Allen Stanford’s Motion to Vacate lodged on 24th April 2014 Raises Interesting Issues

As many of you may know Allen Stanford appealed his conviction on 24th April 2014.

In his “Motion to Vacate” Allen Stanford has cited various reasons not least of which that the CDs were regulated only in the sovereign nation of Antigua and that the SEC had no jurisdiction and no authority to go after him.

Should Allen Stanford successful in his argument its conceivable that it could have implications for any appeal by the SEC against SIPC and also in the lawsuit that KLS is bringing against the SEC.

The Motion to Vacate makes interesting reading whether you agree with Stanford’s assertions or not and could potentially affect victims entitlements should Stanford be successful.

Some of the more interesting claims made in Stanford’s “Motion to Vacate” which you may or may not agree with are:

  1. The SEC had no jurisdictional or regulatory authority over SIB.
  2. Allen Stanford was denied due Process, and the venue for their complaint was improper.
  3. There was a blatant violation of Stanford’s Fourth Amendment right to protection from illegal search and seizure.
  4. Fraud upon de Court in this matter

Stanford’s motion also calls into question the report by Ms Van Tassel. When questioned Ms Tassel had experience in only two other matters that involved ponzi schemes, one involved a computer re-seller where no written report was submitted and a second involving real estate.
Stanford’s motion argues that Ms Van Tassel was Senior Managing director of FTI Consulting which was not a CPA firm and her company was unlicensed (in Texas) to perform the work it performed.

You can read the Allen Stanford’s “Motion to Vacate” HERE

For a full and open debate on the Stanford receivership visit the Stanford International Victims Group – SIVG official Forum http://sivg.org.ag/

 

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Houston investors dispute Stanford Ponzi scheme claims

Christine Hall
Houston Business Journal

Stanley, Frank and Rose LLP has filed a response disputing the Stanford Financial Group receivership’s claim that the company was running a Ponzi scheme.

The Houston law firm’s response to the motion for summary judgment was filed in the U.S. District Court for the Northern District of Texas, Dallas Division on behalf of eight defendants who were investors with Stanford.

The Stanford receiver, Dallas attorney Ralph Janvey, has asked the court to make a determination that the Stanford companies were running a Ponzi scheme before any criminal or civil trials have been conducted, the response said.

Janvey has sued a number of investors seeking return of certain proceeds they received from their investment in certificates of deposit that he has claimed were part of the Ponzi.

According to the Houston firm’s filing, Janvey bases his claim on analysis of company assets by forensic accountant, Karyl Van Tassel. Van Tassel claims the Stanford companies “were insolvent” because the assets were less than the liabilities, concluding Stanford operated a Ponzi scheme, the filing said. The Houston defendants are disputing her claims.

The response alleges that Van Tassel did not provide evidence as to how she came to her conclusion. and claims she ignored evidence that Stanford had always been a legitimate business.

“Indeed, she admits that she has not reviewed any balance sheets for the Stanford companies nor interviewed any employees relating to the period of 1986-1999,” the filing states. “As a result, there is a fact issue as to when (if ever) the Ponzi scheme began.”

The defendants claim that timing of the Ponzi “is important as there is no basis for returning interest if a Ponzi scheme arose after the funds were paid,” the filing said.

R. Allen Stanford is awaiting trial, scheduled for next year, for his part in the alleged scheme.

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.

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.