1003 . 3_appendix_-_supp_brief_mtn_re_772_relief_from_rcvrship_order_bukrinsky (1)
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IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
Civil Action No. 3:09-CV-0298-N
APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF MOTION FOR
RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
MORGENSTERN & BLUE, LLC 885 Third Avenue New York, NY 10022 Telephone: (212) 750-6776 Facsimile: (212) 750-3128 LACKEY HERSHMAN, L.L.P. 3102 Oak Lawn Avenue, Suite 777 Dallas, Texas 75219 Telephone: (214) 560-2201 Facsimile: (214) 560-2203 Attorneys for the Movants
SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. STANFORD INTERNATIONAL BANK, LTD., et al., Defendants.
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TABLE OF CONTENTS
Declaration of Angela Shaw .............................................................................................................. 1
Joint Motion of the SEC and Receiver for Entry of Second Amended Order Appointing Receiver and Appendix in Support of Joint Motion of the SEC and Receiver for Entry of Second Amended Order Appointing Receiver [Dkt. No. 958].......................................................... 7
Receiver Ralph S. Janvey’s Motion to Amend Order Appointing Receiver [Dkt. No. 146]........... 43
Transcript of Oral Argument in Janvey v. Alguire, et al., Civil Action No. 09-10761 (5th Cir. Nov. 2, 2009)..................................................................................................................... 57
Receiver’s Second Amended Complaint Against Former Stanford Employees, filed in Janvey v. Alguire, et al., Case no. 3:09-cv-0724-N, N.D. Tex. [Dkt No. 156].............................. 171
Defendant E. Randolph Robertson, Jr.’s Original Answer to Receiver’s Second Amended Complaint Against Former Stanford Employees Affirmative Defenses and Counterclaims, filed in Janvey v. Alguire, et al., Case no. 3:09-cv-0724-N, N.D. Tex. [Dkt. No. 207] ................ 197
Complaint in Frank, et al., v. The Commonwealth of Antigua and Barbuda, (Case No. 3:09-cv-02165-N).......................................................................................................... 214
First Amended Complaint Against Certain Stanford Investors and Appendix in Support of Receiver’s First Amended Complaint Against Certain Stanford Investors, filed in Janvey v. Alguire, et al., Case no. 3:09-cv-0724-N, N.D. Tex. [Dkt Nos. 128 & 129],................................ 288
Answer to Receiver’s First Amended Complaint (Investor Defendants), filed by investors Robert B. Crawford, Jr., et al., in Janvey v. Alguire, et al. Case no. 3:09-cv-0724-N, N.D. Tex. [Dkt No. 242]...................................................................... 314
Transcript of Proceedings in Janvey v. Alguire, et al., July 31, 2009............................................ 331
Order of the Honorable David C. Godbey cancelling the January 21, 2010 hearing in In re Stanford International Bank, Ltd., Case no. 3:09-cv-0721-N, N.D. Tex. [Dkt No. 66] ................ 382
Letter from Ralph S. Janvey to Sen. Christopher J. Dodd, dated August 12, 2009....................... 383
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JOINT MOTION OF THE SEC AND RECEIVER FOR ENTRY OFSECOND AMENDED ORDER APPOINTING RECEIVER PAGE 1
IN THE UNITED STATES DISTRICT COURTFOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff,
v.
STANFORD INTERNATIONAL BANK, LTD., STANFORD GROUP COMPANY,STANFORD CAPITAL MANAGEMENT, LLC,R. ALLEN STANFORD, JAMES M. DAVIS, andLAURA PENDERGEST-HOLT,
Defendants.
§§§§§§§§§§§§§
Case No.: 3-09-CV-0298-N
JOINT MOTION OF THE SEC AND RECEIVER FOR ENTRY OFSECOND AMENDED ORDER APPOINTING RECEIVER
Plaintiff Securities and Exchange Commission and Receiver Ralph S. Janvey
request that the Court enter the Second Amended Order Appointing Receiver.
Factual Background
On February 17, 2009 the Court entered the Order Appointing Receiver. (Doc.
10). Within 10 days, the Receiver complied with the requirements of 28 U.S.C. § 754 by filing
the Complaint and Order Appointing Receiver in 29 districts, located in 16 states, the District of
Columbia, the Virgin Islands, and Puerto Rico. On March 12, 2009 the Court entered the
Amended Order Appointing Receiver. (Doc. 157).
As a result of his investigation of the books and records of the Receivership
Estate, the Receiver has learned that Receivership Assets and Receivership Records exist in
additional districts where § 754 filings have not been made. The Court’s reappointment of the
Receiver will permit him to complete § 754 filings in additional districts in furtherance of his
duty to “[p]erform all acts necessary to conserve, hold, manage, and preserve the value of the
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APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
Appx. Page 7
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JOINT MOTION OF THE SEC AND RECEIVER FOR ENTRY OFSECOND AMENDED ORDER APPOINTING RECEIVER PAGE 2
Receivership Estate, in order to prevent any irreparable loss, damage, and injury to the Estate.”
Doc. 157 at 5, ¶ 5(g); See Warfield v. Arpe, 2007 WL 549467, *12-13 (N.D. Tex. 2007); Order
Reappointing Temporary Receiver in Civil Action No. 3:02-cv-0605-R, filed 10/04/2006,
attached at Appdx. 1-9.
Additionally, the Receiver has determined that in order for him to carry out his
duties as receiver, it is not necessary for him to have the authority to file bankruptcy petitions on
behalf of any of the individual defendants. Accordingly, the proposed Second Amended Order
Appointing Receiver clarifies that the Receiver’s exclusive authority to file bankruptcy petitions
applies only to the corporate, and not the individual, defendants.
Finally, despite the litigation injunction contained in the Amended Order
Appointing Receiver, a number of lawsuits have been filed in state and federal courts against the
Receiver, Estate entities, and defendants. Many of these have been stayed or referred to the
MDL panel. However, a second wave of related litigation is now demanding significant
resources from the Receiver, his professionals, and the Estate. Plaintiffs have filed lawsuits
against former Stanford financial advisors and are taking the position that the litigation
injunction does not apply to terminated employees. Because the Estate is in possession of
documents relating to Stanford client accounts, the plaintiffs and defendants in these suits seek
discovery from the Receiver. Responding to these requests will consume more and more Estate
resources as additional cases are filed and proceed to trial.
There have now been more than 50 cases filed in state and federal courts that
somehow relate to the sale of Stanford CDs or the Receivership. Six cases have named Pershing
LLC (which was the clearing bank for Stanford Group Company) and four have named SEI
Investments Co. (which provided trust services to Stanford Trust Co.) as defendants in five
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APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
Appx. Page 8
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JOINT MOTION OF THE SEC AND RECEIVER FOR ENTRY OFSECOND AMENDED ORDER APPOINTING RECEIVER PAGE 3
different jurisdictions. A number of arbitrations have also been initiated against Pershing at
FINRA. The contracts between Pershing and SGC and SEI and STC require the Estate to
indemnify Pershing and SEI in these lawsuits and arbitrations. Despite the Estate’s pecuniary
interest in these cases, none of the them have been stayed pursuant to this Court’s litigation
injunction, either by agreement or court order. The Estate has already incurred some defense
costs pursuant to the indemnity provisions and if these cases continue, or multiply, they will
further deplete Estate resources. For example, after being referred to the MDL panel, one group
of plaintiffs simply filed a second, almost identical lawsuit against Pershing in another
jurisdiction; they refuse to stay the case and maintain that it is not appropriate for referral to the
MDL panel.
Argument and Authority
The Fifth Circuit, and other Circuit Courts, have upheld repeatedly a district
court’s authority to enjoin the commencement, or even the continuation of pre-existing litigation,
in other venues in order to protect the receivership and the receivership court’s exclusive
jurisdiction:
The district court may require all such claims to be brought before the receivership court for disposition pursuant to summary process consistent with the equity purpose of the court. The district court may also authorize, to the extent that the court deems appropriate, “satellite” litigation in forums outside of the receivership court to address ancillary issues. However, the receivership court typically retains jurisdiction over any attempt at execution of a judgment in such situations.
Liberte Capital Group, LLC v. Capwill, 462 F.3d 543, 552 (6th Cir. 2006) (citations omitted);
see e.g., Schauss v. Metals Depository Corp., 757 F.2d 649 (5th Cir. 1985); S.E.C. v. Wencke,
622 F.2d 1363 (9th Cir. 1980).
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APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
Appx. Page 9
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JOINT MOTION OF THE SEC AND RECEIVER FOR ENTRY OFSECOND AMENDED ORDER APPOINTING RECEIVER PAGE 4
Because “[t]he receivership court has a valid interest in both the value of the
claims themselves and the costs of defending any suit as a drain on receivership assets,” the court
“may issue a blanket injunction, staying litigation against the named receiver and the entities
under his control unless leave of that court is first obtained.” Liberte Capital Group, LLC v.
Capwill, 462 F.3d 543, 551 (6th Cir. 2006). This injunction can even bind all non-parties with
notice, far exceeding normal limits on the scope of injunctions. See S.E.C. v. Wencke, 622 F.2d
1363, 1369 (9th Cir. 1980). Furthermore, the power to enjoin “extends to the institution of any
suit.” Liberte Capital, 462 F.3d at 551.
If the injunction so provides, leave of the receivership court must be obtained
before suit can be brought against the receiver. See In re Crown Vantage, Inc., 421 F.3d 963,
970–71 (9th Cir. 2005); Seaman Paper Co. of Mass., Inc. v. Polsky, 537 F. Supp. 2d 233, 236 (D.
Mass. 2007); Fed. Home Loan Mortgage Corp. v. Spark Tarrytown, Inc., 829 F. Supp. 82, 88
(S.D.N.Y. 1993). Failure to obtain leave of the receivership court deprives the second court of
subject matter jurisdiction. See Le v. S.E.C., 542 F. Supp. 2d 1318, 1321 (N.D. Ga. 2008).
In Liberte Capital, the district court had entered an injunction on litigation, but
carved out a very narrow exception for litigation against the Receiver for cases challenging the
validity of life insurance policies prior to the insured’s death. Liberte Capital, 462 F.3d at 549.
Insurance companies initiated suits against the entities in receivership that did not fall within the
narrow exception to the injunction, and the district court held them in contempt. The Sixth
Circuit affirmed, emphasizing the district court’s exclusive jurisdiction over the receivership. Id.
at 552.
Justice Anthony Kennedy, writing for the Ninth Circuit, has explained the
practical reasons that such an injunction can be necessary and reasonable. It protects the
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APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
Appx. Page 10
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JOINT MOTION OF THE SEC AND RECEIVER FOR ENTRY OFSECOND AMENDED ORDER APPOINTING RECEIVER PAGE 5
interests of the very persons enjoined from filing suit, and prevents the estate from becoming
overwhelmed by the expenses of multiple lawsuits:
The receiver and the district court also felt it essential for the receiver to be given time to explore all the complex transactions and aspects of the receivership estate so that innocent shareholders suffered no further harm.
A receiver appointed by a court in the wake of a securities fraud scheme may encounter difficulties sorting out the financial status of the defrauded entity or entities. There may be a genuine danger that some litigation against receivership entities amounts to little more than a continuation of the original fraudulent scheme. Similarly, the securities fraud may have left the finances of the receivership entities so obscure or complex that the receiver is hampered in conducting litigation. Moreover, the expense involved in defending the many lawsuits which often are filed against an entity in the wake of a securities fraud scheme may be overwhelming unless some are temporarily deferred. A stay of proceeding against receivership entities except by leave of the court may be an appropriate response to the above concerns, and the district court did not abuse its discretion in this case by entering the blanket stay.
Wencke, 622 F.2d at 1373.
Even where the court entering the injunction was not the first in which suit was
filed, the Fifth Circuit has vacated a two-year-old judgment and ordered that funds disbursed to
the parties be paid back into the registry of the court. Schauss v. Metals Depository Corp., 757
F.2d 649, 655 (5th Cir. 1985). A customer filed suit against MDC in the Northern District of
Texas and MDC’s bank was joined as garnishee. Id. at 651. Soon thereafter, a fraud suit was
filed in the Southern District of New York. The New York court entered judgment against
MDC, appointed a receiver, and enjoined the commencement of new suits and continuation of
pending suits. Id. A second Texas suit was filed and the two Texas suits consolidated. Pursuant
to 28 U.S.C. § 754 the New York receiver filed the New York order appointing him, but did not
otherwise answer or enter an appearance in the Texas consolidated case. Id. at 652.
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APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
Appx. Page 11
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JOINT MOTION OF THE SEC AND RECEIVER FOR ENTRY OFSECOND AMENDED ORDER APPOINTING RECEIVER PAGE 6
The Texas case then proceeded to bench trial and the court entered judgment
disposing of the funds interpleaded by the bank as garnishee. Id. Two years later, the receiver
moved to set aside the Texas judgment. The Fifth Circuit granted the motion in the interests of
justice and comity between federal courts, to discourage duplicative litigation, and in furtherance
of the important goal of preserving assets in receivership:
[S]everal courts have recognized the importance of preserving a receivership court’s ability to issue orders preventing interference with its administration of the receivership property. In both securities fraud cases, and bankruptcy proceedings, Courts of Appeals have upheld orders enjoining broad classes of individuals from taking any action regarding receivership property. Such orders can serve as an important tool permitting a district court to prevent dissipation of property or assets subject to multiple claims in various locales, as well as preventing “piecemeal resolution of issues that call for a uniform result.”
Id. at 654 (citations omitted).
Conclusion
For these reasons, the SEC and the Receiver ask the Court to enter their proposed
Second Amended Order Appointing Receiver. For the Court’s convenience a red-line comparing
the proposed Second Amended Order Appointing Receiver and Amended Order Appointing
Receiver (Doc. 157) has been filed at Appendix 10-21.
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APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
Appx. Page 12
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JOINT MOTION OF THE SEC AND RECEIVER FOR ENTRY OFSECOND AMENDED ORDER APPOINTING RECEIVER PAGE 7
Dated: January 14, 2010 Respectfully submitted,
BAKER BOTTS L.L.P.
By: /s/ Kevin M. SadlerKevin M. SadlerTexas Bar No. [email protected] I. HowellTexas Bar No. [email protected] T. ArlingtonTexas Bar No. [email protected] San Jacinto Center98 San Jacinto Blvd.Austin, Texas 78701-4039(512) 322-2500(512) 322-2501 (Facsimile)
Timothy S. DurstTexas Bar No. [email protected] Ross AvenueDallas, Texas 75201(214) 953-6500(214) 953-6503 (Facsimile)
ATTORNEYS FOR RECEIVERRALPH S. JANVEY
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APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
Appx. Page 13
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JOINT MOTION OF THE SEC AND RECEIVER FOR ENTRY OFSECOND AMENDED ORDER APPOINTING RECEIVER PAGE 8
CERTIFICATE OF CONFERENCE
Counsel for the Receiver conferred with attorneys who have made appearances on behalf of parties to this case.
Counsel for the Receiver conferred with David B. Reece, counsel for the SEC, who stated that the SEC does not oppose the filing of this motion and relief sought herein.
Counsel for the Receiver provided the motion to Jeffrey M. Tillotson, counsel for Laura Pendergest-Holt, who stated that Ms. Holt opposes the filing of this motion and relief sought herein.
Counsel for the Receiver conferred with Ruth Schuster, counsel for R. Allen Stanford, who stated that Mr. Stanford opposes the filing of this motion and relief sought herein.
Counsel for the Receiver conferred with Manuel Lena, counsel for the DOJ (Tax), who stated that he does not oppose the filing of this motion and relief sought herein.
Counsel for the Receiver provided the motion to David Finn, counsel for James Davis, but has not received a response to requests to confer on this motion and relief sought herein.
Counsel for the Receiver conferred with John Little, Court-appointed Examiner, , who stated that he does not oppose the filing of this motion and relief sought herein.
Counsel for the Receiver conferred with Joe Kendall, counsel for Susan Stanford, who stated that Mrs. Stanford takes no position on the filing of this motion and relief sought herein.
/s/ Kevin M. SadlerKevin M. Sadler
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APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
Appx. Page 14
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JOINT MOTION OF THE SEC AND RECEIVER FOR ENTRY OFSECOND AMENDED ORDER APPOINTING RECEIVER PAGE 9
CERTIFICATE OF SERVICE
On January 14, 2010 I electronically submitted the foregoing motion and the proposed order with the clerk of court for the U.S. District Court, Northern District of Texas, using the electronic case filing system of the court. I hereby certify that I have served all counsel and/or pro se parties of record electronically or by another manner authorized by Federal Rule of Civil Procedure 5(b)(2).
/s/ Kevin M. SadlerKevin M. Sadler
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APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
Appx. Page 15
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IN THE UNITED STATES DISTRICT COURTFOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff,
v.
STANFORD INTERNATIONAL BANK, LTD., STANFORD GROUP COMPANY,STANFORD CAPITAL MANAGEMENT, LLC,R. ALLEN STANFORD, JAMES M. DAVIS, andLAURA PENDERGEST-HOLT,
Defendants.
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Case No.: 3-09-CV-0298-N
APPENDIX IN SUPPORT OF JOINT MOTION OF THE SEC AND RECEIVER FOR ENTRY OF SECOND AMENDED ORDER APPOINTING RECEIVER
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APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
Appx. Page 16
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Dated: January 14, 2010 Respectfully submitted,
BAKER BOTTS L.L.P.
By: /s/ Kevin M. SadlerKevin M. SadlerTexas Bar No. [email protected] I. HowellTexas Bar No. [email protected] T. ArlingtonTexas Bar No. [email protected] San Jacinto Center98 San Jacinto Blvd.Austin, Texas 78701-4039(512) 322-2500(512) 322-2501 (Facsimile)
Timothy S. DurstTexas Bar No. [email protected] Ross AvenueDallas, Texas 75201(214) 953-6500(214) 953-6503 (Facsimile)
ATTORNEYS FOR RECEIVERRALPH S. JANVEY
CERTIFICATE OF SERVICE
On January 14, 2010 I electronically submitted the foregoing motion and the proposed order with the clerk of court for the U.S. District Court, Northern District of Texas, using the electronic case filing system of the court. I hereby certify that I have served all counsel and/or pro se parties of record electronically or by another manner authorized by Federal Rule of Civil Procedure 5(b)(2).
/s/ Kevin M. SadlerKevin M. Sadler
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APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
Appx. Page 17
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Appx. Page 18
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Appx. Page 19
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Appx. Page 20
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Appx. Page 21
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Appx. Page 22
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Appx. Page 26
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IN THE UNITED STATES DISTRICT COURTFOR THE NORTHERN DISTRICT 0F TEXAS
DALLAS DIVISION
SECURITIES AND EXCHANGE COMMISSION
Plaintiff,
v.
STANFORD INTERNATIONAL BANK, LTD.,ET AL.
Defendants.
§§§§§§§§§§§§§
Case No.: 3-09CV0298-N
SECOND AMENDED ORDER APPOINTING RECEIVER
This matter came before me, the undersigned United States District Judge, on the motion
of Plaintiff Securities and Exchange Commission (“Commission”) for the appointment of a
Receiver for corporate Defendants Stanford International Bank, Ltd., Stanford Group Company,
Stanford Capital Management, LLC, Robert Allen Stanford, James M. Davis, Laura Pendergest-
Holt, Stanford Financial Group, and The Stanford Financial Group Bldg Inc. (“Defendants”). It
appears that, and Individual Defendants Robert Allen Stanford, James M. Davis, and Laura
Pendergest-Holt, (together the “Defendants”).
On February 17, 2009 this AmendedCourt entered its Order Appointing Receiver (the
“Order”) is. (Doc. 10). On March 12, 2009 this Court entered its Amended Order
Appointing Receiver. (Doc. 157). The Receiver has informed the Court that after the
expiration of 10 days from the dates of these Orders, the Receiver identified Receivership
Assets and Receivership Records in districts in which copies of the Complaint and Order
Appointing Receiver have not been filed of record pursuant to 28 U.S.C. § 754. In order to
10
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allow the Court to obtain jurisdiction in these districts, the Court hereby enters this Second
Amended Order Appointing Receiver. The Court finds the entry of this Second Amended
Order Appointing Receiver to be both necessary and appropriate in order to prevent waste and
dissipation of the assets of the Defendants to the detriment of the investors.
IT IS THEREFORE ORDERED that:
1. This Court assumes exclusive jurisdiction and takes possession of the assets,
monies, securities, properties, real and personal, tangible and intangible, of whatever kind and
description, wherever located, and the legally recognized privileges (with regard to the entities),
of the Defendants and all entities they own or control (“Receivership Assets”), and the books and
records, client lists, account statements, financial and accounting documents, computers,
computer hard drives, computer disks, internet exchange servers telephones, personal digital
devices and other informational resources of or in possession of the Defendants, or issued by
Defendants and in possession of any agent or employee of the Defendants (“Receivership
Records”).
2. Ralph S. Janvey of Dallas, Texas, is hereby appointed Receiver for the
Receivership Assets and Receivership Records (collectively, “Receivership Estate”), with the
full power of an equity receiver under common law as well as such powers as are enumerated
herein as of the date of this Order. The Receiver shall not be required to post a bond unless
directed by the Court but is hereby ordered to well and faithfully perform the duties of his office:
to timely account for all monies, securities, and other properties which may come into his hands;
and to abide by and perform all duties set forth in this Order. Except for an act of willful
malfeasance or gross negligence, the Receiver shall not be liable for any loss or damage incurred
by the Receivership Estate, or any of Defendants, the Defendants’ clients or associates, or their
subsidiaries or affiliates, their officers, directors, agents, and employees, or by any of
11
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Defendants’ creditors or equity holders because of any’ act performed or not performed by him
or his agents or assigns in connection with the discharge of his duties and responsibilities
hereunder.
3. The duties of the Receiver shall be specifically limited to matters relating to the
Receivership Estate and unsettled claims thereof remaining in the possession of the Receiver as
of the date of this Order. Nothing in this Order shall be construed to require further investigation
of Receivership Estate assets heretofore liquidated and/or distributed or claims of the
Receivership Estate settled prior to issuance of this Order. However, this paragraph shall not be
construed to limit the powers of the Receiver in any regard with respect to transactions that may
have occurred prior to the date of this Order.
4. Until the expiration date of this Order or further Order of this Court, Receiver is
authorized to immediately take and have complete and exclusive control, possession, and
custody of the Receivership Estate and to any assets traceable to assets owned by the
Receivership Estate.
5. As of the date of entry of this Order, the Receiver is specifically directed and
authorized to perform the following acts and duties:
(a) Maintain full control of the Receivership Estate with the power to retain or
remove, as the Receiver deems necessary or advisable, any officer, director, independent
contractor, employee or agent of the Receivership Estate;
(b) Collect, marshal, and take custody, control, and possession of all the
funds, accounts, mail, and other assets of, or in the possession or under the control of, the
Receivership Estate, or assets traceable to assets owned or controlled by the Receivership
Estate, wherever situated, the income and profit therefrom and all sums of money now or
12
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hereafter due or owing to the Receivership Estate with full power to collect, receive, and
take possession of without limitation, all goods, chattel, rights, credits, monies, effects,
lands, leases, books and records, work papers, records of account, including computer
maintained information, contracts, financial records, monies on hand in banks and other
financial initiations, and other papers and documents of other individuals, partnerships, or
corporations whose interests are now held by or under the direction, possession, custody,
or control of the Receivership Estate;
(c) Institute such actions or proceedings to impose a constructive trust, obtain
possession, and/or recover judgment with respect to persons or entities who received
assets or records traceable to the Receivership Estate. All such actions shall be filed in
this Court;
(d) Obtain, by presentation of this Order, documents, books, records,
accounts, deposits, testimony, or other information within the custody or control of any
person or entity sufficient to identify accounts, properties, liabilities, causes of action, or
employees of the Receivership Estate. The attendance of a person or entity for
examination and/or production of documents may be compelled in a manner provided in
Rule 45, Fed. R. Civ. P., or as provided under the laws of any foreign country where such
documents, books, records, accounts, deposits, or testimony maybe located;
(e) Without breaching the peace and, if necessary, with the assistance of local
peace officers or United States marshals to enter and secure any premises, wherever
located or situated, in order to take possession, custody, or control of, or to identify the
location or existence of Receivership Estate assets or records;
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(f) Make such ordinary and necessary payments, distributions, and
disbursements as the Receiver deems advisable or proper for the marshaling,
maintenance, or preservation of the Receivership Estate. Receiver is further authorized to
contract and negotiate with any claimants against the Receivership Estate (including,
without limitation, creditors) for the purpose of compromising or settling any claim. To
this purpose, in those instances in which Receivership Estate assets serve as collateral to
secured creditors, the Receiver has the authority to surrender such assets to secured
creditors, conditional upon the waiver of any deficiency of collateral;
(g) Perform all acts necessary to conserve, hold, manage, and preserve the
value of the Receivership Estate, in order to prevent any irreparable loss, damage, and
injury to the Estate;
(h) Enter into such agreements in connection with the administration of the
Receivership Estate, including, but not limited to, the employment of such managers,
agents, custodians, consultants, investigators, attorneys, and accountants as Receiver
judges necessary to perform the duties set forth in this Order and to compensate them
from the Receivership Assets;
(i) Institute, prosecute, compromise, adjust, intervene in, or become party to
such actions or proceedings in state, federal, or foreign courts that the Receiver deems
necessary and advisable to preserve the value of the Receivership Estate, or that the
Receiver deems necessary and advisable to carry out the Receiver’s mandate under this
Order and likewise to defend, compromise, or adjust or otherwise dispose of any or all
actions or proceedings instituted against the Receivership Estate that the Receiver deems
necessary and advisable to carry out the Receiver’s mandate under this Order;
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(j) Preserve the Receivership Estate and minimize expenses in furtherance of
maximum and timely disbursement thereof to claimants;
(k) Promptly provide the Commission and other governmental agencies with
all information and documentation they may seek in connection with its regulatory or
investigatory activities;
(l) Prepare and submit periodic reports to this Court and to the parties as
directed by this Court;
(m) File with this Court requests for approval of reasonable fees to be paid to
the Receiver and any person or entity retained by him and interim and final accountings
for any reasonable expenses incurred and paid pursuant to order of this Court;
6. The Receiver shall have the sole and exclusive power and authority to manage
and direct the business and financial affairs of the Defendants, including without limitation, the
sole and exclusive power and authority to petition for relief under the United States Bankruptcy
Code, 11 U.S.C. §§ 101 et seq. (the “Bankruptcy Code”), for any or all of the corporate
Defendants. The Receiver is not authorized, without further Court order, to petition for
relief under the Bankruptcy Code for any of the Individual Defendants. Solely with respect
to the authorization to file and execution of a petition for relief under the Bankruptcy Code;
without limiting any powers of the Receiver under applicable law and this Order; and
irrespective of provisions in any Defendants’Defendant’s corporate organizing documents, by-
laws, partnership agreements, or the like, the Receiver shall be deemed to succeed to the position
of and possess the authority of any party with power to authorize and execute the filing of a
petition for relief under the Bankruptcy Code, including without limitation corporate directors,
general and limited partners, and members of limited liability companies.
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7. Before taking action under paragraph 6 of this Order, the Receiver must provide
the Commission and the Defendants with at least two business days’ written notice (unless
shortened or lengthened by court order) that the Receiver is contemplating action under the
Bankruptcy Code; provided that the Receiver may apply for an order under seal or a hearing in
camera, as circumstances require. To facilitate an efficient coordination in one district of all
bankruptcies of the Defendants, the Northern District of Texas shall be the Receiver’s principal
place of business for making decisions in respect of operating and disposing of each of the
Defendants and their respective assets.
8. Upon the request of the Receiver, the United States Marshal’s Office is hereby
ordered to assist the Receiver in carrying out his duties to take possession, custody, or control of,
or identify the location of, any Receivership Estate assets or records.
9. Creditors and all other persons are hereby restrained and enjoined from the
following actions, except in this Court and with leave of this Court, unless this Court,
consistent with general equitable principals and in accordance with its ancillary equitable
jurisdiction in this matter, orders that such actions may be conducted in another forum or
jurisdiction:
(a) The commencement or continuation, including the issuance or
employment of process, of any judicial, administrative, or other proceeding against the
Receiver, any of the defendants, any entity within the Receivership Estate, any current
or anyformer agent, officer, or employee related toof the Receivership Estate, or of any
entity within the Receivership Estate, Pershing LLC, and/or SEI Investment
Company arising from the subject matter of this civil action; or
16
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(b) The enforcement, against the Receiver, or any of the defendants, of any
judgment that would attach to or encumber the Receivership Estate that was obtained
before the commencement of this proceeding.
10. Creditors and all other persons are hereby restrained and enjoined, without prior
approval of the Court, from:
(a) Any act to obtain possession of the Receivership Estate assets;
(b) Any act to create, perfect, or enforce any lien against the property of the
Receiver, or the Receivership Estate;
(c) Any act to collect, assess, establish, litigate or recover a claim against the
Receiver or that, where such claim would attach to or encumber the Receivership
Estate or create or impose an obligation upon the part of the Receivership Estate;
(d) The set off of any debt owed by the Receivership Estate or secured by the
Receivership Estate assets based on any claim against the Receiver or the Receivership
Estate; or
(e) The filing of any case, complaint, petition, or motion under the
Bankruptcy Code (including, without limitation, the filing of an involuntary bankruptcy
petition under chapter 7 or chapter 11 of the Bankruptcy Code, or a petition for
recognition of foreign proceeding under chapter 15 of the Bankruptcy Code).
11. Creditors and all other persons are hereby restrained and enjoined from seeking
relief from the injunction contained in paragraph 10(e) of this Order for a period of 180 days
from the date of entry of this Order with respect to any Defendant.
11. 12. Defendants, their respective officers, agents, and employees and all persons in
active concert or participation with them who receive notice of this Order by personal service or
17
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otherwise, including, but not limited to, any financial institution, broker-dealer, investment
adviser, private equity fund or investment banking fun), and each of them, are hereby ordered,
restrained, and enjoined from, directly or indirectly, making any payment or expenditure of any
Receivership Estate assets that are owned by Defendants or in the actual or constructive
possession of any entity directly or indirectly owned or controlled or under common control with
the Receivership Estate, or effecting any sale, gift, hypothecation, assignment, transfer,
conveyance, encumbrance, disbursement, dissipation, or concealment of such assets. A copy of
this Order may be served on any bank, savings and loan, broker-dealer, or any other financial or
depository institution to restrain and enjoin any such institution from disbursing any of the
Receivership Estate assets. Upon presentment of this Order, all persons, including financial
institutions, shall provide account balance information, transaction histories, all account records
and any other Receivership Records to the Receiver or his agents, in the same manner as they
would be provided were the Receiver the signatory on the account.
12. 13. Defendants, and their respective agents, officers, and employees and all
persons in active concert or participation with them are hereby enjoined from doing any act or
thing whatsoever to interfere with the Receiver’s taking control, possession, or management of
the Receivership Estate or to in any way interfere with the Receiver or to harass or interfere with
the duties of the Receiver or to interfere in any manner with the. exclusive jurisdiction of this
Court over the Receivership Estate, including the filing or prosecuting any actions or
proceedings which involve the Receiver or which affect the Receivership Assets or Receivership
Records, specifically including any proceeding initiated pursuant to the United States
Bankruptcy Code, except with the permission of this Court. Any actions so authorized to
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determine disputes relating to Receivership Assets and Receivership Records shall be filed in
this Court.
13. 14. Defendants, their respective officers, agents, and employees and all persons in
active concert or participation with them who receive actual notice of this Order by personal
service or otherwise, including any financial institution, broker-dealer, investment adviser,
private equity fund or investment banking firm, and each of them shall:
(a) To the extent they have possession, custody, or control of same, provide
immediate access to and control and possession of the Receivership Estate assets and
records, including securities, monies, and property of any kind, real and personal,
including all keys, passwords, entry codes, and all monies deposited in any bank
deposited to the credit of the Defendants, wherever situated, and the original of all books,
records, documents, accounts, computer printouts, disks, and the like of Defendants to
Receiver or his duly authorized agents;
(b) Cooperate with the Receiver and his duly authorized agents by promptly
and honestly responding to all requests for information regarding Receivership Assets
and Records and by promptly acknowledging to third parties the Receiver’s authority to
act on behalf of the Receivership Estate and by providing such authorizations, signatures,
releases, attestations, and access as the Receiver or his duly authorized agents may
reasonably request;
(c) Provide the Commission with a prompt, full accounting of all
Receivership Estate assets and documents outside the territory of the United States which
are held either: (1) by them, (2) for their benefit, or (3) under their control;
19
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(d) Transfer to the territory of the United States all Receivership Estate assets
and records in foreign countries held either: (1) by them, (2) for their benefit, or (3) under
their control; and
(e) Hold and retain all such repatriated Receivership Estate assets and
documents and prevent any transfer, disposition, or dissipation whatsoever of any such
assets or documents, until such time as they may be transferred into the possession of the
Receiver.
14. 15. Any financial institution, broker-dealer, investment adviser; private equity
fund or investment banking firm or person that holds, controls, or maintains accounts or assets of
or on behalf of any Defendant, or has held, controlled, or maintained any account or asset of or
on behalf of any defendant or relief defendant since January 1, 1990, shall:
(a) Hold and retain within its control and prohibit the withdrawal, removal,
assignment, transfer, pledge, hypothecation, encumbrance, disbursement, dissipation,
conversion, sale, gift, or other disposal of any of the assets, funds, or other property held
by or on behalf of any defendant or relief defendant in any account maintained in the
name of or for the benefit of any defendant or relief defendant in whole or in part except:
(i) as directed by further order of this Court, or
(ii) as directed in writing by the Receiver or his agents;
(b) Deny access to any safe deposit boxes that are subject to access by any
Defendant; and
(c) The Commission and Receiver may obtain, by presentation of this Order,
documents, books, records, accounts, deposits, or other information within the custody or
control of any person or entity sufficient to identify accounts, properties, liabilities,
20
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causes of action, or employees of the Receivership Estate. The attendance of a person or
entity for examination and/or production of documents may be compelled in a manner
provided in Rule 45, Fed. R. Civ. P, or as provided under the laws of any foreign country
where such documents, books, records, accounts, deposits, or testimony may be located;
15. 16. The Defendants, their officers, agents, and employees and all persons in active
concert or participation with them and other persons who have notice of this Order by personal
service or otherwise, are hereby restrained and enjoined from destroying, mutilating, concealing,
altering, transferring, or otherwise disposing of, in any manner, directly or indirectly, any
contracts, accounting data, correspondence, advertisements, computer tapes, disks or other
computerized records, books, written or printed records, handwritten notes, telephone logs,
telephone scripts, receipt books, ledgers, personal and business canceled checks and check
registers, bank statements, appointment books, copies of federal, state, or local business or
personal income or property tax returns, and other documents or records of any kind that relate in
any way to the Receivership Estate or are relevant to this action.
16. 17. The Receiver is hereby authorized to make appropriate notification to the
United States Postal Service to forward delivery of any mail addressed to the Defendants, or any
company or entity under the direction and control of the Defendants, to himself. Further, the
Receiver is hereby authorized to open and inspect all such mail to determine the location or
identity of assets or the existence and amount of claims.
17. 18. Nothing in this Order shall prohibit any federal or state law enforcement or
regulatory authority from commencing or prosecuting an action against the Defendants, their
agents, officers, or employees.
So Ordered and signed, this ____ day of March 2009.______________, 2010.
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_______________________________________UNITED STATES DISTRICT JUDGE
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Document comparison done by Workshare DeltaView on Thursday, January 14, 2010 3:08:25 PMInput:
Document 1 PowerDocs://AUS01/547486/1 Document 2 PowerDocs://AUS01/570394/4 Rendering set 1-Bold Double Underline-Strikethrough
Legend:
Insertion Deletion Moved from Moved to Style change Format change Moved deletion Inserted cellDeleted cellMoved cellSplit/Merged cellPadding cell
Redline Summary:No. Change Text
1 Change
"AMENDED ORDER APPOINTING RECEIVER" changed to "SECOND AMENDED ORDER APPOINTING RECEIVER"
2 Change "the appointment of a...Stanford International" changed to "the appointment of a...Stanford International"
3 Change "Stanford Capital...Financial Group, and The" changed to "Stanford Capital...Financial Group, and The"
4-5 Change "Stanford Financial Group... It appears that" changed to "Stanford Financial Group...the “Defendants”)."
6 Change "this" changed to "On February 17, 2009 this"
7-8 Change "this Amended Order Appointing Receiver" changed to "this Court entered its Order Appointing Receiver"
23
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9-10 Change "Order Appointing Receiver...and appropriate" changed to "Order Appointing...and appropriate"
11 Change "and dissipation of the...to the detriment of" changed to "and dissipation of the...to the detriment of"
12 Change "Defendants to the detriment of the investors." changed to "Defendants to the detriment of investors."
13 Change "et seq. (the “Bankruptcy...for any or all of the" changed to "et seq. (the “Bankruptcy...for any or all of the"
14 Change "for any or all of the... Solely with respect" changed to "for any or all of the... Solely with respect"
15-16 Change "irrespective of...organizing documents," changed to "irrespective of...organizing documents,"
17 Change "the following actions,...unless this Court," changed to "the following actions,...unless this Court,"
18 Change "that such actions may be...forum or jurisdiction:" changed to "that such actions may be conducted:"
19 Change "Receiver, any of the...the Receivership Estate," changed to "Receiver, any of the...the Receivership Estate,"
20 Change "the Receivership Estate, or" changed to "the Receivership Estate, any current or"
21-22 Change "or any agent, officer, or employee" changed to "or former agent, officer, or employee"
23-24 Change "agent, officer, or...the Receivership Estate" changed to "agent, officer, or...the Receivership Estate"
25-26 Change "the Receivership Estate,...from the subject matter" changed to "the Receivership Estate...from the subject matter"
27 Change "(c) Any act to collect,...against the Receiver" changed to "(c) Any act to collect,...against the Receiver"
28-29 Change "recover a claim against...attach to or encumber" changed to "recover a claim against...attach to or
24
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encumber"
30 Change "would attach to or...the Receivership Estate;" changed to "would attach to or...the Receivership Estate;"
31 Deletion chapter 15 of the Bankruptcy Code).
32 Deletion 11. Creditors and all...of entry of this Order
33 Change "." changed to "with respect to any Defendant."
34 Change "Defendants, their respective officers," changed to "12. Defendants, their respective officers,"
35 Change "Defendants, and their respective" changed to "13. Defendants, and their respective"
36 Change "Defendants, their respective officers," changed to "14. Defendants, their respective officers,"
37 Change "Any financial institution, broker-dealer," changed to "15. Any financial institution, broker-dealer,"
38 Change "The Defendants, their officers," changed to "16. The Defendants, their officers,"
39 Change "The Receiver is hereby authorized" changed to "17. The Receiver is hereby authorized"
40 Change "Nothing in this Order shall prohibit" changed to "18. Nothing in this Order shall prohibit"
41-42 Change "Ordered and signed, this ____ day of March 2009." changed to "Ordered and signed, this...of ______________, 2010."
Statistics:
CountInsertions 20Deletions 22Moved from 0Moved to 0Style change 0Format changed 0Total changes 42
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1
1 BEFORE THE FIFTH CIRCUIT COURT OF APPEALS 2 RALPH JANVEY, § 3 § Appellee, § 4 § CIVIL ACTION NO. v. § 5 § 09-10761 JAMES ALGUIRE, et al, § 6 § Appellants. § 7 8 9 * * * * * * * * * * * * * * * * * * 10 ORAL ARGUMENTS BEFORE 11 SENIOR JUDGE WILL GARWOOD 12 JUDGE EDWARD C. PRADO JUDGE JAMES L. DENNIS 13 November 2, 2009 14 (Via Online Recording) 15 16 * * * * * * * * * * * * * * * * * * 17
18
19
20
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21
22
23
24
25
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2
1 A P P E A R A N C E S 2 FOR THE RECEIVER: 3 Kevin Sadler 4 Baker Botts, LLP 98 San Jacinto Blvd., Suite 1500 5 Austin, Texas 78701 6 FOR THE SECURITIES AND EXCHANGE COMMISSION: 7 Michael Post US Securities & Exchange Commission 8 Burnett Plaza Suite 1900 801 Cherry St Unit # 18 9 Fort Worth, Texas 76102-6882 10 THE EXAMINER: 11 John Little Little Pedersen Fankhauser 12 901 Main St., Suite 4110 Dallas, Texas 75202 13 FOR THE APPELLEES: 14 Michael Quilling 15 Quilling Selander Cummiskey & Lownds, P.C. 2001 Bryan St., Suite 1800 16 Dallas, Texas 75201 17 18 I N D E X
19 Page 20 Oral Argument by Mr. Sadler - - - - - - - - - - - - 3
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21 Oral Argument by Mr. Little - - - - - - - - - - - - 21 22 Oral Argument by Mr. Quilling - - - - - - - - - - - 35 23 Oral Argument by Mr. Post - - - - - - - - - - - - - 44 24 Rebuttal by Mr. Sadler - - - - - - - - - - - - - - 48 25 Reporter's Certification - - - - - - - - - - - - - 57
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3
1 * * * * * * * * * *
2 PROCEEDING
3 * * * * * * * * * * 4
5 ORAL ARGUMENT
6 MR. SADLER: This case arises
7 out of one of the largest Ponzi schemes ever to be
8 perpetrated in the United States. It is rivaled
9 probably only by the Madoff Ponzi scheme scandal.
10 There are thousands of victims scattered across
11 almost all of the 50 states, as well as victims in
12 other countries. Since this scheme collapsed and
13 following the filing of a lawsuit by the SEC, which
14 was in February, the receiver has been doing what
15 receivers always do when these Ponzi schemes
16 collapse, and that is, carry out the specific
17 court-ordered duty.
18 And we have a very specific
19 court-ordered duty to prosecute litigation to
20 recover assets traceable to this estate, and we're
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21 doing that simply so that those assets can be
22 brought back into the estate and used to compensate
23 all the victims of this fraud; and there are
24 thousands.
25 That duty and how we are carrying out
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4
1 really brings us to why we're here today on this
2 appeal and two fundamental legal questions for you,
3 the resolution to which will really affect how this
4 receivership proceeds. The first basic question is,
5 as it always is in Ponzi schemes -- and we've all
6 read about them. The way a Ponzi scheme works is,
7 funds are taken in by fraud, and then they are
8 diverted to all manner of different purposes.
9 One purpose for the diversion of the
10 funds is to pay out selectively to mask the fraud
11 and to keep it going. Because, of course, someone
12 running a Ponzi scheme, as soon as they stop making
13 those payments to some investors, people make claims
14 and the fraud is exposed.
15 And so the first important question
16 for this panel is, when funds are taken by fraud
17 from one investor and then are simply turned around
18 and used to selectively make partial payments to
19 other investors, do those funds remain assets
20 traceable to the estate which our court-ordered
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21 mandate requires us to return to the estate to
22 benefit all the victims of the fraud and to use
23 those as compensation for those victims? And that
24 is the first fundamental question before you.
25 I submit to you that if you follow
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5
1 the case of SEC versus George -- and it is cited in
2 our briefs, it is discussed extensively -- and it is
3 a case from the Sixth Circuit involving Ponzi
4 schemes, involving claims against investors who
5 receive preferential payments. And the Sixth
6 Circuit decided that those investors had to return
7 the money they received. Not just a portion of it,
8 not just what might have been called interest, but
9 they had to return all of it even though there was
10 no allegation of wrongdoing, even though there was
11 no allegation of complicity.
12 And the Sixth Circuit in SEC versus
13 George relied on this Court's opinion in Forex
14 Management for the proposition that investors who
15 were paid with other investors' stolen money have no
16 preferential right to retain that money, and that
17 deals -- yes, sir?
18 JUDGE GARWOOD: Is that a legal
19 difference between paying a -- somebody for services
20 or buying something with what you call stolen money,
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21 or are you using it to pay some other investor who
22 has a claim?
23 MR. SADLER: There can be a
24 difference, and the other case that we cite to this
25 Court --
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1 JUDGE GARWOOD: What is the
2 legal basis for the difference? If it's stolen
3 funds -- it's really not stolen funds, actually.
4 It's not -- it's funds acquired by fraud.
5 MR. SADLER: Yes, sir. And
6 under SEC versus George the simple holding of that
7 case is those funds that are used to pay investors
8 cannot be retained preferentially by those investors
9 to the harm of others who are equally innocent. And
10 your question is what is the difference?
11 JUDGE GARWOOD: Yeah.
12 MR. SADLER: And the difference
13 in this case, which goes to the holding of not only
14 SEC versus George and the Kimberlynn Creek Ranch
15 case -- which is the other case we're asking you to
16 follow and to adopt, and it's discussed extensively
17 in our briefs. These two cases, George and
18 Kimberlynn Creek Ranch, we're asking you to follow,
19 we're asking you to adopt their holdings; and if you
20 do, almost all of the issues in this appeal are not
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21 only resolved, but resolved in the receiver's favor.
22 But the difference is this: We are
23 not saying that people who received payments do not
24 have a legitimate claim against the estate. This is
25 very much like a bankruptcy preference action where
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7
1 the trustee --
2 JUDGE GARWOOD: Are you willing
3 to be judged by the standards by which a bankruptcy
4 preference is judged?
5 MR. SADLER: We want to be
6 judged by the standards of the SEC versus George
7 case, because that's --
8 JUDGE GARWOOD: You are willing,
9 then, to be judged by bankruptcy preference
10 standards?
11 MR. SADLER: Yes, sir.
12 Bankruptcy -- I'm drawing an analogy here.
13 Bankruptcy has a --
14 JUDGE GARWOOD: You don't want
15 to follow that analogy?
16 MR. SADLER: I'm sorry, sir?
17 JUDGE GARWOOD: You do not want
18 to follow the bankruptcy preference analogy; is that
19 correct?
20 MR. SADLER: No, sir. I think
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21 the bankruptcy preference analogy works, and
22 here's why: Because what a bankruptcy trustee does
23 is no different than what we're doing in this
24 respect. The bankruptcy trustee is appointed over
25 an insolvent debtor -- we have an insolvent debtor
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8
1 here -- and when he identifies payments made
2 by that insolvent debtor within the preference
3 period defined by the statute -- and that's one
4 difference, there is actually a statutory preference
5 period -- he goes to that debtor and says, You have
6 no right to retain that money. You may have a valid
7 claim. You may have a contract that needed to be
8 paid or some bill that needed to be paid, but you
9 have no preferential right to retain that money.
10 And that really is the principle applied in SEC
11 versus George.
12 JUDGE PRADO: In George the four
13 investors weren't completely innocent, were they, as
14 opposed to what we have here?
15 MR. SADLER: Your Honor, and I
16 know the SEC tries very, very hard to suggest that
17 the investors who were ordered to disgorge in that
18 case were somehow complicit or not innocent, but the
19 fact of the matter is when you read the George case
20 and you read the George holding, it says these
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21 people are accused of no wrongdoing. They are found
22 to have not committed any wrongdoing.
23 And that is the fundamental precept
24 of a case like SEC versus George and Kimberlynn
25 Creek Ranch: How do we deal with people who were
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9
1 paid proceeds of fraud? How do we have a mechanism
2 to return those funds to the estate? And the George
3 case, the Cavanaugh case, the Colello case, the
4 Kimberlynn Creek Ranch case say you can be innocent,
5 you can be accused of no wrongdoing. And that was
6 exactly the situation in George. Those people were
7 not found to have been complicit or to have engaged
8 in any wrongdoing.
9 Now, the SEC has come in and in their
10 amicus brief they say, Well, now, these people
11 really were guilty. But that's not what the Sixth
12 Circuit based its decision on, and it's certainly
13 not appropriate, I think, to try to undermine the
14 precedential value of the George case by coming in
15 and saying, Well, there were these other facts that
16 were not presented to the Court and were not part of
17 the record but that should change the result.
18 So the answer to your question is, in
19 all of these cases -- if you look at George, if you
20 look at Kimberlynn Creek Ranch, if you look at
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21 Cavanaugh, if you look at Colello -- all of those
22 people are ordered to return funds they received
23 without a finding that they've committed any
24 wrongdoing. And the fundamental principle it is, is
25 I understand the distinction between stolen as in a
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10
1 thief robs it at gunpoint versus taken by fraud.
2 But if we go all the way back to the
3 original Ponzi scheme case, the Cunningham case, and
4 the principle announced there is what's being
5 followed in all these cases, which is, among equally
6 innocent investors -- and they're all for this
7 purpose being treated as equally innocent -- no one
8 has a preferential right to retain funds that were
9 simply taken from one investor to another. And
10 that's --
11 JUDGE GARWOOD: Let me ask you
12 about --
13 MR. SADLER: Yes, sir?
14 JUDGE GARWOOD: -- I still don't
15 get your answer to the bankruptcy preference. I
16 thought you didn't have a bankruptcy preference if
17 you paid full value.
18 MR. SADLER: And Your Honor,
19 in questions of bankruptcy, in fraudulent
20 transfer -- and we've covered this in our
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21 briefs -- we're not bringing a fraudulent transfer
22 case. We don't think we're subject to the
23 restrictions of --
24 JUDGE GARWOOD: But you said --
25 MR. SADLER: -- the fraudulent
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11
1 transfer case.
2 JUDGE GARWOOD: You said the
3 bankruptcy.
4 MR. SADLER: Yes, sir.
5 JUDGE GARWOOD: What I want to
6 know is, in bankruptcy can you get a preference from
7 a person who paid full value?
8 MR. SADLER: I think within the
9 90-day statutory preference period preferences are
10 set aside without regard to value. There's also a
11 one-year preference period for insiders. The point
12 about the analogy to the preference action is not
13 that we're trying to adopt a bankruptcy statutory
14 process. The point is simply that the arguments we
15 are making -- which is to say these people who are
16 the minority of investors who have over $275 million
17 in funds currently frozen, those funds were taken
18 directly from other investors, and the --
19 JUDGE GARWOOD: But I don't, I
20 still don't understand why those people are any
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21 different than the person who sold a car to the
22 company and made a little profit on his car as a
23 dealer. Why, why are they different?
24 MR. SADLER: They are different,
25 Your Honor, for this reason: We have over 20,000
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12
1 investors who bought these fraudulent CDs. They all
2 have exactly the same contract claim to be paid on
3 their CD. The difference is, some of them have been
4 paid preferentially, and they have been paid 80
5 percent, 90 percent, a hundred percent.
6 JUDGE GARWOOD: That's exactly
7 the same in the car case. Some people who got a
8 note from the company when they sold the car, they
9 haven't been paid. Some who sold the, sold the car
10 for cash have been paid. I mean, there's nothing
11 unique about that.
12 MR. SADLER: Well, the
13 difference, though, is it would make a difference.
14 Questions of full value, reasonably equivalent
15 value, objective good faith, all of that would be
16 relevant in a fraudulent transfer statutory case
17 brought under the Bankruptcy Code or brought under
18 state statute. But under the holding of SEC versus
19 George what is important is, can we --
20 JUDGE GARWOOD: You're asking us
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21 to follow that case, and I'm asking you why we
22 should adopt that reasoning when the Uniform
23 Transfer -- Fraudulent Transfer Act and the
24 Bankruptcy Code and all this seem to proceed on a
25 different basis.
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13
1 MR. SADLER: They do proceed on
2 a different basis because they were designed for
3 different purposes, and I'm glad you asked that,
4 because that really does get to a fundamental
5 question here. Because the arguments of many of the
6 appellees is that you should restrict an equity
7 receiver in a federal securities fraud case to state
8 law remedies. I think one of the appellees flat out
9 says that you should rule that a equity receiver in
10 a federal securities law case can only bring state
11 law claims for attachment and state law fraudulent
12 transfer claims.
13 And I have two things to say about
14 that. First, there is no case holding that a
15 federal equity receiver in a federal securities law
16 case ought to be limited to state law remedies.
17 This would be the first Court to so hold. It is
18 also fundamentally contrary to the holdings of the
19 relief defendant cases like Kimberlynn Creek and
20 SEC versus George.
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21 And here's why, Your Honor. It is
22 fundamentally unfair for one investor to be paid off
23 with money taken from another investor when the
24 principle that is at issue -- and it is a
25 fundamental principle -- is that all investors, just
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14
1 like it was held in the Forex and in the Durham
2 case, when we have a Ponzi scheme there's never
3 enough money to pay everyone off.
4 JUDGE GARWOOD: Why is -- you
5 say that's the case, but the car dealer who sold the
6 car for cash, he gets a preference over the other
7 car dealer who sold it for credit.
8 MR. SADLER: And Your Honor,
9 there may be differences, and in fact, the
10 Kimberlynn Creek Ranch case talks about the fact
11 that if somebody was employed by the Ponzi scheme
12 and provided services to the Ponzi scheme, he may
13 not be subject to being ordered to return what he
14 was paid. And in the car dealer case, again, Your
15 Honor, if we proceeded under fraudulent transfer
16 theories where reasonably equivalent value was an
17 issue, that might be different.
18 But we are dealing with one set of
19 claimants here, every investor who has the identical
20 claim; and what we are saying is they all need to
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21 get in line. What we're trying to --
22 JUDGE PRADO: How would you
23 trace this? I mean, what if they had taken their
24 money out and put it in another account in another
25 bank? I mean, how far down the road are you going
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15
1 to trace this money that some of the victims got
2 back?
3 MR. SADLER: Well, right now we
4 are focused on the funds that are frozen in the
5 accounts to which they were deposited. If you're
6 talking about tracing, I mean, bank records can be
7 followed. Now, what we are --
8 JUDGE GARWOOD: They went out
9 and bought something in the car dealer with what
10 they were paid, they don't have any money in that
11 account. You going to get that back from that car
12 dealer if they're bankrupt?
13 MR. SADLER: And Your Honor, you
14 are, you're raising proper questions about equitable
15 considerations which are not in front of you. The
16 district court --
17 JUDGE GARWOOD: They're
18 practical considerations.
