims in the suit.

The Lafayette plaintiffs listed in the suit and the investments they are seeking to recover:
•Robert Juan Dartez LLC, $638,000
•David B. Sturlese, $696,000
•Cynthia R. Dore (who also resides in Houston), $3.09 million
•Randolph J. Hebert, $7.2 million

The other local plaintiffs are:
•Robert Hollier of Opelousas, $4.8 million
•Hollam Pinnacle Group LLC of Opelousas, $571,000
•Michael R. Robicheaux and Cheryl T. Robicheaux of Breaux Bridge, $1.6 million
•Brittany Robicheaux of Breaux Bridge, $52,000

Stanford Investors v USA

Monday, 11 April 2011

What Did SEC Learn After Failing to Take Down Stanford Earlier? Um, It Did the Best It Could?


We mentioned this morning that Securities and Exchange Commission Chairman Mary Schapiro was in town speaking to business journalists gathered on the SMU campus. Turns out, during her speech she mentioned something that rings a bell: The failure of the Fort Worth office to shut down Allen Stanford's Ponzi scheme years before the feds finally took action. As you may recall, investors swindled by Pete Sessions's pal filed suit against the SEC only weeks ago in Dallas federal court. We'll get back to that in a second.

Anyway. Said Schapiro, who took the gig in late 2008: What we had here was a failure to communicate. Or, more specifically, the proverbial ball was dropped because of "escalating issues. It was about training our people. It's about how do you focus on what's important and what presents risks to investors, rather than what gets us numbers in the column of examinations done."

Now, back to that suit. With a tip of the cap to Bloomberg News, you'll find on the other side the SEC's motion to dismiss the litigation brought by those who blame the feds -- and, very specifically, Dallas attorney Spencer Barasch, a former SEC enforcement chief in Fort Worth who did some work for Stanford -- for allowing their money to go adios. It was filed yesterday at the Earle Cabell, and long story short, the SEC says, tough, that's the way investigations go:

Federal securities laws give the SEC broad discretion in deciding whether to investigate possible violations and, when wrongdoing is suspected, take enforcement action. This discretion is subject to important policy considerations, including how to best use limited agency resources to enforce the nation's securities laws. The discretionary function exception therefore bars Plaintiffs' claims.

DartezvUSA_MotiontoDismiss

DartezvUSA_MotiontoDismiss

Saturday, 9 April 2011

Allen Stanford Investor Suit Should Be Dismissed, SEC Says

The U.S. asked a federal judge to throw out claims that the Securities and Exchange Commission should be held accountable for failing to stop an alleged Ponzi scheme by R. Allen Stanford earlier than it did.

SEC officials have legal protection for policy decisions, such as whether to take enforcement action when they suspect wrongdoing, the government said in papers filed yesterday in federal court in Dallas.

“Plaintiffs are challenging a policy choice -- something they may not do by way of a tort suit for damages,” the government said in the filing. “Congress did not intend to provide for judicial review of the quality of investigative efforts.”

Eight investors in the indicted financier’s Antigua-based Stanford International Bank Ltd. sued regulators last month for their losses, which amounted to about $18.7 million. They said “negligence and misconduct” by officials in the SEC’s Fort Worth, Texas, office let Stanford’s activities continue unchecked for years after alarms were raised by agency investigators.

Edward Gonzalez, the investors’ attorney, said federal law doesn’t shield the U.S. from liability for damages caused by government misconduct.

Immunity Limits
“The complaint in this case clearly alleges such misconduct,” Gonzalez said in an e-mail. “The suggestion that a blanket of immunity covers all enforcement-related acts by SEC personnel is incorrect.”

The SEC seized Stanford’s businesses in February 2009 on suspicion he was paying above-market rates to early buyers of certificates of deposit by taking funds from later depositors. Stanford, who denies all wrongdoing, was indicted in June 2009 on charges he defrauded investors of more than $7 billion.

The SEC’s inspector general, in a report issued last year, faulted the agency’s Fort Worth office and some of its employees for failing to take action against Stanford sooner.

The Fort Worth staff conducted four reviews of Houston- based Stanford Financial Group Co. starting in 1997 and determined after each one that Stanford’s purported CD returns were highly unlikely, SEC Inspector General H. David Kotz said in the report. In spite of those determinations, the SEC didn’t conduct a meaningful probe of Stanford’s operation until 2005, he said.

The investor case is Robert Juan Dartez LLC v. U.S., 3:11- cv-0602, U.S. District Court, Northern District of Texas (Dallas). The criminal case is U.S. v. Stanford, 09-cr-342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank, 09cv298, U.S. District Court, Northern District of Texas (Dallas).

