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.

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(function() { var scribd = document.createElement(“script”); scribd.type = “text/javascript”; scribd.async = true; scribd.src = “http://www.scribd.com/javascripts/embed_code/inject.js”; var s = document.getElementsByTagName(“script”)[0]; s.parentNode.insertBefore(scribd, s); })();

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.

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.