19 MR. SADLER: Yes, sir. They are
20 practical considerations, and the practical
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21 consideration comes at the later part of this
22 proceeding. Right now all we are here about is the
23 legal question Judge Godbey faced and said he needed
24 guidance on from this Court. He decided that he did
25 not have the legal authority to allow us to go
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16
1 forward to recover all of these funds. He said we
2 should go forward but be limited to only what the
3 Ponzi scheme designated as interest.
4 When we get into issues of whether
5 people have dispensed these funds in ways that
6 cannot be recovered, all of those are equitable
7 considerations that would have to come to not only
8 Judge Godbey, but later to you on a totally
9 different record.
10 I mean, Judge Godbey crystallized it
11 in this way: He said, "If I'm wrong on the law,
12 then you, the receiver, should pursue these funds."
13 But in particular cases if we come up -- for
14 example, someone got $10,000 paid preferentially but
15 they've spent it and they've put it into a house or
16 they've put it into a car or they've paid for their
17 children's college education, under those
18 circumstances would we pursue that person? That's
19 based on equitable considerations that are not in
20 front of you right now.
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21 JUDGE GARWOOD: To what extent
22 does the George case -- was this the SEC proceeding
23 in that or was it a receiver, a separate receiver?
24 MR. SADLER: In the George case
25 the SEC was the plaintiff, just like in the
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17
1 Kimberlynn Creek Ranch case the Commodity Futures
2 Trading Commission was the plaintiff.
3 JUDGE GARWOOD: Well, here the
4 plaintiff is the SEC, and --
5 MR. SADLER: The plaintiff in
6 the main case certainly is.
7 JUDGE GARWOOD: Is the SEC. And
8 they don't want to do what you want to do here.
9 They're not, they're not seeking to recover from
10 these people. What --
11 MR. SADLER: I'd be happy to
12 respond to that.
13 JUDGE GARWOOD: Yeah.
14 MR. SADLER: And that is an
15 issue raised by all the appellees.
16 JUDGE GARWOOD: Yeah.
17 MR. SADLER: And I'm going to
18 tell you this: Not only should you not defer to the
19 SEC in this circumstance, there are very powerful
20 reasons you should not defer. There is no
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21 compelling reason to do it and compelling reason
22 against it, and let me tell you why.
23 The case that's given to you is the
24 Chevron case, which talks about deference to formal
25 agency action. We don't have any formal agency
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18
1 action here. There is no formal policy rule that's
2 ever been adopted by the SEC to deal with Ponzi
3 schemes. Secondly, Your Honor, the position that's
4 being offered by the SEC is fractured, and here
5 what's I mean by that. In their amicus brief they
6 say, We're not taking a position about whether the
7 receiver should even pursue false profits or false
8 interests. They simply back off and say, We're not
9 taking a position. So there's nothing for you to
10 defer to there.
11 JUDGE GARWOOD: But what George
12 relied on, as I understand it, was the Sixth
13 Circuit's broad view of the powers that the statute
14 granted the SEC.
15 MR. SADLER: Sir, I believe if
16 you read George and Kimberlynn Creek Ranch, it's
17 actually a little different. What is being pursued
18 here is an ancillary action for equitable relief,
19 and the broad powers that are being referred to
20 there are the broad powers of the district court to
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21 grant equitable relief. That's a quote that comes
22 out of Colello and Kimberlynn Creek Ranch and SEC
23 versus George. And we as the equity receiver, we
24 are the agent for the Court. The Court can't go out
25 and gather evidence.
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19
1 JUDGE GARWOOD: The SEC, though,
2 has not elected to sue these investors. In George,
3 as I understand your answer to me, in George the SEC
4 did elect to sue.
5 MR. SADLER: That is absolutely
6 correct, and what they --
7 JUDGE GARWOOD: What gives you
8 the authority, the statutory authority to sue people
9 that the SEC has not sued?
10 MR. SADLER: It is not statutory
11 authority, Your Honor. It is equitable power that
12 derives from the cases that say in this circumstance
13 where there is an ancillary action where we are the
14 plaintiff, we are the ones charged --
15 JUDGE GARWOOD: SEC versus
16 George doesn't support that, if I'm understanding
17 your answer correctly, because it's the SEC who
18 sought to get the money from those so-called
19 investors.
20 MR. SADLER: That is absolutely
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21 right, and they were innocent investors, and in
22 this --
23 JUDGE GARWOOD: So the SEC says,
24 Here, section such and such says I can do this. I
25 can do almost anything under section such and such;
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20
1 which I can't remember what it is, but you don't
2 have any section such and such.
3 MR. SADLER: And Your Honor,
4 what I'm saying is under these cases that we have
5 cited to you is it the equitable power, not
6 anybody's statutory power, but it is the equitable
7 power of the Court to recover proceeds of the fraud
8 that we're proceeding under. And if you look at the
9 Kimberlynn Creek Ranch case, the exact wording in
10 that case says a plaintiff, paren, the Commission
11 here, but a plaintiff can invoke the equitable power
12 of the Court. And that's what we're doing in this
13 case.
14 JUDGE GARWOOD: The SEC is a
15 proper plaintiff. They're not, they're not relying
16 on any statute. It seems to me like the plaintiff
17 in a case ought to be the one or a defendant -- we
18 don't have -- I mean, frankly, in a sense you're
19 nobody. I mean, the plaintiff is the SEC, there's
20 some defendants; you're not either one.
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21 MR. SADLER: No, sir. But we
22 have a very specific court-ordered duty that none of
23 these other people have, and in the order appointing
24 the receiver we are directed to pursue litigation to
25 recover assets traceable to the estate. And nobody
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21
1 has appealed that order, nobody has said that order
2 is invalid or that the --
3 JUDGE DENNIS: Mr. Sadler, your
4 time has expired. Do you want to save it for
5 rebuttal?
6 MR. SADLER: I will save the
7 balance of my remarks for rebuttal. Thank you, Your
8 Honor.
9 JUDGE DENNIS: Mr. Little?
10 ORAL ARGUMENT
11 MR. LITTLE: May it please the
12 Court, my name is John Little. I was appointed by
13 the district court to serve as the examiner in this
14 receivership proceeding. I was charged by the
15 district court with the task of conveying to the
16 Court such information that I would find helpful to
17 the Court in considering the interests of the
18 investors in any Stanford product, account, vehicle,
19 or venture. Here I'm an intervenor. In the
20 district court I was one of the parties, together
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21 with the SEC, that opposed the SEC's --
22 JUDGE GARWOOD: Speak up a
23 little bit, Counselor.
24 MR. LITTLE: Oh, I'm sorry.
25 Certainly. In the district court I was one of two
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22
1 parties with the SEC to oppose the receiver's
2 account freeze and to oppose these clawback claims.
3 I'm here today with 11 groups of appellees, and they
4 have permitted me to make the opening presentation
5 for the appellees. I'm going to take 15 minutes, as
6 you know, and then pass to Mr. Quilling. We have a
7 plan on how we're dividing that, but either one of
8 us is happy to answer whatever questions come up.
9 I want to start here today by
10 responding to a couple of things the appellant has
11 said. First, these 500 or so investors are not
12 lucky. They're not lucky. They're not folks who
13 got all their money out. There is a very, very
14 small fraction of folks who really did get all their
15 money out of Stanford. Some got it out in the year
16 before the thing collapsed, some got it out four
17 years before the thing collapsed.
18 These 500 people include people who
19 got all their money out with interest, it includes
20 people who got only interest and lost all of their
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21 CD principal, it includes some folks who had
22 multiple CDs, redeemed some, didn't redeem others.
23 JUDGE PRADO: Does it include
24 any people who were part of the fraud?
25 MR. LITTLE: No.
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23
1 JUDGE PRADO: Are all -- every
2 one of these is an innocent investor?
3 MR. LITTLE: Your Honor, by
4 definition the receiver acknowledges the absolute
5 innocence of every one of these relief defendants.
6 All 500-plus of them are pled to be innocent. No
7 suggestion has been made that they have anything
8 other than pure-as-the-driven-snow innocence with
9 respect to this. These are folks who made
10 investments. They bought CDs, they received
11 interest, they redeemed them pursuant to the terms
12 of the CDs. They have done nothing wrong, and the
13 receiver acknowledges that.
14 Now, they're not the only folks who
15 got CD proceeds. Over the many years that this
16 scandal occurred there were tens of thousands of
17 investors. Many of those investors could well have
18 cashed out of the CDs years and years ago, taken
19 their money and gone elsewhere. We don't know how
20 many of those folks there are. There are thousands
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21 and thousands of investors who took money out in the
22 year prior to this receivership who have not been
23 sued.
24 The receiver's own expert has found,
25 forensic expert, has found that $2 billion was taken
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24
1 out of the bank in the 13 months prior to the
2 receivership. These folks represent a tiny fraction
3 of that amount, because the total that these folks
4 are being sued for is about $275 million, but that
5 amount is not over a year. It reaches back a year,
6 two, five, eight. Some of the folks who are the
7 retirees here from Louisiana received interest for
8 years and years and years on their CDs. That's what
9 they lived on. That's what they're being sued for,
10 is the CD interest they received over the years.
11 JUDGE PRADO: Can we distinguish
12 between getting back the money you invested or the
13 interest that I think the Court, the district court
14 said that maybe they should return any interest that
15 they made on their investment?
16 MR. LITTLE: Judge, there's,
17 there's -- the case law under the Fraudulent
18 Transfer Act is very clear that an investor who
19 invests in a fraudulent scheme like this one is able
20 to recover and retain an amount up to what his
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21 investment is; the amounts above that are viewed as
22 false profits and can be disgorged.
23 JUDGE DENNIS: We're acquainted
24 with that, but we aren't acquainted with the George
25 case and these cases that your client is relying on
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1 that get away from all of those mainstream law
2 you're talking about right now.
3 MR. LITTLE: Well, and --
4 JUDGE DENNIS: Can you tell us
5 why we shouldn't follow the George case --
6 MR. LITTLE: Yes. I am --
7 JUDGE DENNIS: -- and the
8 Kimberlynn Ranch case?
9 MR. LITTLE: Yeah. I'd be happy
10 to. The cases that they primarily rely upon do not
11 involve innocent investors. Cavanaugh involves a
12 relief defendant who was in the middle of the fraud.
13 Colello involves a relief defendant who's in the
14 middle of the fraud. Kimberlynn Creek, the opinion
15 says expressly the relief defendants were holding
16 funds on behalf of the defendants. That's a classic
17 relief defendant, someone who is holding funds for
18 the bad guys.
19 JUDGE DENNIS: Who doesn't claim
20 an interest in it?
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21 MR. LITTLE: Excuse me?
22 JUDGE DENNIS: Who does not
23 claim an interest?
24 MR. LITTLE: Who does not have a
25 legitimate interest in those funds. George is the,
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1 is the one case that they hang their hat on
2 consistently, and George involves four relief
3 defendants. One really doesn't play into this.
4 She's the girlfriend/fiancee/wife of the bad guy,
5 and she's ordered to disgorge a car and a diamond
6 ring and some money. The other three, as the SEC
7 explains in its briefing, were all folks who were
8 somehow not innocent.
9 Now, if you read the opinion, the
10 opinion speaks in terms of innocence, but you see
11 that in all the relief defendant cases. The fiancee
12 or wife who is ordered to disgorge dollars is not
13 guilty of the fraud, but she's tied into the fraud
14 because of the husband who is depositing money into
15 her account. And so --
16 JUDGE GARWOOD: In other words,
17 she did not invest money, the wife certainly didn't.
18 MR. LITTLE: The Lehmann case,
19 for example, involves a wife whose husband was
20 involved in the fraud, gets $500,000, sticks it in
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21 her account. She hasn't done anything wrong, but
22 she has money that the husband took out of the
23 fraud. He's involved, she's a relief defendant.
24 She has no legitimate claim on that money. She
25 didn't even know it was in the account.
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1 These folks are different, and if I
2 may, these folks simply are not relief defendants,
3 and the receiver acknowledges three things that make
4 that so. First, these folks have done nothing
5 wrong. We've talked about that. Second, the
6 receiver acknowledges that the assets in these
7 frozen accounts belong to these investors. These
8 are not assets that belong to Stanford, these are
9 not assets that belong to his cohorts. These are
10 assets that belong to these individual investors,
11 and they sit in accounts titled in the investors'
12 names. And the receiver acknowledged that back in
13 April in his status report to the Court.
14 The third thing, Mr. Sadler just told
15 you that each of these relief defendants will have a
16 claim against the estate. How does one get a claim
17 against the estate? You have a legitimate ownership
18 interest in the instrument that gives you that
19 claim. If these folks have a -- if these folks have
20 done nothing wrong on the assets in their frozen
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21 accounts and will have a claim against the estate
22 for anything that they're ordered to disgorge, then
23 they have an ownership interest and cannot be relief
24 defendants.
25 And the relief defendant cases are
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1 very clear. I think it's one of the few things we
2 agree on. If you have an ownership interest, if you
3 have a legitimate claim, you are not, cannot be a
4 relief defendant. All of these folks on the face of
5 the pleadings have an ownership interest; therefore,
6 they cannot be relief defendants.
7 That has two implications for this
8 Court. That either means that the claims fail at
9 sort of a motion-to-dismiss level, because on the
10 face of the pleadings you have pled facts which make
11 your claim fail. Alternatively, it deprives the
12 Court of subject matter jurisdiction. Relief
13 defendants can be joined without additional subject
14 matter jurisdiction being alleged as to them. If
15 these folks are not relief defendants, there is no
16 subject matter jurisdiction as to the claims against
17 them and the action against them would be dismissed
18 and the freeze would go away.
19 JUDGE DENNIS: Why is that? Why
20 is there no subject matter jurisdiction?
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21 MR. LITTLE: Because in order to
22 have subject matter jurisdiction, they must be
23 relief defendants. If they are not relief
24 defendants, then there is no subject matter
25 jurisdiction. They are not ancillary -- they cannot
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1 be brought in in an ancillary action. The receiver
2 would have to bring an honest-to-god lawsuit and
3 state a cause of action for fraudulent transfer or
4 whatever other claim he can come up with, and he
5 would then have to assert that claim and assert
6 subject matter jurisdiction as to these folks.
7 The way the Court gets these people
8 is because there is no need for subject matter
9 jurisdiction if they are, in fact, relief
10 defendants. If they are not, there is no subject
11 matter jurisdiction.
12 JUDGE DENNIS: The lead
13 defendant is another word for nominal --
14 MR. LITTLE: Yes.
15 JUDGE DENNIS: -- defendant who
16 has no really real interest?
17 MR. LITTLE: Right. And the
18 genesis of that concept, of course --
19 JUDGE GARWOOD: [Indiscernible]
20 or something of that [indiscernible] --
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21 MR. LITTLE: Judge, you know,
22 the genesis of that concept comes out of banks,
23 trust accounts, depository institutions that hold
24 things in a custodial sense. It was expanded over
25 the years from those very traditional relief
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1 defendants to folks who are related to the bad
2 guys -- the wife, the brother, the parents, the
3 affiliated company, the partnership -- but they're
4 all things that are -- these are all relief
5 defendants tied in. They're holding assets --
6 Kimberlynn, the Kimberlynn Creek case
7 says holding assets on behalf of the defendants, the
8 bad guys. These relief defendants aren't holding
9 assets on behalf of any of the Stanford folks.
10 These are their assets. They own them. They're not
11 relief defendants for that reason.
12 I wanted to also talk a minute about
13 the notion of timing. In the receiver's plead -- in
14 the receiver's briefing you get the sense that there
15 is no sense of time here. Judge Prado, you asked
16 the question about how far back they're reaching.
17 They've never actually answered that question. We
18 know from the relief defendants who have, who have
19 lawyers and who have responded to some of the claims
20 that the reach-back is one, two, five, eight years.
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21 JUDGE GARWOOD: Is what?
22 MR. LITTLE: It goes back one,
23 two, five, eight, many, many years back. There
24 doesn't appear to be any limitations period to this
25 clawback claim that's being pursued. Essentially,
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1 the receiver's position is that equity wipes out all
2 of the timing requirements of any of this sort
3 of -- any of these causes of action.
4 But it's important to remember that
5 time, timing does matter. It does matter. The
6 cases are pretty clear. If an investor deposits
7 money with a fraud scheme but that money's deposited
8 the day after the accounts are frozen, the investor
9 gets that back. If he invests two days before the
10 accounts are frozen, he doesn't get that back.
11 Timing matters. Timing matters with respect to
12 limitations under the Fraudulent Transfer Act.
13 The --
14 JUDGE DENNIS: Is it your
15 position that these investors are entitled to
16 recover or hold onto their principal investment?
17 MR. LITTLE: Yes.
18 JUDGE DENNIS: Regardless of
19 whether it's called interest or what, whatnot?
20 MR. LITTLE: The case law, the
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21 case law that I know the Court is familiar with
22 under the Fraudulent --
23 JUDGE DENNIS: Once they recover
24 up to that, then they're not entitled to any more?
25 MR. LITTLE: Under the
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1 Fraudulent Transfer Act the case law is very clear
2 that up to the amount of the initial invest -- of
3 their investment, they're entitled to retain any
4 proceeds they've received. In the case --
5 JUDGE GARWOOD: It doesn't
6 matter what they --
7 MR. LITTLE: It doesn't matter
8 what you call it. You know, the Shoals case and a
9 lot of the other cases in that area make it clear
10 that what's --
11 JUDGE DENNIS: But Mr. Sadler
12 says he's not proceeding under that -- under those
13 statutes.
14 MR. LITTLE: I understand that,
15 and that's one of the things that's very troubling
16 about what he is proceeding under, because there
17 don't appear to be any rules that Mr. Sadler is
18 following. It's all just equity. The Court in
19 equity can do anything it wants. The Court can
20 ignore limitations, the Court could ignore the
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21 ownership interest.
22 JUDGE DENNIS: It's your
23 position, I suppose, it would be inequitable for us
24 to depart from the principles that are in most of
25 the cases regarding fraudulent conveyances,
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1 constructive fraud and all of that?
2 MR. LITTLE: I think we have, I
3 think we have a body of case law that speaks in
4 great detail to how receivers are to go about
5 bringing back proceeds from a fraud scheme. And
6 that's the Fraudulent Transfer Act. It's been
7 adopted in all 50 states. It's -- that body of law
8 is very clear. False profits can be recovered.
9 JUDGE DENNIS: What about by
10 analogy to the bankruptcy section?
11 MR. LITTLE: Well, and the
12 Fraudulent Transfer Act provisions are mirrored in
13 the Bankruptcy Code. Those same sorts of claims
14 could be made in the bank -- under the Bankruptcy
15 Code. The Uniform Fraudulent Transfer Act and the
16 Bankruptcy Code have essentially identical
17 provisions for those sorts of claims, and that is
18 the rubric under which receivers proceed.
19 Judge Garwood, I think you raised the
20 question of the difference between the SEC and a
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21 receiver, and that's an important and critical
22 difference. The SEC is charged with enforcing the
23 securities laws, and it filed this lawsuit, the
24 primary action, and decided who to sue.
25 Now, in virtually all of the cases
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1 cited by the receiver the SEC is the plaintiff
2 and the SEC is deciding who to sue. The
3 receive -- there is not a receiver bringing those
4 lawsuits. They're brought by the SEC.
5 Also, the asset freeze in place here
6 was originally obtained by the SEC. The SEC has a
7 far lower bar for getting an injunction asset
8 freeze. The receiver is trying to coattail the
9 SEC's asset freeze that it got via its special
10 statutory ability to do that, but the problem is the
11 SEC is sitting over here with me. It opposes the
12 asset freeze and has done so since May. So the
13 receiver has never made a showing to get the
14 injunctive relief he's gotten, and he can't coattail
15 the SEC's asset freeze.
16 JUDGE GARWOOD: Which does seem
17 to me odd, somehow, that the receiver isn't
18 representing or whatever, acting on behalf of any
19 party to the lawsuit, either a defendant or the
20 plaintiff, which is the SEC. Now, since he's acting
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21 under the authority of the Court's appointment, it
22 seems to me we can't or shouldn't be expanding that
23 appointment to make the receiver in effect a trustee
24 in bankruptcy, because we've got a bunch of statutes
25 that say how you do that. And it's all right to
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1 expand it a little bit if the people that are being
2 reached are just nominal custodians, but to reach it
3 all out you wonder where the, where the jurisdiction
4 comes from.
5 JUDGE DENNIS: Mr. Quilling
6 [sic], your time expired during that question. If
7 you need to give a short answer, go ahead.
8 MR. LITTLE: I'll give Judge
9 Garwood --
10 JUDGE GARWOOD: [Indiscernible.]
11 MR. LITTLE: I'll give Judge
12 Garwood a quick answer, and then Mr. Quilling will
13 come up and say his piece. I think you're exactly
14 right, Judge. The issue here is that this receiver
15 is moving far beyond the pale of what his order
16 really charges him to do. He's not seeking -- he's
17 not going after Stanford's assets. He's going after
18 these relief defendants' assets.
19 JUDGE DENNIS: Thank you,
20 Mr. Little. That was a [indiscernible] of the
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21 question, so you don't need to belabor it.
22 Mr. Quilling?
23 ORAL ARGUMENT
24 MR. QUILLING: May it please the
25 Court, I'm Mike Quilling. I speak on behalf of all
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1 of the appellees; the investors is the way I'll
2 refer to them. Judge Garwood, you've asked the
3 question directly of the appellants, which they
4 either did not answer or would not answer, and
5 that's because they don't want to -- they don't want
6 to give you that answer, I believe.
7 I urge the Court to look at In Re:
8 Independent Clearinghouse. It's a bankruptcy case
9 where the very same thing that this receiver is
10 trying to do in a court of equity was discussed in
11 that court of equity, the bankruptcy court. And I'm
12 not going to recite very much, but two sentences is
13 incredibly instructive, and this is at page 855.
14 "In theory, the most equitable
15 resolution of cases may well be for each undertaker
16 to return all the money he received from the debtors
17 so that the money can be redistributed pro rata."
18 This is what the Court said after that. "The
19 equitable powers of the bankruptcy court are limited
20 by the express terms of the code. A court of
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21 equity," which this is, "may not create totally new
22 substantive rights under the guise of doing equity.
23 In the absence of any statutory or judicial
24 precedent, the Court may not invoke its equitable
25 powers to substantially enlarge the trustee's
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1 avoiding powers as urged."
2 Their position has been considered
3 and rejected even by the courts of law. Now, as a
4 court of equity in this order that they champion
5 that they're acting under, it doesn't say go destroy
6 the world. It says go collect assets like all
7 receivers do. Go do what normal receivers do. Go
8 file your causes of action, state your cause of
9 action, get your judgment, and then collect it.
10 It is time for this Court to call, as
11 the Eleventh Circuit did in the Mitsubishi case, a
12 duck a duck. This freeze started off in February of
13 this year, and it was something that SEC acting
14 under its powers could do. It was a normal type of
15 freeze. This receiver interpreted it to give him
16 carte blanche authority to go take the accounts of
17 innocent investors who had no clue Stanford was a
18 fraud.
19 It was turned into an agreed
20 injunction on March 2nd, eight months ago to this
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21 day, and that agreed injunction was between the
22 receiver and Allen Stanford and his cohorts who are
23 in jail. Not one investor was consulted, not one
24 investor was allowed to speak. Indeed, until today,
25 Your Honors, not one single investor has been able
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1 to speak at the district court level to be heard.
2 Now, if somebody walked into my
3 office and said, Hey, I bought this company and I've
4 been looking at some old records, and I think
5 somebody owes me some money. Well, how far back?
6 Eight years. Where do you -- where's the money now?
7 Well, it's in his IRA account. Well, do you know
8 how much he owes you? No. But I've got an
9 estimate, so I want to go down and get a freeze of
10 his account. And oh, by the way I don't want to
11 offer any evidence. I don't want to have a hearing.
12 I don't want the in -- that person who owes me the
13 money to ever have a hearing. I just want to go
14 take it because I think that he owes it.
15 That's exactly what is occurring
16 here. This is the duck. This is a prejudgment
17 attachment. You can't get around it. It is a
18 prejudgment attachment. In some instances -- and
19 this receiver can't tell you how much interest these
20 folks got, they can't tell you how much principal
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21 they have. All they can say is, They have accounts
22 and we know some money went there, and we don't care
23 what time frame it was, and it doesn't even matter
24 if it's not the same amount.
25 Let's say you had an account at Chase
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1 Bank and went into Comerica and the bad guy sent the
2 money to Comerica, and you've got an account at
3 Chase and he happens to have the account frozen at
4 Chase. He say's that's all his money. That is an
5 attachment. I don't care how you phrase it -- as a
6 freeze, an injunction -- it's an attachment. That
7 is a duck.
8 And they say under the equity field
9 they get to do anything they want. You don't get
10 counsel, you're going to have a summary proceeding
11 on some day never to be set and apparently sometime
12 off in the years from now when these retirees who
13 are sitting in this room may well be dead. They
14 need their money now. This has been nine months.
15 This money is in their IRS accounts, many of them.
16 And Judge Prado, I know the issue of
17 are these people real victims or did they get some
18 sort of preferential treatment is on, is on
19 everybody's mind. These are net losers. Many of
20 these people are net losers. The retirees that have
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21 been sitting here for eight years getting their
22 interest check, they still have their principal tied
23 up there. They're going to lose that money.
24 One of my clients, the Mississippi
25 Polymers Pension Fund that gives benefits to 300
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1 retirees in Mississippi, steelworkers, they have
2 $3 million of the pension fund's assets sitting in
3 that bank in Antigua. They got $300,000 of interest
4 over a period of five years. That interest went to
5 partially fund distributions to retirees. Now, they
6 are not a winner. They are not unlucky [sic]. They
7 are very unlucky. They are a victim and they should
8 not be penalized further. They got a $3 million
9 loss. That's going to hurt the pension. But they
10 shouldn't have to go give -- find a way to get
11 $300,000 to put back into this receiver's pocket.
12 No. That's not how the law works. There is --
13 JUDGE PRADO: But do they fit
14 the definition of relief defendants?
15 MR. QUILLING: Absolutely not.
16 There's not a single one of these people who fits
17 the definition of a relief defendant, and Mr. Little
18 addressed the three points. First of all, they have
19 an ownership interest. That's the end of the
20 discussion. You don't even get to the second point.
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21 And he says, Well, this is stolen money. It's not
22 stolen. It was a fraud. They didn't steal it from
23 anybody. They miss -- they diverted money.
24 JUDGE DENNIS: Mr. Quilling,
25 what judgment do you and Mr. Little seek --
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1 MR. QUILLING: What judgment --
2 JUDGE DENNIS: -- from this
3 Court?
4 MR. QUILLING: What judgments we
5 seek? I seek the one that eliminates all of this,
6 both as to principal and interest. If you find that
7 there aren't -- that these are not proper relief
8 defendants, this injunction, this freeze, this duck
9 is dead and all money gets released, principal --
10 JUDGE DENNIS: Do we have
11 jurisdiction?
12 MR. QUILLING: -- and interest.
13 JUDGE DENNIS: Do we have
14 jurisdiction to give you the clarity of relief or
15 anything like that?
16 MR. QUILLING: Well, I think
17 that that depends on how you want to fashion it,
18 Your Honor. There's several ways to get there. If
19 you're not a relief defendant, this is dissolved.
20 If you want to also say, We believe that in this
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21 district or this circuit there will be no ability
22 to pursue principal or any amount above what
23 their -- up until you get your investment back.
24 If you made false profits, that's the
25 law in this circuit, and frankly, that is the law
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1 and probably out to be the law. But the problem
2 that is not really being followed here -- and this
3 is a court of equity, and they champion that. They
4 carry this banner of, This is what we want done.
5 Well, the problem is, it's not
6 equitable to pursue 500 victims to get their money,
7 part of it back in and make their loss bigger, i.e.,
8 the Mississippi Polymers, or pick out one of the
9 retirees in this room today. They are victims, and
10 you're going to take even more money from them and
11 make them a bigger victim.
12 JUDGE GARWOOD: Well, how you
13 going to know -- in other words, suppose the
14 district court said that you can't freeze anybody
15 who hasn't got his money -- you can't freeze anybody
16 who's a net loser, in other words?
17 MR. QUILLING: We wouldn't be
18 here today, Your Honor, if that --
19 JUDGE GARWOOD: I understand
20 that, but how's anybody going to know who's a net
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21 loser?
22 MR. QUILLING: Well, I can tell
23 you each of the victims --
24 JUDGE GARWOOD: These people are
25 all named, is what I'm saying.
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1 MR. QUILLING: Right. Each of
2 the victims know whether they're a net loser, and
3 we've been offering since day one to provide that
4 information to the receiver. He simply says, I've
5 got the cards, you're not getting to look at them
6 and I don't want to know what the real cards say.
7 We know who the victims are, and we know -- if there
8 would just be a procedure that the district judge,
9 if you submit your evidence --
10 JUDGE GARWOOD: Some sort of
11 summary proceeding? Is that what you would do? I
12 don't quite understand what you --
13 MR. QUILLING: Yes, Your Honor.
14 Let me go to court on behalf of my clients and say,
15 Here's the evidence, this is how much we got, this
16 is the time frame; we're a net loser, all your money
17 gets released. That could happen.
18 I know my time's about to run out. I
19 just want to repeat this: These are net losers.
20 This is a duck. It is time for this Court to shoot
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21 this duck and let this money go. It's been nine
22 months. Thank you.
23 JUDGE DENNIS: Thank you,
24 Mr. Quilling. Mr. Post?
25
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1 ORAL ARGUMENT
2 MR. POST: Thank you, Your
3 Honor. May it please the Court, Michael Post on
4 behalf of the Securities and Exchange Commission.
5 The freeze that has been on these innocent fraud
6 victims' accounts since February of this year should
7 finally be lifted. The receiver's claims lack
8 statutory and case law support, and they are
9 inequitable. It bears emphasizing that the standard
10 before the Court here that governs its decision is a
11 likelihood --
12 JUDGE GARWOOD: Lift the mic a
13 little bit there.
14 MR. POST: I'm sorry. The
15 element for the injunctive relief that bears
16 emphasizing here is the receiver has the ultimate
17 burden of showing a likelihood of success on the
18 merits. He, however, has failed to cite a single
19 case even involving what he's attempting here, a
20 claim by a receiver for -- against an innocent
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21 investor named as a relief defendant. And it's
22 difficult to understand how he could have carried
23 his burden to show a likelihood of success on the
24 merits in this situation.
25 The most logically applicable body of
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1 law is that of Fraudulent Transfer Acts, and that's
2 the law under which receivers and trustees and
3 bankruptcy have proceeded in these factual
4 scenarios. It's undisputed that his claims would
5 fail under fraudulent transfer provisions, because
6 these investors took in good faith and gave
7 reasonably equivalent value.
8 So the receiver is attempting to make
9 an end run around the most logically applicable body
10 of law and invoking the Court's generic equity
11 powers. He hasn't asserted a recognized cause of
12 action in equity. He seeks a constructive trust of
13 the investors' assets; but a constructive trust is a
14 remedy, not a cause of action.
15 If he had asserted a cause of action
16 for unjust enrichment, it would also certainly fail
17 because it wouldn't be inequitable for the receiver,
18 for the investors to keep the benefit that they
19 received up to the amount of their initial
20 investment.
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21 The cases the receiver cites,
22 including from this circuit, sanctioning a pro rata
23 distribution, are off point. What we're talking
24 about here is a plaintiff seeking a judgment,
25 disgorgement of monies from the investors that the
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1 receiver has acknowledged the investors own. The
2 pro rata distribution cases are simply approving a
3 principle that once you've already amassed monies
4 into the receivership estate, that it's equitable to
5 distribute it on a pro rata basis, and it's within
6 the district court's discretion to do that.
7 Entirely different equities and legal
8 principles are implicated when, as in this instance,
9 the receiver has already been -- has -- the
10 receiver -- the investors already have an ownership
11 interest in the funds.
12 JUDGE GARWOOD: If one concedes
13 or concludes that these defendant investors are not
14 relief defendants, that is to say, that they have
15 some legitimate claim, some right to a portion of
16 these assets at least, if one concludes that they're
17 not historic relief defendants, what -- how does the
18 receiver have the right to bring this as opposed to
19 the SEC?
20 In other words, the receiver is not a
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21 party to the case, and I guess the courts have
22 recognized some expansion of what a receiver can do
23 to handle these so-called relief defendants who are
24 not -- don't really have any actual substantive
25 claim at all to the assets in question. But why
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1 shouldn't it be the SEC that seeks to recover from
2 these people?
3 MR. POST: It should be the SEC,
4 Your Honor. The SEC is the primary agency entrusted
5 by Congress with the enforcement of the federal
6 securities laws and the protection of the investing
7 public. The Commission is the agency that filed the
8 underlying enforcement action here. The receiver
9 was appointed at the SEC's request. The Commission
10 has authority to ask courts to set up fair funds
11 under the Sarbanes-Oxley act in order to distribute
12 disgorgement funds into victim investors.
13 If, as Your Honor's question
14 supposes, if the investors are not proper relief
15 defendants, the receiver could assert claims against
16 investors such as these in this case under the
17 Fraudulent Transfer Act. Those claims, however,
18 would be dead on arrival and the receiver could not
19 show a likelihood of success on the merits and this
20 freeze should be lifted.
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21 JUDGE DENNIS: Mr. Post, your
22 time is expired.
23 MR. POST: Thank you, Your
24 Honor.
25 JUDGE DENNIS: Thank you.
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1 Mr. Sadler, you have 10 minutes on rebuttal.
2 REBUTTAL
3 MR. SADLER: Thank you, Your
4 Honor. Let me pick up -- there are a number of
5 points to cover in a limited time. But let me pick
6 up on what was just said, the idea that if the
7 receiver were restricted by this Court's ruling to
8 pursue only statutory fraudulent transfer claims.
9 Let's focus on that for a minute.
10 First, look at the Shoals case and
11 the Donnell case and what is boilerplate,
12 black-letter, fraudulent transfer law. In a Ponzi
13 scheme you have actual fraud, and what that means is
14 a receiver can recover the entire payment unless an
15 investor can prove his affirmative defense. That
16 is fraudulent transfer law. So this idea that
17 our -- if we brought this as a fraudulent transfer
18 claim it'd be dead on arrival is dead wrong.
19 Now, why did we not bring fraudulent
20 transfer claims? And if that's where this Court is
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21 headed, an opinion that says we are restricted to
22 state law fraudulent transfer claims, here's what
23 happens. We have hundreds of trials under different
24 states' fraudulent transfer laws on the investors'
25 affirmative defense of objective good faith. We
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1 will spend millions of dollars wasted in litigation
2 pursuing that kind of process when we have a claim,
3 an equitable claim and remedy that was designed to
4 take care of the Ponzi scheme problem.
5 Fraudulent transfer statutes do
6 differ. For example, here in Louisiana there is not
7 even a fraudulent transfer statute. They have
8 something called a revocatory action with a one-year
9 prescriptive period. Why, why does that matter?
10 Because, Your Honor, we're here trying to establish
11 a uniform rule for dealing with this horrendous
12 problem where we have a few investors who did get
13 some money out and we have thousands of others who
14 have nothing, and we have cases like --
15 JUDGE GARWOOD: Why should you
16 have greater powers than a bankruptcy trustee?
17 MR. SADLER: Your Honor, you
18 said, and I understand the context of what you said,
19 you said we're nobody, and I have to differ with
20 you. We are a federally appointed statutory
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21 receiver under 28 USC, Section 754. We're the only
22 party standing before you whose job it is, whose
23 core job it is to recover assets. That is our
24 specific directive under the Court's order and under
25 the statute.
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1 And why does that matter? Because
2 the SEC has admitted, and we heard other arguments,
3 the SEC's core job is enforcement of the securities
4 laws; and they've come in for a substantial amount
5 of scrutiny on how they've handled that job in both
6 the Madoff case and the Stanford case. The only
7 party before you whose core function it is to
8 recover assets is the receiver.
9 And so what's being asked of you
10 right now is to write an opinion that says an equity
11 receiver appointed ancillary to a federal securities
12 law cannot invoke an equitable remedy to provide
13 equitable relief to thousands of victims, and that
14 is wrong.
15 JUDGE GARWOOD: See, the
16 receiver is an agent of the Court, I think is what
17 you're saying. It's appointed by the Court. It's
18 not appointed by any party to the case.
19 MR. SADLER: Well, that's
20 absolutely right, but we have standing to sue for
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21 the benefit of the victims. Look at the Shoals
22 case, look at the Donnell case, those fraudulent
23 transfer cases they talk about. That's exactly what
24 they say. The receiver steps in once the people
25 running the fraud are removed, and he files lawsuits
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51
1 to recover assets for the benefit of who? Not for
2 the benefit of the receiver, but for the benefit of
3 all the fraud victims. And members of the panel,
4 this is what's getting missed here.
5 JUDGE GARWOOD: But what I still
6 don't understand, why would the law want to give
7 such a receiver powers in excess of a bankruptcy
8 trustee which the Congress passed all these
9 complicated bankruptcy laws and they set up the
10 person who's to collect all this stuff and they've
11 got United States trustees, and all this very
12 sophisticated system with the whole centuries of law
13 behind it? Why should we invent kind of a new
14 system?
15 MR. SADLER: Oh, Your Honor,
16 we're not inventing anything new. Equity receivers,
17 especially equity receivers in Ponzi schemes, have
18 been a feature of federal law for decades. This
19 isn't the first time an equity receiver has been
20 appointed after a Ponzi scheme failed.
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21 And Your Honor, what is being
22 overlooked here, what is being overlooked here is
23 the only person who is standing before you
24 attempting to get relief, not for this minority, but
25 for the thousands of people who have nothing, who
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52
1 literally have one piece of paper that is a phony
2 CD -- they don't have any frozen assets, they don't
3 have assets of any kind, and the only person in this
4 case whose job it is to marshal assets to compensate
5 those victims is this receiver.
6 And it is the most difficult, the
7 most thankless job that anyone can have and what
8 it -- if you tell us we cannot invoke federal
9 equitable principles but instead we have to invoke
10 the fraudulent transfer statutes of 46 states, you
11 have made a job that is already difficult almost
12 impossible.
13 JUDGE GARWOOD: Well, as we told
14 you yesterday, invoke the fraudulent provisions of
15 the Bankruptcy Code.
16 MR. SADLER: But the case is not
17 in bankruptcy, Your Honor. It is following --
18 JUDGE GARWOOD: Well, it
19 would -- I mean, it's got to be eventually for sure.
20 Because, I mean, the whole premise of this thing is
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21 that this defendant or these defendants, other than
22 the innocent transferees, but that these defendants
23 don't have enough money. That's the whole principle
24 of this thing.
25 MR. SADLER: Absolutely it's the
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1 whole principle, and --
2 JUDGE GARWOOD: And therefore,
3 they're bankrupt.
4 MR. SADLER: And Your Honor,
5 Ponzi schemes have been wound up by equity receivers
6 time and time and time again, and we submitted
7 extensive briefing on this in the district court.
8 But if you're going to follow the principle from the
9 Cunningham case, from the original Ponzi scheme
10 case, it says people who are quick enough or lucky
11 enough to get money out from a Ponzi scheme have no
12 preferential right to keep it.
13 And we cited examples in the district
14 court of a baseball player who got $3.6 million out
15 of this Ponzi scheme in the few short weeks before
16 it collapsed at the same time millions of dollars
17 were still pouring into this Ponzi scheme. And the
18 only evidence, the only evidence in this record is
19 our 22-page declaration from our accounting expert
20 who traced the money, just like the money was traced
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21 in SEC versus George.
22 And that affidavit shows that all of
23 these investors were paid with other people's money.
24 There was no real return, there was no interest,
25 there was no return of principal. That's what
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1 happens in a Ponzi scheme. Their money was spent
2 years ago. What they received is someone else's
3 money, and that someone else stands to receive
4 pennies, if anything, from the receiver if the funds
5 that were not -- that were preferentially paid are
6 not returned to the estate.
7 And that is the result we're trying
8 to get to here: All of these assets assembled in a
9 fund where everyone can submit a claim and be
10 treated ratably and equitably, just like was done in
11 the Durham case and in the Forex Asset Management
12 case. And what this does, if you write an opinion
13 that says you're relegated to state fraudulent
14 transfer law, go do that, the money will disappear.
15 These people will be allowed to keep preferential
16 payments when it is undisputed on this record that
17 the money they got was not a real return of
18 principal, it was not a real payment of interest.
19 It came from somebody else who is standing here with
20 nothing, hoping the receiver can collect enough to
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21 make some kind of payment. And if you follow the
22 SEC versus George case, and if you disagree with --
23 JUDGE GARWOOD: [Indiscernible]
24 the SEC seeking that relief and relying on a broad
25 statute concerning the powers of the SEC.
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55
1 MR. SADLER: I differ with you,
2 and here's why: They invoked the equitable power of
3 the Court for that remedy just like the CFTC invoked
4 the equitable power of the Court --
5 JUDGE GARWOOD: They're invoking
6 that equitable power on behalf of and at the request
7 of a party whom the Congress has said has very broad
8 powers.
9 MR. SADLER: Understood, Your
10 Honor, and the problem in this case --
11 JUDGE GARWOOD: And then you're
12 not doing that --
13 MR. SADLER: We're doing it,
14 Your Honor, because the SEC has abandoned, has
15 abandoned its duty and responsibility. They have
16 absolutely abandoned it. They have no policy on
17 these clawback claims. They came to this Court with
18 an amicus brief and said, You know, we don't even
19 have an opinion about whether false profits should
20 be recovered.
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21 You would think in 60 years the SEC
22 should have come up with a formal policy that this
23 Court could look to and defer to. But what do they
24 have? They have a litigation position that is one
25 thing in this case, it's different in SEC versus
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56
1 George.
2 And this may have missed your notice,
3 but what did they just do in one of the biggest
4 hedge fund fraud cases in New York? They went to
5 a federal district judge and they asked that
6 federal district judge, the Reserve Fund Management
7 case -- and it's cited in our reply brief -- and
8 they asked the federal district judge to appoint an
9 equity receiver to do what? To pursue clawback
10 claims against investors who cashed out early.
11 That is exactly what we're doing
12 here. We ask that the judgment of the district
13 court insofar as letting us pursue our equitable
14 claim be affirmed, that it be reversed as to any
15 limits on that and we be allowed to bring all of
16 these assets back into the estate. Thank you very
17 much.
18 JUDGE DENNIS: Now that
19 concludes this case and we will have a...
20 [End of recording.]
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21
22
23
24
25
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57
1 REPORTER'S CERTIFICATION
2 OF ONLINE RECORDING OF ORAL ARGUMENTS BEFORE THE FIFTH CIRCUIT COURT OF APPEALS 3
4 I, Sandra S. Givens, Certified Shorthand
5 Reporter in and for the State of Texas, hereby
6 certify to the following:
7 That this transcript of the aforementioned
8 online recording is a true record of the recorded
9 arguments as taken down by me;
10 That the transcript was submitted on November
11 4, 2009, via electronic mail, to Baker Botts, LLP;
12 I further certify that I am neither counsel
13 for, related to, nor employed by any of the parties
14 or attorneys in any action to which this recording
15 may relate, and further, that I am not financially
16 or otherwise interested in the outcome of any such
17 action.
18 Certified to by me this 4th day of November,
19 2009.
20 GIVENS COURT REPORTING
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21 9532 Morgan Creek Drive Austin, Texas 78717 22 (512) 301-7088
23
24 ___________________________ SANDRA S. GIVENS, CSR 25 Certification No. 5000 Certificate Expires 12/31/09
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RECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 1
IN THE UNITED STATES DISTRICT COURTFOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
RALPH S. JANVEY, IN HIS CAPACITY AS COURT-APPOINTED RECEIVER FOR THE STANFORD INTERNATIONAL BANK, LTD., ET AL.
Plaintiff,
v.
JAMES R. ALGUIRE, ET AL.
Defendants.
§§§§§§§§§§§§
Case No. 03:09-CV-0724-N
________________________________________________________________________
RECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES
________________________________________________________________________
The Receiver, Ralph S. Janvey, (the “Receiver”) hereby files his Second
Amended Complaint Against Former Stanford Employees (the “Second Amended Complaint”),
stating as follows:
SUMMARY
1. The ultimate purpose of this Receivership is to make the “maximum disbursement
to claimants.” This requires the Receiver to maximize the pool of assets that will be available for
distribution. To accomplish this, the Receiver must take control of all assets of the Estate and
traceable to the Estate, “wherever located,” including money stolen from investors through fraud.
2. The Receiver’s investigation to date reveals that CD sales generated substantially
all of the income for the Stanford Defendants and the many related Stanford entities. Revenue,
let alone any profit, from all other activities and investments was miniscule in comparison.
Money that new investors were deceived into paying to purchase CDs funded the Stanford
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RECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 2
network; lavish offices and appointments; extravagant lifestyles for the individual defendants
and their families; employees’ salaries; Loans, SIBL CD commissions, SIBL Quarterly Bonuses,
Performance Appreciation Rights Plan (“PARS”) Payments, Branch Managing Director
Quarterly Compensation, and Severance Payments (collectively, “CD Proceeds”) to the financial
advisors, managing directors, and other Stanford employees named herein (collectively, the
“Former Stanford Employees”); and purported CD payments in the form of interest and
redemptions to unwitting investors. This fraud endured, in part, by incentivizing a sales force
and its support staff with big commissions and other compensation relating to the sale of CDs.
3. When Stanford paid CD Proceeds to the Former Stanford Employees, he did no
more than take money out of investors’ pockets and put it into the hands of the Former Stanford
Employees. For the more than 20,000 investors who have thus far received little or nothing from
their investment in Stanford CDs, money recovered from wherever it resides today is likely the
only money they will ever receive in restitution. CD Proceeds — comprising Loans, SIBL CD
Commissions, SIBL Quarterly Bonuses, PARS Payments, Branch Managing Director Quarterly
Compensation, and Severance Payments paid to the Former Stanford Employees — are little
more than stolen money and do not belong to the Former Stanford Employees who received such
funds but belong, instead, to the Receivership Estate.
4. The Stanford Defendants kept their fraudulent scheme going by employing the
Former Stanford Employees to lure new investors and then divert the investors’ funds for the
Stanford Defendants’ own illicit purposes. The CD Proceeds paid to the Former Stanford
Employees came not from revenue generated by legitimate business activities, but from monies
contributed by defrauded investors. The Former Stanford Employees received assets traceable to
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RECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 3
the Stanford Defendants’ fraudulent scheme, and they necessarily hold the assets in trust for the
Receivership Estate for the benefit of defrauded investors.
5. At this stage of the Receivership, the Receiver has identified substantial sums of
CD Proceeds paid to the Former Stanford Employees and, through this Second Amended
Complaint, seeks the return of those funds to the Receivership Estate in order to make an
equitable distribution to claimants.
6. At a minimum, the CD Proceeds received by the Former Stanford Employees total
over $215 million. A substantial portion of the fraudulent proceeds were received into accounts
in the name of or controlled by the Former Stanford Employees in the custody of Pershing LLC
(“Pershing”).1 The Former Stanford Employees named herein include: (1) Former Stanford
Employees who have frozen accounts at Pershing, JP Morgan, and SEI; and (2) Former Stanford
Employees who do not presently have any frozen accounts.
7. The Receiver seeks an order that: (a) CD Proceeds received directly or indirectly
by the Former Stanford Employees from fraudulent CDs were fraudulent transfers or, in the
alternative, unjustly enriched the Former Stanford Employees; (b) CD Proceeds received directly
or indirectly by the Former Stanford Employees from fraudulent CDs are property of the
Receivership Estate held pursuant to a constructive trust for the benefit of the Receivership
Estate; (c) each of the Former Stanford Employees is liable to the Receivership Estate for an
amount equaling the amount of CD Proceeds he or she received from fraudulent CDs; (d) the
Receiver may withdraw the assets contained in Pershing, JP Morgan, and SEI accounts in the
names of or controlled by the Former Stanford Employees and add those assets, up to the
amounts of fraudulent CD Proceeds received by the Former Stanford Employees, to the assets of
1 In some instances, the CD Proceeds were received into accounts in the name of or controlled by the Former Stanford Employees in the custody of JP Morgan or SEI Private Trust Company (“SEI”).
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RECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 4
the Receivership Estate; (e) the Former Stanford Employees must pay to the Receiver the
difference, if any, between the amounts contained in their Pershing, JP Morgan, and SEI
accounts, if any, and the total amount of fraudulent CD Proceeds received; and (f) awards
attorney’s fees and costs to the Receiver.
PARTIES
8. The parties to this complaint are the Receiver and the Former Stanford Employees
named below and in the Appendix filed concurrently herewith.
9. The named Former Stanford Employees either have already been served or will be
served pursuant to the Federal Rules of Civil Procedure, through their attorneys of record, or by
other means approved by order of this Court.
PROCEDURAL HISTORY
10. On April 21, 2009, the Receiver filed a Complaint Naming Stanford Financial
Group Advisors as Relief Defendants (Doc. 2). On July 28, 2009, the Receiver filed an
Amended Complaint Naming Relief Defendants (Doc. 14) and an Appendix in support thereof
(Doc. 15). The July 28th Amended Complaint named investors, certain former Stanford
financial advisors, Pershing, and SEI as relief defendants. On August 26, 2009, the Receiver
filed a Supplemental Complaint against Stanford Financial Group Advisors (Doc. 52) and an
Appendix in support thereof (Doc. 53). On September 29, 2009, the Receiver filed a Second
Supplemental Complaint against Stanford Managing Directors and Additional Stanford Financial
Group Advisors (Doc. 95) and an Appendix in support thereof (Doc. 96). On November 13,
2009, the Receiver filed a First Amended Complaint Against Former Stanford Employees (Doc.
118) and an Appendix in support thereof (Doc. 119), in which he asserted relief-defendant claims
and, in the alternative, fraudulent-transfer and unjust-enrichment claims against the Former
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RECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 5
Stanford Employees. The Receiver now respectfully files this Second Amended Complaint
Against Former Stanford Employees and an Appendix in support, amending herein his claims
against the Former Stanford Employees to dismiss the relief-defendant claims against them in
light of the recent decision of the U.S. Court of Appeals for the Fifth Circuit in Janvey v. Adams,
Nos. 09-10761 & 09-10765, 2009 WL 3791623 (5th Cir. Nov. 13, 2009). The Receiver
continues to assert fraudulent-transfer claims and, in the alternative, unjust-enrichment claims
against the Former Stanford Employees.
11. This complaint does not amend nor is it intended to impact the claims asserted by
the Receiver in this lawsuit against any category of defendants other than the Former Stanford
Employees. This Second Amended Complaint Against Former Stanford Employees does not
alter or amend the claims the Receiver asserted against certain Stanford investors in his First
Amended Complaint Against Certain Stanford Investors (Doc. 128) and the Appendix thereto
(Doc. 129). Moreover, this Second Amended Complaint Against Former Stanford Employees
does not alter or amend the claims the Receiver asserted against Pershing and SEI in his
Amended Complaint Naming Relief Defendants (Doc. 14) and the supporting Appendix (Doc.
15).
JURISDICTION & VENUE
12. This Court has jurisdiction over this action, and venue is proper, under Section
22(a) of the Securities Act (15 U.S.C. § 77v(a)), Section 27 of the Exchange Act (15 U.S.C.
§ 78aa), and under Chapter 49 of Title 28, Judiciary and Judicial Procedure (28 U.S.C. § 754).
13. Further, as the Court that appointed the Receiver, this Court has jurisdiction over
any claim brought by the Receiver to execute his Receivership duties.
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RECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 6
14. Further, within 10 days of his appointment, the Receiver filed the original
Complaint and Order Appointing the Receiver in 29 United States district courts pursuant to 28
U.S.C. § 754, giving this Court in rem and in personam jurisdiction in each district where the
Complaint and Order have been filed.
15. Further, each of the Former Stanford Employees who submitted an Application
for Review and Potential Release of Stanford Group Company (“SGC”) Brokerage Accounts
made the following declaration: “By filing this application, I submit to the exclusive jurisdiction
of the United States District Court for the Northern District of Texas, Dallas Division and
irrevocably waive any right I or any entity I control may otherwise have to object to any action
being brought in the Court or to claim that the Court does not have jurisdiction over the matters
relating to my account.”
16. Further, a number of the Former Stanford Employees have filed motions to
intervene in SEC v. Stanford International Bank, Ltd., et al., Case No. 3:09-cv-298-N. By filing
motions to intervene, they have consented as a matter of law to the Court’s personal jurisdiction.
See In re Bayshore Ford Trucks Sales, Inc., 471 F.3d 1233, 1246 (11th Cir. 2006); County Sec.
Agency v. Ohio Dep’t of Commerce, 296 F.3d 477, 483 (6th Cir. 2002); Pharm. Research &
Mfrs. v. Thompson, 259 F. Supp. 2d 39, 59 (D.D.C. 2003); City of Santa Clara v. Kleppe, 428 F.
Supp. 315, 317 (N.D. Ca. 1976).
STATEMENT OF FACTS
17. On February 16, 2009, the Securities and Exchange Commission commenced a
lawsuit in this Court against R. Allen Stanford, two associates, James M. Davis and Laura
Pendergest-Holt, and three of Mr. Stanford’s companies, Stanford International Bank, Ltd.
(“SIB,” “SIBL,” or “the Bank”), SGC, and Stanford Capital Management, LLC (collectively, the
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RECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 7
“Stanford Defendants”). On the same date, the Court entered an Order appointing a Receiver,
Ralph S. Janvey, over all property, assets, and records of the Stanford Defendants, and all entities
they own or control.
I. Stanford Defendants Operated a Fraudulent Ponzi Scheme
18. As alleged by the SEC, the Stanford Defendants marketed fraudulent SIBL CDs
to investors exclusively through SGC financial advisors pursuant to a Regulation D private
placement. SEC’s First Amended Complaint (Doc. 48), ¶ 23.2 The CDs were sold by Stanford
International Bank, Ltd. Id.
