District Court Approves Settlement with Certain Underwriters at Lloyd’s of London, Lexington Insurance Company, and Arch Specialty Insurance Company

On May 16, 2017, the District Court approved a settlement agreement by and among the Receiver and Official Stanford Investors Committee and Certain Underwriters at Lloyd’s of London, Lexington Insurance Company, and Arch Specialty Insurance Company. Pursuant to the terms of the settlement, once the District Court’s order becomes final, the Receivership Estate will receive $65.0 million. Following receipt of the settlement funds, the Receiver will file a motion asking the District Court for permission to distribute the proceeds of the settlement, net of attorneys’ fees awarded by the Court, to Stanford Investors who have claims approved by the Receiver.

To view a copy of the Court’s Order approving the settlement, click here

To view a copy of the Court’s Order approving attorneys’ fees, click here.

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


Lloyds of London sues former Stanford executives

Three former Stanford Financial Group executives are being sued by Lloyds of London and Arch Specialty Insurance Co. over the executives’ claims for directors and officers liability insurance.

Yolanda Suarez, Juan Rodriguez-Tolentino and Pablo M. “Mauricio” Alvarado are named in the lawsuit which was filed this week in the U.S. District Court for the Northern District of Texas Dallas Division.

The underwriters claim that the trio are not entitled to claim directors and officers insurance, known as D&O insurance, because of the Ponzi scheme claims against them.

R. Allen Stanford, former head of Houston-based Stanford Financial Group, is awaiting trial for his role in an alleged $7 billion Ponzi scheme involving certificates of deposit.

Suarez was chief of staff for Stanford Financial Group Co. and the secretary and a board member for Stanford Group Holdings Inc. — two of the many Stanford entities allegedly involved in the Ponzi scheme. Rodriguez-Tolentino was president of Stanford International Bank, and Alvarado was general counsel of Stanford Financial Group.

Ralph Janvey, the Dallas-based court-appointed receiver for the Stanford matter has already filed lawsuits against Suarez, Rodriguez-Tolentino and Alvarado to get back nearly $9.9 million Janvey said the defendants had received from CD proceeds.

The case is Certain Underwriters At Lloyd’s of London in Syndicates 2987, 2488, 1866, 1084, 1274, 4000 & 1183 et al v. Tolentino et al, 3:11-cv-00360-B.

Lloyd’s off the hook for Stanford’s fees

Lloyd’s of London no longer has to pay legal fees for accused swindler R. Allen Stanford and two of his former executives because they likely engaged in activities excluded from coverage under a company insurance policy, a judge ruled Wednesday.

U.S. District Judge Nancy Atlas ruled that Stanford, founder of Houston-based Stanford Financial Group, was personally aware that an offshore bank he owned was selling certificates of deposit using “important misrepresentations” about its investment portfolio and performance.

Atlas also ruled that former Stanford Financial accounting chief Gil Lopez and global controller knew or should have known as trained accountants that the extraordinarily high returns on the bank’s investments were not possible.

They also should have known or at least suspected that the funds were not put in low-risk, liquid assets as advertised to investors, Atlas ruled.

Stanford, Lopez and Kuhrt are accused of luring investors into a $7 billion fraud by promising higher-than-average interest rates on certificates of deposit issued by Stanford International Bank on the Caribbean island of Antigua.

The indictment alleges that investors and regulators were told the CDs were invested in liquid assets and easily could be converted to cash, when some of the investors’ money actually went to Stanford and his ventures.

Atlas based her ruling on testimony during a four-day hearing in August, after Lloyd’s of London sought to end the payment of legal fees to the senior executives it said were involved in money laundering activities.

As broadly defined in the policy, money laundering includes knowing or suspecting that benefits stemmed from criminal conduct.

Lloyd’s, which argued that Stanford was at the “epicenter of a massive Ponzi scheme,” according to Atlas, pointed to its insurance policies for directors and officers that excluded coverage in the case of money laundering. The insurance company took the unusual step of asking a federal judge to rule that its clients — the clients it was required to defend -had participated in illegal activities and therefore voided the policy.

