SEC Enforcers Frozen Amid Watchdog Probes

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Looks like all the class actions are going to be thrown out thanks to SLUSA!!

Proskauer, Chadbourne off the hook in Ponzi scheme class action

Davis Polk & Wardwell and Paul, Weiss, Rifkind, Wharton & Garrison had to make a key strategic decision when they moved to dismiss a securities class action accusing Proskauer and Chadbourne & Parke of abetting R. Allen Stanford’s Ponzi scheme. The firms had a veritable arsenal of defenses to deploy: qualified immunity because the law firm defendants were acting as counsel to Stanford; no evidence of fraudulent intent by the law firms; no duty to Stanford’s investors. But the first defense both Davis Polk and Paul Weiss chose to assert in motions to dismiss on behalf of Proskauer and Chadbourne was more technical. The Dallas federal court class action, they asserted, had to be dismissed because the Securities Litigation Uniform Standards Act of 1998 pre-empts its claims, which were all grounded in Texas state law.

“Putting aside the absence of any viable federal claims,” wrote Proskauer’s counsel from Davis Polk, “because plaintiffs have chosen to bring their claims not only on their behalf, but also on behalf of a putative class, their claims are barred by SLUSA, and they cannot ‘be maintained’ as a class action in this or any other court.”

The strategy turned out to be a good one. On Friday U.S. District Judge David Godbey of Dallas federal court dismissed the class action without granting leave to appeal. The case, he said, was precluded by SLUSA. You have to give class counsel from Castillo Snyder and Strasburger & Price credit for trying to get around the U.S. Supreme Court’s 2008 ruling in Stoneridge v. Scientific-Atlanta, which pretty much cuts off federal securities law claims against the law firms, auditors, and investment advisers to accused fraudsters. The allegations against Chadbourne and Proskauer all involved the advice that Stanford counsel Thomas Sjoblom (who lateraled from Chadbourne to Proskauer after he began representing the Ponzi schemer) gave to his client. The class didn’t offer evidence that either of the law firms communicated directly with Stanford’s investors — the standard they would have had to meet to bring federal securities claims.

So instead, the amended class action complaint against Sjoblom, Chadbourne, Proskauer, and a former Stanford general counsel was based on Texas’s state securities laws. The complaint claimed that former Securities and Exchange Commission enforcement lawyer Sjoblom — and, by extension, the firms at which he practiced — should have known Stanford was running a Ponzi scheme, but helped keep him afloat nonetheless.

If Stanford had been trading stock, it would have been a no-brainer for Davis Polk and Paul Weiss to cry SLUSA. He wasn’t. Stanford sold investors instruments he called CDs from the Antiguan bank he controlled. These CDs functioned as mutual or hedge fund shares. But it wasn’t entirely clear that they fell under SLUSA’s definition of securities, which is limited to instruments traded on a national exchange. Davis Polk argued that because Stanford investors liquidated stock and bond holdings in order to purchase Stanford CDs — and because Stanford claimed that the CDs were backed by stocks and bonds — the Stanford instruments fell under SLUSA’s definition of a covered security.

Because Godbey agreed, he never even reached the other defenses Proskauer and Chadbourne — and, for that matter, other Stanford defendants whose motions to dismiss he granted on SLUSA grounds — might have argued. Proskauer counsel James Rouhandeh of Davis Polk declined comment, as did Chadbourne counsel Daniel Beller. I left a message with class counsel Edward Snyder but didn’t hear back.



October 25, 2011


Dear Stanford clients:

On Thursday, October 13, 2011, the judge overseeing all the Stanford-related cases held a status conference with all the parties to discuss several matters. First, the parties discussed the Antiguan Liquidator’s Chapter 15 petition for U.S. recognition of the Antiguan Liquidation. The discussion centered on whether the issue should be sent to mediation. The judge did not address the merits of whether the Chapter 15 proceeding would recognize the Antiguan Liquidation as the “main” or “non-main” proceeding. A trial in this matter is set for December 2011.
Second, Kevin Sadler of Baker Botts, lead counsel for the Receiver, updated the parties on several of the larger pending actions. Mr. Sadler stated that the former Stanford employee litigation is now pending in the appellate court, the Fifth Circuit, and therefore, there is nothing to do in that action at this time, although some of the former employees have filed for bankruptcy. Concerning the net winner litigation (the clawback actions), Mr. Sadler stated that summary judgment motions were fully briefed and awaiting a ruling from the judge. As to the efforts to get certain documents from Switzerland, Mr. Sadler stated that the Receiver is still waiting for a ruling from the Swiss authority.
Throughout the conference, the judge asked Mr. Sadler to disclose where all the money went that was lost in this Ponzi scheme. The judge could not understand how billions of dollars went missing and neither the Receiver nor the Examiner (nor the Investor Committee) could trace the funds. Mr. Sadler stated that the Antiguan liquidators had failed to cooperate and disclose documents that would aid them in the search for assets. The Receiver, he stated, has not been able to review any documents in the possession of the Antiguan liquidators or the European authorities. In addition, the Department of Justice has not allowed the Receiver to speak with any of the cooperating witnesses in the criminal case. In response, the judge informed Mr. Sadler that if Mr. Stanford is found to be incompetent to stand trial in the criminal case, he will lift the stay in the civil case and allow the SEC to proceed with its claims against the Stanford entities.
Mr. Sadler continued to express that they have done everything they could to recover assets in the United States. They liquidated 95% of all real estate assets, wound down nearly all of the 140 Stanford entities, and are involved in litigation to recover more assets, but this will likely take several more years to resolve. Mr. Sadler stated his belief that if there is some trail that leads to more assets, it would be in Antiguan records.
Third, the Judge inquired why Mr. Sadler had not initiated the claims process, even if there were insufficient funds in the estate to make a distribution at this time. Mr. Sadler stated that the EDICIÓN BILINGÜE
Receiver agrees with the judge and wants to initiate a claims process and distribution to investors, but the Committee and Examiner are blocking the process. In response, the Investor Committee explained that setting up a claims process is costly and there is only $100 million in current assets for investors. The Investor Committee also explained that they prefer to set up one claims process for both Dallas and Antigua, which requires cooperation between the two, which has yet to occur.
An attorney for investors, Stephen Malouf, expressed the frustration of thousands of investors who believe the Receivership has spent over $100 million and still cannot cooperate with the Antiguan liquidators and still cannot explain where all the money went.
Fifth, the parties discussed the impact of the SLUSA decision on the proceedings. The SLUSA decision limits class action lawsuits on behalf of investors based on state law in certain circumstances. The parties discussed whether the single class action case addressed in the judge’s decision was a sufficient test case of the issues or whether additional cases should be decided before an appeal. The judge is considering deciding several other test cases so that they may appeal to the Fifth Circuit as a group. (KLS previously sent an update discussing the SLUSA decision and its potential impact on investors’ recovery.)For more information, please see the attached articles discussing the conference, the role of the Investors Committee and the Receiver’s management of the Stanford entities.
We also note that KLS is in the process of preparing a complaint against the United States for the negligence of the SEC in its investigation of Stanford, and expect to provide an update regarding that action shortly.

The KLS Stanford Team.

Press Release from Stanford International Victims Group



The Stanford case:

International Victims Charge
America to Play Fair


In 2009 on the heels of the Madoff fraud, the Ponzi scheme operated by R Allen Stanford was uncovered which has received widespread media coverage in the United States. What has not been widely reported is that only 4,000 of the 21,000 victims worldwide are US citizens. The remaining 17,000, the vast majority, are innocent victims from around the globe, who all have one common cause; to recover their life savings, stolen by the US citizen R Allen Stanford, under the guise of his Stanford Financial Group, based in Houston, Texas, and regulated by the United States Securities and Exchange Commission.

