Arbitration. Vacatur. District court refuses to set aside arbitration award based on panel’s document discovery rulings.

In Pershing, the defendant, Pershing LLC, sought to confirm an arbitration panel’s decision that it was not liable to a consortium of Louisiana Retirees who fell victim to a Ponzi scheme orchestrated by R. Allen Stanford. The Louisiana Retirees sought to vacate the award.

Pershing was a clearing broker for Stanford Group Company, a broker-dealer controlled by Allen Stanford that sold worthless securities to the Louisiana Retirees. The Louisiana Retirees claimed that Pershing failed to exercise due diligence in its relationship with Stanford that would have uncovered the scheme. The arbitration panel ruled in Pershing’s favor, and the parties then brought competing actions in the district court to confirm or vacate the decision under the Federal Arbitration Act.

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


Federal judge in Dallas clears way for some Stanford victims to have day in court

WASHINGTON–On the topic of justice, few have said it better than the novelist William Gaddis in his 1994 novel, A Frolic of One’s Own. “Justice? – you get justice in the next world, in this world, you have the law.”

For victims of the Allen Stanford Ponzi scheme, justice is still a very long way off, even if Stanford himself has been serving his 110-year sentence in a federal prison since 2012.

But this week, the law took a tiny turn in favor of victims and it happened in a Dallas court room. U.S. District Judge David Godbey of the Northern District of Texas issued two opinions this month, the second one on Monday, that keep alive the Stanford victims’ still-slender hopes of recovering money from the Wall Street firms and other financial power-brokers who were paid millions by Stanford over the years for help in keeping in motion what has turned out to be perhaps the most far-reaching financial scandal in U.S. history.

The facts of the case by now are familiar: Some 20,000 Stanford investors around the world lost more than $5.5 billion in principal and nearly $2 billion more in interest when the federal government finally acted in 2009 to shut down the sprawling, global investment empire he ran from offices in Houston and from the tiny Caribbean nation of Antigua. Godbey ordered Stanford’s assets frozen and turned over to Dallas lawyer Ralph Janvey, who was appointed receiver.

In the years since, plaintiffs have recovered precious little of their money — about a penny on the dollar. One remaining hope they have is to sue the professional services firms that profited so mightily over the years from their work for Stanford. So far, it’s been a tough legal hill to climb, despite a surprisingly favorable ruling by the Supreme Court. The justices ruled 7-2 in February that federal securities laws don’t require that all cases be heard in federal court Some state-court actions will be permitted, opening up the possibility that plaintiffs can sue on negligence and other grounds.

That ruling hasn’t resulted in any victories yet for the plaintiffs, but they did get a burst of good news out of Dallas this month.

In Monday’s opinion, Godbey ruled that the clearing agent (useful definition here) for the Houston-based broker-dealer that persuaded thousands of Stanford’s victims to put their money in phony certificates of deposits can be sued. That agent is Pershing, LLC, a subsidiary of the venerable Bank of New York Mellon. It will have to go to trial on allegations that it breached its fiduciary responsibility in being such a pliant participant in the scheme. The Houston-based broker-dealer, known as Stanford Financial Group, was a separate entity owned by Allen Stanford and licensed by the U.S. financial regulators. So far, courts have sided with defense attorneys who argue the actual fraud that took place was accomplished by Stanford’s stand-alone bank in Antigua. Investors actually sent their check to this bank, not to the Houston brokers, and as a result victims have had little luck holding the U.S. financial system responsible for any of their losses.

Monday’s opinion doesn’t mean they’re about to hit pay dirt. Godbey simply declined Pershing’s motion to dismiss a suit brought by investors from Texas and Louisiana. It had argued, among other things, that as clearing agents for the Houston firm, it was as a matter of law too far removed from the actual fraud to be liable for the losses.

Godbey disagreed. It’s true, he wrote, that federal courts have held just that, shielding clearing agents from liability in an underlying fraud. But he also ruled that when plaintiffs can show — as they do here — that the aid provided by the agents went beyond mere clerk-like duties, the issue becomes one ripe for trial. In addition, the Texas Securities Act provides that when an otherwise shielded party like Pershing can be shown to have had adequate knowledge that its services were being used to carry out an improper end, it can be held liable.

Monday’s ruling doesn’t mean that the plaintiffs’ will prevail at trial, or that they can prove the allegations they’ve made. It just means that they’ll get a chance to make their case.

The earlier ruling by Godbey was similar, and potentially good news for the victims. He ruled Dec. 5 that a suit brought by the receiver, Ralph Javney, against insurance brokers can proceed. Those insurance brokers issued letters of good standing, essentially, which were in turn used by Stanford’s employees to make investors feel safer in sending their money to the bank in Antigua. Those policies didn’t cover deposits in the bank, only investments held by the Houston brokers. The plaintiffs allege the insurance brokers knew or should have known that. Now, they’ll get a chance to prove it.

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