SEC Escapes Stanford Victims’ Suit Over $7B Ponzi Scheme

NOTE. This is NOT the lawsuit being brought against the SEC by Kachroo Legal Services. The KLS lawsuit has already successfully overcome the “Discretionary Rule”.

Law360, New York (June 21, 2013, 9:54 PM ET) — A Louisiana judge Friday threw out a putative class action alleging the U.S. Securities and Exchange Commission facilitated Robert Allen Stanford’s $7 billion Ponzi scheme, finding the agency was shielded by a law barring suits over federal officials’ discretionary choices.

U.S. District Shelly D. Dick said the discretionary function exception of the Federal Tort Claims Act applied to the case brought by victims of Stanford in part because the alleged refusal of former official Spencer Barasch in the SEC’s Fort Worth, Texas, office to investigate the Ponzi scheme was a matter of choice.

“While the Court sympathizes with the losses suffered by the plaintiffs in this matter, plaintiffs have failed to identify any mandatory obligations violated by SEC employees in the performance of their discretionary duties,” Judge Dick concluded in granting the government’s motion to dismiss.

“Plaintiff[s] have also failed to allege facts demonstrating that the challenged actions are not grounded in public policy considerations,” she said.

The plaintiffs argued that Barasch’s alleged conduct did not fall under the discretionary function exception because the SEC has a policy of making enforcement referrals to the National Association of Securities Dealers and the Texas State Securities Board. Therefore, if a decision was made to refer Stanford, and then not followed, that decision falls outside the discretionary function exception.

But Judge Dick rejected that argument, saying that while “the alleged conduct of Barasch is disturbing … the FTCA clearly states that the discretionary function exception applies ‘whether or not the discretion involved be abused.’”

The suit, which was filed in July under the FTCA, alleged that SEC employees in Fort Worth knew as early as 1997 — only two years after Stanford Group Co. registered with the agency — that the company was likely operating a Ponzi scheme and did nothing about it.

Former SEC regional enforcement director Barasch, now an attorney with Andrews Kurth LLP, was singled out in the complaint for failing in his duties.

“In 1998 [to NASD] and again in 2002 [to TSSB] the SEC — through enforcement director Barasch and others — reached the conclusion that referrals should be made. Barasch himself was designated to perform these tasks,” the complaint said. “But, in fact, these referrals were not made, with the effect that Stanford escaped scrutiny by other agencies for years, thus facilitating Stanford’s scheme to defraud.”

In dismissing the case, Judge Dick cited a similar decision by a Texas federal judge in another case brought against the SEC over Stanford’s scheme. The plaintiffs in Dartez v. U.S. had argued that Barasch’s decisions and the negligent supervision of his superiors were not protected policy considerations.

“While the [Dartez] decision is not binding on this Court, the Court can find no flaw in [its] reasoning,” Judge Dick said.

The plaintiffs are represented by C. Frank Holthaus, Scott H. Fruge, Michael C. Palmintier and John W. DeGravelles of DeGravelles Palmintier Holthaus & Fruge and Edward J. Gonzales III.

The case is Anderson et al. v. United States of America, number 3:12-cv-00398, in the U.S. District Court for the Middle District of Louisiana.

For a full and open debate on the Stanford Receivership visit the Stanford International Victims Group – SIVG official forum

The Stanford International Victims Group Forum


Answers to Questions Regarding the Certification Forms & Distribution

I Have now received the following information relating to the questions asked about how to complete the Certification Notice. A complete response to our questions can be found at the following link.

Here are the answers to the most frequently asked questions…I hope this helps you all.

Regards, Kate

4.If I have filed a claim with the Antiguan Joint Liquidators, do I have to disclose that on my Certification Form?

Yes. Claimants who filed claims with the Antiguan Joint Liquidators should indicate that on their Certification Forms, as doing so will assist both the U.S. Receiver and the Antiguan Joint Liquidators in their effort to harmonize their claims processes.

5.What lawsuits or claims are claimants required to list in response to the Certification Form?

In response to section 1(b) of the Certification Form, claimants should identify any lawsuits, arbitration proceedings, or other formal claims they have filed seeking to recover SIB CD losses, even if those lawsuits, proceedings, or claims are currently stayed.

Claimants need not list potential or prospective claims that they may assert against a third party if that claim has not yet been filed or asserted.

6.Are claimants required to identify lawsuits or claims that have been filed by others on the claimants’ behalf?

