Stanford Ponzi Investors Ordered to Return $2M

Two dozen investors in R. Allen Stanford’s $7 billion Ponzi scheme must return approximately $2 million in profits they received, a Dallas federal judge ruled Tuesday.

U.S. District Judge David C. Godbey granted in part court-appointed receiver Ralph S. Janvey’s motions for partial summary judgment in six lawsuits filed in 2009 and 2010 against investors who received more money than what they invested.

“The court previously granted the receiver’s motion for summary judgment against similarly situated net-winner defendants,” the 11-page order said. “The court found that the receiver had established Stanford operated a Ponzi scheme, and that the net-winner defendants had not provided ‘value’ to the Stanford entities for the interest payments they had received. Based on those conclusions, the court granted the receiver’s motion as to net winner defendants whose interest payments had been factually established. The Fifth Circuit subsequently affirmed the court’s orders.”

The appeals court ruled in Sept. 2014 that allowing net-winner investors to keep their profits would “further the debtors’ fraudulent scheme at the expense of other” investors. It concluded that any recovery would be paid out of money “rightfully belonging” to the other victims of the Ponzi scheme, not from the Stanford entities’ own assets “because they had no assets they could legitimately call their own.”

Relying on that ruling, Godbey wrote the defendants “have not suggested that the court’s analysis should be any different here” regarding their alleged failure to provide “value” for the payments.

The defendants include Anibal Morgado, David Morgado, and Vasco M. Diniz Morgado, who were ordered to return over $672,000. Chloee K. Poag and G. Dan Poag Jr. were ordered to repay over $247,000. The remaining individual defendants were ordered to repay $23,000 to $178,000.

Godbey also ruled that Janvey cannot recover $181,000 from Joyce S. Erfurdt and T. Mark Kelly, having addressed their objections to the receiver’s claims in a separate order.

He also declined to order payment from George and Dolores Rollar, concluding there is still an unresolved issue of fact over whether Janvey acted diligently in serving them.

Janvey has filed approximately 50 lawsuits against Stanford money recipients since his appointment.


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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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Court Rules on Net Winners & Preference Creditors

For a copy of the court ruling, 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/



Fifth Circuit affirms summary judgment against “net winners” of Stanford Ponzi scheme

In a recent opinion, the United States Court of Appeals for the Fifth Circuit held that the Texas Uniform Fraudulent Transfer Act allows a receiver to clawback interest payments made to investors under a Ponzi scheme. Beginning in the 1990s, a network of entities created by R. Allen Stanford sold certificates of deposit to investors through the Stanford International Bank, Ltd., promising extraordinarily high rates of return. In a classic Ponzi scheme, Stanford used later investors’ money to pay prior investors their promised returns. The scheme ultimately collapsed, Stanford and CFO James Davis were imprisoned, and the SEC brought suit against Stanford, his agents, and the Stanford entities, alleging federal securities law violations.

The court-appointed receiver over the Stanford entities brought multiple actions under the Texas Uniform Fraudulent Transfer Act (“TUFTA”) to recover funds paid to investors who purchased certificates of deposit as part of the Ponzi scheme and received back their principal, as well as purported interest on the principal. The Receiver moved for summary judgment on its TUFTA claims against the investor-defendants (described by the court as “net winners” of the scheme), arguing that the payments made to the net winners were fraudulent transfers not made in exchange for reasonably equivalent value. The United States District Court for the Northern District of Texas granted the Receiver’s motions for summary judgment and ordered the investor-defendants to return funds paid in excess of their original investments.

The investor-defendants filed an interlocutory appeal to the Fifth Circuit, which swiftly rejected each of their arguments and affirmed partial summary judgment in favor of the Receiver.

The investor-defendants first argued that the district court’s choice of law analysis was fundamentally flawed and that Antigua law rather than Texas law should apply. The Fifth Circuit concluded the district court correctly applied Texas law, as the scheme was centered in, and operated out of, Houston, Texas, and Texas has a substantial interest in the application of its fraudulent transfer laws because the Receiver, many of the Stanford entities, and some of the defrauded creditors and net winners are in Texas. The court also rejected the argument that the Receiver lacked standing to bring claims under TUFTA, concluding that the Stanford entities, through the Receiver, may recover assets or funds that the entities’ principals fraudulently diverted to third parties without receiving reasonably equivalent value. The court further rejected the investor-defendants’ statute of limitations argument because the suits were filed less than one year after the fraudulent transfer was, or reasonably could have been, discovered (measured from the date of the CFO’s guilty plea). In addition, the court determined that IRA accounts containing net winnings to which the investors had no legal right could not be sheltered as assets.