19. The Stanford Defendants orchestrated and operated a wide-ranging Ponzi scheme.
Defendant James M. Davis has admitted that the Stanford fraud was a Ponzi scheme from the
beginning. Doc. 771 (Davis Plea Agreement) at ¶ 17(n) (Stanford, Davis, and other conspirators
created a “massive Ponzi scheme”); Doc. 807 (Davis Tr. of Rearraignment) at 16:16-17, 21:6-8,
21:15-17 (admitting the Stanford Ponzi fraud was a “massive Ponzi scheme ab initio”).
20. In marketing, selling, and issuing CDs to investors, the Stanford Defendants
repeatedly touted the CDs’ safety and security and SIBL’s consistent, double-digit returns on its
investment portfolio. Id. ¶ 31.
21. In its brochure, SIBL told investors, under the heading “Depositor Security,” that
its investment philosophy is “anchored in time-proven conservative criteria, promoting stability
in [the Bank’s] certificate of deposit.” SIBL also emphasized that its “prudent approach and
methodology translate into deposit security for our customers.” Id. ¶ 32. Further, SIBL stressed
the importance of investing in “marketable” securities, saying that “maintaining the highest
degree of liquidity” was a “protective factor for our depositors.” Id. ¶ 45.
2 Unless otherwise stated, citations to Court records herein are from the case styled SEC v. Stanford Int’l Bank, Ltd., et al., Civil Action No. 3-09-CV-0298-N.
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22. In its 2006 and 2007 Annual Reports, SIBL told investors that the Bank’s assets
were invested in a “well-balanced global portfolio of marketable financial instruments, namely
U.S. and international securities and fiduciary placements.” Id. ¶ 44. More specifically, SIBL
represented that its 2007 portfolio allocation was 58.6% equity, 18.6% fixed income, 7.2%
precious metals and 15.6% alternative investments. Id.
23. Consistent with its Annual Reports and brochures, SIBL trained SGC financial
advisors, in February 2008, that “liquidity/marketability of SIB’s invested assets” was the “most
important factor to provide security to SIB clients.” Id. ¶ 46. In training materials, the Stanford
Defendants also claimed that SIBL had earned consistently high returns on its investment of
deposits (ranging from 11.5% in 2005 to 16.5% in 1993). Id. ¶ 24.
24. Contrary to the Stanford Defendants’ representations regarding the liquidity of its
portfolio, SIBL did not invest in a “well-diversified portfolio of highly marketable securities.”
Instead, significant portions of the Bank’s portfolio were misappropriated by Defendant Allen
Stanford and were either placed in speculative investments (many of them illiquid, such as
private equity deals), diverted to other Stanford Entities “on behalf of shareholder” - i.e., for the
benefit of Allen Stanford, or used to finance Allen Stanford’s lavish lifestyle (e.g., jet planes, a
yacht, other pleasure craft, luxury cars, homes, travel, company credit card, etc.). In fact, at
year-end 2008, the largest segments of the Bank’s portfolio were: (i) at least $1.6 billion in
undocumented “loans” to Defendant Allen Stanford; (ii) private equity; and (iii) over-valued real
estate. Id. ¶¶ 24, 48.
25. In an effort to conceal their fraud and ensure that investors continued to purchase
the CD, the Stanford Defendants fabricated the performance of SIBL’s investment portfolio. Id.
¶ 5.
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26. SIBL’s financial statements, including its investment income, were fictional. Id.
¶ 37. In calculating SIBL’s investment income, Defendants Stanford and James Davis provided
to SIBL’s internal accountants a pre-determined return on investment for the Bank’s portfolio.
Id. Using this pre-determined number, SIBL’s accountants reverse-engineered the Bank’s
financial statements to reflect investment income that SIBL did not actually earn. Id.
27. For a time, the Stanford Defendants were able to keep the fraud going by using
funds from current sales of SIBL CDs to make purported interest and redemption payments on
pre-existing CDs. See id. ¶ 1. However, in late 2008 and early 2009, CD redemptions increased
to the point that new CD sales were inadequate to cover redemptions and normal operating
expenses. As the depletion of liquid assets accelerated, this fraudulent Ponzi scheme collapsed.
II. The Stanford Defendants Transferred CD Proceeds from the Fraudulent Ponzi Scheme to the Former Stanford Employees
28. The Stanford Defendants used an elaborate and sophisticated incentive program to
keep the Former Stanford Employees highly motivated to sell SIBL CDs to brokerage customers.
Id. ¶¶ 27-28. The program included Loans, high SIBL CD Commission rates, SIBL Quarterly
Bonuses, PARS Payments, Branch Managing Director Quarterly Compensation, and Severance
Payments all closely tied to maintaining the Stanford Defendants’ portfolio of CDs. In 2007,
SIB paid SGC and its affiliates more than $291 million in management fees for CD sales, up
from $211 million in 2006. Id. ¶ 29. As a result of SGC’s aggressive sales tactics, a significant
percentage of SGC customers bought CDs from SIBL. Id. ¶ 22.
29. In addition to the other categories of CD Proceeds, Former Stanford Employees
who were managing directors received Branch Managing Director Quarterly Compensation
payments for their respective branches’ sales of SIBL CDs. These Branch Managing Director
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Quarterly Compensation payments were based upon each branch’s gross CD revenue and upon
any profits from the sales of CDs.
30. CD Proceeds from the fraudulent Ponzi scheme described above were transferred
by the Stanford Defendants to the Former Stanford Employees solely for the purpose of
concealing and perpetuating the fraudulent scheme. Such CD Proceeds were paid to the Former
Stanford Employees from funds supplied by investors who bought the fraudulent CDs. The
Former Stanford Employees either performed no services in exchange for the CD Proceeds or
performed only services that were in furtherance of the Ponzi scheme in exchange for the CD
Proceeds. See Warfield v. Byron, 436 F.3d 551, 558-60 (5th Cir. 2006) (transfers made from
Ponzi scheme are made with intent to defraud; broker who worked for Ponzi scheme did not
provide reasonably equivalent value in return for fraudulent transfers); In re Randy, 189 B.R.
425, 438-39 (Bankr. N.D. Ill. 1995) (as illegal services premised on illegal contracts, broker
services provided in furtherance of a Ponzi scheme do not provide reasonably equivalent value).
The CD Proceeds the Former Stanford Employees received are, therefore, properly considered
assets of the Receivership Estate and must be returned to the Receivership Estate to compensate
victims of the Stanford fraud according to principles of law and equity.
REQUESTED RELIEF
31. This Court appointed Ralph S. Janvey as Receiver for the “assets, monies,
securities, properties, real and personal, tangible and intangible, of whatever kind and
description, wherever located, and the legally recognized privileges (with regard to the entities),
of the Defendants and all entities they own or control,” including those of the Stanford Group
Company brokerage firm. Order Appointing Receiver (Doc. 10) at ¶¶ 1-2; Amended Order
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Appx. Page 180
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Appointing Receiver (Doc. 157) at ¶¶ 1-2. The Receiver seeks the relief described below in this
capacity.
32. Paragraph 4 of the Order Appointing Receiver, entered by the Court on February
16, 2009, authorizes the Receiver “to immediately take and have complete and exclusive control,
possession, and custody of the Receivership Estate and to any assets traceable to assets owned by
the Receivership Estate.” Order Appointing Receiver (Doc. 10) at ¶ 4; Amended Order
Appointing Receiver (Doc. 157) at ¶ 4. Paragraph 5(c) of the Order specifically authorizes the
Receiver to “[i]nstitute such actions or proceedings [in this Court] to impose a constructive trust,
obtain possession, and/or recover judgment with respect to persons or entities who received
assets or records traceable to the Receivership Estate.” Order Appointing Receiver (Doc. 10) at
¶ 5(c); Amended Order Appointing Receiver (Doc. 157) at ¶ 5(c).
33. One of the Receiver’s key duties is to maximize distributions to defrauded
investors and other claimants. See Amended Order Appointing Receiver (Doc. 157) at ¶ 5(g), (j)
(ordering the Receiver to “[p]reserve the Receivership Estate and minimize expenses in
furtherance of maximum and timely disbursement thereof to claimants”); Scholes v. Lehmann, 56
F.3d 750, 755 (7th Cir. 1995) (receiver’s “only object is to maximize the value of the [estate
assets] for the benefit of their investors and any creditors”); SEC v. TLC Invs. & Trade Co., 147
F. Supp. 2d 1031, 1042 (C.D. Cal. 2001); SEC v. Kings Real Estate Inv. Trust, 222 F.R.D. 660,
669 (D. Kan. 2004). But before the Receiver can attempt to make victims whole, he must locate
and take exclusive control and possession of assets of the Estate or assets traceable to the Estate.
Doc. 157 ¶ 5(b).
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I. The Receiver is Entitled to Disgorgement of CD Proceeds Fraudulently Transferred to the Former Stanford Employees
34. The Receiver is entitled to disgorgement of all CD Proceeds paid to the Former
Stanford Employees because such payments constitute fraudulent transfers under applicable law.
The Stanford Defendants transferred the CD Proceeds to the Former Stanford Employees with
actual intent to hinder, delay, or defraud their creditors; as a result, the Receiver is entitled to the
disgorgement of those CD Proceeds from the Former Stanford Employees.
35. The Receiver may avoid transfers made with the actual intent to hinder, delay, or
defraud creditors. “[T]ransfers made from a Ponzi scheme are presumptively made with intent to
defraud, because a Ponzi scheme is, as a matter of law, insolvent from inception.” Quilling v.
Schonsky, No. 07-10093, 2007 WL 2710703, at *2 (5th Cir. Sept. 18, 2007); see also Warfield,
436 F.3d at 558. The uncontroverted facts establish that the Stanford Defendants were running a
Ponzi scheme and, to keep the scheme going, paid the Former Stanford Employees with CD
Proceeds taken from unwitting SIBL CD investors. The Receiver is, therefore, entitled to
disgorgement of the fraudulently transferred CD Proceeds that the Former Stanford Employees
received.
36. Consequently, the burden is on the Former Stanford Employees to establish an
affirmative defense, if any, of both objective good faith and provision of reasonably equivalent
value. See, e.g., Scholes, 56 F.3d at 756-57 (“If the plaintiff proves fraudulent intent, the burden
is on the defendant to show that the fraud was harmless because the debtor’s assets were not
depleted even slightly.”). The Receiver is, therefore, entitled to recover the full amount of CD
Proceeds that the Former Stanford Employees received, unless the Former Stanford Employees
prove both objective good faith and reasonably equivalent value.
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37. The good-faith element of this affirmative defense requires that the Former
Stanford Employees prove objective — not subjective — good faith. Warfield, 436 F.3d at
559-560 (good faith is determined under an “objectively knew or should have known” standard);
In re IFS Fin. Corp., Bankr. No. 02-39553, 2009 WL 2986928, at *15 (Bankr. S.D. Tex. Sept. 9,
2009) (objective standard is applied to determine good faith); Quilling v. Stark, No.
3-05-CV-1976-BD, 2007 WL 415351, at *3 (N.D. Tex. Feb. 7, 2007) (good faith “must be
analyzed under an objective, rather than a subjective, standard. The relevant inquiry is what the
transferee objectively knew or should have known instead of examining the transferee’s actual
knowledge from a subjective standpoint.”) (internal citations and quotation marks omitted).
38. In addition, the Fifth Circuit has held that providing brokerage services in
furtherance of a Ponzi scheme does not confer reasonably equivalent value and that a receiver
can recover from brokers the commissions they received for recruiting other investors into the
scheme. Warfield, 436 F.3d at 555, 560. The Warfield court eloquently observed that “[i]t takes
cheek to contend that in exchange for payments he received, the . . . Ponzi scheme benefited
from [the broker’s] efforts to extend the fraud by securing new investments.” Id. at 560 (citing
Randy, 189 B.R. at 438-39, for the proposition that “as illegal services premised on illegal
contracts, broker services provided in furtherance of a Ponzi scheme do not provide reasonably
equivalent value”). The Former Stanford Employees cannot now claim that, in return for
furthering the Ponzi scheme and helping it endure, they should be entitled to keep the Loans,
SIBL CD Commissions, SIBL Quarterly Bonuses, PARS Payments, Branch Managing Director
Quarterly Compensation, and Severance Payments taken from the defrauded victims who
invested in SIBL CDs. Because the Former Stanford Employees cannot meet their burden to
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establish that they provided reasonably equivalent value for the CD Proceeds, the Receiver is
entitled to the disgorgement of those funds.
39. Moreover, under applicable fraudulent transfer law, the Receiver is entitled to
attorney’s fees and costs for his claims against the Former Stanford Employees. See, e.g., TEX.
BUS. & COM. CODE ANN. § 24.013 (Vernon 2009) (“[T]he court may award costs and reasonable
attorney’s fees as are equitable and just.”). As a result, the Receiver requests reasonable
attorney’s fees and costs for prosecuting his fraudulent-transfer claims against the Former
Stanford Employees.
40. In order to carry out the duties delegated to him by this Court, the Receiver seeks
complete and exclusive control, possession, and custody of the CD Proceeds received by the
Former Stanford Employees.
41. The Stanford Defendants, who orchestrated the Ponzi scheme, transferred the CD
Proceeds to the Former Stanford Employees with actual intent to hinder, delay, or defraud their
creditors. The Receiver is, therefore, entitled to disgorgement of all CD Proceeds fraudulently
transferred to the Former Stanford Employees. Pursuant to the equity powers of this Court, the
Receiver therefore seeks an order (a) establishing that the CD Proceeds received directly or
indirectly by the Former Stanford Employees from fraudulent CDs were fraudulent transfers; (b)
ordering that CD Proceeds received directly or indirectly by the Former Stanford Employees
from fraudulent CDs are property of the Receivership Estate held pursuant to a constructive trust
for the benefit of the Receivership Estate; (c) ordering that each of the Former Stanford
Employees is liable to the Receivership Estate for an amount equaling the amount of CD
Proceeds he or she received; (d) allowing the Receiver to withdraw the assets contained in
Pershing, JP Morgan, and SEI accounts in the names of or controlled by the Former Stanford
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Appx. Page 184
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Employees and add those assets, up to the amounts of CD Proceeds received by the Former
Stanford Employees, to the assets of the Receivership Estate; (e) ordering the Former Stanford
Employees to pay to the Receiver the difference, if any, between the amounts contained in their
Pershing, JP Morgan, and SEI accounts and the total amount of CD Proceeds received by the
Former Stanford Employees; and (f) awarding attorney’s fees and costs to the Receiver.
II. In the Alternative, the Receiver is Entitled to Disgorgement of CD Proceeds from the Former Stanford Employees under the Doctrine of Unjust Enrichment
42. In the alternative, the Receiver is entitled to disgorgement of the CD Proceeds
paid to the Former Stanford Employees pursuant to the doctrine of unjust enrichment under
applicable law. The Former Stanford Employees hold CD Proceeds that in equity and good
conscience belong to the Receivership for ultimate distribution to the defrauded investors. The
Former Stanford Employees have been unjustly enriched by the CD Proceeds, and it would be
unconscionable for them to retain the CD Proceeds.
43. In order to carry out the duties delegated to him by this Court, the Receiver seeks
complete and exclusive control, possession, and custody of all CD Proceeds received by the
Former Stanford Employees.
44. The Former Stanford Employees have been unjustly enriched by their receipt of
the CD Proceeds. Pursuant to the equity powers of this Court, the Receiver therefore seeks an
order (a) establishing that each of the Former Stanford Employees were unjustly enriched by CD
Proceeds received directly or indirectly from fraudulent CDs; (b) ordering that CD Proceeds
received directly or indirectly by the Former Stanford Employees from fraudulent CDs are
property of the Receivership Estate held pursuant to a constructive trust for the benefit of the
Receivership Estate; (c) ordering that each of the Former Stanford Employees is liable to the
Receivership Estate for an amount equaling the amount of CD Proceeds he or she received; (d)
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Appx. Page 185
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allowing the Receiver to withdraw the assets contained in Pershing, JP Morgan, and SEI
accounts in the names of or controlled by the Former Stanford Employees and add those assets,
up to the amounts of CD Proceeds received by the Former Stanford Employees, to the assets of
the Receivership Estate; (e) ordering the Former Stanford Employees to pay to the Receiver the
difference, if any, between the amounts contained in their Pershing, JP Morgan, and SEI
accounts and the total amount of CD Proceeds received by the Former Stanford Employees; and
(f) awarding attorney’s fees and costs to the Receiver.
THE FORMER STANFORD EMPLOYEES’ CD PROCEEDS
45. The Former Stanford Employees named below and in the Appendix were
employed as financial advisors, as managing directors, or in other positions with the Stanford
Defendants.3 These Former Stanford Employees received CD Proceeds ranging in amounts from
$50,000 to over $4.5 million. See App. 1-10. Each of these Former Stanford Employees
received, at a minimum, the CD Proceeds amounts associated with his or her name in the
Appendix. See id. Collectively, the Former Stanford Employees received more than
$215 million in such payments, at least. Id. at 10.
46. The Former Stanford Employees who received each category of CD Proceeds —
namely Loans, SIBL CD Commissions, SIBL Quarterly Bonuses, PARS Payments, Branch
Managing Director Quarterly Compensation, and Severance Payments — are named below.
47. The Receiver is entitled to disgorgement of all of these CD Proceeds fraudulently
transferred to the Former Stanford Employees, since the Stanford Defendants transferred the CD
3 In his First Supplemental Complaint, the Receiver brought relief-defendant and, alternatively, fraudulent-transfer claims against Elsida Prieto. But because Elsida Prieto has since filed for bankruptcy, the Receiver is not amending his claims as to her at this time. Moreover, the Receiver brought relief-defendant and, alternatively, fraudulent-transfer and unjust-enrichment claims against David Haggard in the Receiver’s First Amended Complaint Against Former Stanford Employees. But because Haggard has since filed for bankruptcy, the Receiver is not amending his claims as to Haggard at this time.
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Appx. Page 186
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Proceeds to them with actual intent to hinder, delay, or defraud the Stanford Defendants’
creditors.
48. In the alternative, the Receiver is entitled to disgorgement of all of these CD
Proceeds from the Former Stanford Employees because they have been unjustly enriched by
such funds.
I. Former Stanford Employees Who Received Loans
49. The following Former Stanford Employees received CD Proceeds in the form of
Loans: Paul Adkins; James R. Alguire; John Michael Arthur; Donald Bahrenburg; Brown Baine;
Timothy Bambauer; Stephen R. Barber; Jonathan Barrack; Teral Bennett; Andrea Berger;
Norman Blake; Stephen G. Blumenreich; Michael Bober; Nigel Bowman; Brad Bradham;
Charles Brickey; Alan Brookshire; Nancy Brownlee; Richard Bucher; George Cairnes; Robert
Bryan Cannon; Frank Carpin; James C. Chandley; Naveen Chaudhary; Susana Cisneros; Ron
Clayton; Neal Clement; Christopher Collier; Jay Comeaux; Michael Conrad; James Cox; John
Cravens; Ken Crimmins; Shawn M. Cross; Patrick Cruickshank; Greg R Day; William S.
Decker; Michael DeGolier; Ray Deragon; Arturo R. Diaz; Matthew Drews; Sean Duffy;
Christopher Shannon Elliotte; Jason Fair; Nolan Farhy; Evan Farrell; Bianca Fernandez; John
Fry; Roger Fuller; Attlee Gaal; David Braxton Gay; Mark Gensch; Gregory C. Gibson; Michael
D. Gifford; Steven Glasgow; John Glennon; Susan Glynn; Larry Goldsmith; Russell Warden
Good; John Grear; Stephen Greenhaw; Billy Ray Gross; Donna Guerrero; John Gutfranski;
Rodney Hadfield; Gary Haindel; Charles Hazlett; Robert Hogue; John Holliday; Charles
Hughes; Wiley Hutchins, Jr.; David Innes; Allen Johnson; David Wayne Krumrey; Bruce Lang;
Grady Layfield; James LeBaron; William Leighton; Robert Lenoir; Gary Lieberman; Jason
Likens; Trevor Ling; Robert Long, Jr.; Christopher Long; Humberto Lopez; David Lundquist;
Michael MacDonald; Anthony Makransky; Michael Mansur; Bert Deems May, Jr.; Carol
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Appx. Page 187
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McCann; Douglas McDaniel; Matthew McDaniel; Lawrence Messina; Nolan N. Metzger;
William J. Metzinger; Donald Miller; Trenton Miller; Brent B. Milner; Peter Montalbano; David
Morgan; Shawn Morgan; Jonathan Mote; Carroll Mullis; Spencer Murchison; Jon Nee; Aaron
Nelson; Scott Notowich; Monica Novitsky; Kale Olson; John D. Orcutt; Zack Parrish; Tim
Parsons; William Peerman; Lou Perry; Brandon R. Phillips; Randall Pickett; Christopher Prindle;
A. Steven Pritsios; Michael Ralby; David Rappaport; Charles Rawl; Steven Restifo; Walter
Ricardo; Jeffrey Ricks; Alan Riffle; Randolph E. Robertson; Steve Robinson; Timothy D.
Rogers; Eddie Rollins; John Santi; Christopher K. Schaefer; Harvey Schwartz; William Scott;
Haygood Seawell; Leonard Seawell; Doug Shaw; Nick Sherrod; Jordan Sibler; Brent Simmons;
Edward Simmons; Steve Slewitzke; Sanford Steinberg; Heath Stephens; William O. Stone Jr.;
David M. Stubbs; Mark V. Stys; Paula S. Sutton; William Brent Sutton; Scot Thigpen;
Christopher Thomas; Mark Tidwell; Jose Torres; Al Trullenque; Audrey Truman; Eric Urena;
Miguel Valdez; Tim Vanderver; Ettore Ventrice; Chris Villemarette; Charles Vollmer; James
Weller; Bill Whitaker; Donald Whitley; Charles Widener; John Whitfield Wilks; Thomas
Woolsey; Michael Word; Ryan Wrobleske; and Bernerd E. Young. Each of these Former
Stanford Employees received, at a minimum, the Loan amount associated with his or her name in
the Appendix.
II. Former Stanford Employees Who Received SIBL CD Commissions
50. The following Former Stanford Employees received CD Proceeds in the form of
SIBL CD Commissions: Paul Adkins; Jeannette Aguilar; James R. Alguire; Peggy Allen;
Orlando Amaya; Victoria Anctil; Tiffany Angelle; Susana Anguiano; Sylvia Aquino; George
Arnold; John Michael Arthur; Donald Bahrenburg; Brown Baine; Timothy Bambauer; Elias
Barbar; Jonathan Barrack; Robert Barrett; Marie Bautista; Teral Bennett; Andrea Berger;
Norman Blake; Michael Bober; Nigel Bowman; Brad Bradham; Alexandre Braune; Charles
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Appx. Page 188
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Brickey; Nancy Brownlee; Fausto Callava; Scott Chaisson; Susana Cisneros; Ron Clayton; Neal
Clement; Christopher Collier; Jay Comeaux; Michael Conrad; Don Cooper; Jose Cordero; James
Cox; John Cravens; Ken Crimmins; Patrick Cruickshank; Michael DeGolier; Ray Deragon;
Arturo R. Diaz; Matthew Drews; Abraham Dubrovsky; Thomas Espy; Jason Fair; Nolan Farhy;
Evan Farrell; Rosalia Fontanals; James Fontenot; John Fry; Roger Fuller; Attlee Gaal; Miguel A.
Garces; Gregg Gelber; John Glennon; Larry Goldsmith; Joaquin Gonzalez; Russell Warden
Good; Jason Green; Mark Groesbeck; Vivian Guarch; Gary Haindel; Jon Hanna; Dirk Harris;
Virgil Harris; Daniel Hernandez; Patrica Herr; Steven Hoffman; Robert Hogue; John Holliday;
Charles Hughes; Charles Jantzi; Allen Johnson; Joseph L. Klingen; Bruce Lang; Grady Layfield;
James LeBaron; Jason LeBlanc; William Leighton; Robert Lenoir; Trevor Ling; Christopher
Long; Humberto Lopez; Michael MacDonald; Anthony Makransky; Manuel Malvaez; Maria
Manerba; Michael Mansur; Janie Martinez; Claudia Martinez; Aymeric Martinoia; Douglas
McDaniel; Matthew McDaniel; Pam McGowan; Gerardo Meave-Flores; Lawrence Messina;
Donald Miller; Trenton Miller; Hank Mills; Peter Montalbano; Rolando H. Mora; David
Morgan; Shawn Morgan; Spencer Murchison; David Nanes; Jon Nee; Aaron Nelson; Russell C.
Newton, Jr.; Norbert Nieuw; Lupe Northam; Scott Notowich; Monica Novitsky; Tim Parsons;
William Peerman; Roberto Pena; Roberto A. Pena; Dulce Perezmora; Saraminta Perez; Tony
Perez; Lou Perry; Randall Pickett; Edward Prieto; Christopher Prindle; A. Steven Pritsios; Judith
Quinones; Sumeet Rai; Michael Ralby; Leonor Ramirez; Nelson Ramirez; Charles Rawl; Steven
Restifo; Walter Ricardo; Jeffrey Ricks; Alan Riffle; Steve Robinson; Eddie Rollins; Rocky Roys;
John Santi; Louis Schaufele; John Schwab; Harvey Schwartz; William Scott; Haygood Seawell;
Leonard Seawell; Doug Shaw; Brent Simmons; Steve Slewitzke; Paul Stanley; Sanford
Steinberg; Heath Stephens; William O. Stone Jr.; Christopher Thomas; Mark Tidwell; Jose
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RECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 20
Torres; Al Trullenque; Audrey Truman; Roberto Ulloa; Eric Urena; Miguel Valdez; Tim
Vanderver; Jaime Vargas; Pete Vargas; Ettore Ventrice; Maria Villanueva; Charles Vollmer; Bill
Whitaker; David Whittemore; Charles Widener; Thomas Woolsey; Michael Word; and Ryan
Wrobleske. Each of these Former Stanford Employees received, at a minimum, the SIBL CD
Commissions associated with his or her name in the Appendix.
III. Former Stanford Employees Who Received SIBL Quarterly Bonuses
51. The following Former Stanford Employees received CD Proceeds in the form of
SIBL Quarterly Bonuses: Jeannette Aguilar; James R. Alguire; Peggy Allen; Orlando Amaya;
Susana Anguiano; Sylvia Aquino; Juan Araujo; Monica Ardesi; George Arnold; John Michael
Arthur; Mauricio Aviles; Timothy Bambauer; Isaac Bar; Elias Barbar; Jonathan Barrack; Robert
Barrett; Oswaldo Bencomo; Teral Bennett; Andrea Berger; Norman Blake; Michael Bober;
Nigel Bowman; Fabio Bramanti; Fernando Braojos; Charles Brickey; Fausto Callava; Rafael
Carriles; Jane Chernovetzky; Susana Cisneros; Ron Clayton; Neal Clement; Christopher Collier;
Jay Comeaux; Michael Conrad; Don Cooper; Jose Cordero; Oscar Correa; James Cox; John
Cravens; James Cross; Patrick Cruickshank; Andres Delgado; Pedro Delgado; Ray Deragon;
Arturo R. Diaz; Ana Dongilio; Matthew Drews; Abraham Dubrovsky; Torben Garde Due; Neil
Emery; Thomas Espy; Jason Fair; Marina Feldman; Ignacio Felice; Freddy Fiorillo; Rosalia
Fontanals; James Fontenot; John Fry; Roger Fuller; Attlee Gaal; Gregg Gelber; Eric Gildhorn;
Luis Giusti; Ramiro Gomez-Rincon; Joaquin Gonzalez; Juan Carlos Gonzalez; Jason Green;
Mark Groesbeck; Vivian Guarch; Gary Haindel; Virgil Harris; Luis Hermosa; Daniel Hernandez;
Martine Hernandez; Alfredo Herraez; Marcos Iturriza; Charles Jantzi; Allen Johnson; Faran
Kassam; Grady Layfield; James LeBaron; Jason LeBlanc; William Leighton; Robert Lenoir;
Humberto Lepage; Francois Lessard; Trevor Ling; Humberto Lopez; Luis Felipe Lozano; Maria
Manerba; Michael Mansur; Iris Marcovich; Janie Martinez; Claudia Martinez; Douglas
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RECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 21
McDaniel; Matthew McDaniel; Gerardo Meave-Flores; Lawrence Messina; Donald Miller;
Trenton Miller; Hank Mills; Peter Montalbano; Alberto Montero; David Morgan; Spencer
Murchison; David Nanes; Jon Nee; Lupe Northam; Scott Notowich; Monica Novitsky; Walter
Orejuela; Alfonso Ortega; Tim Parsons; Beatriz Pena; Ernesto Pena; Roberto Pena; Roberto A.
Pena; Saraminta Perez; Lou Perry; Randall Pickett; Eduardo Picon; Arturo Prum; Maria Putz;
Sumeet Rai; Michael Ralby; Leonor Ramirez; Nelson Ramirez; Walter Ricardo; Alan Riffle;
Steve Robinson; Eddie Rollins; Julio Ruelas; Tatiana Saldivia; John Santi; Louis Schaufele; John
Schwab; Morris Serrero; Doug Shaw; Rochelle Sidney; Peter Siragna; Steve Slewitzke; Nancy
Soto; Sanford Steinberg; Heath Stephens; William O. Stone Jr.; Ana Tanur; Juan Carlos
Terrazas; Christopher Thomas; Mark Tidwell; Yliana Torrealba; Jose Torres; Al Trullenque;
Audrey Truman; Roberto Ulloa; Eric Urena; Miguel Valdez; Nicolas Valera; Tim Vanderver;
Pete Vargas; Ettore Ventrice; Mario Vieira; Evely Villalon; Maria Villanueva; Frans
Vingerhoedt; Daniel Vitrian; Charles Vollmer; Bill Whitaker; David Whittemore; Charles
Widener; Michael Word; Ryan Wrobleske; Ihab Yassine; and Leon Zaidner. Each of these
Former Stanford Employees received, at a minimum, the SIBL Quarterly Bonuses associated
with his or her name in the Appendix.
IV. Former Stanford Employees Who Received PARS Payments
52. The following Former Stanford Employees received CD Proceeds in the form of
PARS Payments: Virgil Harris; Zack Parrish; Louis Schaufele; and Mark V. Stys. Each of these
Former Stanford Employees received, at a minimum, the PARS Payments associated with his or
her name in the Appendix.
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RECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 22
V. Former Stanford Employees Who Received Branch Managing Director Quarterly Compensation
53. The following Former Stanford Employees received CD Proceeds in the form of
Branch Managing Director Quarterly Compensation: Lori Bensing; Brad Bradham; Scott
Chaisson; Jay Comeaux; John Glennon; Jason Green; Marty Karvelis; Grady Layfield; Carol
McCann; Scott Notowich; and Al Trullenque. Each of these Former Stanford Employees
received, at a minimum, the Branch Managing Director Quarterly Compensation associated with
his or her name in the Appendix.
VI. Former Stanford Employees Who Received Severance Payments
54. The following Former Stanford Employees received CD Proceeds in the form of
Severance Payments: Jeffrey E. Adams; James F. Anthony; Patricio Atkinson; Jane E. Bates;
Timothy W. Baughman; Marc H. Bettinger; Michael Contorno; Bernard Cools-Lartigue; Carter
W. Driscoll; Jordan Estra; Lori J. Fischer; Juliana Franco; Gustavo A. Garcia; Kelley L.
Hawkins; Roberto T. Helguera; Helena M. Herrero; Nancy J. Huggins; Susan K. Jurica; Marty
Karvelis; Joseph L. Klingen; Robert A. Kramer; Mayra C. Leon De Carrero; James C. Li; Megan
R. Malanga; Francesca McCann; Gail Nelson; Russell C. Newton, Jr.; Zack Parrish; James D.
Perry; Nelson Ramirez; Syed H. Razvi; Kathleen M. Reed; Giampiero Riccio; Juan C. Riera;
Peter R. Ross; Thomas G. Rudkin; Nicholas P. Salas; John Santi; Jon C. Shipman; Mark V. Stys;
and Timothy W. Summers. Each of these Former Stanford Employees received, at a minimum,
the Severance Payments associated with his or her name in the Appendix.
PRAYER
55. The Receiver respectfully requests the following:
(a) An Order providing that CD Proceeds received directly or indirectly by the
Former Stanford Employees from fraudulent CDs were fraudulent transfers
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RECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 23
under applicable law or, in the alternative, that the Former Stanford
Employees were unjustly enriched by CD Proceeds received directly or
indirectly from fraudulent CDs;
(b) An Order providing that CD Proceeds received directly or indirectly by the
Former Stanford Employees from fraudulent CDs are property of the
Receivership Estate;
(c) An Order providing that CD Proceeds received directly or indirectly by the
Former Stanford Employees from fraudulent CDs are subject to a
constructive trust for the benefit of the Receivership Estate;
(d) An Order establishing the amount of CD Proceeds each of the Former
Stanford Employees received;
(e) An Order providing that each of the Former Stanford Employees is liable to
the Receivership Estate for an amount equaling the amount of CD Proceeds
he or she received from fraudulent CDs;
(f) An Order allowing the Receiver to withdraw the assets contained in the
Pershing, JP Morgan, and SEI accounts in the names of or controlled by the
Former Stanford Employees and add those assets, up to the amounts of CD
Proceeds received by the Former Stanford Employees, to the assets of the
Receivership Estate;
(g) An Order requiring the Former Stanford Employees to pay to the Receiver
the difference between the amounts contained in their Pershing, JP Morgan,
and SEI accounts and the total amount of CD Proceeds received by the
Former Stanford Employees;
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RECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 24
(h) An award of costs, attorney’s fees, and prejudgment interest; and
(i) Such other and further relief as the Court deems proper under the
circumstances.
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RECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 25
Dated: December 18, 2009 Respectfully submitted,
BAKER BOTTS L.L.P.By: /s/ Kevin M. Sadler
Kevin M. SadlerTexas Bar No. [email protected] I. HowellTexas Bar No. [email protected] T. ArlingtonTexas Bar No. [email protected] San Jacinto Center98 San Jacinto Blvd.Austin, Texas 78701-4039(512) 322-2500(512) 322-2501 (Facsimile)
Timothy S. DurstTexas Bar No. [email protected] Ross AvenueDallas, Texas 75201(214) 953-6500(214) 953-6503 (Facsimile)
ATTORNEYS FOR RECEIVER RALPH S. JANVEY
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RECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 26
CERTIFICATE OF SERVICE
On December 18, 2009, I electronically submitted the foregoing document with the clerk of the court of the U.S. District Court, Northern District of Texas, using the electronic case filing system of the Court. I hereby certify that I will serve the Former Stanford Employees individually or through their counsel of record, electronically, or by other means authorized by the Court or the Federal Rules of Civil Procedure.
/s/ Kevin M. SadlerKevin M. Sadler
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UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION RALPH S. JANVEY IN HIS CAPACITY § AS COURT-APPOINTED RECEIVER FOR § THE STANFORD INTERNATIONAL § BANK, LTD., ET AL § § Plaintiff, § Cause No. 03:09-CV-0724-N
§ V. § JURY DEMANDED § JAMES R. ALGUIRE, ET AL. §
§ Relief Defendants. §
DEFENDANT E. RANDOLPH ROBERTSON, JR.’S ORIGINAL ANSWERTO RECEIVER’S SECOND AMENDED COMPLAINT
AGAINST FORMER STANFORD EMPLOYEES AFFIRMATIVE DEFENSES AND COUNTERCLAIMS
COME NOW, Defendant, E. RANDOLPH ROBERTSON, JR., (“Robertson”), and files
his Original Answer to Receiver’s Second Amended Complaint Against Former Stanford
Employees, Affirmative Defenses and Counterclaims filed by Plaintiff, RALPH S. JANVEY,
COURT-APPOINTED RECEIVER FOR STANFORD INTERNATIONAL BANK, LTD., ET
AL. (“Receiver”), and would show the following:
1. Robertson is without knowledge or information sufficient to form a belief as to the truth
of the allegations contained in paragraph 1 of Receiver’s Second Amended Complaint.
2. Robertson is without knowledge or information sufficient to form a belief as to the truth
of the allegations contained in paragraph 2 of Receiver’s Second Amended Complaint.
Robertson denies that he ever received “CD Proceeds”. Answering further, Robertson denies any
involvement or complicity in the alleged conduct.
3. Robertson is without knowledge or information sufficient to form a belief as to the truth
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of the allegations in Paragraph 2 of the Second Amended Complaint, except to the extent that
he admits that he was provided a contract to work as a financial advisor for Stanford Group
Company just before the SEC action giving rise to this lawsuit was made public, and that had
he ever sold any CD’s on behalf of Stanford pursuant to that contract (which he did not), the
contract terms would have entitled him to a commission on such sale. However, because of the
SEC action giving rise to this case, Robertson did not ever sell any CD’s on behalf of Stanford
pursuant to the contract. Robertson did provide routine brokerage services and sold non-CD
investments, but was not paid the earned commissions. Robertson denies that he ever received
“CD Proceeds”.
4. Robertson denies that he ever received “CD proceeds”. Robertson denies any
involvement or complicity in the alleged conduct. Robertson is without knowledge or
information sufficient to form a belief as to the truth of the remaining allegations contained in
paragraph 4 of the Second Amended Complaint.
5. Robertson denies that he ever received “CD proceeds”. Robertson is without knowledge
or information sufficient to form a belief as to the truth of the remaining allegations in
Paragraph 5 of the Second Amended Complaint.
6. Robertson denies that he ever received “CD proceeds”. Robertson is without knowledge
or information sufficient to form a belief as to the truth of the remaining allegations in
Paragraph 6 of the Second Amended Complaint.
7. Robertson denies that he ever received “CD proceeds”. Robertson admits the allegation
in Paragraph 7 of the Second Amended Complaint that the Receiver seeks the described
order(s), but denies that the Receiver is entitled to any such order(s) with respect to him or that
he is liable to the Receivership Estate in any amount. Robertson is without knowledge or
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information sufficient to form a belief as to the truth of the remaining allegations in Paragraph 7
of the Second Amended Complaint.
8. Paragraph 8 contains only legal conclusions, and not allegations of fact which Robertson
must admit or deny.
9. Paragraph 9 contains only legal conclusions, and not allegations of fact which Robertson
must admit or deny.
10. Paragraph 10 contains only legal conclusions, and not allegations of fact which
Robertson must admit or deny.
11. Paragraph 11 contains only legal conclusions, and not allegations of fact which
Robertson must admit or deny.
12. Paragraph 12 contains only legal conclusions, and not allegations of fact which
Robertson must admit or deny.
13. Paragraph 13 contains only legal conclusions, and not allegations of fact which
Robertson must admit or deny.
14. Paragraph 14 contains only legal conclusions, and not allegations of fact which
Robertson must admit or deny.
15. Robertson denies the allegations contained in paragraph 15 of the Second Amended
Complaint to the extent it suggest he submitted such an application.
16. Robertson denies that he has filed any motion to intervene in SEC v. Stanford
International Bank, Ltd., et al., Case No. 3:09-cv-298-N. Robertson is without knowledge or
information sufficient to form a belief as to the truth of the remaining legal allegations in the
second sentence of Paragraph 16 of the Second Amended Complaint.
17. Robertson is without knowledge or information sufficient to form a belief as to the truth
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of the allegations in Paragraph 17 of the Second Amended Complaint.
18. Robertson is without knowledge or information sufficient to form a belief as to the truth
of the allegations in Paragraph 18 of the Second Amended Complaint. Answering further,
Robertson denies any involvement or complicity in the alleged conduct.
19. Robertson is without knowledge or information sufficient to form a belief as to the truth
of the allegations in Paragraph 19 of the Second Amended Complaint. Answering further,
Robertson denies any involvement or complicity in the alleged conduct.
20. Robertson is without knowledge or information sufficient to form a belief as to the truth
of the allegations in Paragraph 20 of the Second Amended Complaint. Answering further,
Robertson denies any involvement or complicity in the alleged conduct.
21. Robertson is without knowledge or information sufficient to form a belief as to the truth
of the allegations in Paragraph 21 of the Second Amended Complaint. Answering further,
Robertson denies any involvement or complicity in the alleged conduct.
22. Robertson is without knowledge or information sufficient to form a belief as to the truth
of the allegations in Paragraph 22 of the Second Amended Complaint. Answering further,
Robertson denies any involvement or complicity in the alleged conduct.
23. Robertson is without knowledge or information sufficient to form a belief as to the truth
of the allegations in Paragraph 23 of the Second Amended Complaint. Answering further,
Robertson denies any involvement or complicity in the alleged conduct.
24. Robertson is without knowledge or information sufficient to form a belief as to the truth
of the allegations in Paragraph 24 of the Second Amended Complaint. Answering further,
Robertson denies any involvement or complicity in the alleged conduct.
25. Robertson is without knowledge or information sufficient to form a belief as to the truth
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of the allegations in Paragraph 25 of the Second Amended Complaint. Answering further,
Robertson denies any involvement or complicity in the alleged conduct.
26. Robertson is without knowledge or information sufficient to form a belief as to the truth
of the allegations in Paragraph 26 of the Second Amended Complaint. Answering further,
Robertson denies any involvement or complicity in the alleged conduct.
27. Robertson is without knowledge or information sufficient to form a belief as to the truth
of the allegations in Paragraph 27 of the Second Amended Complaint. Answering further,
Robertson denies any involvement or complicity in the alleged conduct.
28. Robertson is without knowledge or information sufficient to form a belief as to the truth
of the allegations in the Paragraph 28 of the Second Amended Complaint, except to the extent
that he admits that his contract with Stanford Group Company included compensation.
Answering further, Robertson denies any involvement or complicity in the alleged conduct.
29. Robertson denies he ever received such Quarterly compensation payments and is without
knowledge or information sufficient to form a belief as to the truth of the allegations in
Paragraph 29 of the Second Amended Complaint. Answering further, Robertson denies any
involvement or complicity in the alleged conduct.
30. Robertson is without knowledge or information sufficient to form a belief as to the truth
of the allegations in Paragraph 30 of the Second Amended Complaint, except to the extent that
he admits that he received a sum of money from Stanford Group Company in connection with
his contract, and denies that he “did not perform services (or performed only services that were
in furtherance of the Ponzi scheme).” Although Robertson admits that he never sold any CD’s
pursuant to his contract with Stanford Group Company, he did perform services in the form of
transferring his pre-existing, legitimate clients to Stanford Group Company, for the purpose of
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continuing to service those clients legitimately in the future on behalf of Stanford Group
Company. Robertson also legitimately traded non-CD investments for some of his clients.
However, due to the SEC’s action in this matter, Robertson never received any earned
commissions in furtherance of his contract with Stanford Group Company. Robertson denies the
legal allegation in the fourth sentence (and subsequent case citations) of Paragraph 30 of the
Second Amended Complaint, to the extent that those legal allegations are directed at him. To the
extent those allegations are directed at other parties, Robertson is without knowledge or
information sufficient to form a belief as to their truth. Answering further, Robertson denies any
involvement or complicity in the alleged conduct. Robertson denies he ever received payments
that belong to the Receivership Estate and is without knowledge or information sufficient to form
a belief as to the truth of the remaining allegations in Paragraph 30 of the Second Amended
Complaint.
31. Robertson admits the allegation in Paragraph 31 of the Second Amended Complaint that
the Receiver seeks the described relief, but denies that the Receiver is entitled to such relief with
respect to him or that he is liable to the Receivership Estate in any amount. Robertson denies that
he ever received “CD Proceeds”.
32. Robertson is without knowledge or information sufficient to form a belief as to the truth
of the allegations in Paragraph 32 of the Second Amended Complaint, but denies that Receiver is
entitled to any “relief” from him. Robertson denies that he ever received “CD Proceeds”.
33. Robertson is without knowledge or information sufficient to form a belief as to the truth
of the allegations in Paragraph 33 of the Second Amended Complaint, but denies that Receiver is
entitled to any “relief” from him. Robertson denies that he ever received “CD Proceeds”.
34. Robertson denies the allegations in Paragraph 34 of the Second Amended Complaint, and
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denies that the Receiver is entitled to disgorgement of any funds received by him. Robertson
denies that he ever received “CD Proceeds”.
35. Robertson denies the allegations in Paragraph 35 of the Second Amended Complaint, and
denies that the Receiver is entitled to disgorgement of any funds received by him. Robertson
denies that he ever received “CD Proceeds”.
36. Robertson is without knowledge or information sufficient to form a belief as to the truth
of the allegations in the first sentence of Paragraph 36 of the Second Amended Complaint.
However, Robertson admits that if a creditor seeking an avoidance of a transfer under the
Uniform Fraudulent Transfer Act meets its burden of persuasion and establishes that the transfer
was made with the actual intent to hinder, delay, or defraud any creditor of the debtor, a
transferee seeking to establish that the transfer is not voidable because the transferee took in
good faith and for a reasonably equivalent value bears the burden of persuasion on those two
elements. Robertson admits that the quotation in the parenthetical after the citation of the Scholes
case in Paragraph 36 of the Second Amended Complaint is accurate, but denies its applicability
to him in the context in which it is used. Robertson denies that he ever received “CD Proceeds”.
37. Robertson denies the allegations in Paragraph 37 of the Second Amended Complaint, and
denies that the Receiver is entitled to disgorgement of any funds received by him. Robertson
denies that he ever received “CD Proceeds”.
38. Robertson denies the allegations in Paragraph 38 of the Second Amended Complaint, and
denies that the Receiver is entitled to disgorgement of any funds received by him. Robertson
denies that he ever received “CD Proceeds”.
39. Robertson admits the allegation in Paragraph 39 of the Second Amended Complaint that
the Receiver seeks the described relief, but denies that the Receiver is entitled to such relief
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with respect to him or that he is liable to the Receivership Estate in any amount. Robertson
denies that he ever received “CD Proceeds”.
40. Robertson admits the allegation in Paragraph 40 of the Second Amended Complaint that
the Receiver seeks the described relief, but denies that the Receiver is entitled to such relief
with respect to him or that he is liable to the Receivership Estate in any amount. Robertson
denies that he ever received “CD Proceeds”.
41. Robertson admits the allegation in Paragraph 41 of the Second Amended Complaint that
the Receiver seeks the described relief, but denies that the Receiver is entitled to such relief
with respect to him or that he is liable to the Receivership Estate in any amount. Robertson
denies that he ever received “CD Proceeds”.
42. Robertson admits the allegation in Paragraph 42 of the Second Amended Complaint that
the Receiver seeks the described relief, but denies that the Receiver is entitled to such relief
with respect to him or that he is liable to the Receivership Estate in any amount. Robertson
denies that he ever received “CD Proceeds”.
43. Robertson admits the allegation in Paragraph 43 of the Second Amended Complaint that
the Receiver seeks the described relief, but denies that the Receiver is entitled to such relief
with respect to him or that he is liable to the Receivership Estate in any amount. Robertson
denies that he ever received “CD Proceeds”.
44. Robertson admits the allegation in Paragraph 44 of the Second Amended Complaint that
the Receiver seeks the described relief, but denies that the Receiver is entitled to such relief
with respect to him or that he is liable to the Receivership Estate in any amount. Robertson
denies that he ever received “CD Proceeds”.
45. Robertson admits the allegation in Paragraph 45 of the Second Amended Complaint that
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he is a former Stanford employee, but denies that the Receiver is entitled to such relief with
respect to him or that he is liable to the Receivership Estate in any amount. Robertson denies
that he ever received “CD Proceeds”.
46. Robertson is without knowledge or information sufficient to form a belief as to the truth
of the allegations in Paragraph 46 of the Second Amended Complaint. Robertson denies that he
ever received “CD Proceeds”.
47. Robertson admits the allegation in Paragraph 47 of the Second Amended Complaint that
the Receiver seeks the described relief, but denies that the Receiver is entitled to such relief
with respect to him or that he is liable to the Receivership Estate in any amount. Robertson
denies that he ever received “CD Proceeds”.
48. Robertson admits the allegation in Paragraph 48 of the Second Amended Complaint that
the Receiver seeks the described relief, but denies that the Receiver is entitled to such relief
with respect to him or that he is liable to the Receivership Estate in any amount. Robertson
denies that he ever received “CD Proceeds”.
49. Robertson is without knowledge or information sufficient to form a belief as to the truth
of the allegations in Paragraph 49 of the Second Amended Complaint. Robertson denies that he
ever received “CD Proceeds”.
50. Robertson is without knowledge or information sufficient to form a belief as to the truth
of the allegations in Paragraph 50 of the Second Amended Complaint.
51. Robertson is without knowledge or information sufficient to form a belief as to the truth
of the allegations in Paragraph 51 of the Second Amended Complaint.
52. Robertson is without knowledge or information sufficient to form a belief as to the truth
of the allegations in Paragraph 52 of the Second Amended Complaint.
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53. Robertson is without knowledge or information sufficient to form a belief as to the truth
of the allegations in Paragraph 53 of the Second Amended Complaint.
54. Robertson is without knowledge or information sufficient to form a belief as to the truth
of the allegations in Paragraph 54 of the Second Amended Complaint.
AFFIRMATIVE DEFENSES AND COUNTERCLAIMS
Factual Background:
55. Robertson is a securities broker who had a thriving practice and client base before he
ever had any relationship with Stanford Group Company (hereinafter “SGC”). On December
11, 2008, Robertson agreed to become employed by SGC. As part of the contemplated
employment, Robertson was required to attempt to transfer his pre-existing customer base to
SGC. These were legitimate, pre-existing clients of Robertson, for whom he had performed
legitimate security brokerage services in the past, with whom he had a legitimate, pre-existing
and continuing relationship, and for whom he intended to continue to perform the very same
legitimate brokerage services after they became clients of SGC.
56. Robertson started his employment with SGC on January 7, 2009, and was escorted out
of the office twenty-eight (28) days later when the SEC investigation began. Robertson had no
knowledge, nor any reason to know, at the time he entered the contract or at any time thereafter
until the SEC instituted open proceedings against SGC, that SGC was anything other than a
legitimate security brokerage company. Neither SGC nor anyone acting on SGC’s behalf ever
disclosed any fact that reasonably would have placed Robertson on notice of any untoward or
illegal activity being committed by SGC or any related person or company. To the contrary,
SGC affirmatively represented to Robertson, prior to the execution of the contract, that SGC
was a legitimate, reputable, prudent company carrying on a legitimate, legal and prudent
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securities business.
57. Specifically, SGC represented that there were tight controls in place for all phases of the
business, the company balance sheet was strong, the liquidity of the company was exceptional,
the opportunity to grow the business had never been better, the year 2009 would be the best
year ever to grow SGC’s business, it had sustained positive performance, it had a large cash
position in its investments, and that the company was run with Christian values in mind.
58. Robertson did not enter into the contract with SGC with any intention to delay, hinder or
defraud any creditors of SGC or any other company, nor with any intention to bring customers
into any Ponzi scheme or any other illegal scheme.
59. Robertson never sold any CD’s to anyone in furtherance of the contract, because before
he could even begin performing such services pursuant to the contract, the SEC instituted action
against SGC and others. At the time the SEC action was instituted, Robertson was still in the
process of transitioning to his new position at SGC and had not even received any formal
training on company policies and procedures. However, Robertson had contacted pre-existing
clients, had taken steps to transfer their accounts to SGC and had transferred some of those
clients to SGC.
60. Robertson did make some legitimate non-CD investments for some of his clients, but
was never paid any of the commissions earned on such investments. Robertson never received
any commissions or other compensation from SGC in furtherance of the contract except a
“signing bonus.” This signing bonus was made the subject of a Stanford Group Company
Promissory Note Forgivable Loan Agreement (hereinafter “the Promissory Note”), with
payments due annually for eight years. However, each such annual payment would be forgiven
if Robertson was still employed as a full time employee of SGC on the date each annual
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payment was due.
61. Robertson was ready, willing and able to perform legitimate services as a securities
broker for SGC according to the terms of the contract, but was prevented from doing so by the
SEC’s action in this matter.
62. As a result of Robertson’s preliminary actions taken toward transferring his pre-existing,
legitimate clients to SGC, he suffered actual damages to his professional reputation and earning
capacity and lost income. Specifically, Robertson’s pre-existing clients, with whom he had
always had an amicable and profitable business relationship, erroneously perceived that he had
attempted to induce them into a relationship with SGC and R. Allen Stanford. These clients
perceived SGC and R. Allen Stanford with distrust due to the publicity regarding the SEC’s
action in this matter. Put simply, Robertson has been tainted with the stigma of association with
SGC and R. Allen Stanford as a result of his preliminary efforts to transfer his pre-existing,
legitimate clients to SGC. This has proximately caused some of Robertson’s clients to
disassociate with him, and has proximately caused a diminution of his earning capacity and loss
of income, as well as harmed his professional reputation.
Affirmative Defenses:
63. The Receiver is not entitled, under the Uniform Fraudulent Transfer Act, to avoid the
transaction by which SGC provided Robertson the signing bonus in exchange for his promise to
work for SGC as a securities broker, transfer his pre-existing, legitimate clients to SGC, and
comply with the terms of the Promissory Note because Robertson took the signing bonus in
good faith and gave reasonably equivalent value in exchange for it. TEX. BUS. & COM. CODE
ANN. § 24.009(a). This value included Robertson’s promise to work for SGC as a legitimate
securities broker, to repay the signing bonus according to the terms and conditions of the
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Promissory Note, and to work to transfer his pre-existing clients to SGC. Robertson was
prevented from performing most of these services by the SEC’s actions in this matter, but was
ready, willing and able to do so. Indeed, Robertson began taking steps to transfer his pre-
existing clients to SGC, but those efforts were terminated as a result of the SEC’s action in this
matter.
