Michigan-based Butzel Long law firm seeks assistance with underfunded pension obligations

LANSING, MI — Butzel Long PC has requested that a federal agency salvage its pension plan that’s underfunded by more than $9 million.

The Detroit-based firm says it can no longer afford to pay its pension obligations, which were underfunded by $9.1 million as of October, if it wants to continue paying attorneys competitively.

It asked the Pension Benefit Guaranty Corp. to take over the retirement plan. The PBGC is a federal government agency but does not use general tax revenues. Sponsors of defined-benefit plans pay insurance premiums to be covered by the agency.

Butzel Long has offices in Detroit, Ann Arbor, Bloomfield Hills and Lansing. It also has offices in New York and Washington, D.C., along with alliance offices in China and Mexico. It employs about 250 people, including some 135 lawyers.

The firm covers several areas of law and regularly represent clients before the PBGC. It also represents the Michigan Press Association, of which MLive Media Group is a member.

The pension plan has about 460 members. Its market value was nearly $33.4 million in 2011, according to an Internal Revenue Service filing.

Firm President and managing shareholder Justin Klimko said low interest rates, market conditions and longer life expectancies contributed to the plan’s problems.

The firm froze the benefits for all attorneys in 2004 and for other employees in 2007. Since then, there have been no more benefits accrued or new members added to the plan, he said. Employees are now offered a defined-contribution 401(k) plan.

“The size of the future contributions would affect our ability to pay competitive compensation for our people,” Klimko said. “That’s the name of the game in our business.”

Though some companies that apply for relief through the PBGC are facing bankruptcy, Klimko said that’s not the case for Butzel Long.

The PBGC insures about 990 pension plans sponsored by Michigan companies. In 2011 it paid about $384 million to more than 45,000 Michigan retirees in failed plans, according to its website.

Law practice consultant Edward Poll has chided law firms for not meeting their pension obligations.
“You have to know that at some point, you’re obligated to pay that, and if you don’t have the cash set aside to pay that, you’re going to have a problem. To me that’s just mismanagement,” said Poll, owner of Venice, Calif.-based LawBiz Management Co.

Poll said he knows of only a few law firms that have funded pension plans for their attorneys. He said he understands that external factors contribute to underfunding, but said it’s still “irresponsible” to let a plan get to that point.

Most law firms have 401(k) retirement plans. Pensions are more common in government and collective bargaining shops than they are among private employers.

The state of Michigan has been making changes to public employee pensions. Laws impacting long-term state employees and teachers have ended up in court on constitutionality questions.

Automakers also have struggled with pension obligations. Ford Motor Co.’s plan is underfunded by $18.7 billion, The Detroit News reported on Tuesday.

Email Melissa Anders at manders@mlive.com. Follow her on Twitter: 

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Allen Stanford Ordered to Disgorge $6.7 Billion in SEC Case

R. Allen Stanford, the Texas financier convicted last year of leading an investment fraud scheme, was ordered to disgorge more than $6.7 billion by the judge in a U.S. Securities and Exchange Commission lawsuit.

U.S. District Judge David Godbey in Dallas issued the order yesterday against Stanford, his Stanford Group Co. and the Antigua-based Stanford International Bank Ltd.

The order may clear the way for Godbey to grant a court-appointed receiver’s request to make an interim $55 million payout to investors who lost money after buying certificates of deposit issued by the Stanford Bank.

“The fraud perpetrated was obviously egregious, was done with a high degree of scienter, caused billions in losses and occurred over the course of a decade,” Godbey said, using the legal term to describe the mental state of intent to deceive.

A federal jury in Houston convicted Stanford of lying to investors about how their money was being handled.
“The truth is that he flushed it away,” Justice Department lawyer William Stellmach told jurors in his closing arguments at the March 2012 trial. “He told depositors he was using their money in one way and the truth was completely different.”

Stanford, 63, was sentenced to 110 years in prison. Maintaining his innocence, he has appealed the verdict.