Thursday, 7 April 2011

Stanford Bank Records Fight Belongs Under Hague, Judge Says

R. Allen Stanford’s court-appointed receiver should pursue Swiss banking records he says are held by a unit of Paris-based Societe Generale through the Hague Convention and not U.S. courts, a federal judge ruled.

U.S. District Judge David Godbey in Dallas today rejected court-appointed receiver Ralph Janvey’s request for an order compelling a Lausanne, Switzerland-based unit of the Paris bank to produce its records of any accounts held by Stanford personally or through one of his businesses since Jan. 1, 2000.

“If the Swiss authorities agree with this court that the receiver is simply seeking production of his own banking records, then the receiver may easily obtain what he needs,” Godbey said in the ruling.

Stanford is civilly and criminally accused by the U.S. of leading a $7 billion investment-fraud scheme through the sale of certificates of deposit by Antigua-based Stanford International Bank Ltd. He has denied any wrongdoing.

The financier allegedly routed more than $100 million in investor funds through the Swiss bank accounts, Janvey told the judge in Feb. 22 court papers. The judge heard arguments on the issue Feb. 28.

Responding to the receiver’s demand, Societe Generale lawyers told the court their client is bound by Swiss banking secrecy laws, the violation of which could result in their being prosecuted.

Punishment Threat

“The threat of criminal punishment is real, including the possibility of imprisonment,” SocGen lawyer Noelle Reed, an attorney with New York’s Skadden Arps Slate Meagher & Flom LLP, said in a Feb. 28 court filing.

“Swiss residents cannot avoid these laws simply by turning information over to their American counterparts to be ‘produced’ in this country,” Reed said.

Reed didn’t immediately return an e-mail seeking comment today.

Janvey’s subpoena had been served on a Societe Generale office in Miami last year. The receiver was appointed after the U.S. Securities and Exchange Commission filed a civil enforcement action against Stanford in February 2009.

If Janvey doesn’t get the records, he “may renew his request” in federal court in Dallas, Godbey said.

The SEC case is Securities and Exchange Commission v. Stanford International Bank Ltd., 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).

Wednesday, 6 April 2011

In Dallas Federal Court, Those Swindled by Allen Stanford Sue SEC For Failing to Stop Him


Spencer Barasch is a partner at the downtown Dallas law firm Andrews Kurth, where he is in charge of the corporate governance and securities enforcement team. But before that, and for close to 20 years, he worked for the Fort Worth office of the Securities and Exchange Commission, including a tenure as head of its enforcement program. It was under his watch that Allen Stanford swindled billions out of investors.

Eleven month ago, the SEC's inspector general all but blamed Barasch for allowing the Texas financier's Ponzi scheme to prosper, insisting in a 151-page report that for years he looked the other way on Stanford's behalf. Barasch never responded, but his friends claimed he'd been scapegoated by the feds -- even though Barasch wound up doing some work for Stanford in 2006, shortly before the SEC filed charges against Pete Sessions's pal.

Yesterday, but blocks away from the attorney's downtown office, some of the investors swindled by Stanford filed a federal suit against the government, claiming that the SEC and Barasch's refusal to shut down Stanford's operation years earlier -- say, in 1997, when he first appeared on the feds' radar screen -- resulted in their pockets being picked clean. Long story short:

This complaint is filed on behalf of the plaintiffs ... who, because of the negligence and misconduct of employees of the United States Securities and Exchange Commission ("SEC"), lost their investments in Stanford International Bank, Ltd ("SIBL"). The SEC employees were at all times material acting within the scope and course of their offices and employment, and under circumstances in which their employer, the United States, if a private person, would be liable to the plaintiffs in accordance with the law of the place where their acts or omissions occurred.

SIBL and its affiliated or related companies, including Stanford Group Company (SFG), were known at all times material by the SEC to be participants in a massive Ponzi scheme, and the SEC, which has a mandate to protect the public interest, in this case had both the authority and the duty to put an end to this scheme. But for the negligent acts and omissions, misconduct, and breaches of duty by Spencer Barasch, a former SEC regional Enforcement Director, the negligent supervision of Barasch by his SEC supervisors, and other inexcusable acts of negligence by SEC employees, the plaintiffs would not have made, and lost, their SIBL investments, as the following facts, and admissions by the SEC, show.

The entire suit filed at the Earle Cabell, which includes a recap of the 2010 report, follows.
Stanford Investors v USA

Stanford Investors v USA