Forensic accountant gives Stanford investors a little hope

They have so much riding on such slim hope, but it may be all they have left.

For two years, Stanford Financial Group’s victims have struggled with the grim reality of their situation. Not only is their money gone, but every safety net has failed them. Now, they’re hoping a new finding by a forensic accountant will give them a better chance at getting some of their money back.

Last week, investors circulated a declaration by FTI Consulting, an accounting firm hired by receiver Ralph Janvey to determine whether Stanford investors should be covered by the Securities Investor Protection Corp.

The ruling found that money that was supposed to buy certificates of deposit at Stanford’s Antiguan bank was diverted for other purposes.

The finding “100 percent supports the legal argument we’ve made” to get investors covered by SIPC, Angela Shaw, the head of the Stanford Victims Coalition, said in an e-mail sent to other investors.

After all, SIPC is covering some of the losses for Bernie Madoff’s victims because he never bought the stocks he told clients he’d bought for them.

While the two cases may seem similar, they aren’t. Nothing about the accountant’s findings in the Stanford case changes SIPC’s determination that investors aren’t covered, said Stephen Harbeck, SIPC’s chief executive.

“We don’t see a customer that we can protect,” he said.

SIPC doesn’t cover lost investment value, even if there may be fraud involved. Stanford investors’ money may have been diverted, but the CDs did exist and the bank still had records of investors owning them, the accountant’s report found. What was falsified, according to the Securities and Exchange Commission, was the assets that backed up those CDs.

Hoping SEC will step in
Stanford investors, though, hope the FTI report will encourage the SEC, which missed so many warnings about Stanford for so long, to ask SIPC to extend the coverage. So far, it hasn’t. The SEC could even sue SIPC to compel it to cover Stanford’s victims, but that’s never happened.

“In this instance, both parties agree that there’s no cause to initiate coverage,” Harbeck said. “We were not designed to replace the initial purchase price when a security goes down in value.”

That, of course, is not what Stanford victims want to hear. And who can blame them? After all, they weren’t chasing exorbitant returns on risky investments. They thought they were buying a safe haven � low-risk CDs – in a time of market turmoil. In many cases, they were following the advice of their trusted brokers.

Confusing to investors
SIPC is a narrowly defined insurance fund. The arcane details of its limitations have confused investors for years – at least the few who were even aware it existed.

In creating SIPC, Congress was careful to insure against broker misconduct, but not to shield investors from risk that, recent Wall Street bailouts aside, is supposed to be a part of investing.

The Stanford case, though, raises the question of whether that law needs amending.

After all, the SEC claims Stanford brokers peddled the bogus CDs, collecting commissions for selling them to clients of the company’s brokerage operation, which was a SIPC member.

In other words, SIPC coverage enhanced the veneer of credibility that Stanford used to sell itself to investors, and the FTI report describes a SIPC member firm that was diverting funds from customer purchases without the customers’ knowledge. The fact that the alleged fraud wasn’t quite as blatant as Madoff’s – an obfuscation instead of an outright lie – is a hairline distinction with multibillion-dollar consequences.

Improvements ahead?
Given all the damage from Stanford’s collapse, perhaps some good can yet come from the ashes. Perhaps Congress can review the law and build better protections for future investors.

SIPC touts itself as investors’ first line of defense. For Stanford investors, it may be their last hope.


Stanford, Libya Connected Through Alleged Ponzi Scheme

In January of 2009, accused ponzi scheme financier Allen Stanford and his girlfriend, Andrea Stoelker, boarded one of Stanford’s private jets for an exotic yet fateful trip. First stop: Tripoli, Libya.

The global financial crisis was at its worst, and Stanford, like nearly every other banker in the world, was trying hard to keep his empire afloat.

Libya, which had only recently won fully normalized relations with the U.S., would throw Stanford a major lifeline, according to court filings: The Libyan government’s sovereign wealth fund invested some $500 million with Stanford, who left Libya the next day along with Stoelker and an unidentified third person, bound for Zurich, Switzerland.

But three weeks later, it all fell apart. The United States Securities and Exchange Commission accused Stanford of running a $7 billion Ponzi scheme, and a court froze all the firm’s assets—including, presumably, Libya’s money.

It had been widely believed that the Gaddafi regime was one of the largest victims of the alleged Stanford scam, in which investors have thus far recovered less than three cents on the dollar.

But now, CNBC has learned Libya may have managed to withdraw much of its Stanford investment just before the firm collapsed, according to a source close to the case. If true, it would have been a stunningly fast trade that thousands of much smaller investors were unable to make.

All the deposits and withdrawals by Stanford investors are being closely examined by a court-appointed receiver, Dallas attorney Ralph Janvey, who has already filed hundreds of millions of dollars in “clawback” claims against investors who allegedly withdrew money they were not entitled to.

There was no immediate comment from Janvey’s team on whether he plans to pursue a claim against Libya. If Stanford’s empire was, in fact, a Ponzi scheme, attorneys could argue that the money invested by Libya was owed to earlier investors, so that money returned to Libya would constitute a fraudulent transfer.

The last-minute investment with Stanford by the Libyan government has been the subject of renewed speculation now that the government has fallen into chaos and Libya’s U.S. assets have been frozen.

In a 2010 State Department cable uncovered by WikiLeaks, the head of Libya’s sovereign wealth fund is said to have told the U.S. ambassador that the fund turned down investment requests from Stanford and convicted Ponzi schemer Bernard Madoff. But a source close to the case tells CNBC Libya did indeed invest with Stanford, “to the tune of nine figures.”