Parallel Judgment

Godbey referred to the jury’s guilty finding in granting the SEC’s request he render a parallel judgment in their case filed in February 2009, four months before the financier was indicted. The judge also cited the August 2009 guilty plea by Stanford Group Chief Financial Officer James Davis.

“The court finds that $5.9 billion is a reasonable approximation of the gains connected to Stanford’s fraud,”Godbey said of the sum he would order disgorged. He then added more than $861 million in interest for a total of $6.76 billion Davis too is jointly liable.

Finally the judge imposed a $5.9 billion penalty on Stanford and a $5 million assessment against Davis, who received a five-year prison sentence.

The court-appointed receiver, Ralph Janvey, asked Godbey this month for permission to begin repaying some of the losses incurred by the more than 17,000 claimants. At an April 11 hearing, the judge told Janvey’s lawyer, Kevin Sadler, he was concerned about doing so before a final order had been entered against Stanford.

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

To contact the reporter on this story: Andrew Harris in the Chicago federal courthouse at aharris16@bloomberg.net
To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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Stanford Victims Aren’t Owed SIPC Aid, Ex-SEC Chiefs Say

Two former commissioners of the U.S. Securities and Exchange Commission urged the D.C. Circuit on Monday to affirm a landmark ruling declaring that Securities Investor Protection Corp. doesn’t owe compensation to victims of Robert Allen Stanford’s $7 billion Ponzi scheme.

Ex-SEC Commissioners Joseph A. Grundfest and Paul S. Atkins said the D.C. Circuit will “dramatically expand the scope of persons covered through SIPC” if it chooses to reverse a lower court’s ruling and compel SIPC to pay the fraud victims’ claims through a liquidation proceeding.

Grundfest and Atkins said the July decision by U.S. District Judge Robert L. Wilkins should stand because SIPC lacks the authority to provide relief to investors of Stanford’s foreign bank Stanford International Bank Ltd.

Grundfest and Atkins said the SEC’s argument that an offshore bank should be covered under the Securities Investor Protection Act “contravenes the plain language of the statute, conflicts with the relevant statutory history, and is at odds with more than 40 years of judicial precedent.”

The brief comes nine months after Judge Wilkins ruled that Antigua-based Stanford International was an offshore bank, not a registered broker-dealer, which is what SIPC oversees.

Judge Wilkins’ decision was a major blow to victims of the Ponzi scheme, who together lost upwards of $7 billion in certificates of deposit administered by Stanford International. It also carried broader legal significance, marking the first time since the enactment of the SIPA 42 years ago that a federal court had ruled on how much power the SEC has to command a SIPC liquidation.

Because of its precedential nature, a key issue in the Stanford dispute was the standard of proof required of the SEC. The agency argued for a more lenient standard than SIPC did, describing its burden as merely probable cause supported by hearsay.

Judge Wilkins ultimately chose the higher standard requested by SIPC: a preponderance of the evidence. In an SIPC liquidation, an investor must meet a preponderance standard to prove the validity of his or her claim.

In its appellate brief filed in January, the SEC said Judge Wilkins had taken a narrow view of the term “customer.” The agency argued that transactions with Stanford entities should be treated the same way under the SIPA because the company operated “as a single fraudulent enterprise that ignored corporate boundaries.”

“This interpretation of the statute to allow for flexibility in certain circumstances is the correct one, and it is at least a reasonable one that was entitled to deference by the district court,” the SEC said.

But Grundfest and Atkins said in their brief Monday that expanding the “customer” definition was unnecessary and could pose an economic burden to SIPC.

“The SEC’s unwarranted expansion of the definition of the term ‘customer’ would substantially increase the financial exposure of the SIPC fund,” the brief said. “Yet the SEC has presented no economic analysis considering the financial implications of this expanded coverage.”

“The SEC’s proposed expansion of SIPC protection, absent even the most rudimentary consideration of any financial consequences, would radically transform SIPA and threaten SIPC’s ability to function as Congress intended,” the brief added.

SIPC said earlier this month that the terms of its mission were clear: to protect investors when a member brokerage fails, adding that Judge Wilkins’ purportedly narrow view of the term ‘customer’ was appropriate.