Claimants should list only those lawsuits, proceedings, or claims that the claimants (or their counsel) have filed individually against one or more third parties seeking to recover SIB CD losses.

Claimants are not expected to know, and need not list, the various lawsuits that have been filed by the Receiver, the Official Stanford Investors Committee, or as putative class actions.

With respect to putative class actions, a claimant who has been named in a class action as a “class representative” plaintiff should list that lawsuit in response to paragraph 1(b) of the Certification Form.

Kachroo Legal Services Update


June 2013


Dear Stanford Clients:


Potential Unauthorized Claims Made By Attorneys On Behalf of Investors


We have received multiple reports from clients that certain named attorneys have lodged claims with the receiver, purportedly on behalf of clients. These investors, however, have not authorized the attorneys in question to do so – and in some cases have never even heard of them.


If you believe that a claim has been lodged on your behalf without your authorization or knowledge, please get in touch as soon as possible and we can assist you in rectifying the situation and advise you on your rights.



Zelaya vs. United States of America


On May 13, 2013, a telephonic hearing occurred regarding the scope of the deposition that Plaintiffs are entitled to take of the SEC through its designated representatives.  The United States objected to all of the subject areas that the Plaintiffs sought to cover at the deposition and further objected to providing any documents in response to the document request that accompanied Plaintiffs’ notice of deposition of the SEC.  Plaintiffs responded, arguing that the Magistrate Judge authorized Plaintiffs to pursue those subject areas and also to serve the United States with a focused document request.  After briefing and oral argument, the Magistrate Judge overruled most of the United States’ objections and ruled that the Government must proceed with the deposition and provide Plaintiffs with the information requested in their related document request.  


This ruling in our favor enables us to continue our vigorous efforts to expose the negligent acts of the SEC and brings us one step closer to obtaining the information necessary to proving our case.


NAFTA and Other Bilateral Trade Agreement Arbitrations


We have recently become aware of potential new action being pursued by Peter Morgenstern and (separately) Todd Weiler, Edward Snyder and Edward Valdespino on behalf of various investors.  These investors have filed a notice of intention to submit a private arbitration against the United States under the arbitration provisions of the various treaties.  We are confident, however, that the current action in front of the Federal District Court in Florida against the SEC is preferable for investors for a number of important reasons:


1)      NAFTA and other similar agreements ensure that foreign investors are not treated unfavorably compared to domestic US investors. While many of the investors in the Stanford entities were indeed foreign, all of the evidence shows that that they were treated equally as badly as US investors;


2)      The treaties seek to ensure that the treatment of foreign investors does not fall below a minimum acceptable standard, as defined in international law.  In order to prove that it has, investors pursuing arbitration will have to establish essentially the same facts we have alleged in our Federal Court case. The difference between the proposed arbitration and our court case, however, is that we can rely on the strong discovery mechanisms to force the Government to disclose relevant information, whereas arbitration has much weaker and more limited powers.


3)      It appears that participation in this arbitration by Mexican investors may result in their inability to participate in our SEC class action.  Please note that there are subsequently three key issues to keep in mind if you are considering joining the arbitration: (1) the timeline and pressure being imposed on investors to make this decision appears unfair; (2) as far as we know, such an arbitration has never previously been taken and therefore no precedent exists for it; and (3) as far as your SEC action is concerned, you may be precluded from participating in the class action and may be considered an opting out of the class action in which you have already invested time, money and resources.


Our action has already overcome the key initial hurdle and has a defined path towards a successful verdict.  We know from our case that, in order to overcome the Government’s position on these claims, extensive discovery is necessary.  We do not believe that the procedural intricacies of a NAFTA international arbitration, including the limited means of discovery, provide the best avenue for recovery against the Government.  We believe the risk of being disqualified from participating in our SEC action far outweighs the potential for obtaining a successful judgment against the Government in the NAFTA international arbitration. 



The Investor Committee 


We have learned that significant changes to the Investor Committee composition have been occurring over the course of the past few months.  KLS will take this matter into serious consideration moving forward in its full representation of investor claims before the Dallas Receiver.


–          The KLS Stanford Team



Queridos Clientes de Stanford:


Posibles Reclamaciones Sin Autorización Por Abogados En Nombre De Los Inversionistas


Hemos recibido múltiples informes por parte de clientes que ciertos abogados nombrados han presentado reclamaciones con el receptor, supuestamente en nombre de los clientes. Estos inversionistas, sin embargo, no han autorizado a estos abogados en cuestión de hacerlo – y en algunos casos ni siquiera han oído hablar de ellos.