64. SGC committed fraud against Robertson. SGC made the following material
representations that were false, which SGC either knew to be false when they were made or that
SGC made without knowledge of whether they were true or not: there were tight controls in
place for all phases of the business, the company balance sheet was strong, the liquidity of the
company was exceptional, the opportunity to grow the business had never been better, the year
2009 would be the best year ever to grow SGC’s business, it had sustained positive
performance, it had a large cash position in its investments, and that the company was run with
Christian values in mind. These misrepresentations were intended to be and were relied upon by
Robertson in entering into the contract and the Promissory Note and in taking the preliminary
steps to transfer his pre-existing clients to SGC. That is, Robertson would not have entered into
the contract and the Promissory Note in the absence of these misrepresentations, and would not
have taken action to transfer his clients to SGC. Robertson’s actions taken in reliance on SGC’s
misrepresentations proximately caused him to suffer damages, including damage to his
professional reputation, loss of earning capacity, and loss of income. As an affirmative defense
to the Receiver’s claims, Robertson asserts that he is entitled to an offset in the amount of his
actual damages proximately resulting from SGC’s fraud against any funds he may have to
disgorge or otherwise pay to the Receiver from the money he received as a signing bonus.
65. Robertson pleads SGC’s fraud and unclean hands, as described above, as affirmative
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defenses to the Receiver’s claim for equitable relief, disgorgement and a constructive trust.
66. In the event the Receiver successfully establishes that it is entitled, under the Uniform
Fraudulent Transfer Act, to avoid the transaction by which SGC provided Robertson the signing
bonus in exchange for his promise to work for SGC as a securities broker, transfer his pre-
existing, legitimate clients to SGC, and comply with the terms of the Promissory Note,
Robertson asserts that the amount of any recovery awarded to the Receiver and against him
should be equitably adjusted downward as a result of SGC’s unclean hands and fraud, and the
injuries he has suffered as a result thereof, pursuant to TEX. BUS. & COM. CODE ANN. §
24.009(c)(1).
Counterclaims:
67. SGC committed fraud against Robertson. SGC made the following material
representations that were false, which SGC either knew to be false when they were made or that
SGC made without knowledge of whether they were true or not: there were tight controls in
place for all phases of the business, the company balance sheet was strong, the liquidity of the
company was exceptional, the opportunity to grow the business had never been better, the year
2009 would be the best year ever to grow SGC’s business, it had sustained positive
performance, it had a large cash position in its investments, and that the company was run with
Christian values in mind. These misrepresentations were intended to be and were relied upon by
Robertson in entering into the contract and the Promissory Note and in taking the preliminary
steps to transfer his pre-existing clients to SGC. That is, Robertson would not have entered into
the contract and the Promissory Note in the absence of these misrepresentations, and would not
have taken action to transfer his clients to SGC. Robertson’s actions taken in reliance on SGC’s
misrepresentations proximately caused him to suffer damages, including damage to his
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professional reputation, loss of earning capacity, and loss of income.
68. Robertson counterclaims against the Receiver to recover his actual damages incurred as
a proximate result of SGC’s fraud, including damage to his professional reputation, loss of
earning capacity, loss of income and all other actual damages to which he may be justly
entitled.
69. Robertson traded legitimate non-CD investments on behalf of his pre-existing clients
during his employment for SGC. Pursuant to the terms of his contract, Robertson was entitled
to a commission on these sales. SGC never paid Robertson these commissions, which are due
and owing, thereby breaching the contract. Robertson counterclaims for breach of contract to
recover the commissions due and owing under the contract, as well as his attorney fees incurred
to recover same. Alternatively, Robertson prays for an offset in the amount of his actual
damages proximately resulting from SGC’s breach of contract against any funds he may have to
disgorge or otherwise pay to the Receiver from the money he received as a signing bonus.
70. To the extent Robertson is forced to disgorge or otherwise pay over to the Receiver the
money he received as a signing bonus, Robertson prays that the Promissory Note be voided and
rescinded on the basis of failure of consideration, fraudulent inducement and unjust enrichment.
It would be unjust to permit the Receiver to recover the consideration paid by SGC in exchange
for Robertson’s promise to make the payments under the terms of the Promissory Note, and yet
retain the contractual right to enforce the Promissory Note.
Arbitration:
71. The Promissory Note provided, “Borrower hereby agrees that any controversy arising
out of or relating to this Note . . . shall be submitted to and settled by arbitration pursuant to the
constitution, by-laws, rules and regulations pg the Financial Industry Regulatory Authority
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(FINRA) in the local area of the principal office. Defendant reserves the right to invoke this
arbitration provision should an amicable resolution of this dispute with the Receiver not be
achieved. Defendant does not intend, by the filing of this answer, to waive any right to
arbitration arising out of the Promissory Note or any other agreement.
WHEREFORE, Defendant, E. RANDOLPH ROBERTSON, JR prays Plaintiff, RALPH
S. JANVEY, COURT-APPOINTED RECEIVER FOR STANFORD INTERNATIONAL
BANK, LTD., ET AL., take nothing by way of this suit, that Defendant be discharged from
liability and for such other and further relief as the Court deems just and proper.
Respectfully Submitted,
CHANDLER, MATHIS & ZIVLEY, P.C. _s/ W. Perry Zivley, Jr._________ W. PERRY ZIVLEY, JR. TSB# 22280050 909 Fannin, Suite 3750 Houston, Texas 77010
(713) 739-7722 Office (713) 739-0922 Fax
ATTORNEYS FOR RELIEF DEFENDANT
E. RANDOLPH ROBERTSON, JR.
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CERTIFICATE OF SERVICE I, W. Perry Zivley, Jr. hereby certify that on this the 15th day of January, 2010, a true and correct copy of the foregoing Defendant E. Randolph Robertson, Jr.’s Original Answer to Receiver’s Second Amended Complaint Against Former Stanford Employees Affirmative Defenses and Counterclaims has been electronically filed with the Clerk of the Court who will forward same to all counsel of record including: BAKER BOTTS, L.L.P. Kevin M. Sadler Robert I. Howell David T. Arlington 1500 San Jacinto Center 98 San Jacinto Blvd. Austin, Texas 78701-4039 and Timothy S. Durst 2001 Ross Avenue Dallas, Texas 75201 _s/ W. Perry Zivley, Jr._________
W. PERRY ZIVLEY, JR.
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IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
JOAN GALE FRANK, JON A. BELL, SAMUEL BUKRINSKY, JAIME ALEXIS ARROYO BORNSTEIN, PEGGY ROIF ROTSTAIN, JUAN C. OLANO, and JOHN WADE in his capacity as trustee of the Microchip ID Systems, Inc. Retirement Plan, on behalf of themselves and all others similarly situated, Plaintiffs, v. THE COMMONWEALTH OF ANTIGUA AND BARBUDA, Defendant.
§ § § § § § § § § § § § § § §
Civil Action No.
JURY TRIAL DEMANDED
CLASS ACTION COMPLAINT
Plaintiffs Joan Gale Frank, Jon A. Bell, Samuel Bukrinsky, Jaime Alexis Arroyo
Bornstein, Peggy Roif Rotstain, Juan C. Olano, and John Wade in his capacity as trustee
of the Microchip ID Systems, Inc. Retirement Plan (“Plaintiffs”) on behalf of themselves
and all others similarly situated, by and through their undersigned attorneys, as and for
their class action complaint against the Defendant, the Commonwealth of Antigua and
Barbuda (“Antigua”), allege as follows:
NATURE OF THE ACTION
1. This is an action to recover billions of dollars of losses suffered by
innocent and unsuspecting customers from around the world who entrusted their money
to R. Allen Stanford’s Stanford International Bank, Ltd. (“SIBL”), part of the Stanford
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Financial Group (“SFG”), which has now been exposed as one of the most notorious,
fraudulent, corrupt, and criminal enterprises in history.
2. R. Allen Stanford (“Allen Stanford”), the various commercial entities that
he controlled (the “Stanford Entities,” and, together with Allen Stanford, “Stanford”), and
certain of his employees engaged in a multi-year, multi-billion dollar “Ponzi” scheme of
international scope.
3. Antigua is sovereign, but not above the law. It became a full partner in
Stanford’s fraud, and reaped enormous financial benefits from the scheme. Stanford
stuffed Antigua’s coffers – and its officials’ pockets – with money stolen from
unsuspecting customers throughout the United States, Canada, Central America, South
America, and elsewhere. Antigua worked tirelessly to protect and nurture Stanford’s
criminal enterprise and, in return, eagerly accepted its share of criminally-procured funds.
4. As described more fully below, Stanford’s massive fraud would not have
been possible without the active, knowing, and essential assistance of Antigua. Antigua:
(i) provided a safe haven for Stanford to operate; (ii) provided essential assistance in
Stanford’s efforts to portray itself to Plaintiffs and other members of the Class as a
legitimate provider of financial services; (iii) participated with Stanford in a variety of
commercial activities in Antigua that provided a pretext for the transfer of criminal
proceeds from Stanford to Antigua; (iv) provided false and fraudulent information to the
Securities and Exchange Commission (“SEC”) and other regulators in order to thwart the
SEC’s investigations into Stanford; and (v) shared in the criminal proceeds of the
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conspiracy, all or substantially all of which were stolen from the Plaintiffs and other
members of the Class.
5. Stanford’s customers are devastated as a result of Stanford’s and
Antigua’s fraudulent conduct, and those customers, including Plaintiffs and other
members of the Class, are likely to recover only a fraction of the full amount owed to
them through the pending court-ordered liquidation of the Stanford Entities. The victims’
losses are staggering, and the Plaintiffs and other members of the Class have a right to
recoup their losses from Antigua, which was Stanford’s full partner in crime.
PARTIES
6. At all relevant times, Plaintiff Joan Gale Frank is and was a citizen of the
United States residing in Oregon.
7. At all relevant times, Plaintiff Jon A. Bell is and was a citizen of the
United States residing in Oregon.
8. At all relevant times, Plaintiff Samuel Bukrinsky is and was a citizen of
Mexico residing in Mexico.
9. At all relevant times, Plaintiff Jaime Alexis Arroyo Bornstein is and was a
citizen of Mexico residing in Mexico.
10. At all relevant times, Plaintiff Peggy Roif Rotstain is and was a citizen of
Peru residing in Peru.
11. At all relevant times, Plaintiff Juan C. Olano was a citizen of Colombia
and the United States residing in Florida.
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12. At all relevant times, Plaintiff John Wade was a trustee of the Microchip
ID Systems, Inc. Retirement Plan.
13. As of February 16, 2009, Plaintiffs were customers of SIBL, had money
on deposit at SIBL, and held CDs issued by SIBL. Plaintiffs are each members of the
Class, as defined below.
14. Antigua is an independent state within the British Commonwealth of
Nations. On November 15, 2000, the United Nations Convention against Transnational
Organized Crime (the “Convention”) was adopted by resolution A/RES/55/25 at the fifty-
fifth session of the General Assembly of the United Nations. The United States signed
the Convention on December 12, 2000, and ratified the Convention on December 13,
2000. Antigua signed the Convention on September 26, 2001, and ratified the
Convention on July 24, 2002.
RELEVANT NON-PARTIES
15. At all relevant times, SFG was the parent company of SIBL and a web of
other affiliated financial services entities. SFG maintained its headquarters in Houston,
Texas, and maintained offices in several other locations including Memphis, Tennessee,
and Miami, Florida. Upon information and belief, the activities of SFG and all of the
Stanford Entities were directed from SFG’s Houston, Texas, headquarters.
16. At all relevant times, SIBL was a private, offshore bank with offices on
the island of Antigua and elsewhere. SIBL was organized in Montserrat, originally under
the name of Guardian International Bank. In or about 1989, SIBL’s principal banking
location was moved to Antigua.
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17. From 2001 to 2008, SIBL marketed its primary investment product,
Certificates of Deposit (“CDs”), and promised higher rates of return on those CDs than
were generally offered at banks in the United States. In its 2007 Annual Report, SIBL
stated that it had approximately $6.7 billion worth of CD deposits, and more than $7
billion in total assets. In its December, 2008, Monthly Report, SIBL purported to have
more than 30,000 clients from 131 countries, representing $8.5 billion in assets.
18. At all relevant times, Stanford Group Company (“SGC”), a Houston-based
company, was founded in or about 1995. SGC was registered with the SEC as a broker-
dealer and investment advisor. SGC also was a member of the Securities Investor
Protection Corporation, and the Financial Industry Regulatory Agency (formerly, the
National Association of Securities Dealers). SGC, and the financial advisers employed
by SGC, promoted the sale of SIBL’s CDs through SGC’s 25 offices located throughout
the United States. According to the Court-appointed receiver1 for the Stanford Entities,
“the principal purpose and focus of most of [Stanford’s] combined operations was to
attract and funnel outside investor funds into the Stanford companies through the sale of
[CDs] issued by Stanford’s offshore entity SIBL.” Report Of The Receiver Dated April
23, 2009 (the “Report”), at p. 6.
19. Allen Stanford founded and owned SFG and its affiliated companies,
including, through a holding company, SIBL. Allen Stanford was the chairman of
SIBL’s Board of Directors and a member of SIBL’s Investment Committee. 1 On February 16, 2009, the SEC filed a complaint in the United States District Court for the Northern District of Texas (the “SEC Action”) against Allen Stanford and various Stanford entities and employees, alleging a “massive, on-going fraud.” By order dated February 16, 2009 (as amended March 12, 2009), the court in the SEC Action appointed Ralph Janvey, Esq., to be the receiver in that action (hereinafter, the “Receiver”).
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20. James M. Davis (“Davis”) was the Chief Financial Officer of SFG and
SIBL, and served as a member of SIBL’s Investment Committee.
21. Laura Pendergest-Holt (“Pendergest-Holt”) was the Chief Investment
Officer of SFG. In or about December 2005, Pendergest-Holt was appointed by SIBL’s
Board of Directors to be a member of SIBL’s Investment Committee. Gilberto Lopez
(“Lopez”), a U.S. citizen and resident of Spring, Texas, worked in SFG’s Houston,
Texas, office, as the chief accounting officer of SFG and its affiliate, Stanford Financial
Group Global Management, LLC (“SFGGM”). In this capacity, he provided accounting
services to many entities under Stanford's control, including SIBL, SFG, and SFGGM.
22. Mark Kuhrt (“Kuhrt”), a U.S. citizen and resident of Christiansted, St.
Croix, U.S. Virgin Islands, was the global controller for SFGGM. In this capacity, he
provided accounting services to many entities under Stanford's control, including SIBL,
SFG, and SFGGM. Kuhrt reported at various times to Lopez and Davis, but also directly
to Stanford. Kuhrt is not a Certified Public Accountant. (Allen Stanford, Davis,
Pendergest-Holt, Lopez, and Kuhrt are referred to collectively herein as the “Stanford
Co-Conspirators.”)
23. The Financial Services Regulatory Commission of Antigua (“FSRC”) was
created by and, at all relevant times, existed under the authority of, Antigua’s
International Business Corporations Act (the “IBC Act”). FSRC is an agency and/or
instrumentality of Antigua.
24. During certain relevant times described below, Leroy King (“King”) was
the Administrator and Chief Executive Officer for the FSRC. King, among other things,
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was supposedly responsible for FSRC’s (and, thus, Antigua’s) oversight of SIBL’s
investment portfolio, including the review of SIBL’s financial reports, and the response
to requests by foreign regulators, including the SEC, for information and documents
regarding SIBL’s operations. As the SEC alleged in its Second Amended Complaint in
the SEC Action, however, King “facilitated the Ponzi scheme by ensuring that the FSRC
‘looked the other way’ and conducted sham audits and examinations of [SIBL’s] books
and records. In exchange for bribes paid to him over a period of several years, King
made sure that the FSRC did not examine [SIBL’s] investment portfolio. King also
provided Stanford with access to the FSRC’s confidential regulatory files.” [SEC Second
Amended Complaint at p. 3]
The RICO Enterprises
25. The “SFG Enterprise” consists of Stanford Financial Group and its
subsidiaries and formal affiliates, including but not limited to SIBL and SGC. At all
relevant times, the SFG Enterprise was an “enterprise” within the meaning of the
Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961(4).
26. At all relevant times, the SFG Enterprise was “a global network of
privately held, wholly owned affiliated financial service companies. Although
independent, the affiliated companies together provide[d] coordinated wealth
management through international private banking, asset management, investment
advisory services, trust administration, commercial banking and insurance for clients
worldwide.” [SIBL 2006 Annual Report] Upon information and belief, SFG had more
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than 50,000 clients from more than 100 countries on six continents. [SIBL 2007 Annual
Report]
27. At all relevant times, the SFG Enterprise had an ascertainable structure
separate and apart from the pattern of racketeering activity alleged herein.
28. The “SIBL Enterprise” consists of SIBL. At all relevant times the SIBL
Enterprise was an “enterprise” within the meaning of RICO, 18 U.S.C. § 1961(4).
29. At all relevant times, SIBL was a banking institution chartered by
Antigua.
30. At all relevant times, the SIBL Enterprise had an ascertainable structure
separate and apart from the pattern of racketeering activity alleged herein.
31. The SFG Enterprise and the SIBL Enterprise are referred to collectively
herein as the “Stanford Enterprises.”
JURISDICTION AND VENUE
32. This Court has jurisdiction pursuant to 28 U.S.C. §§ 1330, 1605(a)(1),
1605(a)(2), and 1605(a)(3) in that this is an action against a foreign state; 28 U.S.C.
§ 1331 in that this case presents federal questions; and supplemental jurisdiction under 28
U.S.C. § 1367.
33. Venue is proper in this District pursuant to 28 U.S.C. § 1391(b)(2) on the
ground that jurisdiction is not based solely upon diversity of citizenship and a substantial
part of the events or omissions giving rise to the claim occurred in this District.
34. Venue also is proper in this District pursuant to 28 U.S.C. § 1391(f)(1) on
the ground that it is an action against a foreign state as defined in 28 U.S.C. § 1603(a),
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and that a substantial part of the events or omissions giving rise to the claim occurred in
this District.
CLASS ALLEGATIONS
35. The class of persons that Plaintiffs seek to represent (the “Class”) is
comprised of all individuals who, and entities that, as of February 16, 2009, were
customers of SIBL, with monies on deposit at SIBL and/or holding CDs issued by SIBL.
36. Numerosity. A class action is appropriate in this case because the Class is
so numerous that joinder of all members is impracticable. While the precise number of
Class members and their addresses are unknown to the Plaintiffs, their identities can be
determined from SIBL’s records. Upon information and belief, Class members number
in the tens of thousands.
37. Commonality. A class action is appropriate in this case because there are
questions of law and fact common to the Class, including but not limited to:
(a) whether Antigua received funds from the criminal proceeds of the Stanford
Enterprises;
(b) whether Antigua deceived the SEC for the purpose of perpetuating the
Stanford Enterprises and enriching itself;
(c) whether Antigua knew, or should have known, that the Stanford Co-
Conspirators were using the Stanford Enterprises to perpetrate a massive
“Ponzi” scheme;
(d) whether Antigua committed wire fraud and mail fraud as part of the scheme;
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(e) whether Antigua’s alleged acts of wire fraud and mail fraud had an effect
upon interstate or foreign commerce;
(f) whether Antigua conducted or participated, directly or indirectly, in the
conduct of the Stanford Enterprises’ affairs through a “pattern of racketeering
activity” within the meaning of RICO;
(g) whether Antigua conspired with the Stanford Co-Conspirators to perpetrate
the fraud;
(h) whether Antigua aided and abetted the fraud committed by the Stanford Co-
Conspirators;
(i) whether Antigua is liable to SIBL’s depositors for their participation in the
scheme;
(j) the existence and the amount of damages suffered by members of the Class;
and
(k) whether Antigua misappropriated assets belonging to the Stanford Entities
and, in so doing, deprived the Class of assets that should be available to
satisfy their claims against the Stanford Entities.
38. The questions of law and fact common to the Class predominate over any
questions affecting only individual members.
39. Typicality. The claims of the representative Plaintiffs are typical of the
claims of the Class.
40. Adequacy. The representative Plaintiffs will fairly and adequately protect
the interests of the Class.
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41. In the absence of class certification, there is a risk that adjudications in
thousands of separate cases with respect to individual Class members would, as a
practical matter, be dispositive of the interests of the other members not parties to the
individual adjudications, or would substantially impair or impede their ability to protect
their interests.
42. A class action is superior to other available methods for fairly and
efficiently adjudicating this controversy.
FACTUAL ALLEGATIONS
The Fraud2
43. Stanford’s business was a massive fraud in which the Stanford Co-
Conspirators, through the Stanford Enterprises and with the knowing provision of
substantial assistance by Antigua, misappropriated billions of dollars, falsified SIBL’s
financial statements, and concealed their fraudulent conduct from customers, prospective
customers, and regulators in the United States and elsewhere.
44. SIBL represented to the Plaintiffs and the Class that: (i) their assets were
safe and secure because the bank invested in a “globally diversified portfolio” of
“marketable securities;” (ii) SIBL had averaged double-digits returns on its investments
for over 15 years; (iii) Allen Stanford had solidified SIBL’s capital position in late 2008
by infusing $541 million in capital into the bank; (iv) SIBL’s multi-billion dollar
portfolio was managed by a “global network of portfolio managers” and “monitored” by 2 The allegations in this sub-section are made upon information and belief, based upon the allegations made by the SEC in its civil enforcement action SEC v. Stanford International Bank, Ltd., et al., Case No. 09-cv-0298-N (N.D. Tex) (Second Amended Complaint), the indictment in United States v. Stanford, et al., Case No. 09-cr-342 (S.D. Tex), the public materials cited therein, and other public materials and media reports.
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a team of SFG analysts in Memphis, Tennessee; (v) SIBL, in early 2009, was stronger
than at any time in its history; and (vi) SIBL did not have exposure to losses from
investments in the fraudulent “Ponzi” scheme that had been operated by Bernard L.
Madoff (the “Madoff Scheme”). More fundamentally, Stanford and Antigua represented
that SIBC was a legitimate banking institution, which made money by investing assets
and generating investment returns. These representations were false.
45. Plaintiffs and other members of the Class reasonably relied upon these
representations when making their decisions to invest in and with the Stanford Entities.
46. Upon information and belief, Antigua, through the FSRC: (a) had actual
knowledge that SIBL’s representations were false; (b) intentionally and substantially
assisted Stanford by concealing SIBL’s false statements from customers (including
Plaintiffs and other members of the Class) and other nations’ regulators; and (c)
affirmatively represented to Plaintiffs and the Class that the FSRC undertook audits that
it did not actually perform.
47. Contrary to SIBL’s public statements, by February 2009, the Stanford Co-
Conspirators, together with Antigua, had misappropriated billions of dollars from
Plaintiffs and the Class, and “invested” an undetermined amount of those funds in
speculative, unprofitable private businesses controlled by Allen Stanford. Contrary to
SIBL’s representations regarding the liquidity and safety of its portfolio, the Plaintiffs’
and the Class’s funds were not invested in a “well-diversified portfolio of highly
marketable securities.” Instead, SIBL internal records reflect that more than half of the
bank’s investment portfolio was comprised of undisclosed “Private Equity Real Estate.”
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48. Upon information and belief, Antigua, through the FSRC: (a) had actual
knowledge that Stanford had misappropriated a significant portion of SIBL’s investment
portfolio; and (b) intentionally and substantially assisted Stanford’s scheme for the
purpose of sharing in the proceeds that Stanford had misappropriated from Plaintiffs and
other members of the Class.
49. According to the SEC, the Stanford Co-Conspirators fabricated SIBL’s
financial statements. Using a predetermined return on investment number, the Stanford
Co-Conspirators reverse-engineered SIBL’s financial statements to report investment
income that SIBL had not actually earned. As a result, information in SIBL’s financial
statements and annual reports bore no relationship to the actual performance of SIBL’s
investments.
50. Plaintiffs and other members of the Class reasonably relied upon SIBL’s
fabricated financial statements when making their decisions to entrust their money to the
Stanford Entities.
51. Upon information and belief, Antigua, through the FSRC: (a) had actual
knowledge that the Stanford Co-Conspirators had fabricated SIBL’s financial statements;
and (b) intentionally and substantially assisted Stanford’s scheme by falsely representing
to Plaintiffs and other members of the Class that SIBL’s financial statements were subject
to, and approved only after, substantive review and scrutiny by the FSRC.
52. In selling the CDs, SIBL touted, among other things, the CDs’ safety,
security, and liquidity. SIBL told Plaintiffs and the Class that SIBL aggregated customer
deposits, and then reinvested those funds in a “globally diversified portfolio” of assets.
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SIBL also represented to the Plaintiffs and the Class that Stanford employed a sizeable
team of analysts to monitor SIBL’s portfolio. These representations were false.
53. Plaintiffs and other members of the Class reasonably relied upon SIBL’s
representations regarding the safety, security, liquidity, composition, and monitoring of
SIBL’s investment portfolio.
54. Upon information and belief, Antigua, through the FSRC: (a) had actual
knowledge that SIBL’s representations regarding the safety, security, liquidity,
composition, and monitoring of SIBL’s investment portfolio were false; and (b)
intentionally and substantially assisted Stanford’s scheme for the purpose of sharing in
the proceeds that Stanford had misappropriated from Plaintiffs and other members of the
Class.
55. SIBL’s annual reports also represented that “SIBL does not expose its
clients to the risks associated with commercial loans...the Bank’s only lending is on a
cash secured basis.” Contrary to SIBL’s representations, however, SIBL exposed
Plaintiffs and the Class to the risks associated with more than $1.6 billion in undisclosed
and unsecured personal “loans” to Allen Stanford. To conceal the theft, some of these
“loans” were evidenced by promissory notes from Allen Stanford.
56. These promissory notes were typically created after Davis had, at Allen
Stanford’s direction, fraudulently wired out billions dollars of SIBL investor funds to
Allen Stanford or his designees. Allen Stanford made few, if any, payments required by
the terms of the promissory notes, and the outstanding loan balances and interest owed by
him to SIBL were rolled into new, larger, promissory notes.
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57. The personal “loans” to Allen Stanford were inconsistent with
representations that had been made to Plaintiffs and members of the Class: despite the
fact that SIBL’s annual reports included a section entitled “Related-Party Transactions”
that purported to disclose all related-party transactions entered into by SIBL, SIBL’s
“loans” to Allen Stanford were not disclosed in the “Related-Party Transactions” section
of SIBL’s annual reports from 2004 through 2008.
58. Allen Stanford used the money that he “borrowed” from SIBL to, among
other things, fund his personal ventures and private pursuits, including more than $400
million to fund personal real estate deals and more than $36 million to subsidize
“Stanford 20/20”, an annual cricket tournament that boasted a $20 million purse.
59. Plaintiffs and other members of the Class reasonably relied upon SIBL’s
misrepresentations regarding SIBL’s bogus “loans” to Allen Stanford.
60. Upon information and belief, Antigua, through the FSRC: (a) had actual
knowledge regarding SIBL’s bogus “loans” to Allen Stanford, and the omission and/or
mischaracterization of those “loans” in SIBL’s Annual Reports; and (b) intentionally and
substantially assisted Stanford in concealing SIBL’s false statements regarding those
bogus “loans” from Plaintiffs, other members of the Class, and other regulators.
61. Allen Stanford’s misappropriation of the Plaintiffs’ and the Class’s assets
(and the poor performance of SIBL’s investment portfolio) created a giant hole in SIBL’s
balance sheet. To conceal their fraudulent conduct and thereby ensure that Plaintiffs and
the Class continued to entrust their money to SIBL, the Stanford Co-Conspirators
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fabricated the growth, composition, and performance of SIBL’s investment portfolio to
give the appearance that SIBL’s investments were highly profitable.
62. In its training materials for the SGC advisers, SIBL represented that it had
earned consistent double-digit annual returns on its investment of deposits (ranging from
11.5% in 2005 to 16.5% in 1993) for almost fifteen years. SIBL marketed the CDs using
these purported returns on investment. Likewise, SIBL’s Annual Reports stated that the
bank earned from its “diversified” investments approximately $642 million in 2007 (11
%), and $479 million in 2006 (12%).
63. SIBL claimed that its high returns on investment allowed it to offer higher
rates on the CD than those offered by U.S. banks. For example, SIBL offered 7.45% as
of June 1, 2005, and 7.878% as of March 20, 2006, for a fixed-rate CD based upon an
investment of $100,000. On November 28, 2008, SIBL quoted 5.375% on a 3-year flex
CD, while comparable U.S. bank CDs paid less than 3.2%.
64. None of the information that SIBL disseminated regarding the growth,
composition, and performance of its investment portfolio was true. Instead, through their
actions, the Stanford Co-Conspirators caused SIBL to report investment income that the
bank did not actually earn and, thereby, greatly inflate the value of its investment
portfolio. Specifically, the Stanford Co-Conspirators prepared and reviewed SIBL’s
financial statements, including the annual reports that were provided to customers and
posted on the bank’s website.
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65. Plaintiffs and other members of the Class reasonably relied upon the
information that SIBL disseminated regarding the growth, composition, and performance
of its investment portfolio.
66. Upon information and belief, Antigua, through the FSRC: (a) had actual
knowledge regarding the false and fraudulent nature of the information that SIBL
disseminated regarding the growth, composition, and performance of its investment
portfolio; and (b) intentionally and substantially assisted Stanford’s scheme by falsely
representing to Plaintiffs and other members of the Class that SIBL’s financial statements
were subject to, and approved only after, substantive FSRC review and scrutiny.
67. As world financial markets experienced substantial declines in 2008, it
became apparent to Allen Stanford and Davis that SIBL could not credibly report
investment profits in the 11 % to 15% range (as it had done in previous years). Allen
Stanford and Davis thus agreed that SIBL would for the first time show a “modest” loss
to avoid raising too many “red flags” to customers and other nations’ regulators. In other
words, they opted to tell a “more believable lie” in order to conceal their many previous
years of fraudulent conduct.
68. SIBL touted a purported $541 million capital infusion from Allen Stanford
in a December 2008 report:
Although our earnings will not meet expectations in 2008, Stanford International Bank Ltd. is strong, safe and fiscally sound. We have always believed that depositor safety was our number one priority. To further support the Bank’s growth and provide a strong cushion for any further market volatility, the Bank’ s Board of Directors made a decision to increase the Bank’s capital by $541 million on November 28, 2008. This contribution brings total shareholder equity to $1,020,029,802 with a capital to assets ratio of 11.87% and a capital to deposits ratio of 13.48%.
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69. The purported capital infusions by Allen Stanford were backdated,
fictitious, and engineered to give the appearance that SIBL had achieved “desired” levels
of capital.
70. In December 2008, well after Allen Stanford had purportedly infused the
$541 million in additional capital into SIBL, Allen Stanford, Davis, Kuhrt, and Lopez
approved and implemented a scheme wherein they “papered” a series of fraudulent
round-trip real estate transactions utilizing undeveloped Antiguan real estate acquired by
SIBL in 2008 for approximate1y $63.5 million (or roughly $40,000 per acre).
71. To give the appearance that the above-referenced capital infusions actually
occurred, Allen Stanford, Davis, Kuhrt, and Lopez falsified accounting records by
recording bogus transactions:
• SIBL sold the Antiguan real estate to several newly-created Stanford-controlled entities at the original cost of $63.5 million (although there is no evidence that Stanford paid SIBL the $63.5 million);
• the Stanford-controlled entities, at Allen Stanford’s and Davis’s instruction, immediately wrote-up the value of the real estate to approximately $3.2 billion dollars (or $2 million per acre), thereby exponentially increasing the value of the entities’ stock;
• in an effort to satisfy a portion of Allen Stanford’s personal debt to SIBL, Allen Stanford contributed to SIBL $1.7 billion of the fraudulently-inflated stock (using the inflated $2 million per acre valuation); and
• Allen Stanford then contributed to SIBL additional stock in the real estate holding companies valued at $200 million and $541 million (again using the inflated $2 million per acre valuation) to fund the backdated capital contributions.
72. These transactions did not infuse real capital into SIBL. In fact, the entire
process was fabricated after the reported capital contributions allegedly occurred.
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Moreover, the purported inflation in value of the real estate from $40,000 to $2 million
per acre was not justifiable under applicable U.S. or international accounting principles.
SIBL did not secure an appraisal and had no other reasonable support for such a drastic
increase in value. The transactions among Stanford-controlled entities simply were not
the kind of arm’s-length transactions required to justify a 5000% increase in value.
Nevertheless, on a mere promise from Allen Stanford that the land would appraise for
over $3 billion, Stanford, Davis, Kuhrt, and Lopez used $63.5 million of Antiguan real
estate to simultaneously plug a multi-billion dollar hole in SIBL’s balance sheet and
eliminate a significant portion of Allen Stanford’s personal debt to SIBL.
73. Following the fraudulent capital infusions, the largest segment of the
bank’s investment portfolio would have been $3.2 billion in over-valued real estate. Yet,
SIBL did not disclose the transactions in its December 2008 newsletter, which touted
Allen Stanford’s purported capital infusion. Moreover, Stanford’s real estate investments
were wholly inconsistent with SIBL’s representations to customers that SIBL’s
investment portfolio was composed of marketable securities, and not real estate.
74. Plaintiffs and other members of the Class reasonably relied upon the
information regarding Allen Stanford’s purported capital infusion to SIBL.
75. Upon information and belief, Antigua, through the FSRC: (a) had actual
knowledge regarding the fraudulent nature of both Allen Stanford’s purported capital
infusion to SIBL and the Stanford Co-Conspirators’ inflated appraisal of Antiguan real
estate; and (b) intentionally and substantially assisted Stanford in concealing SIBL’s
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fraudulent real estate machinations from Plaintiffs, other members of the Class, and other
nations’ regulators.
Misrepresentations Regarding Management of SIBL’s Investment Portfolio
76. Prior to making decisions to entrust their money to SIBL, prospective
customers routinely asked how SIBL safeguarded and monitored its assets. They also
frequently inquired whether Stanford could “run off with the money.”
77. In response to these questions, at least during 2006 and much of 2007,
Pendergest-Holt trained SIBL’s senior investment officer (“SIO”) to tell customers and
prospective customers that the bank’s multi-billion dollar portfolio was managed by a
“global network of portfolio managers” and “monitored” by a team of SFG analysts in
Memphis, Tennessee. The SIO followed Pendergest-Holt’s instructions, telling
customers and prospective customers that SIBL’s entire investment portfolio was
managed by a global network of money managers and monitored by a team of more than
twenty analysts.
78. Neither Pendergest-Holt nor the SIO disclosed to customers that SIBL
segregated its investment portfolio into three tiers: (i) cash and cash equivalents
(“Tier 1”); (ii) investments with “outside portfolio managers (25+)” that were monitored
by the SFG analysts (“Tier 2”); and (iii) undisclosed assets managed by Stanford and
Davis (“Tier 3”). As of December 2008, Tier 1 represented merely approximately 9%
($800 million) of SIBL’s purported portfolio. Tier 2, prior to the bank’s decision to
liquidate $250 million of investments in late 2008, represented approximate1y 10% of
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SIBL’s portfolio. Tier 3, the undisclosed assets managed by Allen Stanford and Davis,
thus represented approximately 80% of SIBL’s investment portfolio in December, 2008.
79. Neither Pendergest-Holt nor SIBL’s SIO disclosed that the bank’s Tier 3
assets were managed and/or monitored exclusively by Allen Stanford and Davis.
Likewise, they did not disclose that Allen Stanford and Davis surrounded themselves
with a close-knit circle of family, friends and confidants, thereby eliminating any
independent oversight of SIBL’s assets.
80. Neither Pendergest-Holt nor the SIO disclosed to the Plaintiffs or the
Class that the “global network” of money managers and the team of analysts did not
manage any of SIBL’s Tier 3 investments and, in reality, only monitored approximate1y
10% of SIBL’s portfolio. In fact, Pendergest-Holt trained the SIO “not to divulge too
much” about the oversight of SIBL’s portfolio because that information “wouldn’t leave
an investor with a lot of confidence.” Likewise, Davis instructed the SIO to “steer”
potential customers away from information about SIBL’s portfolio.
81. Plaintiffs and other members of the Class reasonably relied upon the
information disseminated by SIBL’s SIO when making their decisions to invest in and
with the Stanford Entities.
82. Upon information and belief, Antigua, through the FSRC: (a) had actual
knowledge regarding the fact that, as of December, 2008, undisclosed Tier 3 investments
represented approximately 80% of SIBL’s portfolio; and (b) intentionally and
substantially assisted Stanford in concealing SIBL’s method of segregating its investment
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portfolio into three “tiers” from Plaintiffs, other members of the Class, and other nations’
regulators.
Misrepresentation That SIBL Was “Stronger” Than Ever Before
83. On January 10, 2009, Allen Stanford, Davis and Pendergest-Holt spoke to
SGC’s Top Performers Club (a collection of high performing Stanford financial advisers)
in Miami, Florida.
84. During that meeting, Davis stated that SIBL was “stronger” than at any
time in its history. Allen Stanford, Davis, and Pendergest-Holt represented that SIBL
was secure and built upon a strong foundation, and that its financial condition was shored
up by Allen Stanford’s capital infusions. Davis, however, failed to disclose that he had
been informed only days earlier by the head of SIBL’s treasury that, despite SIBL’s best
efforts to liquidate Tier 2 assets, SIBL’s cash position had fallen from the June 30, 2008,
reported balance of $779 million to less than $28 million.
85. Allen Stanford and Davis also failed to disclose to the SGC sales force
that: (i) Allen Stanford had misappropriated more than $1.6 billion of investor funds; (ii)
SIBL’s annual reports, financial statements and quarterly reports to the FSRC were false;
(iii) hundreds of millions of dollars of SIBL customers’ funds had been invested in a
manner inconsistent with SIBL’s representations to customers that SIBL’s investment
portfolio was composed of marketable securities, and not real estate and/or private
equity; and (iv) the purported 2008 capital infusions by Allen Stanford were a fiction.
86. During her speech, Pendergest-Holt, after being introduced as SFG’s chief
investment officer and a “member of the investment committee of the bank,” answered
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questions about SIBL’s investment portfolio. In so doing, she failed to disclose to
attendees that she and her team of analysts did not manage SIBL’s entire investment
portfolio and, instead, only monitored approximately 10% of the bank’s investments.
She also failed to disclose that SIBL had invested SIBL’s funds in a manner inconsistent
with SIBL’s representations to customers that SIBL’s investment portfolio was composed
of marketable securities, and not real estate and/or private equity.
87. Allen Stanford, Davis and Pendergest-Holt also failed to disclose that, on
or about December 12, 2008, Pershing, LLC (SGC’s clearing broker-dealer) had
informed SGC that it would no longer process wire transfers from SGC to SIBL for the
purchase of the CDs, citing suspicions about SIBL’ s investment returns and its inability
to get from the bank “a reasonable leve1 of transparency” into its investment portfolio.
88. Allen Stanford, Davis and Pendergest-Holt knew that SGC advisers would
rely upon the information provided to them during the Top Performers Club meeting to
sell CDs. Plaintiffs and other members of the Class reasonably relied upon that
information.
89. Upon information and belief, Antigua, through the FSRC had actual
knowledge regarding the facts that: (i) in the second half of 2008, SIBL’s cash position
had fallen from the June 30, 2008, reported balance of $779 million to less than $28
million; and (ii) Pershing, LLC, had discontinued its role as SGC’s clearing broker-dealer
due to its suspicions regarding SIBL.
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Exposure to Losses From Madoff-related Investments
90. In the December 2008 Monthly Report, SIBL told its customers that it
“had no direct or indirect exposure to any of [Bemard] Madoff s investments.”
91. Contrary to this statement, Allen Stanford, Davis and Pendergest-Holt
knew, prior to the release of the December 2008 Monthly Report, that SIBL had exposure
to losses from the Madoff Scheme.
92. On December 12, 2008, and again on December 18, 2008, Pendergest-
Holt received e-mails from Meridian Capital Partners, a hedge fund with which SIBL had
invested, detailing SIBL’s exposure to losses from the Madoff Scheme.
93. On December 15, 2008, an SFG-affiliated employee notified Pendergest-
Holt and Davis that SIBL had exposure to losses from the Madoff Scheme in two
additional funds through which SIBL had invested. That same day, Davis, Pendergest-
Holt, and others consulted with Allen Stanford regarding the bank’s exposure to losses
from the Madoff Scheme.
94. Allen Stanford, Davis and Pendergest-Holt never corrected this
misrepresentation in the December 2008 monthly report.
95. Plaintiffs and other members of the Class reasonably relied upon the
information regarding SIBL’s purported lack of exposure to losses from the Madoff
Scheme.
96. Upon information and belief, Antigua, through the FSRC: (a) had actual
knowledge regarding SIBL’s exposure to losses from the Madoff Scheme; and (b)
intentionally and substantially assisted Stanford in concealing SIBL’s exposure to losses
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from the Madoff Scheme from SIBL’s customers (including Plaintiffs and other members
of the Class) and other nations’ regulators.
Antigua’s Participation in the Fraud
97. Tourism accounts for more than half of Antigua’s gross domestic product.
After a series of violent hurricanes devastated Antigua’s tourism infrastructure in 1995,
Antigua experienced a sharp decline in tourist arrivals and revenue; this decline was
exacerbated by the recent global economic downturn. As a result of this decline in its
primary source of income, Antigua experienced severe fiscal difficulties.
98. Partly as a result of the decline in tourist revenues, Antigua has, for many
years, had difficulties in engaging in routine commercial activities such as securing loans
from legitimate sources. At the time, “most [banks] balk[ed] at lending to a bloated and
revenue-strapped government with a record of mismanagement and corruption.”
[P. Fritsch, Antigua, Island of Sun, Is Also in the Shadow of R. Allen Stanford, WALL ST.
JOURNAL, Mar. 5, 2002, pg A1 (the “2002 WSJ Article”)]
99. Antigua therefore entered into a corrupt and illegal commercial
partnership with the Stanford Co-Conspirators, in which Antigua became an integral part
of, and beneficiary of, Stanford’s multi-billion dollar international fraudulent conspiracy.
Antigua’s Commercial Lending Relationship With Stanford
100. Despite Antigua’s lack of creditworthiness with legitimate lending
institutions, Stanford provided Antigua with vast sums of money from the Stanford
Enterprises – funds stolen from Plaintiffs and other members of the Class – and entered
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into a series of commercial business transactions with Antigua, all with the purpose and
effect of prolonging, and making Antigua a full partner in, Stanford’s criminal enterprise.
101. According to a March 11, 2009, report on Bloomberg News’s website
[Stanford’s Island Empire Implodes As Antigua Grabs Properties, by Alison Fitzgerald
and Thomas Black (the “2009 Bloomberg Article”)] Stanford has “loaned” at least $85
million to Antigua. It now is apparent that the money that Stanford “loaned” to Antigua
was stolen from members of the Class, including Plaintiffs.
102. For example, in May, 1995, Stanford “loaned” roughly $11 million to
Antigua, which Antigua used to pay salaries of public employees and contributions to
those employees’ pension fund. Upon information and belief, the “loan” was a transfer
from the Stanford Entities to Antigua using proceeds from the Stanford Enterprises,
including funds fraudulently stolen from the Plaintiffs and other members of the Class.
103. Upon information and belief, all or substantially all of Stanford’s loans to
Antigua have not been repaid.
Antigua’s Commercial Partnership with Stanford in the Development and Operation of V.C. Bird International Airport
104. In May, 1993, on the same day that Stanford made its first significant loan
(approximately $3.7 million) to Antigua, Stanford and Antigua entered into a “trust”
agreement that gave Stanford near-total control over the V.C. Bird International Airport
in Antigua.
105. Stanford and Antigua worked together on many improvements to the
airport between 1993 and 2009. Indeed, according to the Judicial Committee of the
United Kingdom’s Privy Council (the final Court of Appeal for Commonwealth countries
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who have chosen to retain it), by 2002, Stanford “was in the process of preparing a plan,
on the instructions of the government, of the expansion and redevelopment of the airport
and its surroundings” (emphasis added). This plan for the commercial development of
the airport by Stanford, under the instructions of Antigua, was known as the “Master
Plan.”
106. The Master Plan resulted in a commercial partnership between Antigua
and Stanford in the development and operation of the airport and its surrounding
facilities.
107. At Antigua’s direction, and with its express approval, Stanford developed
the area around the airport to include SIBL’s (and the Bank of Antigua’s) offices, a
cricket stadium, and two restaurants.
Antigua’s Commercial Partnership with Stanford in Real Estate Sales and Development
108. Antigua has, on several occasions, sold land to Stanford at what former
Prime Minister Lester Bird called “cut-rate prices.” [2009 Bloomberg Article]
109. Upon information and belief, Stanford facilitated at least some of these
sales by making payments to public officials. For example, in 2003, when Allen Stanford
was seeking to swap land owned by his Bank of Antigua for other land that he wished to
develop, Allen Stanford gave separate $74,000 checks to Antigua’s Tourism Minister and
Planning Minister. Upon information and belief, each of those payments was made with
proceeds from the Stanford Enterprises, including funds fraudulently stolen from the
Plaintiffs and the Class.
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110. In 2003, Antigua sold Maiden Island, a 23-acre property, to Stanford.
Upon information and belief, that purchase was made using proceeds from the Stanford
Enterprises, including funds fraudulently stolen from the Plaintiffs and the Class.
111. In 1997, Antigua, acting in furtherance of Stanford’s commercial interests,
pressured the American owner of the 110-acre Half Moon Bay beach resort to sell that
property to Allen Stanford. When the American hotel owner refused to accede to
Antigua’s demand to sell, Antigua moved to expropriate the property by eminent domain.
The hotel owner litigated the matter for more than a decade until, in late 2007, the Privy
Council ruled that Antigua had the right to nationalize the land. Prior to Allen Stanford’s
arrest, Antigua had convened an “Assessment Board” to set the value that the new owner
to be selected by Antigua – presumably, Allen Stanford – would need to pay the former
owner for the confiscated property
Caribbean Star Airlines
112. In January, 2000, Stanford incorporated “Caribbean Star Airlines”, a for-
profit airline company.
113. From its inception, Caribbean Star Airlines was an integral part of the
Stanford Enterprises.
114. Upon information and belief, Caribbean Star Airlines was established,
funded, and maintained using proceeds from the Stanford Enterprises, including funds
fraudulently stolen from the Plaintiffs and the Class.
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115. In 2007, Leeward Islands Air Transport Services (“LIAT”), an airline
owned in large part by Antigua, purchased Caribbean Star Airlines, and several airplanes
belonging to Caribbean Star, from Stanford, on favorable terms.
116. Upon information and belief, Antigua, through LIAT, would not have had
the financial ability to purchase Caribbean Star Airlines but for the fact that funding was
made available to it by the Stanford Enterprises.
Antigua’s Commercial Partnership with Stanford In the Development of Mount St. John Medical Centre
117. In the late 1990s and early 2000s, Antigua partnered with Stanford and
others in the construction of Antigua’s new Mount St. John Medical Centre.
118. As part of the partnership, Antigua sought, and received, a $30 million
loan from Stanford for the hospital’s construction costs. Upon information and belief, the
funds that Stanford made available to Antigua for construction of the hospital were
proceeds from the Stanford Enterprises, including funds fraudulently stolen from the
Plaintiffs and the Class.
119. Stanford was appointed as the Chairman of the Board of the hospital.
Subsequently, an independent commission tasked with investigating allegations of
corruption in the building of the hospital determined that Antigua had promised to repay
the $30 million loan to Stanford with funds that were taken directly from Antigua’s social
security system.
120. Thus, the purported “loan” agreement was actually a fraudulent scheme
between Antigua and Stanford designed to use $30 million of proceeds from the Stanford
Enterprises to enable Antigua to loot its own social security system.
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121. As a result of the commission’s report, Allen Stanford resigned from the
hospital’s Board of Directors.
Stanford’s Transfer Of Additional Crime Proceeds to Antigua
122. At roughly the same time, Stanford also underwrote the construction of
new executive offices for the government of Antigua.
123. Upon information and belief, the funds that Stanford made available to
Antigua for construction of the executive offices were proceeds from the Stanford
Enterprises, including funds fraudulently stolen from the Plaintiffs and the Class.
124. In 2001, Allen Stanford announced that he would forgive a $5 million loan
that he personally had made to Antigua, and provide an additional loan to pay Antigua’s
back salaries and meet other obligations. Upon information and belief, the funds loaned
to Antigua were stolen from Plaintiffs and other members of the Class, then transferred to
Antigua.
125. A U.S. official responded to Allen Stanford’s decision to forgive the loan
by stating that “[w]e’ve made clear to the [Antiguan] government that this does not at all
look good” when juxtaposed with Antigua’s then-pending (and eventually-successful)
effort to confiscate the Half Moon Bay hotel. [2002 WSJ Article]
126. Upon information and belief, the funds that Stanford made available to
Antigua through both the loan forgiveness and the additional loan were proceeds from the
Stanford Enterprises, including funds fraudulently stolen from the Plaintiffs and the
Class.
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127. In 2004, Antigua’s Finance Minister disclosed that Stanford had: (a)
agreed to write off roughly $18 million of Antigua’s debt; (b) “donated” money needed to
build a national library; and (c) “donated” $9 million for a higher education complex for
Antigua. Upon information and belief, the funds that Stanford made available to Antigua
for loan forgiveness, to pay for the national library, and to pay for the higher education
complex were proceeds from the Stanford Enterprises, including funds fraudulently
stolen from the Plaintiffs and the Class.
128. In return for the transfer of funds from the Stanford Enterprises to
Antigua, Antigua allowed Allen Stanford to acquire yet another island, Guiana Island.
Upon information and belief, the funds that Stanford used to purchase that island were
proceeds from the Stanford Enterprises, including funds fraudulently stolen from the
Plaintiffs and the Class.
129. Antigua also partnered with Stanford to create the “Empowerment for
Ownership Initiative.” According to Antigua’s Minister of Finance and Economy, this
initiative represented a “far-reaching and historic alliance between the Stanford Group
and the Government of Antigua.” [2005 Budget Statement, Hon. L. Errol Cort, MP, Nov.
30, 2004, “2005 Budget Statement”] According to a 2007 Antigua and Barbuda Budget
Presentation, the “initiative represent[ed] a collaborative undertaking of the Government,
the Stanford Group of Companies and the [Antigua Barbuda Development] Bank.”
Upon announcing the initiative, the Minister of Finance and Economy stated that “[t]he
Government of Antigua and Barbuda looks forward to an enduring and productive
partnership with the Stanford Group.” [2005 Budget Statement]
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130. The “collaborative undertaking” between Antigua and Stanford was
created with “a $10 million fund endowed by the Stanford Group of Companies.” Id.
Upon information and belief, the funds that Stanford used to fund the endowment were
proceeds from the Stanford Enterprises, including funds fraudulently stolen from the
Plaintiffs and the Class.
131. Antigua also has entered into a commercial venture with Stanford in the
promotion of the sport of cricket. At relevant times, Stanford bankrolled Antigua’s
national professional cricket team, and built the large “Stanford Cricket Ground” near the
V.C. Bird International Airport. Upon information and belief, the funds used to support
these joint Antigua-Stanford commercial ventures were proceeds from the Stanford
Enterprises, including funds fraudulently stolen from the Plaintiffs and the Class.
132. Stanford and Antigua also collaborated on the funding, construction, and
improvement of Antigua’s infrastructure prior to Antigua’s hosting in 2006 of the initial
“Stanford 20/20” cricket tournament at the St. John’s “ground.” The “20/20” tournament
was also held in St. John’s in 2007 and 2008, and was a substantial source of revenue for
Antigua’s suffering tourist industry. Upon information and belief, the funds used to
support this joint Antigua-Stanford commercial venture were proceeds from the Stanford
Enterprises, including funds fraudulently stolen from the Plaintiffs and the Class.
Antigua’s Actions to Protect the Stanford Enterprises
133. In light of the many lucrative commercial activities undertaken by the
Antigua-Stanford collaboration, Antigua had an extremely strong financial incentive to
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ensure the continuity of the Stanford Enterprises, from which Antigua had profited so
handsomely.
134. Upon information and belief, Antigua and the FSRC undertook a
comprehensive effort to ensure the continuous flow of money and commercial activity
between itself and the Stanford Enterprises by insulating the Stanford Enterprises from
scrutiny by customers and other nations’ regulators.
135. In the late 1990s and early 2000s, Antigua took several self-serving steps
to protect the Stanford Enterprises from any such scrutiny, and to perpetuate the scheme.
136. In or about 1996, the Prime Minister of Antigua appointed Allen Stanford
to spearhead a revision of Antigua’s offshore banking regulations. Allen Stanford
successfully urged the Prime Minister to also name Allen Stanford’s attorney (and two
other members of that attorney’s firm) to the “special advisory board.” At Antigua’s
request, Bank of Antigua – an entity that was part of the SFG Enterprise – loaned
Antigua the money to pay for the “special advisory board” project.
137. In November, 1998, Antigua’s Parliament passed several laws that were
recommended by the “special advisory board” led by Allen Stanford. Among the new
laws passed was one that criminalized the release, by any bank employee or Antiguan
regulator, of information about any Antiguan bank customer without a court order. This
statute provided the Stanford Enterprises with a significant shield against any
investigation into their fraudulent financial schemes.
138. Another part of the 1998 reforms created the International Financial Sector
Authority (“IFSA”), an Antiguan entity meant to regulate offshore banks. Allen
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Stanford, owner of SIBL, the largest offshore bank located in Antigua, was named to be
the Chairman of the Board of Directors of the IFSA, whose mandate purportedly was to
regulate banks such SIBL.
139. As a result of Antigua’s decision to allow Allen Stanford to regulate (or,
more accurately, fail to regulate) his own bank via the IFSA, in 1999, the United States
Department of State sent a cable from the U.S. Embassy in Antigua that stated that “the
Antiguan government has effectively ceded oversight of its offshore sector to an offshore
banker and his minions.” According to the 2009 Bloomberg Article, Jonathan Winer, a
deputy assistant secretary of state during the relevant period, acknowledged that the
“offshore banker” referenced in the State Department cable was, in fact, Allen Stanford.