It is now almost three years since R Allen Stanford was charged with fraud and his various enterprises wound-up and sold by the US court appointed receiver Ralph Janvey. Yet to date there has been no distribution of any funds recovered by the receiver, nor even a mechanism created whereby those funds can be fairly distributed equally among all the innocent victims, some of whom have lost their homes and become ill, while others have died waiting. Meanwhile the receiver, his general counsel, Kevin Sadler of Baker Botts, and the other advisors he has engaged are consuming all the available funds they have collected.
Further, in the United States there has been no recognition that anyone but US voters and taxpayers have been harmed by this massive fraud, perpetrated by a US citizen, based in Texas, where officials of the US regulator preferred to spend their time at work watching porn instead of taking the enforcement actions they were charged with, against a business they knew to be a fraud.
The failure of the SEC in detecting the Madoff Ponzi scheme has been well reported and investigated, yet some of those SEC officials who missed Madoff knew as far back as 1997 that Stanford may be a fraud. The Stanford empire was investigated by the SEC on at least four occasions, first in 1997, and they concluded even back then it was likely a massive Ponzi scheme, yet no action was taken, as the SEC did not think there were any American investors, consequently they permitted the fraud to continue and grow exponentially for a further twelve years, abandoning 21,000 innocent victims to their fate, simply because they believed it did not concern US interests. How wrong could they be, and how prejudiced in their negligent disregard for their duties.
The SEC have been investigated for their failure to detect the Stanford fraud, and heavily criticized. Their own Inspector General has stated that the depth of their failure is unbelievable; and US congressmen have claimed that the debt they owe the Stanford victims is enormous, and have demanded that they should act swiftly, so families whose retirement and savings were stolen as a result of greed and government failure can begin to rebuild their lives.
Following the investigation, earlier this year many hundreds of innocent Stanford victims worldwide filed protective claims against the SEC for negligence under the Federal Tort Claims Act. The SEC have had their allotted six months to respond, yet remain unconscionably silent, with no regard for the consequences of their complicity, or the demands of elected officials.
Now the SEC find themselves and their appointed receiver once again under investigation, for the way they have conducted this receivership.
The Securities and Investors Protection Act was passed by congress to provide a fund to repay innocent victims of US securities fraud, irrespective of their nationality or place of abode. It gave the registered broker/dealers a veneer of respectability and investors the comfort of believing there was a safety net should the worst happen and any of the US financial advisors they trusted turn out to be liars, crooks, or thieves.
It has taken the SEC two years, under considerable political pressure, to instruct SIPC to do the right thing, yet we now learn the number of innocent victims who believed they were eligible for compensation may be limited further, and that SIPC themselves may raid the receivership estate, to recover their losses at the expense of the remaining victims.
Whenever innocent foreign victims of the Stanford fraud have asked for recognition in the United States, invariably they have been told that Stanford operated his fraud from the small Caribbean island of Antigua, and what right have they to expect that US authorities and officials have any obligation or other moral duty to extend assistance. The tentacles of the Stanford empire stretched halfway around the globe and in each of its outposts was portrayed as a safe, stable, and conservative institution backed by a major Texas based group, regulated in the US, who claimed to extend protection to investors worldwide equivalent to that benefiting US citizens. Further, R Allen Stanford, the founder and sole shareholder was compared by Forbes to the likes of UBS and Wachovia, and accredited him as one of the United States 400 wealthiest individuals, with a portfolio of $51bn under management. After the president of the United States, George W Bush, and a raft of US senators and congressmen also lent Stanford their endorsement, how could his credibility possibly be questioned further?
At the request of dissatisfied victims of the Stanford fraud, the courts have recently appointed two very experienced directors of Grant Thornton as joint liquidators of Stanford International Bank, and charged them to recover and distribute, fairly and equally, and in the shortest possible time, the losses stemming from the Stanford Ponzi scheme. Grant Thornton have been recognized as the most proper person to recover losses stemming from the Stanford fraud, with the best chance of success by courts in every jurisdiction worldwide, except in the United States, where the receiver, Ralph Janvey, and his ‘official’ investors committee, comprising mainly self-interested attorneys, have contrived to establish a network of vested interests which serve primarily to benefit themselves, and through which they have reached an agreement whereby they may charge excessive fees which may run to hundreds of millions of dollars, all at the expense of all the innocent victims. Grant Thornton has strived to reach a workable protocol with Janvey for the benefit the innocent victims, yet the vested interests in the US continue to block any agreement from being reached.
There are frozen funds overseas, to the tune of $250m that Grant Thornton wish to recover and distribute equally, transparently, and quickly, to all the Stanford victims worldwide, yet they have been further blocked by the United States Department of Justice, who seek to ‘repatriate’ those funds to the US, to be distributed; how? These are funds that did not originate from the US yet the DoJ insists that US minority interests should once again be given preferential treatment.
The perpetrator of the fraud R Allen Stanford still awaits trial in Texas. Unlike Madoff he has not confessed, but pleads the fifth amendment; has changed attorneys as frequently as changing his socks; claimed incompetence; drug addiction; and now memory loss; what next? His trial has been postponed twice, and is now due to be heard in January 2012, meanwhile many of the initial charges have been dropped, and there are some who believe he may soon be granted bail, and conveniently disappear.
In a recent twist many of the lawsuits that may eventually benefit the victims of this fraud, already delayed two years due to restrictions imposed by the judge appointed by the DoJ to hear the criminal case against Stanford; may now fail entirely, following a ruling by another judge; appointed by the SEC to preside over the civil case, again all at the expense of the innocent victims.
Enough is enough. The United States authorities and institutions have failed us all, not just US citizens, and we all deserve to be treated equally. We have all seen our entire life savings stolen by a US citizen who was permitted to operate for years due to the negligence of the US regulator, and we now find US court appointed officers determined to line their pockets at the further expense of the innocent victims, and through political pressure, place US citizens in a preferential position, while the perpetrator of the fraud continues to mock us all.
It may not appear so to the US victims of this fraud but the world is watching just how self-interested and what blatant disregard some fficials and citizens of the US appear to have for anyone but themselves.
All 21,000 innocent Stanford victims lost their life savings in this massive fraud. All the foreign victims ask is to be treated with fairness, equality, and with due respect. No more humiliation and injustice. Is it too much to ask that the officials of the world’s most powerful, wealthy, and technologically advanced nation show some integrity, accept responsibility for the consequences of their complicity in the Stanford fraud, and make due recompense without further delay to each and every victim regardless of class, creed or citizenship.