Si usted cree que una demanda ha sido presentada en su nombre sin su autorización o conocimiento, por favor póngase en contacto lo más pronto posible y le podemos ayudar a rectificar la situación y aconsejarle sobre sus derechos.


Zelaya vs. United States of America


El 13 de mayo de 2013, una audiencia telefónica se produjo en relación con la declaración que los demandantes tienen derecho tomar de la SEC a través de sus representantes designados. Los Estados Unidos se opusieron a todas las áreas temáticas que los demandantes buscaron cubrir en la deposición y también se opusieron a proporcionar todos los documentos en respuesta a la solicitud de documentos que acompaña la Notificación de la deposición de  Demandantes del SEC. Los demandantes respondieron, con el argumento que el juez magistrado autorizó que los demandantes persiguieran esas áreas temáticas y también servir a los Estados Unidos con una solicitud de documento centrado. Después de  instrucción y oral argumento, el Juez de Primera Instancia anuló la mayor parte de las objeciones de los Estados Unidos y ordeno que el Gobierno debe proseguir con las declaraciones y proporcionar a los demandantes con la información requerida en su solicitud de documento.


Esta decisión a nuestro favor nos permite continuar con nuestros vigorosos esfuerzos para exponer los actos de negligencia de la SEC y nos acerca un paso más a la obtención de la información necesaria para probar nuestro caso.


NAFTA y Otros Acuerdos Arbitrajes Bilaterales De Comercio


Hemos tenido conocimiento recientemente de una nueva acción potencial que persigue a Peter Morgenstern y (por separado) Todd Weiler, Edward Snyder y Eduardo Valdespino en nombre de varios inversionistas. Estos inversionistas han presentado un aviso de intención de presentar un arbitraje privado en contra de los Estados Unidos en el marco de las disposiciones arbitrales en los diversos tratados. Estamos seguros, sin embargo, que la acción actual ante el Tribunal Federal de Distrito en Florida en contra de la SEC es preferible para los inversionistas para una serie de razones importantes:


1) NAFTA y otros acuerdos similares aseguran que los inversionistas extranjeros no sean tratados desfavorablemente comparado a los inversionistas nacionales de los Estados Unidos. Mientras muchos de los inversionistas en las entidades de Stanford eran realmente extranjera, toda la evidencia muestra que fueron tratados igualmente mal como los inversionistas de los Estados Unidos;


2) Los tratados tienen por objeto garantizar que el tratamiento de los inversionistas extranjeros no caiga por bajo de un nivel mínimo, tal como se define en el derecho internacional. En orden de demostrar que sí, los inversionistas que buscan arbitraje deben establecer esencialmente los mismos hechos que han alegado en nuestro caso en la Corte Federal. La diferencia entre el arbitraje propuesto y nuestro juicio, sin embargo, es que podemos confiar en los mecanismos de descubrimiento fuertes para obligar al Gobierno a revelar información relevante, mientras que el arbitraje tiene poderes más limitados y mucho más débiles.


3) Parece que la participación en este arbitraje por inversionistas mexicanos puede resultar en la imposibilidad de participar en nuestra acción de clase SEC. Tenga en cuenta que hay a continuación tres clave aspectos de tener en cuenta si usted está considerando unirse al arbitraje: (1) la línea de tiempo y la presión que se impone a el inversionista a tomar esta decisión parece injusta, (2) por lo que sabemos, este tipo de arbitraje nunca se ha tomado y no existe por tanto ningún precedente, y (3) en lo que se refiere a la acción de la SEC,  puede que sea usted excluido de la participación en la acción de clase y puede ser considerada como una exclusión voluntaria de la acción de clase en el que que ya ha invertido tiempo, dinero y recursos.


Nuestra acción ha superado ya el primer clave obstáculo y tiene un camino definido hacia un veredicto favorable. Sabemos por cierto que, con el fin de superar la posición del Gobierno sobre estas afirmaciones,  descubrimiento extenso es necesario. No creemos que las complejidades de procedimiento de arbitraje del NAFTA internacional, incluido los medios limitados de descubrimiento, ofrecen el mejor camino para la recuperación contra el Gobierno. Creemos que el riesgo de ser descalificado de participar en nuestra acción de la SEC es mucho mayor que las posibilidades de obtener un juicio con éxito contra el Gobierno en el arbitraje del NAFTA internacional.