“By its terms, the statute does not insure against fraud or investment losses, instead protecting only the ‘customer’ property that an SIPC-‘member’ brokerage firm holds in custody when the brokerage fails,” it said.

The corporation also said the SEC’s case was unprecedented because it has not made similar requests in proceedings related to the downfall of a major financial institution.

“In 40 years and over 300 liquidation proceedings — including the recent liquidations of Lehman Brothers Inc., Madoff Investment Securities LLC and MF Global Inc. — this is the first the SEC had ever tried to compel a liquidation,” it said.

Stanford was sentenced in June to 110 years in prison for his role in the fraud.

Grundfest and Atkins were joined on the brief by Simon M. Lorne, the former general counsel of the SEC and securities law professors William J. Carney of Emory University School of Law and Kenneth E. Scott of Stanford Law School.

Grundfest and Atkins are represented by Noah Levine, Steven P. Lehotsky, Joshua S. Press and Albinas J. Prizgintas of WilmerHale.

SIPC is represented by Edwin John U, Eugene F. Assaf Jr., John C. O’Quinn, Michael W. McConnell and Elizabeth M. Locke of Kirkland & Ellis LLP.

The case is U.S. Securities and Exchange Commission v. Securities Investor Protection Corp., case number 12-5286, in the U.S. Court of Appeals for the District of Columbia Circuit.

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Louisiana officials want release of SEC report in Stanford case

A Louisiana senator told officials of the Securities and Exchange Commission Friday that he wants immediate release of a year-old report by the commission’s inspector general on efforts to recover money for victims of a multibillion-dollar fraud. 

U.S. Sen. David Vitter, R-La., described as incompetent efforts by a court-appointed receiver to find and distribute assets of convicted con man Robert Allen Stanford. 

Stanford, 63, of Houston, is serving a 110-year prison sentence for a fraud conviction that followed estimated worldwide losses of approximately $7 billion. About $1 billion of those losses were from about 1,000 investors in the Baton Rouge, Lafayette and Covington areas, according to estimates by state Sen. Bodi White, R-Central, and Baton Rouge attorney Phillip W. Preis.

 “The fraud caused an absolute tragedy for many Louisiana families who invested their hard-earned retirement savings in good faith that it would be there for them when they retired,”

Vitter said Friday in a letter to Mary Jo White, who chairs the SEC. Vitter said the receiver in the case, Dallas attorney Ralph Janvey, spent $100 million to collect $55 million for Stanford’s victims.

 “In the best light, Janvey’s actions can only be seen as incompetent,” Vitter told White in that letter. He urged White to release the SEC inspector general’s report on Janvey, noting that it was completed in March 2012.

 There are more than 20,000 Stanford victims across more than 100 countries.

 A retired Zachary couple, Louis and Kathy Mier, saw $240,000 of their savings stolen by Stanford’s fraudulent scheme.

 “Whatever any of our congressmen do to shed light on the truth of what happened, and whatever they can do to help us get our money back and be whole again, would make Louis and me very, very happy,” Kathy Mier said Friday.

 John J. Nester, a spokesman for the SEC, said in an email Friday that neither he nor other SEC officials would comment on Vitter’s request before White issues a response to the senator’s letter.

 U.S. Sen. Mary Landrieu, D-La., released a statement through her staff: “The Stanford victims deserve answers, and the immediate release of the IG’s report is the very least the SEC can do.”

 U.S. Rep. Bill Cassidy, R.-Baton Rouge, said through his staff: “I strongly urge the SEC … to release the full results of the inspector general’s report. The victims of this crime were hard working Louisiana families, and they are entitled to see the details of the report.”

 Vitter noted that Janvey, against the SEC’s wishes, unsuccessfully sued some Stanford victims in an effort to seize money those victims retrieved before Stanford’s operations were shut down in February 2009.

 “Given the demonstrated incompetence of the court-appointed receiver, it makes you wonder how bad this (inspector general’s) report gets,” Vitter added. “The Stanford victims deserve to see.”

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