In that same article, Mr. Winer is quoted as saying that Allen Stanford’s role as a
regulator of his own assets was “unprecedented, bizarre, inappropriate, [and an] obvious
conflict of interest.”
140. At roughly the same time, the U.S. Treasury Department listed Antigua as
a money laundering risk, only the second time that it had issued such a warning against
an entire nation.
141. Shortly thereafter, the IFSA, of which Allen Stanford was still a board
member, sought to obtain Antigua’s records related to its offshore banks. An Antiguan
governmental official, Althea Crick, refused to turn the documents over to Allen Stanford
and the IFSA, apparently because she feared that the IFSA would conceal any
wrongdoing found in the documents. After a two-day standoff, the IFSA seized the
documents from Ms. Crick. In a letter written by James Johnson, then the U.S. Treasury
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Department’s undersecretary of enforcement, to Antigua’s Prime Minister, Mr. Johnson
wrote that the IFSA’s seizure of the bank documents “raises substantial questions as to
Antigua and Barbuda’s commitment to provide effective supervision of its offshore
sector.” In that same letter, Mr. Johnson complained that Antigua had softened its laws
against money laundering and had created an obvious conflict of interest by allowing
Allen Stanford to sit on the IFSA board. Allen Stanford eventually stepped down from
the IFSA board.
Antigua Was an Integral Part of the Scheme
142. Upon information and belief, the Stanford Enterprises repeatedly paid
bribes to Antigua and Antiguan officials. The purpose and effect of those bribes was to
integrate Antigua into the scheme, and to give it a stake in the Stanford Enterprises.
143. The 2002 WSJ Article quoted Baldwin Spencer, then the leader of the
government opposition party, as saying that Allen Stanford “has a lien on our whole
country.” According to the 2009 Bloomberg Article, in 2003, Mr. Spencer also criticized
the Antigua-Stanford land swap and Antigua’s sale of Maiden Island to Allen Stanford as
“surrendering the people’s patrimony.”
144. As The Observer (a United Kingdom newspaper) reported on March 2,
2008 (in We Have Lift-off, by Andy Bull), “[t]he power that [Allen Stanford’s] wealth
provides when exercised in a country as small as Antigua is difficult to comprehend. He
owns the national bank, runs the airline, paid for the hospital, and built the hotels. The
island is, to a degree, his fiefdom; the government awarded him a knighthood, presented
by Prince Edward, in 2006.”
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145. According to a 2009 article in GQ Magazine (Did This Man Pull Off The
Most Brazen Swindle Of All?, by Aram Roston), money-laundering expert Jack Blum has
bluntly stated that Allen Stanford “bought the [Antiguan] Prime Minister.”
146. Upon information and belief, sums that the Stanford Enterprises paid as
bribes to Antiguan officials, and the monies that the Stanford Enterprises invested in (and
loaned to Antigua in connection with) the various commercial ventures upon which
Stanford and Antigua worked together, were taken directly from the billions of dollars
that the Stanford Enterprises stole from their customers, including Plaintiffs and other
members of the Class, by means of the massive “Ponzi” scheme for which Allen Stanford
and others have now been indicted.
147. In the course of the commercial activities in which they participated with
the Stanford Enterprises, Antigua corruptly traded, or promised to trade, to Allen
Stanford and/or the Stanford Enterprises items of value such as commercial real estate, at
least two islands (Maiden and Guiana Islands), the Half Moon Bay luxury resort hotel,
positions on the boards of corporations and agencies, a variety of development rights, and
the rights to conduct various services (and impose or collect certain fees and/or taxes) at
the V.C. Bird International Airport. In return for using these, and other, items of value as
consideration in connection with the various commercial activities in which Antigua
engaged with the Stanford Enterprises, Antigua received millions of dollars in
investments and loans (many of which subsequently were forgiven by the Stanford
Enterprises, thus transforming those purported “loans” into direct cash payments) from
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the Stanford Enterprises, all of which were funded by money that the Stanford
Enterprises stole from depositors, including Plaintiffs and other members of the Class.
148. As part of its efforts to maintain and facilitate the corrupt commercial
activities from which they were profiting at Plaintiffs’ and the Class’s expense, Antigua
shielded the Stanford Enterprises’ “Ponzi” scheme from any person or entity (including,
specifically, other nations’ regulatory bodies) that might have endangered the vitality of
the Stanford Enterprises’ scheme, and the ability of the Stanford Enterprises to continue
to funnel proceeds of that scheme to Antigua.
149. For many years, Antigua’s corrupt efforts to shield the Stanford
Enterprises from regulatory and private scrutiny were successful, thus allowing the
Stanford Enterprises to continue to steal money from depositors and pay part of the stolen
amounts to Antigua in return for Antigua’s continued protection of the Stanford
Enterprises.
150. In or about 2005, however, the SEC commenced an investigation into
Stanford, and began to make official inquiries to the FSRC regarding the substance and
worth of the investments that SIBL claimed that it had made on behalf of its customers,
including Plaintiffs.
151. The FSRC was established by a 2002 amendment to the IBC Act, which
was initially passed in 1982 by Antigua’s Parliament. Pursuant to the IBC Act, the FSRC
was, at all relevant times, managed by a Board of Directors comprised of four members
appointed by Antigua’s Minster of Finance and approved by Antigua’s Cabinet. One of
the four FSRC members, as appointed by Antigua’s Minister of Finance and confirmed
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by Antigua’s Cabinet, held the title of Administrator and Chief Executive Officer of the
FSRC.
152. Pursuant to the IBC Act, the FSRC is, and at all relevant times was, tasked
with conducting annual on-site investigations of Antigua’s offshore banks, including
SIBL. The statutory purpose of the FSRC’s mandatory annual investigations is to
ascertain the banks’ compliance with applicable laws, regulations, and international
standards.
153. Antigua, through the FSRC, falsely represented that its annual
investigations of its regulated entities including, at relevant times, SIBL, to included at
least nine components:
(a) A determination of the entity’s solvency, including the quality of its
investments and loan portfolio;
(b) A review of the policies and procedures that govern the entity’s
operations;
(c) A review of the entity’s internal control systems, including its money-
laundering prevention control systems;
(d) The verification of the entity’s compliance with proper customer account
management guidelines;
(e) The verification of the entity’s compliance with internationally-recognized
prudential standards;
(f) An assessment of the quality of the entity’s management;
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(g) The verification of the accuracy of the returns that the entity submitted to
the FSRC;
(h) The enforcement of Antigua’s due diligence requirements; and
(i) A determination of whether the entity maintains detailed records of
transactions and customer files.
154. In addition to the annual investigations, the FSRC represented to
customers and prospective customers of Antigua-based financial institutions, including
SIBL, that the FSRC undertook continuous off-site supervision of those entities, in the
form of analyses of quarterly returns and annual audited financial statements.
Antigua, through the FSRC, Shielded Stanford
155. It was essential to the conspiracy that Stanford in general, and SIBL in
particular, be able to represent to their clients, prospective clients, and foreign regulators
that SIBL was closely supervised by Antigua, through the FSRC.
156. SIBL’s marketing materials regularly highlighted Antigua and FSRC’s
purported regulation and inspection of SIBL’s financial condition and operation.
157. For example, in its 2003 Annual Report, SIBL stated that:
In 2003, Antigua assumed the chairmanship of the Caribbean Financial Action Task Force (CFATF). This is another testament to the high level of compliance in the country. Moreover, Antigua enhanced its already stringent regulations in due diligence and compliance through the yearly on-site examination conducted by the Financial Sector Regulatory Commission.
158. In its 2005, 2006, and 2007 Annual Reports, SIBL stated that:
The Bank is registered under the International Business Corporation Act No. 28 of 1982 as amended (“the Act”).
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The Bank’s activities are governed by the Act and by every other act currently in force concerning international business corporations and affecting the corporation in Antigua and Barbuda. The Bank is also regulated by the Financial Services Regulatory Commission (FSRC). International banks are subject to annual audits, regulatory inspections and licensing requirements by this body. The supervisory authority for money laundering and other financial crimes is the Office of the National Drug Control and Money Laundering Policy (ONDCP). The FSRC and ONDCP, although independent, work closely together.
159. In its 2007 Annual Report, SIBL also stated that:
The Bank is registered under the International Business Corporation Act No. 28 of 1982 as amended (“the Act”). The Bank’s activities are governed by the Act and by every other act currently in force concerning international business corporations and affecting the corporation in Antigua and Barbuda. The Bank is also regulated by the Financial Services Regulatory Commission (FSRC). International banks are subject to annual audits, regulatory inspections and licensing requirements by this body. The supervisory authority for money laundering and other financial crimes is the Office of the National Drug Control and Money Laundering Policy (ONDCP). The FSRC and ONDCP, although independent, work closely together….
Capital adequacy and the use of regulatory capital are monitored routinely by the Bank’s management, employing techniques based on the guidelines developed by the Basel Committee, as implemented by the FSRC for supervisory purposes. The required information is filed with the Regulatory Authority on a quarterly basis.
The Authority requires each bank to: (1) hold all the minimum level of the regulatory capital, and (2) maintain a capital ratio to assets at or above the minimum of 5 percent.
160. It was a part of the conspiracy that Stanford would make regular secret
payments of thousands of dollars in cash to King, the Administrator and CEO of the
FSRC, to ensure that, among other things:
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(a) The FSRC would not exercise its true regulatory functions in verifying the
existence and value of SIBL’s investments;
(b) King corruptly would provide to Stanford, Davis, and others information
about official inquiries that the FSRC had received from United States
regulators who had requested information from the FSRC regarding
“possible fraud perpetrated upon investors” by SIBL; and
(c) King would make false representations in response to official inquiries of
regulators, including U.S. regulators, and would seek and receive the
assistance of Stanford, Davis, and others, in preparing false responses to
such inquiries.
161. The FSRC actively touted and vouched for the safety and security of
SIBL.
162. The FSRC also is the Antiguan entity that is responsible for receiving and
responding to requests by foreign regulators, including the SEC, for information
regarding the entities regulated by the FSRC.
163. FSRC and King made false and misleading representations to the SEC and
others regarding the nature and extent of FSRC’s oversight of SIBL, and the FSRC’s
knowledge of SIBL’s financial condition and operation including, but not limited to,
representations that SIBL’s operations and financial state were being scrutinized by
FSRC, and that SIBL was subject to annual audits and regulatory inspections by FSRC.
In fact, however, due to Antigua’s desire to maintain the cash flow that it was receiving
from the Stanford Enterprises, FSRC failed to accurately audit SIBL, verify the existence
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or value of SIBL’s assets, or take any of the other regulatory measures that the FSRC was
required under the IBC Act to take with respect to SIBL.
164. Moreover, according to documents obtained by the Receiver, in 2006
Antigua, through the FSRC, gave Stanford and/or certain of his employees advance
notice of – and, in at least one case, the opportunity to significantly redraft – the FSRC’s
replies to inquiries from the Eastern Caribbean Central Bank (“ECCB”) regarding SIBL.
165. Due to Antigua’s desire to maintain the cash flow from the commercial
activities that were part of the Stanford Enterprises’ fraudulent scheme, including
Antigua’s receipt of proceeds from the Stanford Enterprises, and King’s receipt of cash
bribes, Antigua aided and abetted the Stanford Enterprises by providing the Stanford
Enterprises with information about the SEC’s and the ECCB’s inquiries regarding SIBL
and SIBL’s fraudulent activities.
166. Due to Antigua’s desire to maintain the cash flow from the commercial
activities that were part of the scheme, including Antigua’s receipt of proceeds from the
Stanford Enterprises, and King’s receipt of cash bribes, Antigua, through FSRC and
King, also unlawfully made false and misleading representations to the SEC regarding
the solvency of SIBL, and sought and received the assistance of Stanford in preparing the
false and misleading responses to such inquiries.
167. Due to Antigua’s desire to maintain the cash flow from the commercial
activities that were part of the Stanford Enterprises’ fraudulent scheme, including
Antigua’s receipt of proceeds from the Stanford Enterprises, and King’s receipt of cash
bribes, Antigua, through FSRC and King, took additional steps to protect the Stanford
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Enterprises. Specifically, in or about May, 2003, King removed from an examination of
a SIBL affiliate a FSRC employee who, according to the SEC’s Second Amended
Complaint in the SEC Action, “got too close to the fire.”
Bribes Paid by the Stanford Enterprises to King
168. During the relevant period, Stanford provided to King, in addition to the
specific corrupt payments set forth below, use of the Stanford Enterprises’ corporate
airplanes, and use of a corporate car.
169. King, as head of FSRC, received direct cash payments and other items of
value from the Stanford Enterprises in exchange for his aid and assistance to, and
participation in, the Stanford Enterprises. Each of those cash payments and items of
value were proceeds, or were paid for with the proceeds, from the Stanford Enterprises,
including funds fraudulently stolen from the Plaintiffs and the Class.
170. On or about February 1, 2004, Allen Stanford provided two tickets to King
to the 2004 Super Bowl, which, upon information and belief, were purchased by the
Stanford Enterprises using funds that the Stanford Enterprises had stolen from the
Plaintiffs and other members of the Class.
171. On or about February 7, 2005, King deposited in a U.S. financial
institution approximately $15,000 that was, upon information and belief, paid to him by
the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the
Plaintiffs and other members of the Class.
172. On or about February 25, 2005, King deposited in a U.S. financial
institution approximately $9,000 that was, upon information and belief, paid to him by
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the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the
Plaintiffs and other members of the Class.
173. On or about March 24, 2005, King deposited in a U.S. financial institution
approximately $9,700 that was, upon information and belief, paid to him by the Stanford
Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and
other members of the Class.
174. In June, 2005, the SEC requested the assistance of Antigua, through FSRC
and King, in determining whether SIBL and SFG were defrauding their customers.
175. On or about June 21, 2005, Antigua, through FSRC and King, falsely
represented in a letter to the SEC that FSRC’s examination of SIBL had not detected any
evidence of SIBL’s operation of a “Ponzi” scheme. In that letter, Antigua, through FSRC
and King, wrote that “any further investigation of ‘possible’ fraudulent activities of
[SIBL] was unwarranted,” and that “it is the opinion of the FSRC that [SIBL] has
conducted its banking business to date in a manner the FSRC considers to be fully
compliant.”
176. In fact, however, due to Antigua’s desire to maintain the cash flow from
the commercial activities that were part of Stanford’s fraudulent scheme, FSRC had
failed to accurately audit SIBL, verify the existence or value of SIBL’s assets, or take any
of the other measures that the FSRC was required under the IBC Act to take with respect
to SIBL.
177. On or about December 30, 2005, King deposited in a U.S. financial
institution approximately $6,000 that was, upon information and belief, paid to him by
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the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the
Plaintiffs and other members of the Class.
178. On or about March 10, 2006, King deposited in a U.S. financial institution
approximately $9,800 that was, upon information and belief, paid to him by the Stanford
Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and
other members of the Class.
179. On or about March 14, 2006, King deposited in a U.S. financial institution
approximately $7,000 that was, upon information and belief, paid to him by the Stanford
Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and
other members of the Class.
180. On or about March 20, 2006, King deposited in a U.S. financial institution
approximately $8,000 that was, upon information and belief, paid to him by the Stanford
Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and
other members of the Class.
181. On or about March 27, 2006, King deposited in a U.S. financial institution
approximately $5,000 that was, upon information and belief, paid to him by the Stanford
Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and
other members of the Class.
182. On or about August 31, 2006, King deposited in a U.S. financial
institution approximately $2,000 that was, upon information and belief, paid to him by
the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the
Plaintiffs and other members of the Class.
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183. In September, 2006, the SEC requested from Antigua, through FSRC and
King, copies of FSRC’s investigative reports regarding SIBL.
184. On or about September 18, 2006, King deposited in a U.S. financial
institution approximately $5,000 that was, upon information and belief, paid to him by
the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the
Plaintiffs and other members of the Class.
185. On or about September 21, 2006, King deposited in a U.S. financial
institution approximately $6,000 that was, upon information and belief, paid to him by
the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the
Plaintiffs and other members of the Class.
186. Due to Antigua’s desire to maintain the cash flow from the commercial
activities that were part of Stanford’s fraudulent scheme, on or about September 25,
2006, Antigua, through FSRC and King, unlawfully provided to Stanford the SEC’s
September, 2006, request to FSRC and King for copies of FSRC’s investigative reports
regarding SIBL. Antigua, through FSRC and King, also discussed with Stanford how
Antigua, through FSRC and King, should and would respond to the SEC’s request.
187. On or about September 28, 2006, King deposited in a U.S. financial
institution approximately $6,000 that was, upon information and belief, paid to him by
the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the
Plaintiffs and other members of the Class.
188. Due to Antigua’s desire to maintain the cash flow from the commercial
activities that were part of Stanford’s fraudulent scheme, on or about October 10, 2006,
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Antigua, through FSRC and King, provided to the SEC an official, false, and misleading
response to the SEC’s September, 2006, information request. The false and misleading
letter written by Antigua, through FSRC and King, contained text that was not written by
Antigua, FSRC, or King; but, instead, was written by Stanford and others. In that letter,
Antigua, through FSRC and King (and using text unlawfully written by Stanford and
others) , falsely and misleadingly represented that “the FSRC’s most recent onsite
examination just five months ago confirmed [SIBL’s] compliance with all areas of
depositor safety and solvency, as well as all other applicable laws and regulations. The
FSRC has further confirmed through its continuous visits and supervision of [SIBL] that
there are no other issues or matters of concern with [SIBL].”
189. On or about October 23, 2006, King deposited in a U.S. financial
institution approximately $8,000 that was, upon information and belief, paid to him by
the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the
Plaintiffs and other members of the Class.
190. On or about January 31, 2007, King deposited in a U.S. financial
institution approximately $4,000 that was, upon information and belief, paid to him by
the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the
Plaintiffs and other members of the Class.
191. On or about March 19, 2007, King deposited in a U.S. financial institution
approximately $6,000 that was, upon information and belief, paid to him by the Stanford
Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and
other members of the Class.
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192. On or about April 16, 2007, King deposited in a U.S. financial institution
approximately $9,000 that was, upon information and belief, paid to him by the Stanford
Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and
other members of the Class.
193. On or about September 14, 2007, King deposited in a U.S. financial
institution approximately $5,500 that was, upon information and belief, paid to him by
the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the
Plaintiffs and other members of the Class.
194. On or about December 24, 2007, King deposited in a U.S. financial
institution approximately $4,470 that was, upon information and belief, paid to him by
the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the
Plaintiffs and other members of the Class.
195. On or about January 23, 2008, King withdrew approximately $15,000
from a U.S. bank account and deposited the money into a U.S. investment account. Upon
information and belief, those funds previously had been paid to King by the Stanford
Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and
other members of the Class.
196. On or about January 30, 2008, King deposited in a U.S. financial
institution approximately $9,500 that was, upon information and belief, paid to him by
the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the
Plaintiffs and other members of the Class.
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197. On or about April 23, 2008, King deposited in a U.S. financial institution
approximately $9,600 that was, upon information and belief, paid to him by the Stanford
Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and
other members of the Class.
198. On or about June 30, 2008, King deposited in a U.S. financial institution
approximately $7,000 that was, upon information and belief, paid to him by the Stanford
Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and
other members of the Class.
199. Due to Antigua’s desire to maintain the cash flow from the commercial
activities that were part of Stanford’s fraudulent scheme, in or about the fall of 2008,
Antigua, through FSRC and King, caused false and misleading reports to be issued to
Stanford’s customers, including Plaintiffs, that misrepresented the value of SIBL’s
investments, and that set forth wildly inflated values for real estate that SIBL purportedly
owned.
200. On or about December 8, 2008, King deposited in a U.S. financial
institution approximately $6,800 that was, upon information and belief, paid to him by
the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the
Plaintiffs and other members of the Class.
201. On or about December 24, 2008, King deposited in a U.S. financial
institution approximately $4,200 that was, upon information and belief, paid to him by
the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the
Plaintiffs and other members of the Class.
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202. On or about February 23, 2009, King transferred approximately $150,000
from a U.S. investment account to an Antiguan bank account. Upon information and
belief, those funds previously had been paid to King by the Stanford Enterprises using
funds that the Stanford Enterprises had stolen from the Plaintiffs and other members of
the Class.
203. On or about February 26, 2009, the SEC sent a letter to Antigua, through
FSRC and King, in which the SEC sought to determine the amount of investor funds
(including Plaintiffs’ funds) that remained in SIBL accounts, and to identify persons who
had committed fraud in connection with, or been victimized by, the Stanford Enterprises.
204. On or about March 2, 2009, King transferred approximately $410,000
from a U.S. investment account to an Antiguan bank account. Upon information and
belief, those funds previously had been paid to King by the Stanford Enterprises using
funds that the Stanford Enterprises had stolen from the Plaintiffs and other members of
the Class.
205. Due to Antigua’s desire to maintain the cash flow from the commercial
activities that were part of Stanford’s fraudulent scheme, on or about March 3, 2009,
Antigua, through FSRC and King, sent a letter to the SEC that denied the SEC’s February
26, 2009, information request. In their March 3, 2009, letter, Antigua, through FSRC and
King, stated that the FSRC had “no authority to act in the manner requested and would
itself be in breach of law if it were to accede to [the SEC’s] request.” The “law” to which
Antigua, through FSRC and King, referred was, naturally, the 1998 law that criminalized
the release, by any Antiguan regulator, of information about a bank customer without a
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court order, which had been passed by Antigua’s Parliament upon the recommendation of
the “special advisory board” that Allen Stanford had led, and for which Stanford’s Bank
of Antigua had loaned the money to Antigua to operate.
206. On June 18, 2009, the United States Department of Justice (“DOJ”) filed a
twenty-one count criminal indictment in the United States District Court for the Southern
District of Texas (the “DOJ Action”) against King, Allen Stanford, and various Stanford
Entities and employees, alleging mail fraud; wire fraud; obstruction of a SEC
investigation; conspiracy to commit mail, wire, and securities fraud; conspiracy to
obstruct a SEC investigation; and conspiracy to commit money laundering.
207. On or about June 24, 2009, King was arrested by Antigua, in an apparent
effort to shift the blame for Antigua’s participation in Stanford’s fraudulent scheme from
Antigua – where that blame truly belongs – to King.
Commercial Activity Having a Direct Effect in the United States
208. As set forth in the pleadings in the SEC Action and DOJ Action, and in
various news reports, the Stanford Enterprises’ “Ponzi” scheme is responsible for the
theft of at least $8 billion dollars from Stanford’s customers, including Plaintiffs and
other members of the Class.
209. Antigua’s actions described above, taken in furtherance of the Stanford
Enterprises’ fraudulent scheme, were performed: (1) outside of the United States; and (2)
in connection with the desire to maintain the cash flow from the commercial activities in
Antigua that were integral parts of Stanford’s fraudulent scheme.
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210. Antigua’s actions described above, taken in furtherance of the Stanford
Enterprises’ fraudulent scheme, had many direct effects in the United States, in large part
because the Stanford Enterprises were based in the United States, and inextricably linked
to the financial system of the United States. For example, according to a June 9, 2009,
Declaration of Karyl Van Tassel (“Van Tassel Dec.”), a forensic accountant with FTI
Consulting, Inc., which has been retained by the Receiver in the SEC Action, submitted
in the SEC Action:
(a) SIBL “was controlled and managed…from various places within
the U.S. Most core functions such as managing investments,
directing fund flows, devising investment strategy, and managing
legal and information technology were directed from - and for the
most part, performed in - the U.S. It also appears that major cash
transfers were directed and controlled from within the U.S. by
[Allen] Stanford, Davis and, in some instances, Holt.” Van Tassel
Dec. at ¶ 9.
(b) “SIB[L]’s two principal business activities - selling CDs and
investing (or otherwise directing) the proceeds of sale - were both
controlled from the United States, with no meaningful
management input from Antigua.” Id. at ¶ 12.
(c) “CDs were sold to people from all over the world, although in
terms of dollar amount, there were more sales to U.S. citizens
(37% based on most recent statement mailing address) than to
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citizens of any other country. Moreover, Stanford brokers located
in the U.S. accounted for 42%-44% of al CD sales in 2007 and
48% of sales in 2008.” Id. at ¶ 14.
(d) “Misinformation regarding SIB[L]’s financial strength,
profitability, capitalization, investment strategy, investment
allocation, the value of its investment portfolio, and other matters,
was disseminated from…the United States.” Id. at ¶ 15.
(e) “SIB[L]’s principal operating accounts were maintained in
Houston, Texas, at the Bank of Houston and Trustmark National
Bank. Only a small amount of SIB[L] funds were kept on deposit
in Antigua, and these funds were kept at the Bank of Antigua,
another Stanford Entity.” Id. at ¶ 15.
211. Moreover, the actions described above had a direct effect in the United
States, in that:
(a) As a result of the conduct alleged herein, and related conduct,
SFG, SIBL, Allen Stanford, Pendergest-Holt, Davis, and others are
now the subject of the SEC Action, which is pending in the
Northern District of Texas;
(b) As a result of the conduct alleged herein, and related conduct,
criminal proceedings have been instituted, in the form of the DOJ
Action, against Allen Stanford, Pendergest-Holt, King, and others
in the Southern District of Texas;
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(c) The United States Internal Revenue Service has a multi-million
dollar claim for taxes and penalties owed to the United States in
whole or in part due to the commercial activities described herein;
(d) A substantial number of Stanford’s customers, including the
Plaintiffs and members of the Class, were based in the United
States, and the economic effects of those persons’ tragic and
substantial losses are being felt in the United States; and
(e) Antigua’s unlawful actions led to the collapse of SFG, which was
based in Houston, Texas.
212. Likewise, in connection with each allegation set forth above in which
Plaintiffs allege that money was paid (or otherwise provided) to Antigua using funds that
the Stanford Enterprises had stolen from the Plaintiffs and other members of the Class,
each such act had a direct effect in the United States because the money at issue was
being funneled to Antigua from defrauded customers in the United States, and elsewhere,
through SFG’s operations in the United States, at the direction of the Stanford Enterprises
in the United States.
FIRST CLAIM FOR RELIEF: VIOLATION OF RICO – 18 U.S.C. §1962(c)
(STANFORD ENTERPRISES)
213. Plaintiffs repeat, reiterate, and reallege each of the allegations set forth
above.
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214. Plaintiffs and the Class are “persons injured in [their] business or
property” within the meaning of 18 U.S.C. §1964(c).
215. At all relevant times, the Stanford Enterprises were engaged in, and its
activities affected, interstate and foreign commerce, within the meaning of RICO,
18 U.S.C. § 1962(c).
216. Antigua is a “person” within the meaning of 18 U.S.C. §§1961(3).
217. At all relevant times, Antigua conducted or participated, directly or
indirectly, in the conduct of the Stanford Enterprises’ affairs through a “pattern of
racketeering activity” within the meaning of RICO, 18 U.S.C. § 1961(5), in violation of
RICO, 18 U.S.C. § 1962(c).
218. Specifically, at all relevant times, Antigua repeatedly committed the above
criminal acts for the purpose of enriching itself, both financially and politically, and to
otherwise further the ends of the Stanford Enterprises.
219. Antigua conducted and participated in the affairs of the Stanford
Enterprises in at least the following ways:
(a) Directing and/or otherwise causing the Stanford Enterprises to make
commercial loans to Antigua, using the proceeds of the fraud;
(b) Directing, approving, and/or otherwise participating in the Stanford
Enterprises’ commercial development of the V.C. Bird International
Airport, using the proceeds of the fraud;
(c) Directing, approving, and/or otherwise participating in the Stanford
Enterprises’ commercial development of SIBL’s and the Bank of
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Antigua’s offices, cricket stadium, and restaurants, using the proceeds
of the fraud;
(d) Directing, approving, and/or otherwise participating in the sale of real
estate to the Stanford Enterprises for the purpose of transferring a
portion of the proceeds of the fraud from the Stanford Enterprises to
Antigua;
(e) Directing, approving, and/or otherwise causing the Stanford
Enterprises to pay bribes to King and others, using proceeds of the
fraud;
(f) Directing, approving, and/or otherwise causing the Stanford
Enterprises to sell Caribbean Star Airlines (which the Stanford
Enterprises had established using the proceeds of the fraud) to LIAT,
which was the financial beneficiary of Antigua’s participation in the
fraud;
(g) Directing, approving, causing, and/or otherwise participating in the
Stanford Enterprises’ development of the Mount St. John Medical
Centre, using the proceeds of the fraud;
(h) Directing, approving, causing, and/or otherwise participating in the
Stanford Enterprises’ funding of the construction of new executive
offices for the government of Antigua, using the proceeds of the fraud;
(i) Directing, approving, and/or otherwise causing Allen Stanford to
forgive a $5 million personal loan to Antigua, and provide an
APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
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additional loan to pay Antigua’s back salaries and meet other
obligations, using proceeds of the fraud;
(j) Directing, approving, causing, and or otherwise participating in the
Stanford Enterprises’ write off of roughly $18 million of Antigua’s
debt, using proceeds of the fraud;
(k) Directing, approving, causing, and or otherwise participating in the
Stanford Enterprises’ “donation” to Antigua of money needed to build
a national library, using proceeds of the fraud;
(l) Directing, approving, causing, and or otherwise participating in the
Stanford Enterprises’ “donation” of $9 million to construct a higher
education complex for Antigua, using proceeds of the fraud;
(m) Directing, approving, causing, and or otherwise participating in the
Stanford Enterprises’ funding of the “Empowerment Ownership
Initiative,” using proceeds of the fraud;
(n) Directing, approving, causing, and/or otherwise participating in the
Stanford Enterprises’ massive funding of the sport of cricket, using
proceeds of the fraud;
(o) Directing, approving, causing, and/or otherwise participating in the
Stanford Enterprises’ efforts to deceive depositors and prospective
depositors in SIBL, including Plaintiffs and members of the Class, by
intentionally disseminating misleading information concerning:
Antigua’s purported oversight of SIBL and the legitimacy and
APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
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solvency of SIBL, upon which Plaintiffs and members of the Class
reasonably relied; and
(p) Directing, approving, causing, and/or otherwise participating in the
Stanford Enterprises’ efforts to deceive the SEC concerning the
solvency and legitimacy of SIBL’s banking operations.
220. The acts described above were related to one another as part of a common
scheme or plan, namely a scheme to defraud the Plaintiffs and the Class, and to ensure
that the Stanford Enterprises would continue to be able to defraud the Plaintiffs and the
Class, for the financial benefit of the Stanford Enterprises, the Stanford Co-Conspirators,
and Antigua.
221. The acts set forth above constitute violations of 18 U.S.C. § 1341 (mail
fraud) and 18 U.S.C. § 1343 (wire fraud) because Antigua, the Stanford Co-Conspirators,
and the Stanford Enterprises each knowingly and intentionally used interstate and/or
international wires and mails for the purpose of obtaining money and/or property by
means of false and fraudulent pretenses, including, among other things:
(a) disseminating false and fraudulent information to Plaintiffs and the Class,
upon which Plaintiffs and the Class reasonably relied, using interstate and/or
international telephone, the Internet, and interstate or international mails;
(b) deceiving the SEC concerning the legitimacy and solvency of SIBL, using
wire and/or mail communications between Antigua and the United States;
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(c) effectuating the receipt of deposits from Plaintiffs and the Class, located
throughout the United States and around the world, using electronic funds
transfers and interstate and/or international mail;
(d) transferring such deposits to SIBL in Antigua, using electronic funds transfers
and interstate and/or international mail; and
(e) disbursing the proceeds of the fraud to the participants, including Antigua,
King, and the Stanford Co-Conspirators, using electronic funds transfers and
interstate and/or international mail.
222. Antigua committed and/or aided and abetted the commission of two or
more of these acts of racketeering activity.
223. Such unlawful conduct constituted a continuous pattern of racketeering
activity spanning many years, more than 100 countries, tens of thousands of victims, and
innumerable acts of wire and mail fraud.
224. The acts of racketeering activity constituted a “pattern of racketeering
activity” within the meaning of 18 U.S.C. § 1961(5).
225. The acts alleged were related to each other by virtue of common
participants, common victims (Plaintiffs and other members of the Class), a common
method of commission, and the common purpose and common result of defrauding the
Plaintiffs and the other members of the class out of, collectively, billions of dollars.
226. At all relevant times, Antigua engaged in “racketeering activity” within
the meaning of 18 U.S.C. § 1961(1) by engaging in the acts set forth above.
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227. As a direct and proximate cause of the described racketeering activities
and violations of 18 U.S.C. § 1962(c), the Plaintiffs and the Class have been injured in
their business and property. Among other things:
(a) Plaintiffs and the Class were damaged by each of the predicate acts that
effectuated the transfer of proceeds of the fraud from the Stanford Enterprises
to Antigua, thereby depriving the Plaintiffs and the Class of their property;
(b) Plaintiffs and the Class also were damaged by each of the predicate acts in
which false and fraudulent information concerning SIBL and/or SFG was
transmitted by use of the wires and/or mails in interstate or foreign commerce
for the purpose of executing the fraudulent scheme alleged herein, upon which
information Plaintiffs and the Class reasonably relied, and which had the
purpose and effect of inducing the Plaintiffs and the Class to deposit funds at
SIBL, thereby depriving the Plaintiffs and the Class of their property; and
(c) Plaintiffs and the Class were also damaged by each of the predicate acts in
which false and fraudulent information concerning SIBL and/or SFG was
transmitted by use of the wires and/or mails in interstate or foreign commerce
with the purpose and effect of deceiving the SEC and/or other regulators
concerning the legitimacy and solvency of SIBL, thereby prolonging the
scheme, and depriving the Plaintiffs and the Class of their property.
228. Antigua’s racketeering activities were the proximate cause of the
Plaintiffs’ and the Class members’ collective loss of more than $8 billion. These injuries
were a foreseeable consequence of Antigua’s racketeering activities and violations of 18
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U.S.C. § 1962(c). As a result of Antigua’s and the Stanford Co-Conspirators’ violations
of RICO, Antigua is liable to Plaintiffs and the Class for the amount of their losses in
amount to be determined at trial, but believed to be in excess of $8 billion.
229. Pursuant to RICO, 18 U.S.C. § 1964(c), Plaintiffs and the Class are
entitled to recover treble damages plus costs and attorneys’ fees from Antigua.
SECOND CLAIM FOR RELIEF: VIOLATION OF RICO – 18 U.S.C. §1962(c)
(ASSOCIATION-IN-FACT ENTERPRISE)
230. The Plaintiffs repeat, reiterate, and reallege each of the allegations set
forth above.
231. At all relevant times, Antigua and SFG formed, and operated as, an
association-in-fact (the “Antigua-Stanford Enterprise”) for the purpose of defrauding the
Plaintiffs and the Class. The Antigua-Stanford Enterprise constituted an “enterprise”
under RICO, as defined in 18 U.S.C. § 1961(4).
232. At all relevant times, the Antigua-Stanford Enterprise was engaged in, and
its activities affected, interstate and foreign commerce, within the meaning of RICO,
18 U.S.C. § 1962(c).
233. At all relevant times, Antigua conducted or participated, directly or
indirectly, in the conduct of the Antigua-Stanford Enterprise’s affairs through a “pattern
of racketeering activity” within the meaning of RICO, 18 U.S.C. § 1961(5), in violation
of RICO, 18 U.S.C. § 1962(c).
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234. Specifically, at all relevant times, Antigua repeatedly committed the above
criminal acts in furtherance of and for the purpose of enriching itself, both financially and
politically, and to otherwise further the ends of the Stanford Enterprises.
235. Antigua conducted and participated in the affairs of the Antigua-Stanford
Enterprise in at least the following ways:
(a) Directing, approving, and/or otherwise participating in the Antigua-
Stanford Enterprise’s commercial development of the V.C. Bird
International Airport, using the proceeds of the fraud;
(b) Directing, approving, and/or otherwise participating in the Antigua-
Stanford Enterprise’s commercial development of SIBL’s and the Bank of
Antigua’s offices, cricket stadium, and restaurants, using the proceeds of
the fraud;
(c) Directing, approving, and/or otherwise participating in the sale of real
estate transactions between the members of the Antigua-Stanford
Enterprise, for the purpose of transferring a portion of the proceeds of the
fraud to Antigua;
(d) Directing, approving, and/or otherwise causing the Antigua-Stanford
Enterprise to pay bribes to King and others, using proceeds of the fraud;
(e) Directing, approving, and/or otherwise causing the sale of Caribbean Star
Airlines to LIAT;
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(f) Directing, approving, causing, and/or otherwise participating in the
Antigua-Stanford Enterprise’s development of the Mount St. John Medical
Centre, using the proceeds of the fraud;
(g) Directing, approving, causing, and/or otherwise participating in the
Antigua-Stanford Enterprise’s funding of the construction of new
executive offices for the government of Antigua, using the proceeds of the
fraud;
(h) Directing, approving, causing, and or otherwise participating in the write
off of roughly $18 million of Antigua’s debt, using proceeds of the fraud;
(i) Directing, approving, causing, and or otherwise participating in the
“donation” to Antigua of money needed to build a national library, using
proceeds of the fraud;
(j) Directing, approving, causing, and or otherwise participating in the
“donation” of $9 million to construct a higher education complex for
Antigua, using proceeds of the fraud;
(k) Directing, approving, causing, and or otherwise participating in the
Antigua-Stanford Enterprise’s funding of the “Empowerment Ownership
Initiative,” using proceeds of the fraud;
(l) Directing, approving, causing, and/or otherwise participating in the
Antigua-Stanford Enterprise’s massive funding of the sport of cricket,
using proceeds of the fraud;
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(m) Directing, approving, causing, and/or otherwise participating in the
Antigua-Stanford Enterprise’s efforts to deceive depositors and
prospective depositors in SIBL, including Plaintiffs and members of the
Class by intentionally disseminating misleading financial information
upon which Plaintiffs and members of the Class reasonably relied;
(n) Directing, approving, causing, and/or otherwise participating in the
Antigua-Stanford Enterprise’s efforts to deceive Plaintiffs, the class, and
potential customers of SIBL into believing that the FSRC was exercising
actual oversight over SIBL by intentionally disseminating misleading
regulatory information upon which Plaintiffs and members of the Class
reasonably relied; and
(o) Directing, approving, causing, and/or otherwise participating in the
Antigua-Stanford Enterprise’s efforts to deceive the SEC concerning the
solvency and legitimacy of SIBL’s banking operations.
236. The acts described above were related to one another as part of a common
scheme or plan, namely a scheme to defraud the Plaintiffs and the Class, and to ensure
that the Antigua-Stanford Enterprise would continue to be able to defraud the Plaintiffs
and the Class, for the financial benefit of the Stanford Enterprises, the Stanford Co-
conspirators, and Antigua.
237. The acts set forth above constitute violations of 18 U.S.C. § 1341 (mail
fraud) and 18 U.S.C. § 1343 (wire fraud) because Antigua, the Stanford Co-Conspirators,
and the Antigua-Stanford Enterprise knowingly and intentionally used interstate and/or
APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
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international wires and mails for the purpose of obtaining money and/or property by
means of false and fraudulent pretenses in order to, among other things:
(a) to disseminate false and fraudulent information to Plaintiffs and the Class,
upon which Plaintiffs and the Class reasonably relied, using interstate
and/or international telephone, the Internet, and interstate or international
mails;
(b) to deceive the SEC, using wire and/or mail communications between
Antigua and the United States;
(c) to effectuate the receipt of deposits from Plaintiffs and the Class, located
throughout the United States and around the world, using electronic funds
transfers and interstate and/or international mail;
(d) to transfer such deposits to SIBL in Antigua, using electronic funds
transfers and interstate and/or international mail; and
(e) to disburse the proceeds of the fraud to the participants, including Antigua,
King, and the Stanford Co-Conspirators, using electronic funds transfers
and interstate and/or international mail.
238. Antigua committed and/or aided and abetted the commission of two or
more of these acts of racketeering activity.
239. Such unlawful conduct constituted a continuous pattern of racketeering
activity spanning many years, more than 100 countries, tens of thousands of victims, and
innumerable acts of wire and mail fraud. The acts of racketeering activity constituted a
“pattern of racketeering activity” within the meaning of 18 U.S.C. § 1961(5). The acts
APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
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alleged were related to each other by virtue of common participants, common victims
(Plaintiffs and other members of the Class), a common method of commission, and the
common purpose and common result of defrauding the Plaintiffs and the other members
of the class out of, collectively, billions of dollars.
240. At all relevant times, Antigua engaged in “racketeering activity” within
the meaning of 18 U.S.C. 1961(1) by engaging in the acts set forth above.
241. As a direct and proximate cause of the described racketeering activities
and violations of 18 U.S.C. § 1962(c), the Plaintiffs and the Class have been injured in
their business and property. Among other things:
(a) Plaintiffs and the Class were damaged by each of the predicate acts that
effectuated the transfer of proceeds of the fraud to Antigua, thereby
depriving the Plaintiffs and the Class of their property;
(b) Plaintiffs and the Class also were damaged by each of the predicate acts,
in which false and fraudulent information concerning SIBL and/or SFG,
upon which Plaintiffs and the Class reasonably relied, was transmitted by
use of the wires and/or mails in interstate or foreign commerce for the
purpose of executing the fraudulent scheme alleged herein, and with the
intent to, and effect of, inducing the Plaintiffs and the Class to deposit
funds at SIBL, thereby depriving the Plaintiffs and the Class of their
property; and
(c) Plaintiffs and the Class were also damaged by each of the predicate acts in
which false and fraudulent information concerning SIBL and/or SFG was
APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
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transmitted by use of the wires and/or mails in interstate or foreign
commerce with the purpose and effect of deceiving the SEC and/or other
regulators concerning the legitimacy and solvency of SIBL, thereby
prolonging the scheme, and depriving the Plaintiffs and the Class of their
property.
242. Antigua’s racketeering activities were the proximate cause of the
Plaintiffs’ and the Class members’ collective loss of more than $8 billion. These injuries
were a foreseeable consequence of Antigua’s racketeering activities and violations of 18
U.S.C. § 1962(c). As a result of Antigua’s and the Stanford Co-conspirators’ violations
of RICO, Antigua is liable to Plaintiffs and the Class for the amount of their losses in
amount to be determined at trial, but believed to be in excess of $8 billion.
243. Pursuant to RICO, 18 U.S.C. § 1964(c), Plaintiffs and the Class are
entitled to recover treble damages plus costs and attorneys’ fees from Antigua.
THIRD CLAIM FOR RELIEF: VIOLATION OF RICO – 18 U.S.C. §1962(a)
244. Plaintiffs repeat, reiterate, and reallege each of the allegations set forth
above.
245. Antigua is a “person” within the meaning of 18 U.S.C. § 1962(a)
246. As set forth above, Antigua received income derived, directly and
indirectly, from a pattern of racketeering activity.
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247. Antigua invested, directly and indirectly, part of such income, and/or the
proceeds from such income, in the acquisition of an interest in, and the establishment and
operation of, the Antigua-Stanford Enterprise.
248. In particular, Antigua reinvested part of the proceeds of such income in
the purchase of Caribbean Star Airlines, an integral part of the Stanford Enterprises.
Plaintiffs and the Class were damaged by that reinvestment of income because: (a) the
reinvestment provided additional funds for the Stanford Enterprises to operate their
scheme to defraud the Plaintiffs and the Class; and (b) the reinvestment deprived
Plaintiffs and the Class of hard assets (the airline and aircraft) that would otherwise be
available to satisfy their claims.
249. Antigua also invested part of the proceeds from the Stanford Enterprises in
the establishment and operation of FSRC, which became an integral part of the Antigua-
Stanford Enterprise, and essential to the scheme to defraud the Plaintiffs and the Class.
250. Plaintiffs and the Class were injured by Antigua’s investment of the
proceeds of such income in the establishment and operation of FSRC because Antigua,
through FSRC and its head, King, deceived Plaintiffs, the Class, and the SEC concerning
the legitimacy and solvency of SIBL.
251. The injuries suffered by the Plaintiffs and the Class from Antigua’s
investment of racketeering income in the FSRC are separate and distinct from the injuries
suffered by the Plaintiffs and the Class as a result of the predicate acts involving the
earlier transfers of money from the Plaintiffs and the Class, to SFG and Antigua.
APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
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252. As set forth above, the Antigua-Stanford Enterprise affected interstate and
foreign commerce.
253. Antigua’s racketeering activities were the proximate cause of the
Plaintiffs’ and the Class members’ collective loss of more than $8 billion. These injuries
were a foreseeable consequence of Antigua’s racketeering activities and violations of 18
U.S.C. § 1962(c). As a result of Antigua’s and the Stanford Co-Conspirators’ violations
of RICO, Antigua is liable to Plaintiffs and the Class for the amount of their losses in
amount to be determined at trial, but believed to be in excess of $8 billion.
254. Pursuant to RICO, 18 U.S.C. § 1964(c), Plaintiffs and the Class are
entitled to recover treble damages plus costs and attorneys’ fees from Antigua.
FOURTH CLAIM FOR RELIEF: VIOLATION OF RICO – 18 U.S.C. §1962(d)
255. Plaintiffs repeat, reiterate, and reallege each of the allegations set forth
above.
256. As described above, Antigua, in violation of 18 U.S.C. § 1962(d), did
agree and conspire with the Stanford Co-Conspirators, and those acting in concert with
the Stanford Co-Conspirators, to violate 18 U.S.C. § 1962(c) for the purpose of achieving
and profiting from the racketeering activities described above.
257. In furtherance of that agreement, and in violation of RICO, Antigua
knowingly and intentionally agreed and conspired to commit at least two of the predicate
acts set forth above, with the knowledge and intent that such acts were in furtherance of
the foregoing pattern of racketeering activity.
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258. As a direct and proximate cause of the above-described conspiracy in
violation of 18 U.S.C. § 1962(d), the Plaintiffs and the Class have been injured in their
property. Antigua’s racketeering activities were the proximate cause of the Plaintiffs’
and the Class members’ collective loss of more than $8 billion. These injuries were a
foreseeable consequence of Antigua’s racketeering activities and violations of 18 U.S.C.
§ 1962(d).
259. As a result of Antigua’s and the other Stanford Co-conspirators’ violations
of RICO, Antigua is liable to Plaintiffs and the Class for the amount of their losses in
amount to be determined at trial, but believed to be in excess of $8 billion.
260. Pursuant to RICO, 18 U.S.C. § 1964(c), Plaintiffs and the Class are
entitled to recover treble damages plus costs and attorneys’ fees from Antigua.
FIFTH CLAIM FOR RELIEF: AIDING AND ABETTING FRAUD
261. Plaintiffs repeat, reiterate, and reallege each of the allegations in the
foregoing paragraphs.
262. At all relevant times, Antigua had actual knowledge of the Stanford’s
fraudulent activities.
263. By reason of the foregoing, Antigua knowingly provided substantial
assistance to SFG, SIBL, and the Stanford Co-Conspirators in their successful efforts to
perpetrate a fraud upon Plaintiffs and other members of the Class. As set forth above,
Antigua’s substantial assistance variously took the forms of affirmative acts in
APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
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furtherance of the fraud, concealment of the fraud, and failures and/or refusals to act
against the fraud when Antigua had the duty to do so.
264. Antigua’s active participation in aiding and abetting the fraud was the
proximate cause of the Plaintiffs’ and the Class members’ collective loss of more than $8
billion.
265. As a result of Antigua’s active participation in aiding and abetting the
fraud, Antigua is liable to Plaintiffs and the Class for the amount of their losses in amount
to be determined at trial, but believed to be in excess of $8 billion.
SIXTH CLAIM FOR RELIEF: AVOIDANCE OF FRAUDULENT TRANSFERS
266. Plaintiffs repeat, reiterate, and reallege each of the allegations in the
foregoing paragraphs.
267. Plaintiffs and the Class are creditors of Allen Stanford, SIBL, and/or SFG,
by reason of their tort claims against them, and because they deposited funds at SIBL
which have not, and will not, be returned to them in accordance with their rights as
depositors.
268. In or about February, 2009, Antigua seized more than 250 acres of land
owned by SFG (the “Seized Properties”).
269. Upon information and belief, the Seized Properties were commercial in
nature, and the development of those properties, and their seizure by Antigua, had a
direct effect in the United States in that it deprived Houston-based SFG, and Houston-
APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
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managed SIBL, of substantial value, and thereby deprived American creditors of Allen
Stanford, SFG, and SIBL of substantial value to satisfy their claims.
270. Antigua’s seizure of such property effectuated the transfer of assets from
Allen Stanford, SIBL, and/or SFG for less than fair value, and with the purpose and intent
of defrauding Allen Stanford’s, SIBL’s, and/or SFG’s creditors, including Plaintiffs and
the Class.
271. As described above, Stanford made numerous “loans” to Antigua,
believed to be in excess of $85 million, some or all of which have never been repaid. In
addition, Stanford made numerous outright transfers of funds to Antigua or its designees.
272. The unpaid loans and transfer of such funds effectuated the transfer of
assets from Allen Stanford, SIBL, and/or SFG for less than fair value, and with the
purpose and intent of defrauding Allen Stanford’s, SIBL’s, and/or SFG’s creditors,
including Plaintiffs and the Class.
273. By reason of the foregoing, the transfers described above are ineffective as
against Plaintiffs and members of the Class.
274. By reason of the foregoing, pursuant to the Uniform Fraudulent Transfers
Act, and common law, Plaintiffs and the Class are entitled to avoidance of the transfers.
JURY DEMAND
275. Plaintiffs demand a jury trial.
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WHEREFORE, Plaintiffs respectfully request that this Court:
(i) certify the Class;
(ii) enter judgment in favor of the Class and against Antigua: (a) awarding all damages proven at trial, in an amount not less than $8 billion;
(b) awarding treble damages, as permitted by law pursuant to RICO;
(c) ordering the avoidance of the fraudulent transfers described herein;
(d) awarding attorney fees, and costs as permitted by law; and
(e) granting such other and further relief as the Court may deem just and appropriate.
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CLASS ACTION COMPLAINT PAGE 74
Dated: July 13, 2009
MORGENSTERN & BLUE, LLC
Peter D. Morgenstern (pro hac vice pending) Gregory A. Blue (pro hac vice pending) Rachel K. Marcoccia (pro hac vice pending) 885 Third Avenue New York, NY 10022 Telephone: (212) 750-6776 Facsimile: (212) 750-3128 LACKEY HERSHMAN, L.L.P.
By: /s/ Paul B. Lackey Paul B. Lackey State Bar Number 00791061 Jamie R. Welton State Bar Number 24013732 3102 Oak Lawn Avenue, Suite 777 Dallas, Texas 75219 Telephone: (214) 560-2201 Facsimile: (214) 560-2203
Attorneys for Plaintiffs
APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
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RECEIVER’S FIRST AMENDED COMPLAINTAGAINST CERTAIN STANFORD INVESTORS 1
IN THE UNITED STATES DISTRICT COURTFOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
RALPH S. JANVEY, IN HIS CAPACITY AS COURT-APPOINTED RECEIVER FOR THE STANFORD INTERNATIONAL BANK, LTD., ET AL.
Plaintiff,
v.
JAMES R. ALGUIRE, ET AL.
Relief Defendants.
§§§§§§§§§§§§
Case No. 03:09-CV-0724-N
________________________________________________________________________
RECEIVER’S FIRST AMENDED COMPLAINTAGAINST CERTAIN STANFORD INVESTORS
________________________________________________________________________
The Receiver, Ralph S. Janvey, (the “Receiver”) hereby files his First Amended
Complaint Against Certain Stanford Investors (the “First Amended Complaint”), stating as
follows:
SUMMARY
1. The ultimate purpose of this Receivership is to make the “maximum disbursement
to claimants.” This requires the Receiver to maximize the pool of assets that will be available for
distribution. To accomplish this, the Receiver must take control of all assets of the Estate and
traceable to the Estate, “wherever located,” including money stolen from investors through fraud.
2. The Receiver’s investigation to date reveals that CD sales generated substantially
all of the income for the Stanford Defendants and the many related Stanford entities. Revenue,
let alone any profit, from all other activities and investments was miniscule in comparison.
Money that new investors were deceived into paying to purchase CDs funded the Stanford
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network; lavish offices and appointments; extravagant lifestyles for the individual defendants
and their families; employees’ salaries; Loans, SIBL CD commissions, SIBL Quarterly Bonuses,
Performance Appreciation Rights Plan (“PARS”) Payments, Branch Managing Director
Quarterly Compensation, and Severance Payments to financial advisors, managing directors, and
other Stanford employees; and CD proceeds in the form of purported CD interest payments and
redemptions (“CD Proceeds”) to the investors named in the concurrently filed Appendix (the
“Stanford Investors”).
3. The Stanford Investors not only received from SIBL sums equal to their
investments in SIBL CDs, but they also received payments in excess of their respective
investments.1 The CD Proceeds the Stanford Investors received from SIBL were not, in fact,
their actual principal or interest earned on the funds they invested. Instead, the money used to
make those payments came directly from the sale of SIBL CDs to other investors.
4. When Stanford made purported CD principal and interest payments to the
Stanford Investors, he did no more than take money out of other investors’ pockets and put it into
the hands of the Stanford Investors. For the more than 20,000 investors who have thus far
received little or nothing from their investment in Stanford CDs, money recovered from
wherever it resides today is likely the largest portion of the money they will ever receive in
restitution. CD Proceeds — comprising purported CD principal and interest payments to the
Stanford Investors — are little more than stolen money and do not belong to the Stanford
Investors who received such funds but belong, instead, to the Receivership Estate.
1 Prior to filing this First Amended Complaint, the Receiver contacted all of the Stanford Investors named herein for whom he had contact information and offered to settle the claims against them in exchange for payment of the amounts they received in excess of their investments in SIBL CDs. The Receiver made similar offers to other investors, who accepted the Receiver’s proposal prior to the filing of this First Amended Complaint. The Receiver believes that continued discussions with many of the Stanford Investors named herein will result in additional such settlements and dismissal of claims against those investors.