Allen Stanford, who is currently undergoing drug treatment at a prison hospital in Butner, North Carolina, has denied wrongdoing.

In a 2009 bail hearing, prosecutors cited the January trip to Libya as evidence Stanford had the means to flee.

But his attorney at the time, Dick DeGuerin, argued the trip was above board.

“In fact, Mr. Stanford applied through the State Department and the embassy, the Libyan embassy in Washington, DC, to travel to Libya to develop business there,” DeGuerin said according to a transcript of the hearing. “The state department of the United States is encouraging American business, now that the travel ban and the business ban is over with, to develop business there. That’s why Mr. Stanford was there.”

The judge in the case sided with the government, ruling Stanford’s international ties made him a flight risk. He has been held without bail ever since, and his trial—which could shed more light on the Libyan connection—has been put indefinitely on hold.

I Obtained an Update from Vantis

I called into the SIB building yesterday and spoke to Sara Cook from Vantis to try and find out what was going on and when we can expect some sort of solution regarding the receivership on Antigua. It would appear that there is no final decision or court date in sight to settle this matter and she says they will keep appealing to any court decision that tries to oust them from their position as receivers.

I also asked about the properties on the island and why Andrea Stolker (Stanford Fiancee’) was being allowed to open properties that clearly were paid for with SIB money and she said the Stolker has power of Attorney from Stanford and they have been unable to prove that the properties I was revering to (The Sticky Wicket, Pavilion Restaurant, Stanford Boathouse and the Athletics Club) came from SIB. They say they do not have the money trail to be able to prove in court that Victims money was used for the purchase of these properties. It would appear that Janvey has the proof they need and he will not give the info to them. Anyway, I have pasted a copy of her email below.

Dear Wendyanne,

Further to our recent discussion I can confirm that we can only provide you details of properties owned by SIB, we do not know 100% who owns the other properties are we are not appointed over the other companies. However from what enquiries we have undertaken we believe that the Stanford properties not owned by SIB are owned by Stanford Development Company Ltd (“SDC”).

We currently cannot go to court in Antigua as we do not have the records to support a claim that SIB ultimately funded the purchase of the properties not owned by SIB. I note your point regarding the Van Tassel report however this would not be sufficient evidence on its own to support a claim through the Antiguan courts.

Once a co operation agreement with the U.S Receiver is ratified by both courts we can ask for further information on funds flow to pursue other property on the Island.

This agreement cannot be ratified by the courts until the removal application has been dealt with.

The properties owned by SIB which we are seeking potential purchasers are as follow:

The Building occupied by ECAB at Coolidge
Pelican Island
Guaina Island and surrounding land
Two small plots of land at Coolidge
Athletic Club

I hope this offers you some clarity in respect of the current position.

Kind regards


For and on behalf of the Joint Liquidators

Investors Cite Inattention by Regulators

Blaine Smith, of Baton Rouge, says each new revelation of inattention by state and federal regulators to the dealings of investment promoter Robert Allen Stanford intensifies the pain felt by those who lost their savings to the man.

More than $1 million of Smith’s retirement savings vanished in February 2009, when the U.S. Securities and Exchange Commission alleged that Stanford orchestrated more than $7.2 billion in frauds against more than 25,000 investors across this country and 112 others.

Two years later, the Dallas receiver appointed by a federal judge to find and recover Stanford’s assets for eventual distribution to devastated investors reports that he has only $77.1 million in unrestricted cash.

The receiver, attorney Ralph Janvey, added in his report this month that he actually recovered $188.3 million. But fees and expenses ate up $46.2 million of that total. Another $14.4 million in fees and expenses are subject to court approval for Janvey’s team of lawyers, accountants, investigators and clerical staff.

The first claim against any money that remains in the receivership after fees and expenses is that of the IRS, which wants $226 million for Stanford’s alleged unpaid taxes, penalties and interest.

Smith spent more than 20 years with Exxon and also worked as a homebuilder before Stanford’s chief financial officer, James M. Davis, of Baldwyn, Miss., pleaded guilty to fraud charges and admitted that Stanford’s investments had been a scam.

But Smith’s personal pain increased last year, when the SEC inspector general reported that some of the commission’s regulators concluded in 1997 that Stanford’s operations likely were fraudulent. The IG reported that SEC examiners in Fort Worth asked four times that Stanford be investigated for possible fraud, but their requests were ignored.

Repeatedly, people who lost savings to Stanford have asked the SEC to authorize the Securities Investor Protection Corp. to cover some of their losses. SIPC, created by Congress in 1970, is funded by the financial services industry.

SIPC spread more than $500 million among some of the thousands of people defrauded by confessed swindler Bernard Madoff. To date, however, SIPC coverage has not been extended to Stanford victims.

“Our families are being kicked to the curb in the twilight of our lives,” Smith said recently.

Bills to reimburse at least some Stanford investors for some of their losses have been filed in Congress. But none has become law.

Janvey initially attempted to claw back nearly $1 billion that some lucky Stanford investors retrieved in the months before the SEC shut down the man’s operations. The receiver took that action against the advice of the SEC, and the 5th U.S. Circuit Court of Appeals eventually ruled Janvey could not retrieve a dime of innocent investors’ principal.

Broken investors in other countries are watching this tense tragedy play out in Congress and federal courts.

They’re desperate, too. And they hope they won’t be left behind if Congress and the SEC eventually require SIPC to compensate Stanford investors in this country.

Stanford, 60, continues to deny felony charges pending against him in Houston. He continues to ask federal courts to release him from custody. His trial was postponed indefinitely last month after he was discovered to be addicted to anti-depressants. He is under treatment at the Federal Medical Center in Butner, N.C.