Lloyd’s of London’s policy is not to comment, said Barry Chasnoff, a lawyer with Akin Gump Strauss Hauer & Feld in San Antonio who is representing the giant insurer in the Stanford matter.

Lloyd’s out $11.2 million
Lloyd’s already has spent more than $11.2 million on legal fees for Stanford, Lopez and Kuhrt, according to Atlas.

The $100 million available under the policy is dwindling, Atlas wrote, and at least 30 other Stanford Financial Group officers and directors not excluded under the money laundering provision are eligible to use the insurance funds for their legal fees.

“It is unfair to continue defense costs for plaintiffs at the potential expense of others who are in need and have not yet benefited,” according to Atlas’s ruling.

Atlas noted that her findings and conclusions are not intended for use in criminal or civil cases against Stanford and others.

Stanford ‘very stoic’
The Securities and Exchange Commission filed a civil fraud suit against Stanford Financial Group and its top executives in 2009, and a Dallas judge froze their assets and placed the firm in receivership. Investors also have filed civil suits.

Stanford, who is in federal custody without bail as a flight risk, was disappointed but “very stoic” about the ruling, said his attorney, Robert S. Bennett.

Stanford, who is in federal custody without bail as a flight risk, was disappointed but “very stoic” about the ruling, said his attorney, Robert S. Bennett.

Bennett said his next step is to apply for federal funding to represent indigent clients.

Stanford’s criminal trial is scheduled to start Jan. 24. The others will be tried later.

Houston lawyer Jack Zimmermann, who is representing Lopez, said he is still examining the opinion and has not yet decided whether to appeal.

He said it was unusual to have a civil proceeding, like the one involving the insurance, ahead of criminal trial. “It doesn’t seem fair because we couldn’t put on a case,” he said.

The lawyer representing Kuhrt could not be reached.

Lopez and Kuhrt are free on bail.

Stanford financial’s chief investment officer, Laura Holt, who also is named in the criminal indictments, was originally a party to the lawsuit but settled with Lloyd’s prior to the start of the hearing in August.

Fighting extradition
A fifth defendant, former Antiguan bank regulator Leroy King, is fighting extradition.

Stanford Financial Group’s chief financial officer, James M. Davis, was charged separately, pleaded guilty and is cooperating with prosecutors. Statements in his guilty plea were central to the insurer’s money laundering allegation.

Yep, the defence is Blame it all on Davis

In testimony today, forensic accountant Alan Westheimer said fraud defendants Mark Kuhrt and Gil Lopez told their superior, James Davis, chief financial officer of the Stanford Financial Group, that the loans should spelled out in the company’s 2006 annual report.

Kuhrt, former Stanford Financial global controller and Lopez, former accounting chief, hired Westheimer to interview them and help present their case because they have invoked their Fifth Amendment rights against self-incrimination.

In his testimony today, Westheimer described Kuhrt and Lopez as “mid-level accounting managers” who discharged their obligations by making the recommendation to Davis.

Davis has pleaded guilty to charges in the case and is cooperating with prosecutors.

The indictment alleges that investors were told the CDs were invested in liquid assets and easily could be converted to cash, when some of the investors’ money actually went to Stanford and his ventures.

International law requires the bank to report such “related party transactions,” Westheimer testified. Kuhrt and Lopez knew this and told Davis the information should be in the financials.

“They told me they had absolute faith in Mr. Davis,” Westheimer said, and believed he was “carrying out is responsibilities appropriately.”

More from AP: It’s a wrap. Lets wait for her ruling.

U.S. District Judge Nancy Atlas on Friday wrapped up a four-day hearing in which she listened to testimony detailing Stanford’s financial dealings at his now defunct companies.

Attorneys for the insurer, Lloyd’s of London, argued that evidence, including the bank’s annual statements and e-mails, showed that Stanford misused bank deposits for personal loans and two ex-executives helped hide this through false records, which violates the insurance policy’s money laundering clause.

If Atlas determines Stanford and Gilbert Lopez, the ex-chief accounting officer, and Mark Kuhrt, the ex-global controller, committed money laundering, one of the charges they face in a federal indictment, they might have to pay back the millions of dollars they have so far received for their legal bills. Atlas said she would issue her ruling at a later date.