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5. At this stage of the Receivership, the Receiver has identified substantial sums of
CD Proceeds paid to the Stanford Investors and, through this First Amended Complaint, seeks
the return of those funds to the Receivership Estate in order to make an equitable distribution to
claimants. At a minimum, the Stanford Investors named in the Appendix received over
$545 million in CD Proceeds.
6. The Receiver seeks an order that: (a) CD Proceeds received directly or indirectly
by the Stanford Investors from fraudulent CDs were fraudulent conveyances or, in the
alternative, unjustly enriched the Stanford Investors; (b) CD Proceeds received directly or
indirectly by the Stanford Investors from fraudulent CDs are property of the Receivership Estate
held pursuant to a constructive trust for the benefit of the Receivership Estate; (c) each of the
Stanford Investors is liable to the Receivership Estate for an amount equaling the CD Proceeds
he, she, or it received; and (d) awards attorney’s fees and costs to the Receiver.
PARTIES
7. The parties to this complaint are the Receiver and the Stanford Investors named in
the Appendix filed concurrently herewith.
8. The named Stanford Investors either have already been served or will be served
pursuant to the Federal Rules of Civil Procedure, through their attorneys of record, or by other
means approved by order of this Court.
PROCEDURAL HISTORY
9. On July 28, 2009, the Receiver filed an Amended Complaint Naming Relief
Defendants (Doc. 14) and an Appendix in support thereof (Doc. 15). The July 28th Amended
Complaint named both investors and certain former Stanford financial advisors as relief
defendants. The Receiver now respectfully files this First Amended Complaint Against Certain
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Stanford Investors, amending herein his claims against certain Stanford investors and naming
additional investors as defendants. The Receiver files this First Amended Complaint as a result
of the Fifth Circuit’s recent ruling regarding the Receiver’s relief-defendant claims,2 and he
amends his claims against the certain Stanford investors named herein to assert fraudulent-
transfer claims and, in the alternative, unjust-enrichment claims. This complaint is not intended
to impact the claims asserted by the Receiver in this lawsuit against any category of defendants
other than Stanford investors. This First Amended Complaint Against Certain Stanford Investors
does not alter or amend the claims the Receiver asserted against former Stanford employees in
his First Amended Complaint Against Former Stanford Employees (Doc. 118) and the Appendix
thereto (Doc. 119).
JURISDICTION & VENUE
10. This Court has jurisdiction over this action, and venue is proper, under Section
22(a) of the Securities Act (15 U.S.C. § 77v(a)), Section 27 of the Exchange Act (15 U.S.C.
§ 78aa), and under Chapter 49 of Title 28, Judiciary and Judicial Procedure (28 U.S.C. § 754).
11. Further, as the Court that appointed the Receiver, this Court has jurisdiction over
any claim brought by the Receiver to execute his Receivership duties.
12. Further, within 10 days of his appointment, the Receiver filed the original
Complaint and Order Appointing the Receiver in 29 United States district courts pursuant to 28
U.S.C. § 754, giving this Court in rem and in personam jurisdiction in each district where the
Complaint and Order have been filed.
13. Further, each of the Stanford Investors who submitted an Application for Review
and Potential Release of Stanford Group Company (“SGC”) Brokerage Accounts made the
2 Per Rule 41, the Receiver intends to file a notice of dismissal of his relief-defendant claims against the Stanford investors who were named in the Amended Complaint Naming Relief Defendants (Doc. 14) and the supporting Appendix (Doc. 15).
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following declaration: “By filing this application, I submit to the exclusive jurisdiction of the
United States District Court for the Northern District of Texas, Dallas Division and irrevocably
waive any right I or any entity I control may otherwise have to object to any action being brought
in the Court or to claim that the Court does not have jurisdiction over the matters relating to my
account.”
14. Further, a number of the Stanford Investors have filed motions to intervene in
SEC v. Stanford International Bank, Ltd., et al., Case No. 3:09-cv-298-N. By filing motions to
intervene, they have consented as a matter of law to the Court’s personal jurisdiction. See In re
Bayshore Ford Trucks Sales, Inc., 471 F.3d 1233, 1246 (11th Cir. 2006); County Sec. Agency v.
Ohio Dep’t of Commerce, 296 F.3d 477, 483 (6th Cir. 2002); Pharm. Research & Mfrs. v.
Thompson, 259 F. Supp. 2d 39, 59 (D.D.C. 2003); City of Santa Clara v. Kleppe, 428 F. Supp.
315, 317 (N.D. Ca. 1976).
STATEMENT OF FACTS
15. On February 16, 2009, the Securities and Exchange Commission commenced a
lawsuit in this Court against R. Allen Stanford, two associates, James M. Davis and Laura
Pendergest-Holt, and three of Mr. Stanford’s companies, Stanford International Bank, Ltd.
(“SIB,” “SIBL,” or “the Bank”), SGC, and Stanford Capital Management, LLC (collectively, the
“Stanford Defendants”). On the same date, the Court entered an Order appointing a Receiver,
Ralph S. Janvey, over all property, assets, and records of the Stanford Defendants, and all entities
they own or control.
16. As alleged by the SEC, the Stanford Defendants marketed fraudulent SIBL CDs
to investors exclusively through SGC financial advisors pursuant to a Regulation D private
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placement. SEC’s First Amended Complaint (Doc. 48), ¶ 23.3 The CDs were sold by Stanford
International Bank, Ltd. Id.
17. The Stanford Defendants orchestrated and operated a wide-ranging Ponzi scheme.
Defendant James M. Davis has admitted that the Stanford fraud was a Ponzi scheme from the
beginning. Doc. 771 (Davis Plea Agreement) at ¶ 17(n) (Stanford, Davis, and other conspirators
created a “massive Ponzi scheme”); Doc. 807 (Davis Tr. of Rearraignment) at 16:16-17, 21:6-8,
21:15-17 (admitting the Stanford Ponzi fraud was a “massive Ponzi scheme ab initio”).
18. In marketing, selling, and issuing CDs to investors, the Stanford Defendants
repeatedly touted the CDs’ safety and security and SIBL’s consistent, double-digit returns on its
investment portfolio. Id. ¶ 31.
19. In its brochure, SIBL told investors, under the heading “Depositor Security,” that
its investment philosophy is “anchored in time-proven conservative criteria, promoting stability
in [the Bank’s] certificate of deposit.” SIBL also emphasized that its “prudent approach and
methodology translate into deposit security for our customers.” Id. ¶ 32. Further, SIBL stressed
the importance of investing in “marketable” securities, saying that “maintaining the highest
degree of liquidity” was a “protective factor for our depositors.” Id. ¶ 45.
20. In its 2006 and 2007 Annual Reports, SIBL told investors that the Bank’s assets
were invested in a “well-balanced global portfolio of marketable financial instruments, namely
U.S. and international securities and fiduciary placements.” Id. ¶ 44. More specifically, SIBL
represented that its 2007 portfolio allocation was 58.6% equity, 18.6% fixed income, 7.2%
precious metals, and 15.6% alternative investments. Id.
3 Unless otherwise stated, citations to Court records herein are from the case styled SEC v. Stanford Int’l Bank, Ltd., et al., Civil Action No. 3-09-CV-0298-N.
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21. Consistent with its Annual Reports and brochures, SIBL trained SGC financial
advisors, in February 2008, that “liquidity/marketability of SIB’s invested assets” was the “most
important factor to provide security to SIB clients.” Id. ¶ 46. In training materials, the Stanford
Defendants also claimed that SIBL had earned consistently high returns on its investment of
deposits (ranging from 11.5% in 2005 to 16.5% in 1993). Id. ¶ 24.
22. Contrary to the Stanford Defendants’ representations regarding the liquidity of its
portfolio, SIBL did not invest in a “well-diversified portfolio of highly marketable securities.”
Instead, significant portions of the Bank’s portfolio were misappropriated by Defendant Allen
Stanford and were either placed in speculative investments (many of them illiquid, such as
private equity deals), diverted to other Stanford Entities “on behalf of shareholder” - i.e., for the
benefit of Allen Stanford, or used to finance Allen Stanford’s lavish lifestyle (e.g., jet planes, a
yacht, other pleasure craft, luxury cars, homes, travel, company credit card, etc.). In fact, at
year-end 2008, the largest segments of the Bank’s portfolio were: (i) at least $1.6 billion in
undocumented “loans” to Defendant Allen Stanford; (ii) private equity; and (iii) over-valued real
estate. Id. ¶¶ 24, 48.
23. In an effort to conceal their fraud and ensure that investors continued to purchase
the CD, the Stanford Defendants fabricated the performance of SIBL’s investment portfolio. Id.
¶ 5.
24. SIBL’s financial statements, including its investment income, were fictional. Id.
¶ 37. In calculating SIBL’s investment income, Defendants Stanford and James Davis provided
to SIBL’s internal accountants a pre-determined return on investment for the Bank’s portfolio.
Id. Using this pre-determined number, SIBL’s accountants reverse-engineered the Bank’s
financial statements to reflect investment income that SIBL did not actually earn. Id.
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25. CD Proceeds from the Ponzi scheme were transferred by the Stanford Defendants
to the Stanford Investors solely for the purpose of concealing and perpetuating the fraudulent
scheme. Such CD Proceeds were paid to the Stanford Investors from funds supplied by other
investors who bought the fraudulent CDs.
26. For a time, the Stanford Defendants were able to keep the fraud going by using
funds from current sales of SIBL CDs to make purported interest and redemption payments on
pre-existing CDs. See id. ¶ 1. However, in late 2008 and early 2009, CD redemptions increased
to the point that new CD sales were inadequate to cover redemptions and normal operating
expenses. As the depletion of liquid assets accelerated, this fraudulent Ponzi scheme collapsed.
REQUESTED RELIEF
27. This Court appointed Ralph S. Janvey as Receiver for the “assets, monies,
securities, properties, real and personal, tangible and intangible, of whatever kind and
description, wherever located, and the legally recognized privileges (with regard to the entities),
of the Defendants and all entities they own or control,” including those of the Stanford Group
Company brokerage firm. Order Appointing Receiver (Doc. 10) at ¶¶ 1-2; Amended Order
Appointing Receiver (Doc. 157) at ¶¶ 1-2. The Receiver seeks the relief described below in this
capacity.
28. Paragraph 4 of the Order Appointing Receiver, entered by the Court on February
16, 2009, authorizes the Receiver “to immediately take and have complete and exclusive control,
possession, and custody of the Receivership Estate and to any assets traceable to assets owned by
the Receivership Estate.” Order Appointing Receiver (Doc. 10) at ¶ 4; Amended Order
Appointing Receiver (Doc. 157) at ¶ 4. Paragraph 5(c) of the Order specifically authorizes the
Receiver to “[i]nstitute such actions or proceedings [in this Court] to impose a constructive trust,
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obtain possession, and/or recover judgment with respect to persons or entities who received
assets or records traceable to the Receivership Estate.” Order Appointing Receiver (Doc. 10) at
¶ 5(c); Amended Order Appointing Receiver (Doc. 157) at ¶ 5(c).
29. One of the Receiver’s key duties is to maximize distributions to defrauded
investors and other claimants. See Amended Order Appointing Receiver (Doc. 157) at ¶ 5(g), (j)
(ordering the Receiver to “[p]reserve the Receivership Estate and minimize expenses in
furtherance of maximum and timely disbursement thereof to claimants”); Scholes v. Lehmann, 56
F.3d 750, 755 (7th Cir. 1995) (receiver’s “only object is to maximize the value of the [estate
assets] for the benefit of their investors and any creditors”); SEC v. TLC Invs. & Trade Co., 147
F. Supp. 2d 1031, 1042 (C.D. Cal. 2001); SEC v. Kings Real Estate Inv. Trust, 222 F.R.D. 660,
669 (D. Kan. 2004). But before the Receiver can attempt to make victims whole, he must locate
and take exclusive control and possession of assets of the Estate or assets traceable to the Estate.
Doc. 157 ¶ 5(b).
30. The Stanford Investors named in the Appendix received money that they may
have believed was a return on an investment placed with what they thought was a legitimate
bank. In reality, the money the Stanford Investors received was not their money, was not a
return on their investments, and was not generated by any of SIBL’s other business ventures.
The CD Proceeds were simply money that came from the more than 20,000 CD holders who
were deceived into purchasing CDs and who by chance, or as the result of sales tactics by
Stanford financial advisors and other employees, had not withdrawn funds from SIBL as of the
date the Receivership was put in place. The Stanford Investors’ CD Proceeds must be returned
to the Receivership Estate to compensate victims of the Stanford fraud according to principles of
law and equity.
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31. The Stanford Investors received CD Proceeds ranging in amounts from
approximately $119,000 to over $90 million. See App. at “Total CD Proceeds” column. These
Stanford Investors received, at a minimum, the “Total CD Proceeds” amounts associated with
their names in the Appendix. See id. Collectively, the Stanford Investors received more than
$545 million in CD Proceeds, at least. See id. at 6. In addition, each of these Stanford Investors
received more in CD Proceeds than they invested in SIBL CDs. See id. at “CD Proceeds
Received in Excess of Investments” column. All combined, these Stanford Investors received
approximately $93.8 million more in CD Proceeds than they invested. See id at 6.
I. The Receiver is Entitled to Disgorgement of CD Proceeds Fraudulently Transferred to the Stanford Investors
32. The Receiver is entitled to disgorgement of all CD Proceeds paid to the Stanford
Investors because such payments constitute fraudulent transfers under applicable law. The
Stanford Defendants transferred the CD Proceeds to the Stanford Investors with actual intent to
hinder, delay, or defraud their creditors; as a result, the Receiver is entitled to the disgorgement
of those CD Proceeds from the Stanford Investors.
33. The Receiver may avoid transfers made with the actual intent to hinder, delay, or
defraud creditors. “[T]ransfers made from a Ponzi scheme are presumptively made with intent to
defraud, because a Ponzi scheme is, as a matter of law, insolvent from inception.” Quilling v.
Schonsky, No. 07-10093, 2007 WL 2710703, at *2 (5th Cir. Sept. 18, 2007); see also Warfield v.
Byron, 436 F.3d 551, 558 (5th Cir. 2006). The uncontroverted facts establish that the Stanford
Defendants were running a Ponzi scheme and, to keep the scheme going, paid the Stanford
Investors with CD Proceeds taken from other SIBL CD investors. The Receiver is, therefore,
entitled to disgorgement of the fraudulently transferred CD Proceeds that the Stanford Investors
received.
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34. Consequently, the burden is on the Stanford Investors to establish an affirmative
defense, if any, of both objective good faith and provision of reasonably equivalent value. See,
e.g., Scholes, 56 F.3d at 756-57 (“If the plaintiff proves fraudulent intent, the burden is on the
defendant to show that the fraud was harmless because the debtor’s assets were not depleted
even slightly.”). The Receiver is, therefore, entitled to recover the full amount of CD Proceeds
that the Stanford Investors received, unless the Stanford Investors prove both objective good
faith and reasonably equivalent value.
35. The good-faith element of this affirmative defense requires that the Stanford
Investors prove objective — not subjective — good faith. Warfield v. Byron, 436 F.3d 551,
559-560 (5th Cir. 2006) (good faith is determined under an “objectively knew or should have
known” standard); In re IFS Fin. Corp., Bankr. No. 02-39553, 2009 WL 2986928, at *15
(Bankr. S.D. Tex. Sept. 9, 2009) (objective standard is applied to determine good faith); Quilling
v. Stark, No. 3-05-CV-1976-BD, 2007 WL 415351, at *3 (N.D. Tex. Feb. 7, 2007) (good faith
“must be analyzed under an objective, rather than a subjective, standard. The relevant inquiry is
what the transferee objectively knew or should have known instead of examining the transferee’s
actual knowledge from a subjective standpoint.”) (internal citations and quotation marks
omitted). In addition, the case law is uniformly clear that reasonably equivalent value can never
be proven as to amounts received in excess of investments. See Donell v. Kowell, 533 F.3d 762,
776 (9th Cir. 2008) (“We are aware that it may create a significant hardship when an innocent
investor such as Kowell is informed that he must disgorge profits he earned innocently, often
years after the money has been received and spent. Nevertheless, courts have long held that is
more equitable to attempt to distribute all recoverable assets among the defrauded investors who
did not recover their initial investments rather than to allow the losses to rest where they fell.”);
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see also Scholes v. Lehmann, 56 F.3d 750, 757-58 (7th Cir. 1995) (“He should not be permitted
to benefit from a fraud at their expense merely because he was not himself to blame for the
fraud. All he is being asked to do is to return the net profits of his investment-the difference
between what he put in at the beginning and what he had at the end.”).
36. Moreover, under applicable fraudulent transfer law, the Receiver is entitled to
attorney’s fees and costs for his claims against the Stanford Investors. See, e.g., TEX. BUS. &
COM. CODE ANN. § 24.013 (Vernon 2009) (“[T]he court may award costs and reasonable
attorney’s fees as are equitable and just.”). As a result, the Receiver requests reasonable
attorney’s fees and costs for prosecuting his fraudulent-transfer claims against the Stanford
Investors.
37. In order to carry out the duties delegated to him by this Court, the Receiver seeks
complete and exclusive control, possession, and custody of all CD Proceeds received by the
Stanford Investors.
38. The Stanford Defendants, who orchestrated the Ponzi scheme, transferred the CD
Proceeds to the Stanford Investors with actual intent to hinder, delay, or defraud their creditors.
The Receiver is, therefore, entitled to disgorgement of all CD Proceeds fraudulently transferred
to the Stanford Investors. Pursuant to the equity powers of this Court, the Receiver therefore
seeks an order (a) establishing that the CD Proceeds received directly or indirectly by the
Stanford Investors from fraudulent CDs were fraudulent conveyances; (b) ordering that CD
Proceeds received directly or indirectly by the Stanford Investors from fraudulent CDs are
property of the Receivership Estate held pursuant to a constructive trust for the benefit of the
Receivership Estate; (c) ordering that each of the Stanford Investors is liable to the Receivership
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Estate for an amount equaling the amount of CD Proceeds he, she, or it received; and (d)
awarding attorney’s fees and costs to the Receiver.
II. In the Alternative, the Receiver is Entitled to Disgorgement of CD Proceeds from the Stanford Investors under the Doctrine of Unjust Enrichment
39. In the alternative, the Receiver is entitled to disgorgement of the CD Proceeds
paid to the Stanford Investors pursuant to the doctrine of unjust enrichment under applicable law.
The Stanford Investors hold CD Proceeds they obtained as a result of taking undue advantage,
and such CD Proceeds in equity and good conscience belong to the Receivership for ultimate
distribution to the defrauded investors.
40. The Stanford Investors listed in the Appendix not only received a full return on
their CD investments, but they also received CD Proceeds in excess of those investments. The
Stanford Investors received a 100% return on their investments in an economy where — if they
had invested in the market rather than a Ponzi scheme — they would have recovered barely 60%
of their market investments.4 The market losses these Stanford Investors avoided by investing in
the Stanford Ponzi scheme have come at the expense of the thousands of other investors whose
own CD investments subsidized both the Stanford Investors’ return of invested funds and money
received in excess of those investments.
41. In order to carry out the duties delegated to him by this Court, the Receiver seeks
complete and exclusive control, possession, and custody of all CD Proceeds received by the
Stanford Investors.
42. The Stanford Investors have been unjustly enriched by their receipt of CD
Proceeds. Pursuant to the equity powers of this Court, the Receiver therefore seeks an order (a)
establishing that each of the Stanford Investors were unjustly enriched by CD Proceeds received 4 Between January 2008 and January 2009, the S&P 500 and the Dow Jones Industrial Average fell 39.3% and 33.6%, respectively.
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Appx. Page 300
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RECEIVER’S FIRST AMENDED COMPLAINTAGAINST CERTAIN STANFORD INVESTORS 14
directly or indirectly from fraudulent CDs; (b) ordering that CD Proceeds received directly or
indirectly by the Stanford Investors from fraudulent CDs are property of the Receivership Estate
held pursuant to a constructive trust for the benefit of the Receivership Estate; and (c) ordering
that each of the Stanford Investors is liable to the Receivership Estate for an amount equaling the
amount of CD Proceeds he, she, or it received; and (d) awarding attorney’s fees and costs to the
Receiver.
PRAYER
43. The Receiver respectfully requests the following:
(a) An Order providing that CD Proceeds received directly or indirectly by the
Stanford Investors from fraudulent CDs were fraudulent conveyances under
applicable law or, in the alternative, that the Stanford Investors were unjustly
enriched by CD Proceeds received directly or indirectly from fraudulent
CDs;
(b) An Order providing that CD Proceeds received directly or indirectly by the
Stanford Investors from fraudulent CDs are property of the Receivership
Estate;
(c) An Order providing that CD Proceeds received directly or indirectly by the
Stanford Investors from fraudulent CDs are subject to a constructive trust for
the benefit of the Receivership Estate;
(d) An Order establishing the amount of CD Proceeds each of the Stanford
Investors received;
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Appx. Page 301
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RECEIVER’S FIRST AMENDED COMPLAINTAGAINST CERTAIN STANFORD INVESTORS 15
(e) An Order providing that each of the Stanford Investors is liable to the
Receivership Estate for an amount equaling the amount of CD Proceeds he,
she, or it received from fraudulent CDs;
(f) An award of costs, attorney’s fees, and prejudgment interest; and
(g) Such other and further relief as the Court deems proper under the
circumstances.
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Appx. Page 302
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RECEIVER’S FIRST AMENDED COMPLAINTAGAINST CERTAIN STANFORD INVESTORS 16
Dated: December 7, 2009 Respectfully submitted,
BAKER BOTTS L.L.P.By: /s/ Kevin M. Sadler
Kevin M. SadlerTexas Bar No. [email protected] I. HowellTexas Bar No. [email protected] T. ArlingtonTexas Bar No. [email protected] San Jacinto Center98 San Jacinto Blvd.Austin, Texas 78701-4039(512) 322-2500(512) 322-2501 (Facsimile)
Timothy S. DurstTexas Bar No. [email protected] Ross AvenueDallas, Texas 75201(214) 953-6500(214) 953-6503 (Facsimile)
ATTORNEYS FOR RECEIVER RALPH S. JANVEY
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Appx. Page 303
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RECEIVER’S FIRST AMENDED COMPLAINTAGAINST CERTAIN STANFORD INVESTORS 17
CERTIFICATE OF SERVICE
On December 7, 2009, I electronically submitted the foregoing document with the clerk of the court of the U.S. District Court, Northern District of Texas, using the electronic case filing system of the Court. I hereby certify that I will serve the Stanford Investors individually or through their counsel of record, electronically, or by other means authorized by the Court or the Federal Rules of Civil Procedure.
/s/ Kevin M. SadlerKevin M. Sadler
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APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
Appx. Page 304
Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 306 of 444
APPENDIX IN SUPPORT OF RECEIVER’S FIRST AMENDED COMPLAINT AGAINST CERTAIN STANFORD INVESTORS
IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
RALPH S. JANVEY, IN HIS CAPACITY AS COURT-APPOINTED RECEIVER FOR THE STANFORD INTERNATIONAL BANK, LTD., ET AL. Plaintiff, v. JAMES R. ALGUIRE, ET AL. Relief Defendants.
§ § § § § § § § § § § §
Case No. 03:09-CV-0724-N
__________________________________________________________________________
APPENDIX IN SUPPORT OF RECEIVER’S FIRST AMENDED COMPLAINT AGAINST CERTAIN STANFORD INVESTORS
__________________________________________________________________________
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Appx. Page 305
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APPENDIX IN SUPPORT OF RECEIVER’S FIRST AMENDED COMPLAINT AGAINST CERTAIN STANFORD INVESTORS
Dated: December 7, 2009 Respectfully submitted,
BAKER BOTTS L.L.P.
By: /s/ Kevin M. Sadler
Kevin M. Sadler Texas Bar No. 17512450 [email protected] Robert I. Howell Texas Bar No. 10107300 [email protected] David T. Arlington Texas Bar No. 00790238 [email protected] 1500 San Jacinto Center 98 San Jacinto Blvd. Austin, Texas 78701-4039 (512) 322-2500 (512) 322-2501 (Facsimile) Timothy S. Durst Texas Bar No. 00786924 [email protected] 2001 Ross Avenue Dallas, Texas 75201 (214) 953-6500 (214) 953-6503 (Facsimile)
ATTORNEYS FOR RECEIVER RALPH S. JANVEY
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Appx. Page 306
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APPENDIX IN SUPPORT OF RECEIVER’S FIRST AMENDED COMPLAINT AGAINST CERTAIN STANFORD INVESTORS
CERTIFICATE OF SERVICE
On December 7, 2009, I electronically submitted the foregoing document with the clerk of the court of the U.S. District Court, Northern District of Texas, using the electronic case filing system of the Court. I hereby certify that I will serve the Stanford Investors individually or through their counsel of record, electronically, or by other means authorized by the Court or the Federal Rules of Civil Procedure.
/s/ Kevin M. Sadler Kevin M. Sadler
Case 3:09-cv-00724-N Document 129 Filed 12/07/2009 Page 3 of 9
APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
Appx. Page 307
Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 309 of 444
ID Number Name
CD Proceeds Received in Excess of Investments Total CD Proceeds
1
GARY D. MAGNESS IRREVOCABLE TRUST, GARY MAGNESS, GMAG LLC AND MAGNESS SECURITIES LLC
$ 10,650,666.14 $ 90,411,977.14
2JUERGEN KURT WAGENTROTZ AND JURGEN KURT WAGENTROTZ ERNST
$ 8,589,727.46 $ 44,168,667.09
3 ROBERTO GALLARDO KURI $ 6,417,324.64 $ 6,417,324.64
4
ANTONY MANSOUR AND REHAN MANSOUR, ANTONY MANSOUR, JOSEPHINE MERY, FANCOISE SOLANGE MERY AND JOSEPHINE MERY
$ 5,332,910.14 $ 10,827,566.82
5 COMPANIA MINERA CAOPAS SA DE CV $ 5,119,458.09 $ 13,508,505.76 6 ANGLO-ATLANTIC STEAMSHIP CO. LTD. $ 4,276,637.90 $ 16,276,637.90 7 AYSE OYA ERHAN $ 3,282,388.14 $ 3,282,388.14
8
BORDEAUX INVESTMENTS I C.V.; PROVENCE MANAGEMENT STICHTING I AND BORDEAUX INVESTMENTS I C.V.
$ 3,063,621.89 $ 7,424,640.52
9 LEOPOLDO AROSEMENA CEVASCO $ 2,589,786.69 $ 2,929,286.22 10 KIRKWELL C.V. $ 2,388,114.97 $ 13,791,011.03 11 ALNOOR NATHOO $ 1,745,935.00 $ 1,745,935.00 12 BRETT LANDES $ 1,508,512.83 $ 12,512,705.59
13
EDWARD HYLTON JONES AND EDWARD HYLTON JONES AND SHIRLEY GLORIA JONES
$ 1,476,400.18 $ 8,367,336.14
14CLAUDIO ENRIQUE HERNANDEZ VILLALOBOS
$ 1,106,429.75 $ 4,999,383.94
15BRUCE THOMPSON AND MICHELLE THOMPSON AND BRUCE THOMPSON
$ 1,081,369.51 $ 12,597,948.06
16 THOMAS J. MORAN $ 987,675.25 $ 5,670,425.25
17
GEORGE JOSEPH ROLLAR AND GEORGE JOSEPH ROLLAR AND DOLORES MAY PAYER ROLLAR
$ 936,250.10 $ 12,936,230.10
18 AUBREY O'NEAL CLEMENT $ 924,408.16 $ 8,524,408.16
19
THE ANTHONY JOSEPH ANTINORI TRUST AND ANTHONY JOSEPH ANTINORI; AND STEVEN JAMES ANTINORI IN HIS CAPACITY AS TRUSTEE OF THE ANTHONY JOSEPH ANTINORI TRUST; THE STEVEN JAMES ANTINORI TRUST AND STEVEN JAMES ANTINORI
$ 880,657.48 $ 5,080,657.48
20
ARTURO ORTEGA GONZALEZ AND MARIA CAROLINA ORTEGA GONZALEZ AND GERMAN LUIS ORTEGA GONZALEZ AND ARTURO ORTEGA GONZALEZ
$ 853,341.46 $ 3,228,141.03
21 TEBEL CORPORATION $ 815,855.77 $ 3,601,507.98
22
NAIRC B.V., NAIRC-NETHERLANDS ANTILLEAN INSURANCE AND NAIRC-NETHERLANDS ANTILLEAN INSURANCE AND REINSURANCE COMPANY
$ 803,511.11 $ 5,280,924.84
23 INTERMEDIA LTD. $ 755,310.82 $ 3,863,952.14
24CORPORATION NACIONAL DE INVERSIONES SA DE CV
$ 752,611.74 $ 5,752,611.74
25
ALBERTO JAVIER BOTELLO REED; SILVIA GUADALUPE TAMEZ DE BOTELLO
$ 733,001.32 $ 5,490,419.98
1
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Appx. Page 308
Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 310 of 444
ID Number Name
CD Proceeds Received in Excess of Investments Total CD Proceeds
26
BORDEAUX INVESTMENTS III C.V.; PROVENCE MANAGEMENT STICHTING III AND BORDEAUX INVESTMENTS III C.V.
$ 687,563.52 $ 4,909,151.23
27 TA TRUST $ 654,778.00 $ 3,200,000.00 28 ALGICA S.A. $ 641,672.49 $ 3,381,672.49 29 JORGE EMILIO GARZA TREVINO $ 610,364.50 $ 2,650,364.50 30 WALDMAN, LTD. $ 603,314.34 $ 2,069,266.11
31PINGYI HE ORRUILIAN WU DE HE AND PINGYI HE
$ 569,163.15 $ 3,237,629.18
32
DIVO MILAN HADDAD; INFINITUM TRUST AND DIVO MILAN HADDAD; MARIA DE LOURDES MARTINEZ DE SIDNEY AND MARIE ROCHELLE SIDNEY MARTINEZ; MARIE ROCHELLE SIDNEY MARTINEZ; MARIE ROCHELLE SIDNEY MARTINEZ AND DIVO MILAN HADDAD
$ 520,076.40 $ 9,017,539.51
33
BORDEAUX INVESTMENTS IX C.V.; PROVENCE MANAGEMENT STICHTING IX AND BORDEAUX INVESTMENTS IX C.V.; FELIX MARIO HERNANDEZ LARROCOECHA
$ 493,331.22 $ 3,120,002.74
34 OSCAR BENEDETTI $ 443,160.28 $ 2,005,522.28 35 PLATEAU TELECOMMUNICATIONS $ 438,074.19 $ 4,188,567.38 36 MARIO BRAUN RUSSEK $ 403,390.26 $ 2,052,175.19 37 PUPIBUBI TRUST $ 390,334.23 $ 2,531,874.20 38 WEST MEADOWS LTD. $ 383,573.60 $ 10,218,256.47 39 FAYHILL INTERNATIONAL $ 382,593.54 $ 9,446,366.78
40ISABEL ESTHER BENEDETTI DE IZQUIERDO $ 358,824.32 $ 3,198,796.81
41 BENITO DE LUCA TRUST $ 354,013.44 $ 1,700,000.00
42GALO ENRIQUE VILLAMAR VILLAFUERTE $ 352,584.93 $ 5,062,584.93
43 SALOMON DONDICH ROSENHAUS $ 341,026.01 $ 2,068,347.87 44 RAMON ALVAREZ BORONDO $ 339,386.03 $ 2,546,842.76
45INTERNATIONAL PETROCHEMICAL SALES LIMITED
$ 334,933.29 $ 3,463,187.24
46
AZALEA REST CEMETARY INC. IRREV TRUST, AZALEA REST CEMETARY INC., AND GEORGE B. ANNISON, IN HIS CAPACITY AS TRUSTEE OF AZALEA REST CEMETARY INC. IRREV TRUST; GEORGE BUR ANNISON AND DIANE B. ANNISON
$ 315,895.12 $ 1,527,787.35
47
INVERSIONES VARMOL TRUST CARE OF DR. JORGE MARIO VARGAS P. AND INVERSIONES VARMOL TRUST
$ 307,203.38 $ 5,513,731.85
48 HERMAN J. MILLIGAN JR. $ 297,900.23 $ 1,259,160.23 49 STEPHEN J. BURNHAM $ 289,882.60 $ 1,436,882.60 50 CRAYFORD HOLDINGS LIMITED $ 280,183.17 $ 2,525,195.09 51 INMOFYBE S.A. $ 277,815.11 $ 1,857,815.11 52 JOHN F. LYNCH $ 272,234.64 $ 3,865,595.78 53 ANGELO VICTOR GONCALVES $ 260,986.76 $ 2,273,986.76 54 INES DE VILLAMAR $ 256,889.49 $ 3,722,889.49 55 JOHN O. LETARD $ 254,452.09 $ 900,452.15 56 GENOVA TRUST $ 253,357.47 $ 2,403,357.47
57
BILLIE RUTH MCMORRIS; RONALD B. MCMORRIS; RONALD MCMORRIS AND VIRGINIA MCMORRIS; VIRGINIA H. MCMORRIS
$ 246,164.09 $ 1,149,598.95
2
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APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
Appx. Page 309
Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 311 of 444
ID Number Name
CD Proceeds Received in Excess of Investments Total CD Proceeds
58 SLEEPING DOG HOLDINGS, LTD. $ 242,247.86 $ 1,578,105.82 59 SHENOOR JADAVJI $ 235,311.12 $ 1,811,706.62 60 PHILLIP E. LANKFORD JR. $ 227,091.90 $ 625,091.90 61 WAYLAND B. ALEXANDER $ 212,211.54 $ 734,912.32 62 THOMAS W. SLAUGHTER $ 211,481.93 $ 634,481.93 63 LUPE MARTINEZ TRUST $ 210,386.63 $ 2,364,903.13
64JAMIE COHEN BENREY AND SUSANA PEREZ DE COHEN
$ 208,771.30 $ 2,398,317.27
65 WILLIAM C. PROVINE $ 204,125.61 $ 1,949,125.61 66 TROY L. LILLIE JR. $ 203,451.44 $ 954,310.10 67 RONALD W. PARKER $ 202,353.43 $ 693,781.54
68MICHAEL WHEATLEY AND BETTY WHEATLEY
$ 199,508.38 $ 1,699,535.78
69 HERRERA HOLDINGS LTD $ 192,198.53 $ 3,692,198.53 70 MICHAEL A. SPEEG $ 187,181.18 $ 837,379.64 71 ANTHONY G. PARKER $ 183,692.20 $ 1,003,163.24 72 COFFEY OVERSEAS LIMITED $ 183,494.81 $ 1,493,478.92 73 JAMES D. SIMMONS $ 181,839.52 $ 836,364.81 74 THOMAS H. TURNER $ 181,615.32 $ 2,957,505.32 75 LAURA JEANETTE N. LEE $ 176,724.64 $ 525,006.15 76 DENNIS L. KIRBY $ 175,006.66 $ 580,958.77 77 CLYDE ANDERSON $ 174,856.85 $ 704,866.71 78 GOLD WING PARTNERS $ 174,445.65 $ 1,425,426.79 79 SOCIEDAD GENERAL DE INVERSIONES $ 173,659.10 $ 1,996,089.10 80 DOROTHY T. DUNCAN $ 170,458.52 $ 564,694.24 81 JAMES W. BORING JR. $ 167,087.27 $ 612,235.25 82 MICHAEL J. DRAGO $ 165,483.89 $ 592,193.23 83 FRANZ KONRAD ROSEN $ 164,809.43 $ 1,883,920.47 84 SAXONIA FOUNDATION $ 160,931.01 $ 2,255,430.40 85 SANDRA F. HARRELL $ 154,587.85 $ 404,587.85 86 BETTE JO HEASLIP $ 153,433.03 $ 703,433.03
87RONALD E. WELLS; RONALD E. WELLS SR. AND LUTHER D WELLS
$ 152,816.01 $ 833,634.76
88 MALTON OVERSEAS LTD. $ 151,285.82 $ 1,802,058.77 89 ARISTIDE TRELOAR $ 150,706.07 $ 649,730.37 90 TIMOTHY A. JOHNSON $ 149,572.57 $ 852,446.20 91 DENNIS CHILDRESS $ 147,426.06 $ 646,426.06 92 NORFE S.A $ 146,164.17 $ 2,551,164.17 93 MUDDY WATER HOLDINGS LIMITED $ 144,719.09 $ 1,585,349.04 94 GARY WOOD $ 141,619.74 $ 641,619.74 95 PEGGY PAYNE MORAGNE $ 141,229.66 $ 401,818.31 96 CHARLIE L. MASSEY $ 140,747.84 $ 390,809.49
97
RICHARD A. DEVALL; RICHARD DEVALL AND SUE M. DEVALL; SUE M. DEVALL
$ 140,492.62 $ 552,871.02
98
HARDEE M. BRIAN AND BETTY JO BRIAN; YOUNG FAMILY CEMETARY TRUST
$ 139,989.40 $ 615,503.58
99
JOSE LUCIANO MENDEZ ALONSO AND MARIA DEL ROCIO CORONA ODRIOZOLA
$ 134,411.06 $ 753,391.06
100RICHARD S. FEUCHT; RICHARD S. FEUCHT AND JOAN A. FEUCHT
$ 133,701.68 $ 549,863.28
101
KRIMICH LTD.; MARIA TERESA SAN SEBASTIAN DE VALLE AND JOSE MARIA VALLE ESCAMEZ
$ 129,663.90 $ 2,834,000.00
102 TARRAL E. DAIGLE $ 126,361.20 $ 407,361.20 103 DARRELL D. COURVILLE $ 125,960.34 $ 685,960.34 104 GENE CAUSEY $ 123,288.92 $ 613,288.92 105 KENNETH W. DOUGHERTY $ 122,527.19 $ 641,527.19
3
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APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
Appx. Page 310
Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 312 of 444
ID Number Name
CD Proceeds Received in Excess of Investments Total CD Proceeds
106 YAIR SHAMIR AND ELLA SHAMIR $ 119,765.82 $ 1,119,720.82 107 JOHN D. COOPER $ 119,750.43 $ 619,750.43 108 JOHN R. HOLGUIN $ 118,725.76 $ 660,144.24 109 EMMA LEE LEFEBVRE $ 117,977.06 $ 205,981.88 110 LOUISE D PATTERSON $ 115,637.49 $ 2,115,637.49 111 ARTHUR R. WAXLEY JR. $ 115,268.15 $ 616,268.15 112 RAUL RODRIGUEZ MENDEZ $ 114,580.58 $ 454,581.81 113 JOHN E. TAYLOR $ 113,431.70 $ 639,109.67
114THOMAS E. BROWN AND BARBARA BROWN $ 109,254.20 $ 2,109,254.20
115 CHARLES L. WHITE $ 108,813.61 $ 558,813.61 116 CLAUDE M. NEEDHAM $ 107,224.36 $ 393,458.36 117 DONNA M. VINES $ 107,059.59 $ 346,142.84 118 HENRY A. MENTZ III $ 106,709.47 $ 706,719.47 119 ROBERT S. GREER AND ALICE D. GREER $ 102,523.66 $ 1,152,523.66 120 GAINES D. ADAMS $ 101,859.44 $ 453,139.44 121 ROBERT L. BUSH $ 100,849.09 $ 826,383.56 122 THE DAVIS REVOCABLE TRUST $ 100,260.79 $ 857,660.79 123 DAVID TOPP AND DORA TOPP $ 98,648.14 $ 1,098,648.14 124 MARY E. GERRY $ 98,380.29 $ 432,442.99 125 JAMES E. RICHARDSON FAMILY TRUST $ 97,757.04 $ 5,097,757.04 126 JEFF P. PURPERA JR. $ 97,693.42 $ 597,693.42 127 EMOLYN L. WATTS $ 95,010.68 $ 364,391.35 128 ROBERT SOULE $ 91,266.03 $ 457,234.31 129 CHARLES E. SMITH $ 90,859.07 $ 486,996.16 130 JAMES E. BROWN SR. $ 90,386.71 $ 590,386.71 131 EDGAR THERON OVERLAND $ 90,361.49 $ 416,269.22 132 TERRY N. TULLIS $ 89,938.39 $ 449,245.41 133 LUSKY INVESTMENT PARTNERSHIP, LP $ 87,889.50 $ 287,889.50 134 DENNIS LANTRIP $ 87,795.71 $ 477,927.39
135
AUDREY LETARD; JUDY A. VARNADO AND PATRICIA A. ALLISON AND AUDREY A. LETARD; PATRICIA A. ALLISON
$ 85,769.23 $ 344,189.98
136JOHN G. DENISON AND KATHY R. DENISON $ 85,734.45 $ 585,734.45
137 ROBERT J. BRUNO $ 82,262.63 $ 582,263.63
138
CHARLES R. SANCHEZ AND MAMIE C. SANCHEZ; CHARLES R. SANCHEZ SR.; MAMIE C. SANCHEZ
$ 82,204.45 $ 517,110.12
139
BORDEAUX INVESTMENTS X C.V.; PROVENCE MANAGEMENT STICHTING X AND BORDEAUX INVESTMENTS X C.V.
$ 81,941.84 $ 664,151.84
140 TERESA MEMUN DE ALFIE $ 81,578.67 $ 276,090.99 141 EDITH IRMA WATTS $ 79,224.44 $ 539,225.13 142 EARL L. CROSBY $ 75,276.22 $ 175,276.22 143 LARRY N. SMITH $ 73,370.47 $ 485,678.50
144ROBERT B. CRAWFORD JR. AND JODIE F. CRAWFORD
$ 72,197.81 $ 322,197.81
145LYDA D. TYMIAK; LYDA D. TYMIAK FAMILY TRUST AND LYDA D. TYMIAK
$ 70,535.29 $ 570,546.25
146 DIANE DUNN $ 70,527.65 $ 245,527.65 147 RADIUM COMPANY LTD. $ 69,415.76 $ 2,069,415.76 148 JOSE ALBERTO ROMERO VILORIA $ 68,972.06 $ 8,235,849.49 149 YENZO INVESTMENT, INC. $ 68,495.27 $ 843,541.50
150
BBRATSS PRODUCTIONS, INC.; TIMOTHY RUSSELL RICKETTS AND ROSE S. RICKETTS
$ 66,459.73 $ 2,416,459.73
151 MELVIN S. TAUB AND CAROL TAUB $ 65,959.17 $ 1,065,959.17 4
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Appx. Page 311
Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 313 of 444
ID Number Name
CD Proceeds Received in Excess of Investments Total CD Proceeds
152 ROSS D. BRUCE AND MARSHA C. BRUCE $ 64,991.83 $ 564,991.83 153 NONNA E TRUST $ 63,529.53 $ 3,079,824.08 154 EUGENE L. CROXTON JR. $ 61,805.39 $ 161,805.39 155 PINOT HOLDINGS LIMITED $ 60,808.26 $ 1,083,208.85
156KEVIN A. MCKENZIE AND DENISE T. MCKENZIE
$ 56,727.82 $ 806,974.43
157 GWENDOLYN E. FABRE $ 55,453.05 $ 355,934.17
158
BLUFF CREEK REDI-MIX, INC.; FLEN ROCK COMPANY, LLC.; FLENIKEN SAND & GRAVEL, INC.; LYMAN L. FLENIKEN JR.
$ 55,052.80 $ 643,354.14
159DOT G. MELDER; JACK W. MELDER; JACK W. MELDER AND DOT G. MELDER
$ 51,689.19 $ 506,154.82
160 FRANCIS NEZIANYA $ 51,635.86 $ 301,635.86 161 AMARA TRUST $ 49,948.93 $ 399,948.93 162 ROBERT C. WILLIAMS $ 48,727.92 $ 263,727.92
163WILLIAM BRUCE JOHNSON AND JENNIFER SAVOIC JOHNSON
$ 45,414.72 $ 245,464.04
164 MICHAEL S. ASMER $ 42,664.50 $ 1,029,844.69 165 OLIVIA S. WARNOCK $ 42,455.46 $ 392,684.49 166 ROBERT YOUNG JR. $ 42,117.20 $ 360,476.58 167 MICHAEL J. TIMMONS $ 40,081.62 $ 540,081.62 168 WILLIAM E. ENSMINGER $ 39,845.96 $ 154,845.96
169DANIEL JOSEPH DAIGLE AND JILDA ANN DAIGLE; JILDA A. DAIGLE
$ 39,820.10 $ 282,664.32
170 JOHNNIE A. GRIFFITH $ 38,521.26 $ 504,427.86 171 ARCHIE SMITH $ 37,753.36 $ 510,998.65 172 TAHSIN YILMAZ KALKAVAN $ 37,705.31 $ 287,705.31
173JANE M. PRIDGEN AND ROBERT GRAY MATLOCK
$ 35,771.54 $ 185,771.54
174 ROLAND SAM TORN $ 35,354.86 $ 1,035,354.86 175 ARTHUR TORNO $ 33,945.60 $ 283,945.60 176 JOSEPH A. CHUSTZ $ 33,340.28 $ 598,797.31
177
CHERAY ZAUDERER HODGES; LUTHER HARTWELL HODGES; LUTHER HARTWELL HODGES AND CHERAY ZAUDERER HODGES
$ 30,575.00 $ 2,480,701.04
178 MONTY M. PERKINS $ 29,491.95 $ 129,491.95 179 MURPHY BUELL $ 29,483.22 $ 417,216.30 180 BARBARA ANTHONY $ 29,097.56 $ 345,381.68 181 MICHAEL R. HOLCOMB $ 28,364.18 $ 278,364.18 182 LARRY W. PERKINS $ 27,640.62 $ 427,640.62 183 JIMMY QUEBEDEAUX $ 26,693.16 $ 330,756.21 184 CARL M. WEBB III $ 25,391.64 $ 125,391.64 185 RISIA TOPP WINE $ 23,911.16 $ 223,911.16 186 CAROLYN CRANSTON $ 22,783.85 $ 149,054.72 187 BRIAN U. LONCAR AND SUE A. LONCAR $ 22,517.55 $ 222,517.55
188
INVERSIONES PATRICK ROGER P AND PATRICK PETIOT; PATRICK LORIS ROGER PETIOT
$ 21,740.61 $ 726,140.84
189 GERALD S. PASTERNAK $ 20,839.38 $ 370,839.38 190 JUDITH P. SIMMONS $ 20,463.87 $ 422,748.77 191 JOHN E. WILSON $ 19,527.19 $ 405,074.46
192SAMUEL R. MOORE AND MARTHA W. MOORE
$ 18,045.11 $ 218,045.11
193CARLOS LANDEROS GALLEGOS AND MARIA DE JESUS LANDEROS GALLEGOS
$ 18,000.00 $ 268,000.00
194 DIFFICULTY HOLDINGS LIMITED $ 16,855.75 $ 616,734.19 195 DOROTHEA M. YOUNG $ 15,562.29 $ 124,680.29 196 JUANITA QUINEALTY $ 15,446.22 $ 119,446.22
5
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ID Number Name
CD Proceeds Received in Excess of Investments Total CD Proceeds
197 ANTONIO SANCHEZ RAMOS $ 15,083.89 $ 528,918.97
198ELENA TRON DE ZEPEDA CARRANZA; MAURICIO ZEPEDA CARRANZA
$ 13,529.30 $ 2,590,188.72
199 ANTHONY J. VENTRELLA $ 13,427.03 $ 483,222.26
200JONATHAN LARKIN STOCK TRUST AND JONATHAN LARKIN
$ 12,925.82 $ 262,925.82
201VINETA P. STANSEL AND HOWARD STANSEL $ 11,847.39 $ 256,161.20
202 CHARLES A. JAMES $ 10,149.06 $ 360,149.06
TOTAL $ 93,788,316.33 $ 545,712,937.03
6
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IN THE UNITED STATES DISTRICT COURTFOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
RALPH S. JANVEY, IN HIS CAPACITY AS *COURT APPOINTED RECEIVER FOR THE *STANFORD INTERNATIONAL BANK, LTD., *ET AL. * Case No. 03:09-CV-0724-N
*Plaintiff, *
*v. *
*JAMES R. ALGUIRE, ET AL. *
*Investor Defendants *
******************************************************************************
ANSWER TO RECEIVER’S FIRST AMENDED COMPLAINT
(INVESTOR DEFENDANTS)
Investor Defendants, ROBERT B. CRAWFORD, JR., JODIE F. CRAWFORD,
WILLIAM E. ENSMINGER, JENNIFER SAVOIC, EMMA LEE LEFEDVRE, MICHAEL
A. SPEEG, PEGGY PAYNE MORAGNE, JUDITH P. SIMMONS (“Investor Defendants”) file
this Answer and Affirmative Defenses in response to the Receiver’s First Amended Complaint.
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ANSWER
SUMMARY
1. No response is required for the allegations contained in paragraph 1 of the Receiver’s
First Amended Complaint. To the extent that the response is required, allegations contained in
paragraph 1 are denied for lack of sufficient information to justify a belief therein.
2. Investor Defendants deny that they had knowledge of the use or whereabouts of their
investments as alleged in paragraph 2. The allegations contained in paragraph 2 of the Receiver’s
First Amended Complaint are denied for lack of sufficient information to justify a belief therein.
Investor Defendants deny the amounts set forth on the Appendix are the correct amounts or the date
on which the Ponzi scheme commenced.
3. The first sentence in paragraph 3 is denied. The second sentence of paragraph 3 is
denied for lack of sufficient information to justify a belief therein. The third sentence in paragraph
3 is denied. All other allegations are denied.
4. The last sentence of paragraph 4 is denied. Except as otherwise noted, all other
allegations contained in paragraph 4 of the Receiver’s First Amended Complaint are denied for lack
of sufficient information to justify a belief there.
5. The allegations contained in paragraph 5 are denied for lack of sufficient information
to justify a belief therein. Investor Defendants deny the amounts set forth on the Appendix are the
correct amounts or the date on which the Ponzi scheme commenced.
6. The allegations contained in paragraph 6 are a statement of law and not fact. To the
extent that a response is required, the allegation in paragraph 6 is denied because it is not a proper
statement of the law. Further, any factual allegations contained in paragraph 6 are denied.
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PARTIES
7. Subject to the allegations made in Investor Defendants’s Sixth Affirmative Defense:
Investor Defendants Are not the Owners of Transferred Assets, the allegations contained in
paragraph 7 are admitted.
8. The allegations contained in paragraph 8 are denied for lack of sufficient information
to justify a belief therein.
PROCEDURAL HISTORY
9. The allegations contained in paragraph 9 are a statement of law and not fact. To the
extent that a response is required, the allegation in paragraph 9 is denied because it is not a proper
statement of the law. Any factual allegations contained in paragraph 9 are denied for lack of
sufficient information to justify a belief therein.
JURISDICTION AND VENUE
10. The allegation contained in paragraph 10 is denied for lack of sufficient information
to justify a belief therein.
11. The allegation contained in paragraph 11 is denied including the Fifth Affirmative
Defense.
12. The allegation contained in paragraph 12 is denied for lack of sufficient information
to justify a belief therein.
13. The document executed by each Investor Defendant, if executed, as alleged in
paragraph 13, is the best evidence of its terms. Except as otherwise noted, all allegations contained
in paragraph 13 are denied for lack of sufficient information to justify a belief there.
14. The allegation contained in paragraph 14 is denied for lack of sufficient information
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to justify a belief therein.
STATEMENT OF FACTS
15. Investor Defendants deny that they have any personal knowledge of any of the factual
basis for the fraud, misrepresentations, or omissions or failure to comply with the regulatory laws
as of the date of the transfers which are the subject of the First Amended Complaint. However,
Investor Defendants now believe that many of the facts alleged are now in fact true. The allegations
concerning actions of Stanford Defendants contained in paragraphs 15-24 are denied for lack of
sufficient information to justify a belief therein. The allegations contained in Paragraphs 15 - 24 are
admitted except for the date that the Ponzi Scheme started. All allegations regarding the date of the
commencement of the Ponzi Scheme are denied. The exact date for the commencement of the Ponzi
scheme is a contested issue of fact of which Plaintiff must establish in order to contest the transfers
which are the subject of this suit.
16. The allegations contained in paragraph 25 are denied.
17. The allegations contained in paragraph 26 are admitted subject to the Fourth
Affirmative Defense.
REQUESTED RELIEF
18. The allegation contained in paragraph 27 is a statement of law and not fact. To the
extent that a response is required, the allegation contained in paragraph 27 is denied because it does
not properly state the law. Further, any factual allegations contained in paragraph 27 are denied.
19. The allegation contained in paragraph 28 is a statement of law and not fact. To the
extent that a response is required, the allegation contained in paragraph 28 is denied because it does
not properly state the law. Further, any factual allegations contained in paragraph 28 are denied.
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20. The allegation contained in paragraph 29 is a statement of law and not fact. To the
extent that a response is required, the allegation contained in paragraph 29 is denied because it does
not properly state the law. Further, any factual allegations contained in paragraph 29 are denied.
21. The allegations contained in Paragraph 30 are denied.
22. The allegations in paragraphs 31 - 36 concerning the amount received by all
investors other than the Investor Defendants are denied of lack of sufficient information to justify
a belief therein. To the extent that the allegation is applicable to Investor Defendants, the allegation
is denied because either the amount is not correct or the Receiver has filed a claim against the
individual beneficiary of an Individual Retirement Accounts plan (the “IRA Plan”) and not the
custodian of the IRA Plan or the IRA Plan which owns the funds. The amount of assets owned by
the IRA Plans are set forth in Paragraph 50. All other allegations set forth in paragraphs 31-36 are
a statement of law and not fact. To the extent that a response is required, the allegations contained
in paragraphs 31-36 are denied because they are an improper statement of the law. Further, any
factual allegations contained in paragraphs 31-36 are denied.
23. The allegations contained in Paragraph 37 are denied.
24. The allegations contained in Paragraph 38 are denied.
25. The allegations set forth in Paragraph 39 - 42 are statements of law and not fact. To
the extent that a response is required, the allegations set forth in Paragraph 39 - 42 are denied
because it is an improper statement of the law. Further, any factual allegations are denied.