La Comisión de Inversionistas


Hemos aprendido que los cambios significativos en la composición del Comité de Inversionistas se han ido produciendo a lo largo de los últimos meses. KLS tomara este asunto muy serio en cuenta  para  avanzar en la completa representación de las reclamaciones de los inversionistas antes el receptor de Dallas.


– El equipo de Stanford KLS

$83.5M Suit Says Willis Group Aided Stanford Fraud

A group of holders of Stanford Financial Group CD accounts claims that Willis Group Holdings Public Limited Co. helped perpetuate Robert Allen Stanford’s $7 billion Ponzi scheme, according to an $83.5 million class action removed from Florida state court Monday.

The plaintiffs, 64 citizens of El Salvador, Nicaragua, Panama, the United States and Spain who claim combined losses of more than $83.5 million, say that when they made their investments in Stanford Financial CDs, they relied on “safety and soundness” letters issued by Willis asserting that Stanford International Bank and its products were protected by certain insurance policies and were highly liquid.

“In fact, the Stanford Financial CDs were not CDs at all, but unregistered, unregulated securities sold illegally from Stanford Financial’s home base in the United States,” the plaintiffs say in their complaint. “These investments had no insurance and were fraught with risk.”

The case is not the first to lay such accusations against Willis. In 2009, a class of between 1,200 and 5,000 Venezuelan clients sought $1.6 billion over claims they were allegedly lured into the scheme by the insurance brokers’ assurance that Stanford CDs were sound, insured investments. And in another suit that year, Mexican investors implicated Willis, claiming the defendants contributed to a fraud that cost them roughly $1 billion.

Stanford was sentenced in June 2012 to 110 years in prison after being convicted on charges he misappropriated billions of dollars in investor funds, including some $1.6 billion he allegedly moved to a personal account. His $7 billion Ponzi scheme was second only to Bernie Madoff’s record-setting scam.

From about August 2004 through 2008, Willis provided Stanford Financial with an undated form letter that said Willis was the insurance broker for Stanford International Bank and had placed directors and officers liability insurance and a bankers blanket bond with Lloyds of London, according to the current complaint.

The letters played a crucial role in Stanford’s fraud because Stanford Finanical was an offshore bank and thus not insured by the Federal Deposit Insurance Corp. Willis’ letters helped Stanford get around that obstacle by claiming the CDs “were even safer than U.S. Bank-issued CDs because of the unique insurance policies Willis had obtained,” the complaint says.

“The Willis letters were specifically designed to win investors’ trust and confidence in Stanford Financial’s fraudulent scheme,” the plaintiffs say in their complaint, noting that for investors with more than $1 million in their accounts, Stanford Financial advisors could get personally addressed letters from Willis.

“Willis’ message to potential investors was this: Trust us, you can invest with confidence and security in Stanford Financial CDs,” they add.

All of the plaintiffs in the current case made their purchases through Stanford Financial’s Miami office, which the complaint says accounted for more than $1 billion in CD sales.

Willis of Colorado Inc. filed the notice of removal of the class action on the grounds of diversity between plaintiffs and defendants, of the Securities Litigation Uniform Standards Act of 1998 and that the Northern District of Texas has exclusive jurisdiction in Stanford receivership cases.

The notice of removal also claims that defendants Willis Group Holdings Public Limited Co. and Willis Ltd., which are based in Ireland and the United Kingdom, respectively, have been fraudulently joined in an effort to defeat diversity jurisdiction. It says that the plaintiffs’ claims are on letters issued only by the subsidiary Willis of Colorado and “no reasonable possibility” exists of the plaintiffs recovering damages from the other entities.

Counsel for both sides could not be reached for comment late Tuesday.

The plaintiffs are represented by Luis Delgado and Christopher King of Homer & Bonner PA and Ervin Gonzalez of Colson Hicks Eidson PA.

Willis is represented by Edward Soto of Weil Gotshal & Manges LLP.

The case is Nuila de Gadala-Maria et al. v. Willis Group Holdings Public Limited Co., case number 1:13-cv-21989, in the U.S. District Court for the Southern District of Florida.


For a full and open debate on the Stanford Receivership

The Stanford
International Victims Group Forum