“Mr. Kuhrt and Mr. Lopez conspired for years with … Mr. Stanford to cook the books and rob investors of billions of dollars,” Barry Chasnoff, an attorney for Lloyd’s, said Friday during closing arguments in the hearing.

A fraud examiner hired by Lloyd’s, testified this week that Stanford secretly used billions of dollars in bank deposits as loans, which prosecutors say helped pay for his lavish lifestyle, and that Stanford inflated the value of real estate holdings to hide the loans and make the bank appear profitable.

However, Stanford’s attorneys argued the once flamboyant billionaire ran a legitimate business that helped develop Antigua. They acknowledged Stanford was not a “hands on guy” and didn’t know all the inner workings of his more than 100 companies but contended he didn’t misuse bank deposits as personal loans and that this money actually went to support other companies and investments.

“Maybe he was negligent, maybe he should have been a little more careful. But whatever he did does not rise to the level of criminality,” said Bob Bennett, one of Stanford’s attorneys. “Mr. Stanford was not at the center of anything illegal or wrong.”

Attorneys for Kuhrt and Lopez said their clients were not aware of any fraud at the bank and informed others about concerns they had with the bank’s operations.

“If there was a fraud committed here, it’s a fraud we were totally unaware of and totally in no way did we participate in,” said Richard Kuniansky, Kuhrt’s attorney.

Lopez’s attorney, Jack Zimmermann, said there was no proof his client knew bank records were false and that Lopez was duped just like the bank’s investors.

Stanford, Kuhrt and Lopez, who all declined to testify, have alluded that the real culprit was James Davis, Stanford’s former chief financial officer, who has pleaded guilty in the case and is cooperating with prosecutors.

In his plea agreement, Davis detailed how he, Stanford and others manufactured profits and that he and others artificially inflated the bank’s assets to hide that Stanford was using bank deposits as personal loans.

Alan Westheimer, a fraud examiner hired by Kuhrt and Lopez, testified he found no proof the two ex-executives manipulated bank records to hide the alleged fraud.

The insurer’s case mirrors the accusations made against Stanford and the two ex-executives by prosecutors in the criminal case in Houston and by the Securities and Exchange Commission in a lawsuit it filed in Dallas.

The hearing gave a preview of some of the defenses Stanford and the ex-executives might present at their criminal trials. Prosecutors and FBI agents working on the criminal case attended the hearing.

Undisclosed Stanford Loans Prove Fraud, Examiner Says

Stanford International Bank Ltd.’s $1.7 billion in undisclosed loans to indicted financier R. Allen Stanford are proof the bank was involved in fraud, a examiner testified in a U.S. court trial in Houston.

“There’s a complete disconnect between what the bank is saying, that it has fully liquid, short-term, fully monetized assets, and the fact a third of these assets are loans to the shareholder,” fraud accountant Mark Berenblut said today.

Berenblut made the statement in his second day of testimony in a civil trial over whether directors’ and officers’ insurance sold to Stanford’s businesses by Lloyd’s of London is voided by alleged criminal conduct.

Investors bought more than $7 billion in certificates of deposit from the Antiguan bank, which Stanford controlled as sole shareholder until the U.S. Securities and Exchange Commission sued the financier in February 2009, and seized his businesses.

Stanford and three other company executives in June 2009 were indicted by a federal grand jury in Houston on charges they’d run a $7 billion fraud scheme centered on the sale of certificates of deposit by the Stanford bank.

Rejected Claims

Investors had been told the bank’s portfolio consisted of conservative, highly liquid investments that offered above- market returns.

Lloyd’s last year rejected the executives’ pleas for coverage under the $100 million worth of insurance bought by the business after Stanford Group Cos. Chief Financial Officer James M. Davis pleaded guilty to charges he aided in the scheme.

The case is Laura Pendergest-Holt v. Certain Underwriters at Lloyd’s of London, 4:09-cv-03712, U.S. District Court, Southern District of Texas (Houston).

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