26. The allegations set forth in paragraph 43 are statements of law and not fact. To the
extent that a response is required, the allegations in paragraph 43 are denied as a proper statement
of the law. Further, any factual allegations in paragraph 43 are denied.
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27. All other allegations not specifically mentioned are hereby denied.
AFFIRMATIVE DEFENSES
I. First Affirmative Defense: Fraudulent Transfer Act
28. The Texas Fraudulent Transfer Act is set out in Tex. Bus. & Com. Ann. § 24.001 et
seq. (“the Act”). Investor Defendants hereby allege that the transfers: (1) were for reasonably
equivalent value based upon an existing antecedent debt; (2) were made in good faith, or (3) that
Investor Defendants were a “subsequent transferee” not subject to being voidable under the Act.
29. Section 24.009(a) of the Act provides: “A transfer or obligation is not voidable
under Section 24.005(a)(1) of the Act against a person who took in good faith and for a reasonably
equivalent value or against any “subsequent transferee or obligee.” Tex. Bus. & Com. Ann.
§24.009(a) (emphasis added). Many if not all of the Investor Defendants were not transferees from
Stanford International Bank (“SIB”) and are not subject to the act.
30. Investor Defendants (1) acted in good faith and (2) gave reasonably equivalent value
in exchange for the transfer because the interest and principal payments were transferred in
satisfaction of an antecedent debt represented by a contractual agreement as previously determined
by the United States Fifth Circuit Court of Appeal in Janvey v. Adams 2009 WL 3791623, 2 (5th Cir.
2009).
31. All transfers were made to IRA Plans of which the Stanford Trust was the custodian
and Investor Defendants were beneficiaries. In many instances, the Custodian of the IRA Plans
(“IRA Custodian”) never made any distributions or limited distributions to Investor Defendants. In
instances where the IRA Custodians made distributions to Investor Defendants, the amount of the
transfers were transfers made to “subsequent transferees” and are not subject to the Act.
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32. The transfers made to the IRA Plans and/or the Investor Defendants were transfers
made for “antecedent debts” within the meaning of Tex. Bus. & Com. Ann. § 24.004(a) because the
funds were CD proceeds pursuant to written certificate of deposit agreements with SIB, which
granted them certain rights and obligations as determined by the United States Fifth Circuit Court
of Appeals in Janvey v. Adams, supra, where the Court stated the following, “There was a debtor-
creditor relationship between the Investor Defendants and the Stanford Bank based on written
agreements well before the underlying SEC enforcement action against Stanford and the resulting
receivership and restraining order. The Court continued to state,“The Investor Defendants have
legitimate ownership interests in their CD proceeds.” The United States Fifth Circuit Court of
Appeals held, “The opinion does not cast any doubt upon our conclusion that the Investor
Defendants here, against whom no wrongdoing has been alleged, have ownership interests in and
legitimate claims to the proceeds of the CDs that they purchased from the Stanford Bank just as
thousands of other innocent investors have done.” Janvey v. Adams 2009 WL 3791623, 2 (5th Cir.
2009).
33. As a matter of law, the interest payments are a reasonably equivalent value because
they are based upon contractual agreements and are antecedent debts within the meaning of the Act.
34. As a matter of law, the principal payments received are a reasonably equivalent value
because they represent the payment of an antecedent debt, based upon the previous ruling of Judge
Godbey in the order dated July 31,2009, which has not been reversed as of the date of the filing of
the First Amended Complaint by the Receiver.
35. Section 24.004(a) of the Act specifically provides that “value” includes satisfaction
of an antecedent debt. Tex. Bus. & Com. Ann. § 24.004(a). A debtor may also receive “reasonably
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1(a) Value is given for a transfer or an obligation if, in exchange for the transfer orobligation, property is transferred or an antecedent debt is secured or satisfied, but value does notinclude an unperformed promise made otherwise than in the ordinary course of the promisor'sbusiness to furnish support to the debtor or another person. Tex. Bus. & Com. Ann. § 24.004(a).
Page 8
equivalent value” when the debtor's payment of a third-party's debt reduces the debtor's liabilities.1
In re IFS Financial Corp. 417 B.R. 419, 441, 442 (Bkrtcy.S.D.Tex. 2009).
36. The estate's liabilities are reduced in the same amount as the transfer. SIB received
reasonably equivalent value from the disputed transfers in that its liability was reduced in the
amount of the transfers. In re IFS Financial Corp. 417 B.R. 419, 442 (Bkrtcy. S.D.Tex. 2009).
II. Second Affirmative Defense: Interest Payments are Payments for Antecedent Debt
37. A debtor does not receive reasonably equivalent value for any payments made to
investors that represent false profits. See In re Hedged-Investors Associates, Inc., 84 F.3d 1286,
1290 (10th Cir.1996); Scholes v. Lehmann, 56 F.3d 750, 757-58 (7th Cir.); In re Taubman, 160 B.R.
964, 967 (Bankr.S.D.Ohio 1993); Eby v. Ashley, 1 F.2d 971, 973 (4th Cir.1924). Warfield v. Carnie
2007 WL 1112591, 12 (N.D.Tex. 2007). However, false profits and interests are not the same types
of compensation. In re Carrozzella & Richardson, 286 B.R. 480, 491 (D.Conn.2002).
38. In exchange for the interest paid to the Investor Defendants, SIB received a dollar-
for-dollar forgiveness of a contractual debt. Since the SIB CDs are contractual obligations of SIB,
SIB was obligated to pay the interest that accrued on the SIB CDs. SIB’s payment of the accrued
interest constituted dollar-for-dollar forgiveness of a contractual debt, which is “reasonably
equivalent value.” Freeland v. Enodis Corp. 540 F.3d 721, 735 (7th Cir. 2008); In re Carrozzella
& Richardson, 286 B.R. 480, 491 (D.Conn.2002); Kipperman v. Onex Corp. 411 B.R. 805,
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851 (N.D.Ga. 2009); In re N & D Properties, Inc. 54 B.R. 590, 605 (D.C.Ga.1985).
III. Third Affirmative Defense: Investor Defendants Acted in Good Faith
39. Plaintiff has not alleged sufficient facts relating to each transfer of principal or
interest over multiple years for Investor Defendants to be able to determine on what date Plaintiff
believes that Investor Defendants should have reasonably known of SIB’s insolvency or should have
reasonably put them on notice at the time of each transfer of principal or interest that the transfer
was made in order to delay, hinder, or defraud creditors of the debtor.
40. Investor Defendants did not have knowledge of facts that should have reasonably put
them on notice at the time of each transfer of principal or interest that the transfer was made in order
to delay, hinder, or defraud creditors of the debtor. Terry v. June 432 F.Supp.2d 635, 641 (W.D.Va.
2006); United States v. Romano, 757 F.Supp. 1331, 1338 (M.D.Fla.1989); Plotkin v. Pomona Valley
Imports (In re Cohen), 199 B.R. 709, 719 (Bankr.Fed.App.1996); Fisher v. Sellis (In re Lake States
Commodities, Inc.), 253 B.R. 866, 878 (Bankr.N.D.Ill.2000); In re Agricultural Research & Tech.
Group, Inc., 916 F.2d 528, 536 (9th Cir. 1990).
41. Most of the payments of interest occurred years before the date of the receivership
filing by the SEC. Investor Defendants did not know or should not have known that the debtors were
insolvent at the time of each transfer of principal and interest. Investor Defendants did not have
knowledge of facts at the time of the transfer of each payment of principal and interest that should
have reasonably put them on notice that SIB was insolvent or that the transfers were being made to
delay, hinder, or defraud creditors of the debtor.
42. As a matter of law, since the facts and circumstances surrounding the operation of
Stanford International Bank (“SIB”) did not reasonably put the Securities and Exchange
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Commission and FINRA, which were responsible for monitoring the activities of the Stanford
Group, on notice during the relevant time period that transfers were being made to delay hinder or
defraud creditors of the debtor through the implementation of a Ponzi Scheme, then Investor
Defendants, as innocent investors, may not be held to a higher standard of knowledge or inquiry
than the Securities and Exchange Commission and FINRA.
43. Investor Defendants were unsophisticated investors who were innocent retirees who
invested their life savings in the IRA Plans. Investor Defendants knowledge of particular facts was
not such that they should have known of the fraudulent scheme or the insolvency of SIB.
44. In the alternative, because the transfers in question involved multiple transfers and
multiple time periods, each transfer requires a finding that facts existed that provide the basis for a
lack of good faith.
45. The primary purpose of disgorgement is to deprive a “wrongdoer” of unjust
enrichment. In this particular case, as admitted by the Receiver, no “wrongdoer” is the subject of
the plan for disgorgement. S.E.C. v. JT Wallenbrock & Associates, 440 F.3d 1109, 1113 (9th
Cir.2006). See also, Securities and Exchange Commission v. Blatt, 583 F.2d 1325, 1335 (5th
Cir.1978); S.E.C. v. Seghers, 298 Fed.Appx. 319, 336, 2008 WL 4726248, 14 (5th Cir.2008). For
this reason, Plaintiff is not entitled to the relief requested.
46. Even if wrongdoing is involved, the amount of the principal investment is not subject
to recoupment. Scholes v. Lehmann, 56 F.3d 750 (7th Cir.1995); S.E.C. v. Blatt, 583 F.2d at 1325,
1335 (5th Cir. 1978); Ruling of Judge Godbey dated July 31, 2009.
IV. Fourth Affirmative Defense: Uncertainty of Commencement Date of Ponzi Scheme
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47. As a matter of law, the time period for seeking recovery of the transfers based upon
the actual intent to hinder, delay, or defraud creditors cannot commence until the date of the
commencement of the Ponzi scheme is proven. Plaintiff makes no attempt to allege when the Ponzi
Scheme started. In order to establish that the transfer was made with actual intent to hinder, delay
or defraud any creditor of the debtor, the date of the commencement of the Ponzi Scheme must be
factually pleaded and established. Until the date of the commencement of the Ponzi Scheme is
proven, Investor Defendants reserve the right to assert the defense that the transfers made to them
for certain interest payments were prior to the date of the commencement of the Ponzi Scheme.
48. The transfers of interest and principal to Investor Defendants occurred in multiple
years and months. The transfers from the receivership entities to Investor Defendants were not made
with actual intent to hinder, delay, or defraud creditors of the receivership entities during all periods
for which disgorgement is being sought. The defenses of Investor Defendants for the time periods
for disgorgement cannot be ascertained until Plaintiff sets forth the facts for the time in which the
Ponzi Scheme commenced.
V. Fifth Affirmative Defense: Ownership of Claim
49. Plaintiff does not have title to the claim, and as a matter of law, is not entitled to
enforce any right of SIB against Investor Defendants until it is determined who is the proper receiver
to represent SIB in pursuing its claims.
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2Robert F. Crawford, Jr. and Jodie F. Crawford held the CD jointly and as such, the sixthaffirmative defense does not apply to them. Jennifer Savioc did not have the funds in her IRAand as such, the sixth affirmative defense does not apply to her either. However, for ease of theReceiver’s reference, they have been included in the chart.
3Robert F. Crawford, Jr., Jodie F. Crawford, and Jennifer Savioc did not have theirStanford CDs in their IRAs. The Sixth Affirmative Defense is not applicable to InvestorDefendants 144 and 163.
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VI. Sixth Affirmative Defense: Investor Defendants Are not the Owners of TransferredAssets2
. 50. The proceeds listed in the following table are held by the IRA Custodian3.
Last Name IRA Receiver No Distribution 11/24 Clawback FootnoteCrawford 144 $322,197.81 $72,197.81Ensminger IRA 168 $154,845.96 $39,845.96Savioc 163 $245,464.00 $45,414.72 (1)Lefedvre IRA 109 $205,981.88 $117,977.06Speeg IRA 70 $837,379.64 $187,181.18Simmons IRA 190 $422,748.77 $20,463.87Moragne IRA 95 $401,818.31 $141,229.66 (2)
(1) Jennifer Savioc redeemed her CD in 2006 and is listed jointly as Receiver InvestorDefendant 163 with William Bruce Johnson. William Bruce Johnson filed his Answer tothe Amended Complaint on December 18, 2009.(2) Ms. Moragne is a paraplegic and Ms. Moragne has depended on these funds forher healthcare and the remaining funds are essential to cover her medical expenses.
Plaintiff has filed suit against Investor Defendants for the funds held in the IRA Plans. As a matter
of law, Plaintiffs and IRA Plans are not the same legal entity, and the Receiver’s action against the
Investor Defendants for the funds titled in the name of the IRA Plans do not state a legal claim for
the funds held by the IRA.
51. Plaintiff has ignored this requirement and named the wrong party as a Investor
Defendants in order to avoid the exemption provisions of § 42.0021 of the Texas Property Code.
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Tex. Prop. Ann. §24.009.
52. It is the burden of the party claiming an exemption under § 42.0021 of the Texas
Property Code to prove that he is entitled to such exemptions. Lozano v. Lozano 975 S.W.2d 63, 67
(Tex. App-Houston [14th Dist.] 1998, pet. denied).
53. All of the accounts listed in Paragraph 50 of Investor Defendants’ Answer to
Receiver’s First Amended Complaint are IRA Plans established with the Stanford Trust to purchase
SIB CD’s. Investor Defendants are not the owners of the funds which are the subject of the claims.
54. Texas Property Code § 42.0021 states the following:
In addition to the exemption prescribed by Section 42.001, a person's rightto the assets held in or to receive payments, whether vested or not, under any stockbonus, pension, profit-sharing, or similar plan, including a retirement plan for self-employed individuals, and under any annuity or similar contract purchased withassets distributed from that type of plan, and under any retirement annuity oraccount described by Section 403(b) or 408A of the Internal Revenue Code of 1986,and under any individual retirement account or any individual retirement annuity,including a simplified employee pension plan, and under any health savings accountdescribed by Section 223 of the Internal Revenue Code of 1986, is exempt fromattachment, execution, and seizure for the satisfaction of debts unless the plan,contract, or account does not qualify under the applicable provisions of the InternalRevenue Code of 1986. Tex. Prop. Ann. §42.0021(a).
55. Based upon the liberal rule of construction, evidence that an account is an IRA is
sufficient to establish that it is exempt, unless evidence is presented that the IRA does not qualify
for exempt treatment under the Internal Revenue Code. In re Jarboe 365 B.R. 717, 721,
722 (Bkrtcy.S.D.Tex. 2007). Plaintiff has made no attempt to allege that IRA Plans fail to qualify
as a tax exempt entity or to explain in his complaint why he is able to pursue claims against the
individual beneficiaries for funds owned by the IRA Plans.
56. IRAs are trusts which “exist separate from their owners. . . .” Taproot Administrative
Services v. CIR, 133 T.C. No. 9, 5, 2009 WL 3098090 (U.S.Tax Ct.); 26 USC 408(a). Plaintiff may
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not circumvent the limitations of Tex. Prop. Ann. § 42.0021 on property owned by the IRA by
naming the beneficiary of the IRA as a Investor Defendants.
VII. Seventh Affirmative Defense: Offset
57. The other unpaid creditors of SIB are the real parties in interest that the Plaintiff is
representing in pursuing the claims against the Investor Defendants. Investor Defendants plead the
right of offset and compensation in an amount equal to the pro-rata share of the amounts due and
owing by all persons that have received payments during the period of the Ponzi Scheme of which
Investor Defendants would be a beneficiary if the claims were pursued by the Receiver.
VIII. Eighth Affirmative Defense: Unjust Enrichment.
58. A cause of action for unjust enrichment only exists under circumstances in which
one person has obtained a benefit from another by fraud, duress, or the taking of an undue
advantage. Further, an element of the cause of action is that Investor Defendants wrongfully secured
a benefit or passively received one which it would be unconscionable to retain. No fraud, duress or
taking of undue advantage has occurred.
59. A certificate of deposit contract exists between the Plaintiff and Investor Defendants
as determined by the United States Fifth Circuit Court of appeal in the case of Janvey v. Adams,
supra. When a valid, express contract covers the subject matter of the parties' dispute, there can be
no recovery under for unjust enrichment. Fortune Production Co. v. Conoco, Inc. 52 S.W.3d 671,
684 (Tex. 2000); Pazarin v. Armes 512 F.Supp.2d 861, 877 (W.D.Tex. 2007); Becker v. National
Educ. Training Group, Inc. 2002 WL 31255021, 4(N.D.Tex. 2002).
60. The amount of compensation due is measured by the extent to which one has been
enriched or the other has been impoverished, whichever is less. Plaintiffs have not been
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impoverished by the amount of the loss that hypothetically would have been lost in other
investments.
61. As a matter of law, the amount of the enrichment alleged by the Plaintiff has no
support in law or fact, because the enrichment is based upon a novel theory that Investor Defendants
have been enriched by the amount of losses that they did not incur by not investing in some
unknown or unspecified securities. Further, the legal proposition that Plaintiff is entitled to assume
the alternative investment in which Investor Defendants would have invested funds for purposes of
determining the loss/benefit if the funds had been withdrawn from SIB, is pure conjecture, has no
support in fact or law and is designed to create a claim for unjust enrichment where none exists.
62. No enrichment has been properly alleged based upon the unfounded premise that
hypothetical losses would have incurred in the market without specifically alleging what investments
each Investor Defendant would have made if the funds had been available. As a matter of law, the
alleged amount of damages are speculative at best.
IX. Ninth Affirmative Defense: Res Judicata and Collateral Estoppel
63. The issue of whether a claim can be made against innocent investors for the amount
of the principal has been previously decided by this Honorable Court and the United States Fifth
Circuit Court of Appeals and is res judicata. The courts have previously determined that Investor
Defendants are the owners of the funds based upon the contractual agreement between Investor
Defendants and SIB. Further, the Receiver is collaterally estopped from filing a new claim for the
principal amount of the funds invested in the SIB CD’s based upon the prior rulings of the respective
courts.
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X. Tenth Affirmative Defense- Statute of Limitations
64. All transfers of interest occurring prior to December 7, 2005 are barred because all
claims must be filed within four years of the date of the transfer.
Request for a Trial by Jury
65. Investor Defendants hereby request a jury trial on all issues.
WHEREFORE, having fully answered Receiver’s First Amended Complaint, Investor
Defendants prays for a judgment dismissing the Petition with prejudice and for such further relief
as the Court may deem just.
Respectfully submitted by:
PREIS GORDON, APLC
s/Phillip W. Preis_______________Phillip W. Preis (La. Bar Roll No. 10706)Post Office Box 2786 (70821-2786)450 Laurel Street, Suite 2150(70801-1817)Baton Rouge, LouisianaPhone: (225) 387-0707Fax: (225) 344-0510Email: [email protected]
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CERTIFICATE OF SERVICE
The undersigned certifies that on the 21st day of January 2010, he filed the foregoing
pleading with the Clerk of Court using the CM/ECF system and the CM/ECF system will send
notification of all such filing to all counsel of record as noted on the CM/ECF system.
__________s/Phillip W. Preis___________Phillip W. Preis
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1 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS
2 DALLAS DIVISION3 SECURITIES AND EXCHANGE ) CIVIL ACTION NO.
COMMISSION, ) 3:09-CV-0298-N4 Plaintiff, )
) 5 VS. ) DALLAS, TEXAS
)6 STANFORD INTERNATIONAL BANK, )
LTD., et al., )7 Defendants. ) JULY 31, 20098 _____________________________________________________________9 RALPH S. JANVEY, IN HIS )
CAPACITY AS COURT-APPOINTED )10 RECEIVER FOR THE STANFORD )
INTERNATIONAL BANK, LTD., )11 et al., ) CIVIL ACTION NO.
Plaintiff, ) 3:09-CV-724-N12 )
VS. )13 )
JAMES R. ALGUIRE, et al., )14 Relief Defendants. )15 _____________________________________________________________16 RALPH S. JANVEY, IN HIS )
CAPACITY AS COURT-APPOINTED )17 RECEIVER FOR THE STANFORD )
INTERNATIONAL BANK, LTD., )18 et al., )
Plaintiff, ) CIVIL ACTION NO. 19 ) 3:09-CV-1329-N
)20 VS. )
)21 JIM LETSOS, et al., )
Relief Defendants. )222324 TRANSCRIPT OF PROCEEDINGS
BEFORE THE HONORABLE DAVID C. GODBEY25 UNITED STATES DISTRICT JUDGE
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Page 21 APPEARANCES:2 For the Plaintiff: UNITED STATES SECURITIES AND
EXCHANGE COMMISSION3 BY: MS. ROSE ROMERO
MR. J. KEVIN EDMUNDSON4 MR. STEVE KOROTASH
Burnett Plaza, Suite 19005 801 Cherry Street, Unit #18
Fort Worth, Texas 76102-68826 (817) 978-64767 For the Receiver, MR. KEVIN M. SADLER
Ralph S. Janvey: Baker Botts, LLP8 1600 San Jacinto Center
98 San Jacinto Boulevard9 Austin, Texas 78701-4039
(512) 322-258910
For the Examiner: MR. JOHN J. LITTLE, Examiner11 Little Pedersen Fankhauser, LLP
901 Main Street, Suite 411012 Dallas, Texas 75202
(214) 573-2230713
Also Appearing:14
MR. STEPHEN F. MALOUF15 Law Office of Stephen F. Malouf
3811 Turtle Creek, Suite 160016 Dallas, Texas 75219
(214) 969-737317
MR. MICHAEL J. QUILLING18 Quilling, Selander, Cummiskey
& Lownds, P.C. 19 2001 Bryan Street, Suite 1800
Dallas, Texas 7520120 (214) 871-210021 Court Reporter: Linda J. Robbins, CSR #890
U.S. District Court Reporter 22 Chambers of Judge David C. Godbey
1100 Commerce Street, Rm. 1358 23 Dallas, Texas 75242
(214) 748-8068 24
Proceedings reported by mechanical stenography, transcript25 produced by computer.
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1 P R O C E E D I N G S
2 JULY 31, 2009
3 THE COURT: Be seated. Good afternoon.
4 MR. EDMUNDSON: Good afternoon.
5 MR. SADLER: Good afternoon, Your Honor.
6 THE COURT: Based on what I have read so far, my
7 inclination--and this is not a ruling; this is to let you
8 know my inclination so that you can have that in mind when
9 you're talking to me, to the extent I entertain that--is to
10 deny the SEC's motion to modify the Receivership Order; to
11 deny the Receiver's request for an asset freeze except to
12 the extent it would apply to interest, not to principal;
13 to stay the current Order that evaporates the asset freeze
14 as of noon Monday for one week to give the Receiver time,
15 if he chooses, to get a second opinion from the Circuit on
16 that.
17 So that's kind of where I am, having read what I have
18 read.
19 I think who I would like to hear from would be the
20 SEC first, then the Examiner, then the Receiver. And then
21 if there are other relief defendants who have something new
22 and different that they want to add, I will possibly listen
23 to that for a bit.
24 So having said that, is the SEC ready to talk to me?
25 MR. EDMUNDSON: Kevin Edmundson on behalf of the
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1 SEC.
2 Your Honor, I think, in light of your leaning, I might
3 curb my arguments a great deal this evening.
4 We have made our request to modify the Receivership
5 Order simply because we don't believe that there's any
6 legal support to sue innocent investors for clawback claims
7 of principal amount.
8 And with respect to the remaining claims that might
9 be brought in the future against investors, the Commission
10 believes that we are in a position to pursue those claims as
11 plaintiff in this case, it would provide a cost savings to
12 the Receivership, and we believe it's appropriate to do so.
13 I don't know -- you know, we would have to evaluate
14 each claim on a case-by-case basis. If there were
15 preferences to investors, we would pursue them. If an
16 investor received money in bad faith, we would pursue them.
17 And -- and we would like, for the reasons stated in our
18 brief, for the authority to pursue that.
19 There are -- and I will be brief, Your Honor. There
20 are two reasons that we believe that the Receiver and the
21 Commission don't have the authority to pursue principal
22 amounts.
23 Number one, we don't believe that innocent investors
24 can be proper relief defendants in court for the return of
25 principal payments. To be a proper relief defendant, the
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1 investor or -- or any person or entity must not have a
2 legitimate claim to hold that property. In this case, cash.
3 We believe in this case that these innocent investors have
4 the right to retain the principal amount of the money that
5 they have received.
6 And we believe that that is supported in the case law,
7 even some of the cases that have been cited by the Receiver
8 in this case, the Donell case and the Scholes case. And I
9 won't -- I won't belabor those cases, but we believe that
10 they stand for the proposition that you cannot -- even
11 though they were not in the context of whether or not it
12 was appropriate to name them as relief defendants, but they
13 stand for the proposition that you cannot seek the return
14 of principal.
15 And on the merits, those cases as well as others, I
16 might point the Court to two cases which are SIPC cases:
17 Universal Clearing House versus Abbott, which is found at
18 77 B.R. 843, and Bayou Superfund, which is at 396 B.R. 810.
19 Those cases also support the -- the idea that the Commission
20 and the Receiver cannot pursue an innocent -- purely
21 innocent investor for the return of payments.
22 If the Court is inclined to not -- to allow claims
23 only against interest, we believe that that -- that is an
24 appropriate ruling because we believe that -- that the
25 Receiver and the Commission could pursue those claims if
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1 they wanted to.
2 THE COURT: Have you-all ever asked a court to
3 rein in a receiver before? You know, I certainly haven't
4 read every SEC case, but this was a little bit of a new one
5 for me.
6 MR. EDMUNDSON: I'm not aware of one. Certainly
7 we have asked the Court in -- in many time -- in -- on many
8 occasions, many different occasions to amend a receivership
9 order to conform the order to the facts and circumstances of
10 the case.
11 I am not aware of any time where the receiver has --
12 has -- or where the SEC has come in to try to curb some of
13 the authority of a receiver.
14 We -- we filed this motion after a great deliberation
15 internally and after a lot of discussions with the Examiner
16 and the Receiver.
17 THE COURT: Do you still want a receiver?
18 MR. EDMUNDSON: We still want the Receiver, yes.
19 And this is --
20 THE COURT: Okay.
21 MR. EDMUNDSON: Your Honor, we have our areas of
22 disagreement. But this is a -- this was an area that we
23 thought we had to bring to the Court's attention because we
24 don't believe that these claims -- the claims for principal
25 are supported by law. And we disagreed with the Receiver.
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1 We had a great deal of discussions and tried to work
2 something out. We were unable to. So we had to bring our
3 views to the Court's attention pursuant to this motion.
4 We still want the Receiver. We support the Receiver.
5 We disagree with the clawback claims for principal.
6 THE COURT: Okay.
7 MR. EDMUNDSON: One other thing I -- and I'll --
8 I'll be brief, Your Honor. I -- I would point out that
9 in the Madoff case, the SIPC Trustee there has published
10 guidance with respect to the exercise of his discretion in
11 going after clawback claims against investors.
12 The Madoff Trustee acknowledges that it is within his
13 discretion to pursue those claims, but has issued -- and
14 I'm happy to provide this to the Court, it's on his website,
15 but has issued guidance as to when he would do that.
16 The guidance says that, as to transfers to an investor,
17 the SIPC Trustee will consider whether or not the investor
18 was a net winner or a net loser. If the investor is a net
19 loser, the SIPC Trustee is not likely to pursue that claim.
20 If the claim would create an undue hardship on the
21 customer, the SIPC Trustee in Madoff is not likely to pursue
22 that claim.
23 If the investor -- if there is some evidence of a lack
24 of good faith, which is not alleged in this case, but if
25 there -- but if there is evidence of a lack of good faith,
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1 that would be an occasion when the Receiver might make a
2 claim against an innocent investor.
3 And the Trustee made clear that he would not initiate
4 any action against investors without exhausting discussions
5 with the investors and evaluating all other defenses that
6 they may assert and without an evaluation of the particular
7 facts and circumstances of the case.
8 We think that's -- we think that that's appropriate
9 guidance. We think that's consistent with the traditional
10 practice at the SEC. And -- and we think that the Receiver
11 does have the discretion in this case to consider those
12 factors before filing claims against innocent investors.
13 THE COURT: I certainly agree with you that the
14 Receiver has that discretion. I think here what I'm hearing
15 is he's exercised that discretion and decided, by golly, he
16 better go after those folks.
17 MR. EDMUNDSON: Well, I -- it's clear that that
18 is his determination. I think, in doing so, he's going
19 after a small pool of investors and -- and it does not
20 appear that he is going to go after the lion's share of
21 investors to try to recover for the Estate any types of
22 Ponzi payments. And we don't believe that that's -- that
23 that approach is equality.
24 So he is exercising his discretion, but we think that
25 the discretion ought to be -- he ought to be considering the
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1 fact -- the same types of factors that are considered in --
2 the Madoff Trustee is considering.
3 THE COURT: We'll hear from the Receiver in a
4 moment. What I recall is the Receiver basically said he has
5 not given up on these other folks but it makes more sense
6 to go after the easy stuff first. I've never heard him
7 disclaim any interest in trying to recover proceeds where
8 it's economical from other investors.
9 MR. EDMUNDSON: And that's our understanding as
10 well.
11 THE COURT: Okay.
12 MR. EDMUNDSON: And we think for a going-forward
13 basis it would be appropriate for the Court to consider
14 giving all claims to the Commission.
15 There may be other claims that haven't been filed that
16 are not going to be subject to the -- the asset freeze
17 because the asset freeze is going to go away. But if there
18 are any remaining claims, our motion simply urges the Court
19 to give those claims over, potential claims, to -- to the
20 Commission.
21 THE COURT: Is there anything stopping you-all
22 from asserting those claims?
23 MR. EDMUNDSON: No, I don't think that there would
24 be. But certainly -- and the Receiver feels an obligation
25 to do it, the Receiver has done it, the Receiver presumably
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1 is spending Receivership assets to pursue it. We would
2 like to amend the Order to make it clear who ought to be
3 responsible to do that.
4 THE COURT: I guess what I was trying to clarify
5 is not -- you don't want authority to go after those other
6 claims. You already have that authority. You want to
7 withdraw that authority from the Receiver so that they are
8 not playing as well.
9 MR. EDMUNDSON: That -- that's correct, with
10 respect to investor claims.
11 THE COURT: Okay.
12 MR. EDMUNDSON: Thank you.
13 THE COURT: Thanks.
14 Mr. Little. So here's my question for you, at least
15 one question for you. As sort of a friend of the Court,
16 you're here to speak on behalf of the -- the multitudes of
17 investors who can't all make it into the courtroom and so
18 on. I would guess that most of the people that you've been
19 hearing from are people whose accounts are frozen.
20 The Receiver, as I understand it, is saying there are
21 bunches of other investors whose accounts aren't frozen who
22 are taking a big hit and we're just trying to share the pain
23 a little bit more equitably.
24 So, in part, what I understand the Receiver's pitch to
25 be is, he's trying to get money to give to all the investors
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1 that you probably haven't heard from yet but that in some
2 sense maybe you're supposed to be a voice for here today.
3 And I'm just curious to know what thoughts you've given
4 about the two subclasses of potential investors and their
5 conflicting interests and how that affects your views of
6 this.
7 MR. LITTLE: I'm happy to start there, Judge.
8 I actually do hear from those other folks fairly
9 regularly, the folks who -- the folks who got accounts
10 frozen are certainly folks who contact us a lot. But the
11 folks who are simply the folks who lost money on CDs also
12 contact me on a fairly regular basis, and I get a lot of
13 information from them as well.
14 Part of the problem here is that a vast number of those
15 folks are never going to be subject to those claims. There
16 are some 28,000 investors out there. About 4500 of those
17 are in the United States. There are 650 subject to these
18 claims and only -- subject to these claims with frozen
19 accounts.
20 There are some 20,000 who are beyond this Court's
21 jurisdiction. If they got CD proceeds, which surely a
22 goodly number of them did, the Receiver is never going to
23 be able to go after those folks.
24 The report of the Receiver's expert in his papers
25 says that between January of '08 and the inception of the
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1 Receivership in February 17, '09, $2 billion was redeemed,
2 was paid out in redemptions. He is suing as to the folks
3 who are frozen for some 300 million and change.
4 As to the folks who are not frozen, he's got another
5 500 million. I'd submit to the Court there are grave
6 questions about whether any of those are ever going to be
7 collectable. The Libyan government is probably not going
8 to write the Receiver a check or respond to this Court's
9 jurisdiction.
10 So therein is the problem. We have a very, very small
11 pool of folks who just by happenstance -- the Receiver talks
12 a lot in his papers about luck, chance, he got lucky, he
13 didn't. Well, these 650 folks are unlucky because they
14 happened to have their money where the Receiver could freeze
15 it and it has remained frozen. And they are the ones he's
16 going after.
17 He talks about going after other folks, but he has not
18 done so. He has not provided any information as where the
19 other 2 -- the rest of that 2 billion went out January '08
20 to February '09. And it is inequitable to go after this
21 very small pool to collect 300 million, if in fact you
22 prevail on the claim, as to which I have grave doubts.
23 But even if you could go after that and -- and recover
24 it, to go after 650 to get 300 million, to then spread it
25 out over the 28,000 who are never subject to that same claim
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1 is inequitable. And it is recognized as inequitable by many
2 of the CD investors who would be advantaged by the claim
3 because they are not going to be subject to this Court,
4 they're not going to respond.
5 There are folks in the United States as to whom the
6 Receiver will probably never pursue a claim. All those
7 folks with $250,000 below accounts who were released early
8 on, we don't worry about them or whether they had CD
9 proceeds. We just let them go.
10 That's the problem with these claims. It focuses on --
11 it continues to focus on a very, very narrow band, and the
12 Receiver has provided no information whatsoever about where
13 all these other billions went and what he purports to do
14 about that.
15 There are also folks, frankly, who are not investors
16 as to whom claims could be made. The Stanford entities
17 sponsored sporting events, athletes, gave to charities, did
18 all sorts of things. Those are classic relief defendants.
19 I don't see those claims. They are easy ones. These are
20 investors who took money out of their pocket, bought a CD,
21 got contract rights when they did it, received money back
22 pursuant to those rights, and they are being sued because
23 they're locked up at Pershing. And that's the only reason
24 they're in the crosshairs.
25 And that's why I think these are inequitable claims,
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1 even though they might -- if they were successful, which I
2 do not think they can be, they might advantage some of
3 these other folks.
4 Again, the problem, as the SEC has alluded to, the
5 cases the Receiver cites do not support a recovery of
6 principal from innocent investors who took their money out
7 of their pocket and bought a CD. And if we go down the road
8 and we have 650 or more claims against these folks and at
9 the end of the day what the Court awards is the interest,
10 we are losing money in a major way, because there's not
11 that much interest. It's mostly principal.
12 We don't know what the breakdown is, candidly. The
13 Receiver has not shared that breakdown with me. But just
14 based on what we know about the way these CDs operated, the
15 interest is going to be a very small fraction of the total
16 amount at issue.
17 And so if at the end of this whole pursuit what the
18 Court rules is that they can clawback interest but not
19 principal, I will submit this Estate will have lost a large
20 amount of money which will benefit no investor and will
21 continue to impose hardships on these investors, this
22 little subset that's being sued.
23 I hope that answered the Court's question. I'm not
24 sure it did.
25 I was going to ask the Court to clarify exactly what
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1 you were -- your leaning on the asset freeze. I think I
2 heard the Court say you would deny the motion to extend
3 the freeze but hold off on the August 3 termination of the
4 freeze for a week. And then I heard you say something about
5 continuing the freeze as to interest.
6 THE COURT: Yes.
7 MR. LITTLE: I guess at this point we don't know
8 the difference between those two -- the interest and the
9 principal as to the freeze. But --
10 THE COURT: That would be a problem. My
11 impression was that the Receiver knew that answer to that
12 question.
13 MR. LITTLE: He -- he may. He has not shared that
14 answer with me in any of the data he has ever given me. So
15 he may know the answer to that question. But I will submit
16 to the Court that the numbers that are attached to the
17 Receiver's Complaint are in many respects wrong.
18 So even his numbers are -- are challengeable by many of
19 the investors that I have heard from in the last 48 hours in
20 terms of the Receiver says, I have 500 million -- 500,000 in
21 CD proceeds. I don't. I've got $125,000, or I've got some
22 other number, or I didn't have that account.
23 So there are going to be problems within those numbers
24 as they sit, at least based upon what I've heard to date.
25 THE COURT: Uh-huh. I would assume that that is
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1 a determinable number. Maybe it's not, but I would assume
2 that it is a number that can be determined with access to
3 the records.
4 MR. LITTLE: It may be. I don't know, and I've
5 never seen a breakdown of the two --
6 THE COURT: Uh-huh.
7 MR. LITTLE: -- specifically by defendant or by
8 investor. I have certainly never seen a breakdown on that
9 basis.
10 I'd like to make a couple of other points for the Court
11 if I would. It may be unusual for the SEC to come in and --
12 and ask the Court to modify a receivership order, but the
13 SEC is the plaintiff and the SEC came in and asked for the
14 order in the first place.
15 And it seems to me that it's well within the SEC's
16 authority as the entity of the government charged with the
17 enforcement and regulation of this area to come in and say,
18 okay, Judge, we've asked for these orders in the first place
19 but now we'd like to trim them back because we don't believe
20 that what's happening is really in the best interest of our
21 enforcement activities, of our regulation of this area, and
22 of the public.
23 I think that's what the SEC is asking the Court to do
24 here. It's made the determination that these claims ought
25 not go forward as to principal against innocent investors.
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1 The Receiver disagrees, but I'd suggest that the Chevron
2 doctrine instructs the Court that you ought to defer to the
3 SEC on this issue and not the Receiver. Contrary to the
4 Receiver's papers, he is not the guy best able to make that
5 decision.
6 The other thing I'd like to point out to the Court --
7 by the way, you did not indicate an inclination as to
8 whether you thought I was going to be the lawyer for all
9 650 of these folks. Not my favorite idea. I don't think I
10 can represent individual folks who have their property at
11 risk given the Court's Order appointing me, and I don't want
12 to.
13 But these folks are not one homogeneous blob who are
14 all the same. The SEC alluded to the distinction being
15 drawn in the Madoff proceeding between net losers, net
16 winners. Well, we have that distinction here.
17 Just for fun, I took about a half hour and pulled the
18 first 23 net losers I found out of the stipulations that
19 have been filed with the Court. Those folks are on the --
20 the number 5 exhibit. There are 40 of them, $18 million.
21 Out of that group, there's 23 who are net losers. They lost
22 $26.5 million. They are being sued for 2 million. Okay?
23 If the Receivership can return 7 cents on the dollar
24 to the investors, we can sue those people for 2 million and
25 give it back to them because that's about 7 cents on the
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1 dollar on their loss.
2 That's the kind of problem we have with these claims.
3 We are just creating more victims, we're digging bigger
4 holes for those victims, and at the end of the day I don't
5 think we're going to advantage the Estate as a whole,
6 particularly if, as I believe, they can't make their case
7 for principal.
8 Now, the SEC talked a little bit about the relief
9 defendants. And I won't beat this horse too much, but we
10 have -- I have cited several times in my papers the cases
11 out of Florida from May and June, the Sun Capital case and
12 its companion case, that speak directly to what a relief
13 defendant is.
14 And say someone who gave money and received contract
15 rights and exercised those contract rights, even if they'd
16 received the proceeds of a fraud, you cannot say they don't
17 have an ownership interest. You cannot say they don't have
18 a legitimate claim. If you cannot say those things, they
19 are not relief defendants.
20 That is true of every one of these investors. They
21 are not relief defendants, so these proceedings as relief
22 defendants ought not go forward. I think that's the
23 conclusion the SEC also reached, and I think the Court ought
24 to adopt that conclusion and give deference to the SEC's
25 determination of that.
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1 Anything else for you?
2 THE COURT: No.
3 MR. LITTLE: Thank you, Judge.
4 THE COURT: What says the Receiver?
5 MR. SADLER: Yes, Your Honor. Kevin Sadler, and
6 let me address several issues and --
7 THE COURT: You know everybody in the courtroom is
8 angry with you. That's kind of a weird deal. I wouldn't
9 have expected that when this started.
10 MR. SADLER: Well, I think this case has been a
11 surprise to everyone at a bunch of different levels, and
12 I -- I'm glad you asked that question because it -- it
13 really explains why we're here fighting over this very
14 important issue.
15 THE COURT: And by everyone, I did not mean to
16 include myself.
17 MR. SADLER: I understand.
18 THE COURT: Okay.
19 MR. SADLER: You are the referee. And, of course,
20 the Receiver works not for the SEC but works for the Court,
21 and we're very mindful of that in carrying out our duties.
22 I think it was a surprise to everyone how widespread
23 and how long this fraud had been allowed to go on. I think
24 the discovery that we had tens of thousands of investors,
25 that we had hundreds of entities spread all over creation,
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1 that the money that had been taken in via fraud had been
2 spread over such a wide area, quite frankly, I think that
3 was a surprise to a lot of people. I think it was a
4 surprise to the government.
5 I think it was also a surprise to find that there
6 wasn't some Swiss bank account that had a billion dollars
7 sitting in it just waiting for the proper authority to take
8 control of it and then start making distributions. I think
9 many people thought that's what was going to be found. But
10 that's not what we found.
11 We found a few million here and a few million there.
12 There's a few million overseas that the Receiver is trying
13 to gain control of but has to fight not only with a
14 competing receiver but with foreign governments. So there
15 wasn't the giant billion dollars sitting in a Swiss bank
16 account that would have made this whole process so much
17 easier.
18 And I submit, Your Honor, if we had that, if we
19 had a billion dollars sitting in a bank account, if this
20 Receivership had been instituted, for example, a year
21 earlier than it was, a billion dollars that went out would
22 not have. I don't think we would have this fight that
23 we're having now.
24 We're having this fight because so many people have
25 been harmed and there's so little left to compensate people.
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1 And that is why I want to crystallize for you because I hear
2 loud and clear when you -- when you came out and said, this
3 is what I'm thinking, this is how I'm inclined to go, I --
4 I hear what you're saying. But I want to focus Your Honor
5 on what we are focused on, which is where that will take us
6 if that's the path we move down.
7 I agree with one thing that my colleagues have said
8 before I stood up, which is, if this is an interest only,
9 recapture interest only, I doubt very much it will
10 ultimately be cost effective to pursue or will return very
11 much to anyone. That's not the way this fraud operated.
12 But let me crystallize for Your Honor what this means
13 if we draw a distinction between principal and interest. In
14 my reading of the case law--and to my knowledge only one new
15 case has been brought to your attention since we filed our
16 brief in May on clawbacks, either under an equitable theory
17 which we're pursuing, or statutory fraudulent transfer--the
18 difference between interest and principal is recognized in
19 fraudulent transfer cases. And you've read the cases and
20 I'm sure your law clerks have.
21 But even in fraudulent transfer cases, there's a
22 Ninth Circuit case from a year ago, Donell, which has been
23 cited to you, recognizes that even in statutory fraudulent
24 transfer cases, principal as well as profit can be recovered
25 subject to an affirmative defense. And, of course,
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1 preference actions in bankruptcy can capture both.
2 So the idea that there are legal theories to capture
3 principal is not some concept we invented.
4 And there are cases out of this Circuit. We cited one,
5 Quilling versus 3D Marketing, which was a district court
6 case out of the Northern District where someone who had
7 invested $100,000 in a Ponzi scheme got back $150,000,
8 was ordered to repay $150,000 plus interest.
9 Now, why is that important here? What's important
10 here, Your Honor, is crystallized by two facts that I'm
11 going to give you.
12 On January 23rd, one of the investors, Mr. Maddux that
13 we've asserted a claim against, received $3.6 million paid
14 out of this Ponzi scheme--$3 and a half million in principal
15 and about $169,000 in interest.
16 January 23rd, three weeks before the Receivership was
17 put in place.
18 In that same time frame, 30 days before this
19 Receivership was put in place, the Ponzi scheme took in
20 $70 million of new money. $70 million. All of the people
21 that put in that $70 million in that last 30 days right now
22 have absolutely nothing to show for it except a piece of
23 paper called a Stanford International Bank CD. They have
24 nothing. On the other hand, Mr. Maddux, has $3.6 million.
25 And what is not disputed and what no one has brought a
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1 case to Your Honor's attention to dispute is that if the
2 Receivership had been instituted on January 22nd, the day
3 before that payment was made, Mr. Maddux would be like those
4 others. He would not have his money. Case law is absolutely
5 clear, he would not be able to say, that's my $3.6 million
6 redemption I ordered; I get that; everyone else can share
7 pro rata, but I get that money; that's my money.
8 He would not be able to do that, and no one has brought
9 a case to your attention that that says otherwise. And we
10 have brought the pro rata cases to your attention that show
11 you what the standard is.
12 Why is that important? Because in the Receiver's view,
13 Your Honor, we cannot accomplish at the end of this, and
14 there will be an end to it, a proper equitable pro rata
15 distribution if we have these kinds of preferences that are
16 allowed to stand.
17 And I don't care what you call it, but Mr. Maddux got a
18 preference. He was treated -- if his money is not returned
19 to the Estate, he is being treated preferentially based not
20 on any case that's been brought to Your Honor's attention
21 but based purely on luck and timing.
22 And we brought to Your Honor's attention the cases that
23 come up in pro rata distribution which say, that's not the
24 rule. Investors who put money into a Ponzi scheme cannot
25 later say, yes, that's my money, that's my hundred dollars,
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1 I get it back, it doesn't go in the pro rata pool. Cases
2 from almost every circuit, I know the Fifth Circuit, the
3 Second Circuit, the Ninth Circuit that say, no, that's not
4 the way it works. Why? Because all investors should be
5 treated equally with respect to their recovery as being
6 defrauded by the person who ran the Ponzi scheme. And
7 Mr. Maddux will not be treated that way.
8 And look at the example that's being offered to you.
9 They are saying, all right, let's go ahead and pursue
10 Mr. Maddux. Let him keep his $3 and a half million, and
11 he can give his interest back.
12 What is his pro rata compensation as a victim of fraud?
13 He gets a hundred cents on the dollar for his investment.
14 What do the people that put in the 70 million the last 30
15 days of the -- before the Receivership was instituted, what
16 do they get? I don't know what they get, but it's a far
17 cry from a hundred cents on the dollar. And, Your Honor,
18 it seems to us under the case law, we cannot let that kind
19 of inequity stand.
20 Now, does that present a difficult, challenging,
21 daunting, complex problem to try to return $300 million
22 from one set of investors, $500 million from another set of
23 investors to the Receivership Estate? Well, sure, it does.
24 Sure. It is very daunting and very complex.
25 But, Your Honor, the way we read the case law, there is
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1 a clear set of principles that give this Court the mechanism
2 to accomplish that. And the mechanism is, if you were paid
3 as an investor with stolen money, you have to return it.
4 And the case law doesn't recognize stolen interest
5 versus stolen principal, not in the equitable relief basis
6 that we're pursuing it. Again, we're not pursuing statutory
7 fraudulent transfer claims, and for good reason. And for
8 good reason. Because in the equitable relief cases we have
9 brought to Your Honor, there is not a distinction made
10 between interest and principal and nor could there be
11 because the fundamental precept of this is it's all stolen
12 money.
13 And why should it make a difference that one investor
14 who was just quick enough that he got his money out on
15 Friday gets to keep all of his investment, but the people
16 who tried to get their money out on Monday were just one
17 day too late, I submit, Your Honor, that that's not equity
18 equals equality, that's not pro rata, that's just a
19 preference. And there are legal principles at our disposal
20 to correct that.
21 Now, some of the objections I've heard is, well, what
22 are you going to do about all these foreign investors? Are
23 you really going to chase after the foreign investors?
24 Well, in addition to the group at Pershing, we sued a
25 group of investors whose money did not go through Pershing.
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1 The total amount of CD proceeds is almost $500 million. How
2 much of that will we recover? I don't know. We just filed
3 the claim.
4 Do you know of any plaintiff's lawyer that you could
5 ask the day after he filed a lawsuit, you can say, predict
6 to me with a certainty how much you're going to collect on
7 that? We don't know. We just started. But the idea that
8 we are being inequitable by picking on one group or the
9 other just doesn't bear up.
10 Yes, we are going after the money that's frozen at
11 Pershing. A lot of time, effort, resources has gone into
12 segregating the amount at Pershing into recoverable amounts,
13 and that's what we're down to. And so are we going after
14 that? Absolutely we are. So that's $300 million plus that
15 can be used to compensate a wider group.
16 I'm puzzled -- your -- your question at the beginning
17 reminded me, we have this very strong constituency that
18 argues against clawbacks on behalf of people who got their
19 money out. But, oddly enough, we don't hear the advocacy,
20 either by the government or by the Examiner, saying,
21 well, yes, let's bring that money in so we can help the
22 thousands -- help the people like the poor folks who put
23 that last 70 million in before the music stopped so that we
24 can help them recover something.
25 There is no one advocating for them, Your Honor, except
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1 Mr. Janvey, who is saying, I am trying to bring into this
2 Receivership as much money as the law will allow me to so
3 that I can distribute as much as I can.
4 Now, there was another question raised about, well,
5 what about these -- the Libyans and the -- the foreign
6 people? I mean, you know, you're never going to be able to
7 go after what money they got.
8 Well, that's right if they're in Libya or some place
9 where we don't have access to. But that's a common feature
10 in all kinds of litigation--can you sue someone, can you
11 get jurisdiction, can you collect.
12 But you know what? One thing we do have control over
13 is the distribution process. And if someone thinks they can
14 put $10 million into this scheme, cash out 5 million, and
15 think we're going to forget about that come distribution
16 time when they submit their claim for their additional
17 5 million, I think they're wrong.
18 Because think about that person, Your Honor. And
19 there's examples. I think Mr. Little was alluding to that,
20 someone who put in 10 million and only got out 5. Well,
21 he is labeled, as I hear, a net loser, a concept that I
22 couldn't find a case that identifies that either in the
23 fraudulent transfer or in the equitable relief context.
24 But let's just go ahead with that colloquial concept.
25 If nothing else was done, what does that person recover? He
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1 recovers 50 cents on the dollar. That will be far and away
2 more than anybody else recovers.
3 So would we pursue a claim against such person to try
4 to return that 5 million out of the 10? Yes, we would
5 because if we just let that sit, then he will get a
6 disproportionate recovery. And I'll tell Your Honor all
7 we are trying to avoid is letting stand preferences,
8 preferential recoveries not based on the law but just based
9 on timing.
10 And we feel very strongly about that because, as I
11 said, no one really realized until we got into this how
12 widespread this fraud was, how many people it had harmed,
13 and how little was left. And we all wish now, knowing what
14 we know, that this fraud had been intercepted long before it
15 was. But we can't go back. We can only deal with what we
16 have now.
17 In this context, Your Honor, we would implore you to
18 proceed as we have suggested, which is allow the Receiver
19 to establish his claim against the money paid out, to hold
20 under a new freeze order based on the substantial showing we
21 have made, hold the money that is still at Pershing. There
22 can be a process for litigating the issue that's common to
23 all these claims, and we do believe the case law supports
24 what we're doing.
25 But, Your Honor, once that freeze is lifted and once
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1 those accounts are released, it will be very impractical
2 and I think possibly cost prohibitive in many cases for
3 this Receiver to pursue those claims, especially if we are
4 limited to interest.
5 THE COURT: And my assumption is that you'll want
6 a second opinion if that in fact is my ruling.
7 MR. SADLER: Your Honor, I would like Mr. Janvey --
8 and I was going to ask at the end if you had any questions
9 for me. Mr. Janvey wanted to speak directly to the Court
10 with respect to the SEC's motion. And -- and your question,
11 I think, raises that issue because we work for you, the
12 Court. And so for us to disagree with Your Honor's rulings
13 and appeal those is -- is something that we do not take
14 lightly.
15 THE COURT: Here's the deal. I don't think your
16 arguments are stupid and it's a big pot of money and if
17 you're correct about the law, then Mr. Janvey is absolutely
18 righteous in trying to pull money into the Receivership to
19 be passed out. He's doing just exactly what he was
20 appointed to do.
21 The fact that I may disagree with you about the law
22 doesn't necessarily mean that I'm right. And if Mr. Janvey
23 and you are correct about the law, then by all means you
24 ought to be glomming onto those assets and sweeping them
25 back into the pot to be distributed to everybody else.
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1 It would seem to me the prudent thing for you-all to
2 do, given the amount of money involved, is to appeal that
3 ruling and get at least a semifinal determination of that
4 legal question. It's not going to hurt my feelings if
5 that's what you're saying.
6 MR. SADLER: I -- I totally agree, Your Honor.
7 And let me do this. I've tried to address the various
8 points that were raised. I do want Mr. Janvey to -- to
9 address the Court because he's -- he's asked if he could do
10 that. Have I to your satisfaction answered the questions
11 that you have on -- on the legal points?
12 THE COURT: No. And here's my question. If
13 you-all are going to appeal and, as I say, I think you ought
14 to, I don't want it to become moot because all of the money
15 has wandered off where you can't get it before you have an
16 opportunity to present that argument.
17 So my intention in staying the evaporation of the
18 freeze for one week is to give you time to go to the Circuit
19 and request a stay from them and proceed then however they
20 want you to proceed.
21 Is that enough time for you to get down to New Orleans
22 and ask them for a stay?
23 MR. SADLER: If -- given where we're sitting now,
24 past business hours on a Friday, if -- if I could ask the
25 Court for a little more time, 10 days or 14 days, I think
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1 I would -- I would really appreciate that extra time to --
2 because we're really going to have to put some papers
3 together obviously in a -- in a very big hurry which we
4 will start as soon as we see Your Honor's Order.
5 THE COURT: Yeah.
6 MR. SADLER: But if we could have something on
7 the order of 10 to 14 days, that would be appreciated.
8 THE COURT: Okay.
9 MR. SADLER: Is there anything else I can address
10 in terms of the questions or objections?
11 THE COURT: No. I'm happy to hear from Mr. Janvey
12 now.