On the merits of the district court’s grant of summary judgment, the Fifth Circuit first addressed whether TUFTA’s element of fraudulent intent was satisfied. Fraudulent transfer requires that the debtor transferor make the transfer with actual intent to defraud the debtor’s creditors, and in the Fifth Circuit, such intent may be established by proving that a transferor operated as a Ponzi scheme. Here, it was well-established that the Stanford entities were operated as a Ponzi scheme, thereby establishing fraudulent intent.

Next, the court addressed the investor-defendants’ argument that they should be permitted to keep their contractually-guaranteed interest payments for which they asserted they paid reasonably equivalent value. Under TUFTA, a transfer is not voidable against a person who took in good faith and for reasonably equivalent value. Value is given if, in exchange for the transfer, an antecedent debt is secured or satisfied. Here, the CDs issued by Stanford were void and unenforceable, invalidating any contractual claim to interest; thus, the court concluded the investors failed to provide any value for the interest payments that they received. The court explained that, in the context of a Ponzi scheme such as Stanford, each payment of interest to an investor (made possible by a later investor’s deposit) decreases the net worth of the entity operating the scheme. Accordingly, the district court’s grant of partial summary judgment in favor of the Receiver on its TUFTA claims was affirmed. Notably, the Fifth Circuit agreed with the district court’s conclusion that the investors did give reasonably equivalent value to the extent that they received back their principal because they have actionable claims for fraud and restitution. Thus, in contrast to the interest payments, the principal payments were payments of an antecedent debt.

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Net Winners in Stanford Ponzi Scam Lose Appeal

Profits seen by some investors in R. Allen Stanford’s Ponzi scheme may face seizure by the court-appointed receiver trying to make victims whole, the 5th Circuit ruled.

Ralph Janvey, with Krage Janvey in Dallas, has filed more than 70 federal fraudulent-transfer suits in Dallas since his appointment. He has targeted former Stanford entities and employees, individual investors and third-party recipients of Ponzi scheme proceeds – included the Republican National Committee, the Democratic Congressional Campaign Committee, Miami Heat basketball team, the Tiger Woods Foundation, Texas A&M University, the University of Miami, the PGA Tour and the ATP Tour.

In a partial summary judgment for Janvey early last year, U.S. District Judge David Godbey said the hundreds of “net winners” who received interest on top of their principal would still be “in far better shape” after paying back the interest than most other Stanford victims “who lost everything.”

A three-judge panel with the 5th Circuit affirmed Godbey’s ruling on Thursday, concluding the net winners have no valid claim to the interest on their phony certificates of deposit (CDs).

“Here, we conclude that there is no valid claim for interest,” the 22-page opinion states. “The CDs issued by [the Stanford International Bank] are void and unenforceable. This is because ‘[t]o allow and [investor] to enforce his contract to recover promised returns in excess of his undertaking would be to further the debtors’ fraudulent scheme at the expense of other [investors].'”

Any recovery would be paid out of money “rightfully belonging” to the other victims of the Ponzi scheme, not from the Stanford entities’ own assets “because they had no assets they could legitimately call their own,” Judge Patrick Higginbotham wrote for a three-member panel in New Orleans.

The appeals court also affirmed that principal payments made to the net winners are off-limits to Janvey and not subject to fraudulent-transfer claims.

“Unlike interest payments, it is undisputed that the principal payments were payments of an antecedent debt, namely fraud claims at the investor-defendants have as victims of the Stanford Ponzi scheme,” Higginbotham wrote.

Net winners who tried to shelter their profit in individual retirement accounts that are exempted by the Texas Property Code are also not entitled to an exemption, the court found.

“As we recently explained, to claim this exemption, a defendant ‘must establish that she has a legal right to the funds in the IRA,'” the opinion states. “The investor-defendants have offered no evidence to the district court that they have a legal right to the funds despite those funds being the product of a fraudulent transfer. The district court did not err in denying this exemption.”

Janvey could not be reached for comment Thursday evening.

Read more here:

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