Grant Thornton Seek Deal with U.S. Receiver

By Pascal Fletcher

The liquidators of accused Ponzi schemer Allen Stanford’s bank in Antigua are seeking to cut a deal with a U.S. receiver to recover assets for thousands of fraud victims and end a legal turf war entangling the process.

More than 12,000 claimants say they were bilked by the $7 billion scam U.S. prosecutors allege was masterminded by the flamboyant Texas one-time billionaire and sports entrepreneur, whose business empire stretched to the Caribbean and Europe. Arrested in 2009, he denies wrongdoing and is awaiting trial.

Many of his victims have complained that wrangling over jurisdiction between the liquidators appointed by an Antiguan court and the U.S. receiver has hindered the already complex and difficult task of recovering assets from the web of Stanford’s businesses and bank accounts across the world.

“It’s an extraordinarily complex process,” Hugh Dickson, one of two liquidators appointed by the Eastern Caribbean Supreme Court in May, told Reuters in a phone interview.

Dickson and colleague Marcus Wide were appointed as liquidators for Antigua-based Stanford International Bank (SIB) which issued the certificates of deposit at the heart of the alleged Ponzi scheme. They replaced two previous liquidators.

Dickson said talks were underway in Dallas with the U.S. receivership team involved in the U.S. Securities and Exchange Commission’s (SEC) civil fraud case against Stanford.

“It’s about working out the best way of maximizing the size of the cake, rather than how the existing cake is cut into slices,” he said. The aim of the discussions was “avoiding unnecessary and unproductive clashes” over Stanford’s assets.

Dickson and Wide were proposing a common claims process for recovery of assets linked to SIB, and would also look to cooperate with the U.S. receiver in recovery-related litigation cases. Calls to the phone and office of the U.S. receiver, Ralph Janvey, were not immediately returned.
So far, Stanford’s victims have faced slow progress in efforts to claw back the hundreds of millions they entrusted to the jet-set businessman, who lived a lavish Caribbean lifestyle and gained news headlines with generous cricket sponsorship.

Dickson said his predecessors as liquidators had only recovered about $300,000 in Britain and Antigua, while the SEC receivership had achieved asset recoveries of more than $200 million, but had incurred costs of over $100 million and had not started to distribute the surplus.

On a hour-long online “Webinar” with victims this week, Dickson and Wide faced hundreds of questions, many asking “When will we get our money back?” and “Why is it taking so long?”

“If you’re a victim here, you placed a deposit with a bank that you were told was flush with money, was a robust financial institution, and it’s very difficult to understand why your money is not readily available,” he said.

“When you’re dealing with a fraud, where effectively someone has stolen money and tried to hide it away, it’s not always immediately obvious as well where the assets even are, you have to actively look for them and fight for them to get them back, and that takes time and money,” Dickson said.

But he said he and Wide had made “considerable” advances in the last few months.

He cited $3.2 million in cash recovered from Panama and a further just over $4 million expected to be recovered from the sale of a Bank of Antigua building owned by Stanford.

In addition, the liquidators had managed to gain access to up to $20 million in UK funds to be used to pay for the fees and costs of the liquidation and recovery activities.

“On top of that, we have obtained freezing orders against a group of Stanford-related entities in Antigua that hold assets that we feel are the proceeds of crime,” Dickson said.

These consisted of real estate and property worth about $70 million, as well as land held by subsidiaries of the SIB thought to be worth as much as $250 million.

The liquidators were following leads on further assets held in Latin America and other jurisdictions, and were considering litigation against other third parties, Dickson said.

Dickson said there was also around $250 million in Swiss and UK bank accounts, in cash and financial instruments. But these assets had been frozen under a criminal investigation order initiated by the U.S. Department of Justice (DOJ).

French bank Societe Generale said last month it was cooperating with the DOJ investigation after the Wall Street Journal reported the probe involved an account held by Stanford with SG Private Banking (Suisse) SA, a Societe Generale subsidiary.

Dickson declined to confirm which banks were involved, but said the liquidators had met with the Department of Justice and the Swiss and UK authorities to discuss the issues.

“We want to persuade the Department of Justice to withdraw their efforts to recover the money,” Dickson said, adding the liquidators had requested this because they felt their own process for dealing with the funds and distributing them to victims would be faster and more transparent than the DOJ one.

A Justice Department spokeswoman declined comment, citing a gag order imposed on the criminal case against Stanford.

“The DOJ keeps referring to this as repatriation, but the money doesn’t necessarily originate from the U.S. in the first place,” Dickson said.
He added that according to the liquidators’ records of the creditor base for recovery purposes, the U.S. interest only amounted to 15 percent of the total, and might be much less once ownership of U.S. investment vehicles was factored in.