13 MR. SADLER: Thank you very much, Your Honor.
14 MR. JANVEY: Thank you, Your Honor. I just want to
15 say a few remarks. I take your lead-in statement seriously,
16 and I think you are heading -- you told us where you are
17 heading so I don't want to waste the Court's time.
18 I think it's important for everyone to know, not just
19 you, Your Honor, but other people in this Receivership, I
20 work for you. I'm a Court-appointed Receiver. I do not
21 work for the SEC. I follow the orders of this Court and I
22 take them seriously.
23 I think it's important to realize why we have gone
24 against the SEC's wishes.
25 Your Honor, I've been a securities lawyer since 1976.
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1 I learned securities law in D.C., not working for the SEC
2 but under the tutelage of the SEC. I was with a bank
3 agency. I worked with the brightest securities lawyers in
4 the country: Stanley Sporkin, Richard Rowe, Alan Levinson,
5 Harvey Pitt.
6 In private practice when I came in 1980, I've worked
7 with the SEC now for 29 years. I have been a defense lawyer.
8 I've also been for the SEC a master -- a special master, a
9 monitor, and a receiver. This is the first time in my
10 career I've ever had a dispute with the SEC about policy.
11 So I want you to understand I take it very seriously.
12 I'm an adjunct professor at the law school. I am a
13 first one to defend the SEC as probably the best agency in
14 the government. On this issue, Your Honor, I just disagree
15 with them.
16 The problem I have, Your Honor, is that -- and I'm glad
17 you're not going to amend the motion or modify it because I
18 think it sends a horrible message to future receivers, which
19 I probably will not be. I'm talking about amending the
20 motion, denying me the right to do clawbacks. I thought
21 that was your ruling. If I'm wrong, tell me.
22 THE COURT: Yes, and I just wanted to amplify on
23 that. One reason that I am not inclined to do that is I
24 think if I did that, it would be difficult for you to get a
25 second opinion from the Circuit, and I want you to have that
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1 alternative available if -- if you choose to take advantage
2 of it.
3 MR. JANVEY: I appreciate that.
4 Also, Your Honor, I think from a policy standpoint it
5 would send a message to future receivers, which I doubt I
6 will ever be, that if you disagree with the SEC, there's a
7 danger they'll modify the order appointing you. I think
8 that's a policy issue which I think is very serious.
9 As a receiver, I answer to you. I follow your
10 instructions, your guidance. If the Court is telling me,
11 you should get a second opinion, I will certainly do that.
12 Your Honor, I'm concerned about spending Receivership
13 assets. This Receivership has a finite amount of assets.
14 We will follow that Order, and I certainly would like
15 the Fifth Circuit's opinion, but I want to be clear that
16 that's what you're instructing me to do because I am the
17 only one in this courtroom except for your reporter and the
18 clerks who work for you. I want to make sure I follow your
19 instructions and your orders.
20 THE COURT: I'm not instructing you to appeal.
21 MR. JANVEY: Uh-huh.
22 THE COURT: I think that that's your decision as
23 the Receiver to make -- and I'm not going to second guess
24 you on that decision.
25 I think it would be helpful to everybody involved in
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1 this process to know sooner rather than later what the
2 Circuit's view of the substantive law is and whether you
3 are legally able to go after principal. And this appears
4 to me to be the earliest opportunity we have to get that
5 second opinion.
6 MR. JANVEY: Okay.
7 THE COURT: So I hope you decide to do it, but I
8 am not instructing you either to appeal or not to appeal.
9 That's what you get the big bucks for.
10 MR. JANVEY: Well, I hope that's true, Your
11 Honor. But I will certainly follow your guidance and your
12 instructions on that. And if that's what the Court's
13 inclinations are, I will certainly follow that. And I
14 appreciate your time, Your Honor. Thank you.
15 THE COURT: Thank you.
16 MS. ROMERO: Your Honor, may I be heard?
17 THE COURT: And you are?
18 MR. ROMERO: Rose Romero with the SEC. I just
19 wanted to clarify something. I think it's important, Your
20 Honor, that the Court have sort of a status report of -- of
21 what's going on with the foreign accounts that Mr. Sadler
22 referred to because I think if you have the whole picture,
23 that maybe --
24 THE COURT: Why don't you go on up to the mike.
25 MS. ROMERO: Okay, thanks.
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1 Your Honor, Mr. Sadler referred to the work the
2 Receiver is doing in foreign jurisdictions with -- there's
3 a lot of money in Switzerland, the UK, and in Canada. But
4 what's going on there is the Department of Justice as a
5 result of their recent indictment have filed criminal MLATs
6 in these various jurisdictions. They now have control over
7 that money. That money is now frozen for their concern, for
8 the criminal case.
9 And what they have advised is they are going to ask
10 those foreign jurisdictions to -- to send that money to
11 the registry of the Court, the criminal court, not to the
12 Receivership.
13 And so this Receivership, as far as I understand what
14 they've reported to me, is they have about $60 million as
15 we speak right now. That's before the bills are paid, their
16 fees and other bills that they have going. So it's really
17 finite. Those monies that are trapped in the foreign
18 jurisdictions are not going to come into the registry of the
19 Court until there's a final conviction, as the Court knows.
20 So what we were trying to do with our motion, Your
21 Honor, is to save the Receivership Estate some money
22 because, as you know, they have been burning quite a bit
23 of that money already. I mean, there's a $20 fee app that's
24 before the Court. There's going to be another one that's a
25 little over 7 million for about seven weeks of work.
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1 So the rate that they are billing or they're burning
2 right now is a little over a million a week. Just to review
3 these accounts at Pershing, Your Honor, they reported to me
4 that they were spending 4000 -- $4500 an hour, each hour of
5 every day, for days and days and weeks and weeks to review
6 those accounts.
7 What we want to do is file the clawbacks where they're
8 appropriate without any cost, any more cost, any additional
9 cost to these investors. Because, you know, they've been
10 screwed by Stanford, they've lost that money. And -- and
11 every day that the Receiver is billing at that high rate to
12 do something that we can do, that as taxpayers they pay us
13 to do for no -- you know, at no cost to them, so then maybe
14 they will get more than that 7 or 8 or 10 cents on the
15 dollar back.
16 And that's kind of what we were trying to avoid is
17 spending -- like Mr. Janvey said, he doesn't want to spend
18 any more of the Receivership assets because those are the
19 investors' assets. And if we can do the clawbacks, which
20 we will do where appropriate, then we can put that money
21 back in the Receivership at no cost to the Receivership.
22 And that's what we were trying to accomplish here is
23 to try to save some of those monies that are dwindling
24 away every day.
25 THE COURT: I don't know this, but I suspect that
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1 they would be happy to let you sue people if you want to
2 and would not sue those same people.
3 MS. ROMERO: Right. And what we're trying to
4 avoid is dual, double effort here. It -- it makes no sense
5 if we do it and they're doing it because they're spending
6 Receivership assets and we're spending taxpayer money. We
7 should -- we should do it at no cost to the investor, to the
8 already harmed investor.
9 THE COURT: And I guess what I'm saying is God
10 bless you, go sue some people if you want to, and I bet
11 that the Receiver won't sue those same people.
12 MS. ROMERO: And we talked -- yes, we talked to
13 them about that, that we would go ahead and do it and they
14 not do it so they don't spend those -- those resources,
15 those precious resources that they have and let us go
16 ahead and go forward.
17 And that's what we thought we were accomplishing with
18 our motion to the Court and that's what we -- I would like
19 you to consider is that, if we go forward, it doesn't cost
20 those investors any money. If the Receiver goes forward, it
21 costs them a whole lot of money. So --
22 THE COURT: I think the Receiver's response is so
23 far you're not suing anybody and don't indicate an interest
24 in suing the people they're suing and they've got the --
25 MS. ROMERO: Well, that's not exactly true, Your
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1 Honor, because if there's 642 people that they've sued, or
2 whatever the number that is, there may be people within that
3 group that aren't innocent investors. In other words, they
4 could have acted in bad faith.
5 The example that Mr. Sadler presented to the Court,
6 certainly if that is a preference, if -- if he was treated
7 preferentially, we would definitely sue him and we are
8 prepared to do that. But -- but I don't think we can just
9 wholesale sue innocent investors. I mean, I think you've
10 already heard that argument, that we don't agree that an
11 innocent investor who's a net investor should, you know,
12 lose more and be added to a victim pot.
13 So that's what we've been trying to work with -- with
14 the Receiver to do. We had to bring it to the attention
15 of the correlate. We knew no other way but to file this
16 motion.
17 So I'd like the Court, I'd urge the Court strongly to
18 consider that fact that if we go forward with those claw-
19 backs that we think of, you know, those investors where we
20 think clawbacks are merited, it doesn't cost the investor any
21 money. If he goes forward, it's going to cost them a -- a
22 lot of money that they don't have.
23 I mean, they're going to be dwindling that $60 million
24 or so, less than that, probably 40 million that they have.
25 It's just going to be eaten away and there's going to be
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1 nothing and then everybody's a net loser and nobody gets
2 any money back until whenever there's a, you know, final
3 judgment in the criminal case. And, you know -- and then
4 that money is -- you know, the DOJ has that money under
5 their forfeiture -- under their forfeiture count in the
6 indictment.
7 So that's kind of where we are. I mean, it's much more
8 complicated than it appears initially.
9 THE COURT: Oh, it appears relatively complicated
10 initially.
11 MS. ROMERO: Well, now it's even more so. And
12 so that's kind of what I was hoping we could get across is
13 that if we do it, it costs the investors no money. If the
14 Receiver continues on this course, which he may not be
15 successful on, it's costing the investors money every day.
16 And there -- as you know, you've probably heard from
17 them as well as we have and everybody else has, there's a
18 lot of hardship stories out there, truly hardship stories
19 out there that, you know, that we want to try to -- to --
20 to limit as much as we can.
21 THE COURT: All right.
22 MR. ROMERO: Thank you, Your Honor.
23 MR. MALOUF: Your Honor, may I address the Court
24 briefly?
25 THE COURT: Yes. Tell me what hat you have on
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1 today.
2 MR. MALOUF: Your Honor, I represent approximately
3 600 CIB -- SIB CD purchasers, domestic, South American, and
4 and European.
5 THE COURT: Okay.
6 MR. MALOUF: Your Honor, my name is Steve Malouf,
7 and I represent approximately 600 CD purchasers.
8 And I have a very simple request or recommendation.
9 And that is that the parties agree that the clawback action
10 or activities in the clawback action will be suspended
11 temporarily during the pendency of an appeal so that the
12 Estate is not spending money, the CD investors and all of
13 us can wait for the Fifth Circuit to give the Court and the
14 rest of us some guidance.
15 Thank you.
16 MR. EDMUNDSON: Your Honor, may I be heard for
17 maybe 20 seconds for the Commission?
18 THE COURT: Not yet.
19 MR. QUILLING: May I be heard, Your Honor? I
20 represent a number of relief defendants in this case. I
21 have filed a motion for appearance. I'll be brief. My
22 concerns are practical. I am not going to reiterate what's
23 been said.
24 THE COURT: Okay.
25 MR. QUILLING: Your Honor, I'm Mike Quilling. As
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1 the Court has probably seen, I've been pretty active in this
2 case from the beginning. I represent a number of the relief
3 defendants.
4 I understand what the Court is saying with respect to
5 the rulings. I am a little bit still unsure as to if Mr.
6 Janvey appeals your ruling, exactly who is going to be on
7 the other side of that.
8 Do relief defendants who are adversely impacted get a
9 chance to respond so that your ruling can be upheld, if
10 indeed it is the proper law, point one, or is that going
11 to be delegated to the Examiner and will he undertake that
12 role?
13 THE COURT: I think -- and one reason that I
14 wanted to do it this way, I think at this point the relief
15 defendants are all named parties in the lawsuit and you
16 would have just as much right to participate in the appeal
17 as any other party would.
18 I don't think the Circuit really wants 600 briefs of
19 appellees. So I would hope that you-all and perhaps with
20 the Examiner can get together to consolidate the paper.
21 But -- and, of course, this is not my decision. It's up to
22 the Circuit to decide who's a proper party.
23 MR. QUILLING: And as the Court is aware, I --
24 and, again, I hope that the Court has the same deference
25 to the fact that you won't be mad at them for appealing. I
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1 obviously filed a petition for writ of mandamus which was
2 denied summarily because I don't think we were really
3 parties. We won't ever know exactly.
4 But the Order that you are changing is in the main
5 case. None of us are parties in the main case. And,
6 therefore, I'm concerned that I have no voice on behalf of
7 my clients in the ancillary proceeding and on the appeal
8 on the appellate level.
9 THE COURT: I'm also contemplating one of those
10 orders being a ruling in the relief case on the Receiver's
11 motion for order freezing in the nature of an order
12 denying injunctive relief essentially, which I believe is
13 immediately appealable and to which I believe you would
14 be a party.
15 MR. QUILLING: Okay. Thank you, Your Honor, for
16 that clarification.
17 The second item is, if indeed the Fifth Circuit says,
18 we will not stay this, and your ruling to release principal
19 is upheld and only interest will be kept, I think it's
20 important for the Court to understand the practical
21 realities of what that would cause.
22 For instance, I have a client who has $3.9 million
23 still trapped. The claim of the Receiver for principal and
24 interest is approximately $1,100,000. He seized over
25 3 million or -- or almost 4 million. So he's holding a
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1 great deal more.
2 He could have taken and kept frozen three accounts that
3 he released that would have equated pretty closely to what
4 his claim was, but he chose not to.
5 These accounts don't hold cash necessarily. Some of
6 them do. They have stocks, bonds, a lot of other
7 investments which will trigger tax issues in a down market
8 if they are liquidated.
9 And by virtue of a ruling from you that -- with respect
10 to this particular client, Mr. Janvey, you're to release
11 everything but the interest which is, let's say, $200,000,
12 the balance of that 3.9 million which is to be released will
13 trigger a sale of the securities in that account, and it
14 will cause additional harm and impact on those investors.
15 So that's just a practical concern.
16 I made the point in my response that I'm not sure the
17 Court has had a chance to review, the people he's going
18 after in the United States are folks like me and
19 you--professionals, prominent business people. There is no
20 evidence that they won't have the ability to write a check
21 when he gets a judgment after due process is given all
22 parties and there's been an intelligent consideration of
23 all the issues.
24 He will still be able to go after Greg Maddux, I
25 submit. Greg's still a pitcher. Greg's a very wealthy man.
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1 Those people will still be available. Certainly my clients
2 are all -- you're talking about doctors, lawyers. They'll
3 be there when he comes a knocking.
4 So release it all and let him do what I've done as a
5 receiver for 25 years: file your lawsuit, prevail on your
6 cause of action, and then go collect. It's all part of the
7 process.
8 Final point. Under the banner of equity is equality,
9 he can't get around that going after a small subset of
10 investors which are low-hanging fruit is equality.
11 Regardless of how much they think they can collect, when
12 they go down to Colombia, they're not going to collect
13 anything. And those folks are going to get the benefit of
14 my clients who are Americans dumping money back in.
15 And they can deal with it in the claims process, et
16 cetera, but we are never going to get back to level in this
17 case ever. We will never get there. There are going to be
18 some inequities. But we shouldn't make the inequity worse.
19 We have a level of stability right now. It's simply
20 not fair to the Americans. And they're the ones that are
21 being singled out. 113 countries, one country is going to
22 be victimized further.
23 And the final point -- and -- and this hasn't been a
24 focus, but it's been mentioned in the briefs. They say, it
25 doesn't matter what account the money that went into on your
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1 CD redemptions and proceeds. As long as your account is
2 frozen, it doesn't matter, that's the exact same account.
3 Well, the problem is, Your Honor, these accounts in
4 many instances in fact aren't the accounts where the money
5 went back into. They're IRA accounts, SEP accounts. I
6 represent a pension fund out of Mississippi. 300 retirees
7 depend on their pension check, and that account is still
8 being frozen.
9 You can't ignore the fact that these accounts that they
10 have frozen are ineligible for attachment, garnishment, or
11 any other seizure within most of the states, certainly all
12 the ones I have looked at. And that's the inappropriate
13 asset to pursue.
14 But by keeping the freeze in place, you are basically
15 humoring their effort to do that when, even if you gave them
16 a judgment tomorrow, they could not go against that account.
17 They would have to go against one of Mr. Maddux's other
18 accounts or one of my clients' other accounts.
19 Thank you for allowing me to be heard.
20 THE COURT: Any other counsel for relief
21 defendants who think you have something new and different
22 to tell me?
23 (No response.)
24 No? Okay. Then I'm ruling as previously indicated. I
25 would like -- oh, I told you you could say something else,
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1 didn't I?
2 MR. EDMUNDSON: 20 seconds.
3 THE COURT: Go ahead.
4 MR. EDMUNDSON: All right.
5 MR. SADLER: May I have ten seconds after Mr.
6 Edmundson? I just have a question about the procedure
7 related to the appeal, Your Honor.
8 THE COURT: Yeah.
9 MR. SADLER: Thank you.
10 THE COURT: Go ahead.
11 MR. EDMUNDSON: We know who the Receiver works
12 for and reports to and that's the Court, not the SEC.
13 That's why we're here.
14 We take exception to the Receiver's characterization
15 of -- of his own cases in support of the clawback claims
16 against -- for principal, in particular Scholes, Donell,
17 and the Quilling cases. In each of those cases they didn't
18 involve the clawback of principals. And in the Quilling
19 case, Quilling versus 3D Marketing, it didn't even involve
20 an investor.
21 I just wanted to make that clear.
22 THE COURT: Okay.
23 MR. SADLER: Your Honor, I -- I do think we --
24 we share your desire and concern to have the Fifth Circuit,
25 if an appeal is taken, rule squarely on the issue.
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1 I think you're familiar, as am I, that most of the
2 cases that go up on a denial of injunctive relief are
3 reviewed on abuse of discretion where the district court
4 has granted very wide latitude, and even though there may
5 be disagreements, yet the ruling is upheld.
6 And so my question is, if what we're really trying to
7 accomplish is get a -- a very clear legal question to the
8 Fifth Circuit that they can rule on, my concern is that
9 if -- if your ruling that we would appeal is simply a
10 denial of request for injunctive relief, that may not be
11 the vehicle that -- that gets -- gets that done.
12 And so I'm really just asking the Court if -- if you
13 have some thoughts on that because my concern would be
14 that you have a desire, we have a desire to get the issue
15 resolved and --
16 THE COURT: Yeah. Here's my thought. My thought
17 is, to the extent I adequately understand the Fifth Circuit
18 law, if I deny injunctive relief because of a mistaken view
19 of the law, they consider that to be abusing my discretion.
20 It's not an issue of weighing the equities, do I just weigh
21 them differently from you. If I'm wrong on the law, I think
22 they view that as sufficient basis for reversing me.
23 That's their call, of course, and I am not presuming
24 to tell them what to do. But here I think there is a
25 relatively crisp legal question that's presented. You have
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1 one view of the law; the Commission and the Examiner and
2 the relief defendants have a different view of the law.
3 For better or for worse for today, I'm agreeing with
4 them, although I do think your arguments are -- they're not
5 silly. They're certainly not silly arguments. Despite the
6 fact of the numerical mismatch in the courtroom, I think
7 you're making decent, legitimate, colorable arguments. I
8 understand your position about certain people having an
9 effect of preference. I don't think it's a stupid position.
10 I disagree with it ultimately and think that the
11 Commission's view is the better view of the law. But I do
12 think that that's a legal question that's appropriate for
13 disposition by the Circuit.
14 If I'm just making a legal ruling in a vacuum, I think
15 it's simply an interlocutory ruling and very likely is not
16 appealable of right and I don't think it's really postured
17 correctly for 1292(b), but I do think the denial of
18 injunctive relief is something that is appealable as of
19 right.
20 MR. SADLER: And -- and I agree with that and I
21 was really -- and I've taken far longer than my ten seconds
22 but this is so important because, of course, once Your
23 Honor's enters order, that's -- that's what we have to
24 deal with.
25 And -- and there were -- there were two thoughts I had
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1 about that. One is simply it's very clear that whichever
2 way you rule today, there was going to be an appeal. I
3 mean, I think that's -- that's very clear.
4 One way would be, as we thought actually coming in here
5 today, that if there was going to be a ruling against our
6 position, that we would defer to you and not appeal. We
7 have heard your comments. We had a misapprehension coming
8 in here today. We now understand that you are interested
9 in having this issue resolved at the Fifth Circuit and --
10 and so are we.
11 The other way, perhaps, Your Honor, to address it is
12 for you to make some comment in your Order, your written
13 Order, to the effect of this presents an issue that the
14 district court is very much interested in -- in having
15 reviewed.
16 And far be it from me to -- to try to script your
17 Order. I -- I don't mean to be presumptions. But, again,
18 my concern is if all the Fifth Circuit sees is injunctive
19 relief denied, that that may get us in a situation where
20 it doesn't get the attention to focus on the issue that I
21 think we all want. And I -- I just wanted to share those
22 comments with you, Your Honor.
23 THE COURT: I'll just observe that Linda, our
24 court reporter, is here diligently writing down everything
25 that's been said.
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1 MR. SADLER: Absolutely, Your Honor.
2 THE COURT: And perhaps someone might want to
3 acquire a copy of the transcript.
4 MR. SADLER: I'm sure many will make that request.
5 Thank you very much, Your Honor.
6 THE COURT: All right. Then I'm ruling as
7 previously indicated.
8 I would like for the SEC and the Receiver and the
9 Examiner and if any of the relief defendants care to
10 confer about that and see if you're able to submit orders
11 reflecting my oral ruling.
12 I will extend the stay, the oral stay of the unfreezing
13 order for ten days instead of one week. That will give you
14 at least another weekend to work on getting your papers
15 together.
16 MR. SADLER: Thank you, Your Honor.
17 THE COURT: All right. Thank you-all for coming
18 down. The Court will stand in recess.
19 (The proceedings were concluded.)
20
21
22
23
24
25
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1
2 CERTIFICATION
3
4 I certify that the foregoing is a true and correct
5 transcript from the record of proceedings in the above-
6 entitled matter. I further certify that the transcript
7 fees format comply with those prescribed by the Court
8 and the Judicial Conference of the United States.
9
10 s/Linda J. Robbins Date: August 1, 2009
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
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ORDER – PAGE 1
IN THE UNITED STATES DISTRICT COURTNORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
IN RE: § STANFORD INTERNATIONAL § Civil Action No. 3:09-CV-0721-NBANK, LTD, Debtor in a Foreign § Proceeding, §
ORDER
The hearing scheduled in this case on January 21, 2010 at 9:00 a.m. is cancelled.
Signed January 7, 2010.
_________________________________David C. Godbey
United States District Judge
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Stanford Financial Group Receivership Ralph S. Janvey, Receiver
2100 Ross Avenue | Suite 2600 | Dallas, TX 75201
August 12, 2009
Chairman Christopher J. Dodd Committee on Banking, Housing, and Urban Affairs United States Senate Washington, DC 20510‐6075 Dear Chairman Dodd: In my capacity as the Court‐appointed Receiver for the Stanford Financial Group and associated legal entities and individuals (the “Stanford Receivership”), I have received your letter dated August 10, 2009, inviting me to testify before the Committee at a hearing entitled “Alleged Stanford Financial Group Fraud: Regulatory and Oversight Concerns and the Need for Reform.” I understand that the hearing is scheduled for Monday, August 17, 2009, at 1:30 p.m. in Baton Rouge, Louisiana. While I appreciate your providing me an opportunity to participate in the hearing on this important subject in person, I must respectfully decline at this time, as explained further below. First, as you know, the Stanford Receivership is presently involved, to varying degrees, in ongoing criminal and civil investigations, but just as importantly, in an ongoing asset search and recovery effort on behalf of more than 20,000 individuals and entities that were adversely affected by the financial collapse of the various Stanford entities. On behalf of the Receivership, I have made a number of filings detailing this work, almost all of which are publicly available on the Receivership website at: http://stanfordfinancialreceivership.com. In particular, the Receivership’s April 23, 2009 report describes in detail the progress of the investigation as of that date. A copy of that report is enclosed for your review. It is my hope that the public filings will provide the Committee with all the information it now needs respecting the Receivership. Testifying at this time could compromise the Receivership’s ongoing efforts to locate and marshal assets, to evaluate claims against assets, entities and individuals, and ultimately to make distributions to claimants. At present, I believe that additional public testimony on my part, covering matters not publicly disclosed already, could jeopardize my ability to carry out my official duties. Second, and importantly, in addition to my own ongoing asset recovery efforts, there is an ongoing criminal proceeding pending in the U.S. District Court for the Southern District of Texas. That criminal matter has already resulted in a number of indictments, and the U.S. Department of Justice is still in the process of conducting its criminal investigation, with additional indictments possible before the end of the year. I am concerned that public
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testimony regarding my ongoing efforts, which overlap in some respects with that criminal investigation, may compromise or hinder the Department’s parallel criminal proceedings and investigation. I am sure that you will understand and agree with my concerns in that regard. Third, yesterday the U.S. Fifth Circuit Court of Appeals granted our motions to extend an asset freeze over certain Stanford entities' customer accounts. The extension maintains the asset freeze during our appeal of a July 31 determination in the Dallas federal court proceeding that "claw backs " of Stanford CD principal are not allowed under the law. This appeal will be heard on an expedited basis, with the briefing schedule contemplating a hearing in the Fall. While this expedited appeal is pending, I do not believe it would be appropriate for me to answer questions or comment publicly on the sensitive and important legal issues which are under consideration by the Court of Appeals. Finally, as a Court‐appointed Receiver, I am subject to U.S. District Judge David Godbey’s direct supervision and control, and I believe I am unable to respond affirmatively to your invitation without first advising him and obtaining his views on the potential impact of my public testimony on the on‐going civil and criminal investigations. Although I will be unable to appear in person, I note that you have also invited me to submit a written statement addressing my work as the Court‐appointed Receiver. I will submit the specified number of original and duplicate copies of my statement, in the required format, no later than 24 hours prior to the hearing, pursuant to the instructions in your letter. Again, I want to thank you for inviting me to testify in this matter, and although I am unable to appear at this time, I will be pleased to consider opportunities to do so in the future. Very truly yours, Ralph S. Janvey Receiver for Stanford Financial Group, et al.
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IN THE UNITED STATES DISTRICT COURTFOR THE NORTHERN DISTRICT OF TEXAS,
DALLAS DIVISION
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff,
v.
STANFORD INTERNATIONAL BANK, LTD., ET AL.,
Defendants.
§§§§§§§§§
Case No.: 3-09-CV-0298-N
REPORT OF THE RECEIVER DATED APRIL 23, 2009
BAKER BOTTS L.L.P.One Shell Plaza910 LouisianaHouston, Texas 77002-4995(713) 229-1234(713) 229-1522 (Facsimile)
THOMPSON & KNIGHT LLP1722 Routh StreetSuite 1500Dallas, Texas 75201(214) 969-1700(214) 969-1751 (Facsimile)
ATTORNEYS FOR RECEIVER RALPH S. JANVEY
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REPORT OF THE RECEIVER DATED APRIL 23, 2009 Page 2 of 58
TABLE OF CONTENTS
PAGE
Overview of the Stanford Companies and the Estate................................................................ 5
Initial Conclusions Regarding Viability of Stanford Businesses............................................... 8
Major Groups Principally Affected by What has Happened to the Stanford Companies ......... 11
CD Holders ............................................................................................................... 12
Holders of Brokerage and Similar Accounts .............................................................. 13
Landlords, Vendors, Service Providers and Other Creditors....................................... 16
Employees................................................................................................................. 16
Issues Related to Antigua ...................................................................................................... 17
Stanford International Bank Limited and Stanford Trust Company Limited (Antigua) .......................................................................................................... 18
Bank of Antigua ........................................................................................................ 22
Action by Antiguan Parliament Authorizing Expropriation of Real Estate ................. 23
Canadian Matters....................................................................................................... 23
Latin America Matters........................................................................................................... 24
Assistance to and Communication with Governmental and Regulatory Agencies................... 25
Asset Recovery...................................................................................................................... 26
Cash and Other Assets............................................................................................... 26
Claims Against Third Parties ..................................................................................... 27
Cash Unaccounted For............................................................................................... 27
Personal Investments of Allen Stanford and James Davis ...................................................... 28
Claims ................................................................................................................................... 29
Major Activities and Priorities for the Near Term .................................................................. 29
Estate Resolution Process ...................................................................................................... 31
Additional Information Regarding Activities and Accomplishments ...................................... 31
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Locating, Securing and Monetizing Assets ............................................................................ 32
Securing the Estate .................................................................................................... 32
Other Efforts to Recover Cash ................................................................................... 34
Corporate Structure Analysis ..................................................................................... 36
Preparation of Financial Statements........................................................................... 37
Real Estate ................................................................................................................ 37
Private Equity............................................................................................................ 39
Aircraft...................................................................................................................... 39
Litigation and Interaction with Governmental and Regulatory Agencies ................................ 40
Litigation and Other Disputed Matters Commenced at or after Appointment ............. 40
Assistance to and Communication with Governmental and Regulatory Agencies....... 41
International Matters ............................................................................................................. 42
Latin American Matters............................................................................................. 42
Switzerland Matters................................................................................................... 43
Customer Related Matters ..................................................................................................... 44
Releases of Stanford Group Company Customer Accounts from Freeze and Related Broker Matters..................................................................................... 44
Stanford Trust Company Matters............................................................................... 46
Stanford Private Label Funds..................................................................................... 46
Coins and Bullion...................................................................................................... 47
Operational and Administrative ............................................................................................. 48
Operations ................................................................................................................. 48
Employee Matters...................................................................................................... 49
Insurance Matters ...................................................................................................... 51
Tax Matters — Allen Stanford Personal Returns........................................................ 52
Tax Matters — Stanford Entities ............................................................................... 53
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Claims Identification ................................................................................................. 54
Communications with Customers, Employees and the Public .................................... 54
Team Assembled by the Receiver .......................................................................................... 55
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REPORT OF THE RECEIVER DATED APRIL 23, 2009
By order dated February 16, 2009, as amended March 12, 2009 (as so amended, the
“Receivership Order”), this Court appointed Ralph S. Janvey as Receiver for the assets and
records of the Defendants in the above-referenced case and all entities they own or control. The
Receivership Order directs the Receiver to prepare and submit periodic reports to the Court and
to the parties.
Overview of the Stanford Companies and the Estate
The Stanford companies (“Stanford”) were a complex, sprawling web of more than 100
companies, all of which were controlled and directly or indirectly owned by Allen Stanford.1
The companies were operated in a highly interconnected fashion, with a core objective of selling
certificates of deposit (“CDs”) issued by Stanford International Bank Limited (“SIBL”).
Stanford had operations in more than 100 discrete locations spanning 15 states in the United
States and 13 countries in Europe, the Caribbean, Canada and Latin America. The operations of
all the major companies, including SIBL, were controlled and managed in the United States.
Stanford claimed to have more than 30,000 clients located in 133 countries.
These companies were not arranged in a traditional corporate structure. They did not
have a typical centralized management hierarchy, nor did they have a typical governance
structure for the whole network. In contrast to a conventional multi-tiered corporate structure,
the stock of almost half of these entities was owned directly by Allen Stanford, rather than
through a central holding company. It appears that very few people were privy to sufficient
1 A few non-U.S. entities had a nominal percentage of equity owned by persons other than Allen Stanford, presumably to meet legal requirements.
To date, the Receiver has identified approximately 140 entities that are or appear to be included in this network and as to which the Receiver’s team has found appropriate ownership or corporate records. That number does not include more than 100 other potential Stanford entities the names of which are referenced in various documents as having a Stanford relationship but as to which the Receiver’s team has not yet found ownership or corporate records.
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Appx. Page 389
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information to understand the totality of the operations. The structure was seemingly designed to
obfuscate holdings and transfers of cash and assets.
The principal businesses in the Stanford network all involved providing financial
products and services. The major financial businesses were:
Banking, principally through Stanford International Bank Ltd., whose operations were controlled and managed from the United States, though it was domiciled in Antigua.2
Broker dealer operations, principally through Stanford Group Company, which is headquartered in Houston, Texas and had operations in 31 cities in 15 states and the District of Columbia, as well as through Latin American entities.
Financial products managed under the auspices of Stanford Capital Management, LLC, based in Houston.
Trust companies and similar operations, principally through Stanford Trust Company, which was based in Louisiana, as well as through Stanford Trust Company Limited of Antigua.
Coins and bullion, principally through Stanford Coins & Bullion, Inc., based in Houston.
Merchant banking and private equity investments, principally through Stanford Venture Capital Holdings, Inc. based in Houston.
To the outside world, before commencement of the Receivership, these financial
businesses appeared to be independently viable. The Receiver believes, however, based on his
investigation to date, that the principal purpose and focus of most of the combined operations
was to attract and funnel outside investor funds into the Stanford companies through the sale of
CDs issued by Stanford’s offshore entity SIBL. Stanford’s financial statements show that the
low third party revenue and high cost structures of the U.S. broker dealer and related financial
operations were not capable of sustaining freestanding operations without the revenue they
received upon their sale of SIBL CDs, as well as the infusion of investment capital, all or most
2 SIBL was not a bank in the conventional sense. It did not generally make loans to unaffiliated partners, and its operations were required by Antiguan law to avoid the provision of banking services and products to Antiguans.
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substantially all of which was derived from CD sales. The compensation structure highly
incentivized Stanford’s financial advisors to sell CDs and to discourage their customers from
redeeming the CDs. Once CD funds entered the Stanford companies, they were disbursed to
Allen Stanford or to other Stanford-owned entities or used to purchase private equity and other
investments, to pay CD redemptions and interest or to pay other expenses and obligations.
Although all of SIBL’s financial operations, including CD sales, were controlled and
managed from Stanford’s offices in the U.S., it was domiciled in the Caribbean island nation of
Antigua and Barbuda (“Antigua”). It appears that SIBL may have been established in Antigua in
order to take advantage of Antiguan bank secrecy laws and to minimize regulatory inspection.
At the same time, Stanford's financial advisors used the apparent legitimacy offered by U.S.
regulation of Stanford's U.S. brokerage subsidiary in order to generate sales of SIBL CDs
worldwide.
The Stanford companies also include a number of non-financial businesses, though none
of these businesses were material to the operations compared to the financial businesses. The
principal non-financial business was real estate development (including hotels, clubs and golf
courses) which was conducted by Stanford Development Corporation and by Stanford
Development Corporation Limited. Other non-financial businesses included restaurants, a
newspaper and a printing company, all in Antigua, and at one time Caribbean airlines.
As described in further detail below, since his February appointment the Receiver and his
team of professionals have made significant progress in identifying and securing Defendants’
assets for the benefit of the Estate. The Receiver has begun recovering cash and other assets. In
addition, the Receiver has made significant progress in reducing ongoing liabilities.
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It is important to emphasize that the Receiver’s efforts, especially in the first several
weeks of the Receivership, have been hampered by lack of information. Because the Stanford
companies were not publicly held, the available public information was quite limited and not
always accurate. Much of the critical information about Stanford’s operations within its own
systems and records has been difficult to locate and is incomplete or inaccurate. The Stanford
companies appear to have approximately 200 different accounting systems, most of which do not
centrally report. In addition, the Stanford operations appear to have been designed to prevent
any one employee (outside of a small handful) from gaining knowledge of the full scope of
Stanford’s assets and operations and the flow of funds among the Stanford entities.
Initial Conclusions Regarding Viability of Stanford Businesses
One of the first tasks confronting the Receiver was to determine whether any of the
Stanford companies were financially viable – and thus could continue to be operated and perhaps
sold as going businesses. Analysis of Stanford’s financial records and operational data revealed
that all the major Stanford U.S. financial businesses depended upon continued CD sales and/or
other allegedly fraudulent activities. For example, Stanford’s records reflect that from at least
2005 forward, SIBL generally paid Stanford Group Company a commission or fee of
approximately 3% of the face amount of each CD sold by Stanford Group Company. Of this
amount, the financial advisor who made the sale generally received 1% (plus more in bonuses if
certain sales targets were met), 1/2 of 1% was allocated to the branch office where the financial
advisor worked and the remaining 1.5 % was allocated to Stanford Group Company overall.3 In
2008, these commissions to Stanford Group Company (including the portion it then paid to
financial advisors) totaled approximately $95 million. These commissions were instrumental to
3 In 2008, the 3% was reduced to 2.75%, with the reduction being applied to Stanford Group Company overall.
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the maintenance and viability of Stanford Group Company’s operations, constituting 39% of its
total revenues of $246 million in 2008. Even with that infusion of funds, growth of the business
required additional investment capital, which was generally obtained from the sale of CDs by
SIBL.
Therefore, the Receiver determined that almost all U.S. business operations should be
ceased to reduce the ongoing costs of unprofitable operations. This necessitated, among other
things:
The termination of employment of more than 1,000 U.S. employees on March 6, 2009.
The permanent closure of 36 offices in leased locations in 33 U.S. cities. Before physically closing each office, the representatives of the Receiver have:
o allowed local employees to collect personal belongings;
o packed all documentary and electronic evidence and shipped it to a single warehouse in Houston; and
o liquidated or otherwise disposed of furniture and other fixed assets in a manner that maximizes value to the Estate.
Termination or rejection of each such lease. A lease is “terminated” if the landlord agrees to termination without further liability on the part of the Estate other than as documented in a termination agreement. The Receiver is unilaterally “rejecting” the remainder of the leases. The Receiver has sent notice of such rejections so that the Estate’s ongoing obligation to pay rent for these leases will cease no later than April 30, 2009.
The lack of financial viability is further explained by what appears to have been
manipulation of financial records of the Stanford companies, in an apparent attempt to hide the
true financial condition of the businesses from regulators and other outsiders.
For example, upon analyzing the financial statements and other financial data for SIBL,
FTI Consulting Inc., the forensic accounting firm retained by the Receiver, discovered a series of
transactions from April 2008 through December 2008 relating to 1,587 acres of undeveloped and
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partially developed real estate in Antigua that SIBL acquired in April 2008 and September 2008.
The land was purchased at a cost of $63.5 million, yet its value was written up to approximately
$3.2 billion prior to year end 2008. Other than the initial purchases of the land, all the
transactions appear to have taken place entirely between Mr. Stanford, SIBL and other
companies owned by Allen Stanford. Company records indicate that holding companies wholly-
owned by Mr. Stanford purchased the real estate from SIBL at the same cost that SIBL originally
paid to purchase the acreage. The purchasing companies then immediately wrote up the value of
the assets to $3.2 billion. The write-up would suggest that the value of the property increased
fifty-fold in just a few months, during a period that was generally characterized by falling real
estate values. The records do not appear to contain any appropriate basis for this extraordinary
write-up in value, as would be required by applicable U.S. or international accounting principles.
(One sheet has a brief notation that the land should be valued at $2 million per acre, with a
reference to a sale related to Jumby Bay, a highly exclusive resort on a small island off Antigua.
The average cost paid by SIBL to acquire the property was about $40,000 per acre.)
According to Stanford records, in July 2008, Mr. Stanford transferred to SIBL a portion
of the shares of his companies that held the real estate, which appears to have been their only
asset. For purposes of the transfer, the shares were valued at $1.7 billion (reflecting the write-up
in value), and this purported value was used to settle a debt of the same amount that Mr. Stanford
owed to SIBL. In September 2008, he contributed additional shares in the same companies to
SIBL, valuing the transferred shares for purposes of the transaction at $200 million (again
reflecting the same write-up in value). In November 2008, Mr. Stanford contributed to SIBL
additional shares in those same companies, valuing these shares for purposes of the transaction at
$541 million (reflecting the same write-up in value).
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Based on the write-up in value of the real estate, the September and November
transactions resulted in increases in SIBL’s 2008 shareholder’s equity of $200 million and $541
million, respectively. Notations in the records indicate that the purpose of the write-up and
related transactions was in part to exceed a “desired level” of $1 billion of shareholder’s equity
in SIBL to avoid violating an equity-to-assets ratio required by Antiguan regulators and in part to
use as a basis to replace the $1.7 billion debt owed by Mr. Stanford.4
FTI also discovered similarly structured transactions in 2004 and 2008 relating to private
equity investments. In these transactions, certain private equity investments were transferred to
Mr. Stanford from a Stanford entity owned by him. The investments were valued at cost.
Within a matter of a few months, the value of those investments was written up substantially and
Mr. Stanford contributed them to SIBL to pay off debts he owed to SIBL. The Receiver has not
found any documentation supporting these write-ups in value. In the case of the 2004
transaction, the write-up was almost 200% of the original value and was used as the purported
basis to increase SIBL’s capital by $75 million.
Major Groups Principally Affected by What has Happened to the Stanford Companies
Broadly speaking, there are four major categories of people and entities affected by what
has happened to the Stanford companies:
Those who purchased and continue to hold CDs.
Those who own securities and other assets that are held on their behalf in brokerage, trust and similar accounts at Stanford entities.
4 On at least one occasion, Mr. Stanford used the write-ups to reassure employees that all was well. A newspaper story reported that at an Arizona gathering of Stanford financial advisors in November 2008, a Stanford financial advisor who was in attendance said that Mr. Stanford explained “how he’d just replenished his company’s rainy-day reserves no less [sic] with an extra $540 million, which pushed it past a billion dollars.” “SEC Says Texas Financier Sir Allen Stanford Swindled Investors Out of Billions,” The Dallas Observer, April 9, 2009. As noted above, the purported November 2008 equity increase was in the amount of $541 million.
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Those who do or have done business with the Stanford companies as landlords, vendors, service providers or creditors.
Employees.
Some of these people and entities were and are in more than one category. There may also be
people and entities affected by the Receivership who do not fit in any of these four categories.
Each category has presented issues that have required the Receiver’s attention. The
following sections discuss each of these four groups and what the Receiver has done to date that
affects them.
CD Holders
Based on initial review of the incomplete and inconsistent records of the Stanford
companies that the Receiver has assembled to date, it appears that approximately $7.2 billion of
CDs were outstanding and held by public investors as of February 22, 2009. These CDs are held
by approximately 21,500 holders, located in the U.S. and in scores of other countries around the
world. Holders of CDs have a claim against the Estate for the value of their CDs.
Emails received by the Receiver from some CD holders have indicated that those holders
— and perhaps many others — think that the money they paid to buy a CD is currently held in a
specific account at SIBL for their benefit, and that the reason they cannot access that money is
that the Receiver has frozen the CD account. Some stories in the media have used language to
describe the CDs that may have inadvertently contributed to this misunderstanding.
The assumption that a CD represents identifiable funds held in a separate account for the
benefit of the individual CD investor is not correct. The CD represents an obligation on the part
of SIBL to pay the investor an amount of money. In other words, it is a debt owed by SIBL to
the investor. Unlike a brokerage account, it does not represent identifiable funds that are held by
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SIBL in a specific segregated account for the holder’s benefit. This is true whether the CD is
held directly by the holder, by a Stanford company on the holder’s behalf, or by someone else.
The money the holders paid to buy CDs from SIBL was used by SIBL and other Stanford
companies to buy other assets and/or for other purposes. The Receiver is working to identify
assets purchased with proceeds of CD sales and to determine the value of those assets. He is also
tracing proceeds into other uses and investments. Although the Receiver has made substantial
progress to date, the size and complexity of the task are such that it will likely take considerable
time to complete. Based on what the Receiver has learned so far, as further discussed below, it
appears that the total value of the assets of the Estate is likely to be only a fraction of the total
amount that would be needed to pay all outstanding CDs and other anticipated claims against the
Estate. It appears that during the last year, and probably for longer than that, SIBL assets were
inadequate to cover the amount of SIBL’s liabilities on its issued and outstanding CDs as those
liabilities came due. The SEC has alleged in its lawsuit against the Defendants that the CDs
were sold in a Ponzi scheme, in which money from sales of new CDs was used to make
payments on older CDs instead of invested on the new purchaser’s behalf.
Holders of Brokerage and Similar Accounts
These people own securities and other assets that are held in separately identifiable
accounts in their names or for their benefit that they established with the Stanford companies. In
the U.S., the companies at which these accounts were established include Stanford Group
Company and Stanford Trust Company (a Louisiana trust company). Although the assets in
these accounts belong to the account owners, the accounts were frozen at the outset of the
Receivership pursuant to the Court’s order.
As accounts held under the control of Stanford, the accounts were frozen because of the
possibility that assets might be misappropriated during the time the Receiver was securing
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Appx. Page 397
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control and the possibility that the accounts or their owners might be associated with fraudulent
products or activities. For example, some accounts are owned by the Defendants or by board
members, officers or employees who may ultimately be determined to have participated in
fraudulent activities.
In addition, it was clear there would be other customer accounts that were associated with
fraudulent products, such as CDs issued by SIBL, even though their owners did not engage in
fraudulent activities themselves. For example, customer accounts at Stanford Group Company
or Stanford Trust Company may have received amounts from redemption of SIBL CDs or from
interest on SIBL CDs, the accounts may have received other amounts directly or indirectly from
SIBL or in some way related to SIBL CDs, or the owners of these accounts may have received
amounts related to SIBL or SIBL CDs outside of their brokerage accounts, such as in non-
brokerage accounts at other Stanford companies. The Receivership Estate may have a claim
against these amounts related to SIBL or SIBL CDs for the benefit of the Estate, so that they may
be shared equitably with other claimants against the Estate. These other claimants would include
people who purchased SIBL CDs but were not able to redeem them before the Stanford
companies were placed in receivership.
As of February 16, 2009, Stanford Group Company had approximately 50,000 separate
brokerage accounts and the Louisiana-based Stanford Trust Company had an additional 1,438
accounts. Initially, the Receiver could not determine which of these accounts might be
associated with fraudulent activities or products.
An initial priority of the Receiver was to determine which of these accounts could be
released and which should continue to be frozen, to reduce the difficulty of ultimately recovering
amounts the Estate is entitled to recover. Had all the accounts been released, the task of
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Appx. Page 398
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recovering this value would be far more difficult, which is why the accounts were frozen by the
Court’s order at the outset.
Working with a multi-disciplinary team of lawyers, broker dealer experts, forensic
accountants, and information technology experts, the Receiver collected and analyzed the
available data to determine which accounts could be released, using electronic search protocols.5
He then filed motions with the Court seeking approval to make releases. This was done in
stages. First, Stanford Group Company accounts under $250,000 were released, subject to
exceptions for certain types of accounts and certain types of owners. This resulted in the release
of approximately 12,600 accounts, pursuant to transfer procedures posted on the Receiver’s
website. One week later, an additional 16,000 accounts were made eligible for transfer,
constituting all remaining active accounts6 other than approximately 4,000 accounts that either
reflect certain SIBL or CD related activity or are owned by certain Stanford related persons.
Third, the Receiver developed and obtained court approval for an account review process that
permits the owners of the remaining 4,000 accounts to provide information to the Receiver that
may lead to the release of their accounts.
As of April 22, 2009, a total of 20,840 of the approximately 28,600 accounts that are
eligible for transfer have been transferred by their owners to a new firm, and holders of 1,521 of
the remaining approximately 4,000 accounts have initiated the account review process.
The Receiver has also conducted a similar analysis of the customer accounts at the
Louisiana-based Stanford Trust Company and has filed a motion with the Court seeking Court
approval to release accounts in certain categories. Of the remaining Stanford Trust Company
5 The task was complicated by the lack of interconnection among relevant electronic data systems at Stanford and by difficulties in accessing and using the data.6 Approximately 18,000 of the initial 50,000 accounts were determined to be inactive.
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Appx. Page 399
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accounts not covered by the request for release, more than 80% hold virtually no assets other
than SIBL CDs.
The brokerage accounts operated by the Stanford Fondos in Mexico were seized by
government regulators and distributed to investors by the regulators. All other Latin American
brokerage accounts are currently frozen as a result of the actions of the various foreign
government officials and regulators involved in the respective countries.
Landlords, Vendors, Service Providers and Other Creditors
As a large enterprise, the Stanford companies did business with a large number of
landlords, vendors and service providers. Many of these will have claims against the Estate for
compensation for goods or services that they provided to the individual Defendants and the
Stanford companies prior to the commencement of the Receivership. In addition, many of these
will have claims for payment for provision of goods or services or, in the case of landlords, the
continued use by the Estate of leased space after the commencement of the Receivership and
prior to any rejection or termination of their lease by the Estate.
With respect to creditors that loaned money to the individual Defendants or the Stanford
entities prior to the commencement of the Receivership, the records of the Stanford companies
reflect approximately $95 million of debt for money borrowed from unrelated sources that was
outstanding at December 31, 2008.7 About 97% of this debt appears to be secured by land or
other assets.
Employees
At the outset of the Receivership, the Stanford companies had more than 3,000
employees, of whom approximately 1,200 were in the U.S. and the balance in 12 other countries.
While it could be anticipated, and in fact is true, that many of those employees were honest and 7 The records also reflect outstanding loans to Mr. Stanford of at least $1.7 billion.
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Appx. Page 400
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were victims of the fraud themselves, the Receiver had no way of knowing initially which were
participants in the fraud and which were not. There was a risk of misappropriation of assets
owned by customers or by the Estate and removal or alteration of documents and records. Thus,
the Receiver was hampered in his ability to take control of the Estate and manage its operations
by uncertainty as to which employees he could rely on. After numerous interviews, the Receiver
determined to retain the services of certain employees, principally at the Houston headquarters,
in departments such as accounting, information technology, treasury, legal, human resources,
brokerage operations and risk management, to assist in winddown of operations. Most
employees, though, were asked to await decisions as to which businesses were viable and could
continue in operation.
After decisions were made that none of the U.S. financial businesses should be continued,
as discussed above, more than 1,000 U.S. employees were laid off. These decisions necessitated
a comprehensive review of Stanford’s compensation and employee benefits structure, policies
and practices and decisions on amendments to employee welfare and benefit plans and other
actions required in connection with the reduction in the workforce, as well as restructuring of the
compensation and benefits for the retained employees.
Adding to the hardship suffered by employees, including both some that continue to have
jobs and some that were laid off, was the fact that many of them were themselves holders of
SIBL CDs and had accounts at Stanford Group Company that were frozen. However, other
employees, such as many financial advisors, received significant compensation from selling
CDs.
Issues Related to Antigua
The Receiver, with the assistance of U.S. and foreign counsel, has been actively
analyzing the applicable laws of each of the jurisdictions outside the U.S. in which significant
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Appx. Page 401
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Estate assets are located and has been devising and implementing appropriate strategies for
addressing these assets. In addition, the Receiver has been required to respond to certain legal
proceedings in some of these jurisdictions. The jurisdiction in which the most significant issues
have been raised is Antigua. These issues, together with related issues in Canada, are discussed
below.
Stanford International Bank Limited and Stanford Trust Company Limited (Antigua)
SIBL and Stanford Trust Company Limited (“STCL”) (a different entity from the
separate Stanford Trust Company formed under Louisiana law) were chartered by Antigua,
under that country’s International Business Corporation Act. SIBL was an offshore bank. STC
was a trust company specializing in the administration of trusts established under the trust laws
of the British Virgin Islands. Because both entities were owned by Allen Stanford on February
16, 2009, when the U.S. Receivership was instituted, they are among the assets of the
Receivership Estate.
On February 19, 2009, the Financial Services Regulatory Commission of Antigua and
Barbuda (the “FSRC”) appointed Nigel Hamilton-Smith and Peter Wastell, employees of Vantis
plc, as Receivers-Managers over SIBL and STCL. The FSRC is the Antiguan governmental
agency that licenses and regulates international banks that operate in Antigua. Vantis is an
accounting, tax and business advisory and recovery firm based in the United Kingdom. On
February 26, 2009, the Eastern Caribbean Supreme Court, High Court of Justice, Antigua and
Barbuda, on the application of the FSRC, appointed Messrs. Hamilton-Smith and Wastell as
Receivers-Managers over SIBL and STCL. At the time of both appointments, SIBL and STCL
were already subject to the U.S. Receivership Order.
On March 9, 2009, a purported creditor of SIBL filed an application in the Antiguan
court, seeking to have SIBL placed into an Antiguan liquidation proceeding. The FSRC then
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Appx. Page 402
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filed its own application for liquidation, seeking to have Messrs. Hamilton-Smith and Wastell
appointed the liquidators. The Receiver sought to intervene in those proceedings in order to
request either that the applications be struck or, alternatively, should a liquidation be ordered,
that he and an Ernst & Young insolvency practitioner be appointed the liquidators for an
Antiguan liquidation proceeding that would be designated as “non-main” or ancillary to the U.S.
Receivership. On April 7, 2009, the Antiguan court denied the Receiver’s intervention based on
its ruling that the U.S. Receivership Order did not have effect in Antigua and that therefore the
U.S. Receiver lacked standing as an “interested person.” On April 17, 2009, the Antiguan court
entered an order placing SIBL into liquidation and appointing Messrs. Hamilton-Smith and
Wastell as its liquidators. The liquidation order will have effect in Antigua unless and until
stayed or reversed, but does not have effect in any other country unless and until recognized by
the judicial system of such country.
Notwithstanding the Antiguan receivership and liquidation orders, the U.S. Receiver
maintains in the various jurisdictions in which SIBL and STCL assets exist that the U.S.
Receivership should be recognized as the “main” or primary proceeding in relation to SIBL and
STCL. The Receiver bases his position on several factors supporting the conclusion that the U.S.
is the center of main interests for the various Stanford entities, including SIBL and STCL. For
example:
SIBL’s operations were controlled and managed in the U.S. by U.S. citizens, who are subject to the jurisdiction of U.S. courts.
SIBL was just one company in an integrated network of more than 100 companies based in the U.S. and created for the purpose of attracting and funneling investor funds into the Stanford companies, principally through the sale of SIBL-issued CDs.
Stanford brokers based in the U.S. generated more SIBL CD sales, by dollar amount, than brokers in any other country.
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Appx. Page 403
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SIBL filed forms with securities regulators in the U.S. relating to its CD sales in which it consented to jurisdiction in the U.S.
Brokers used the apparent legitimacy offered by U.S. regulation of Stanford’s U.S. brokerage subsidiary in order to generate CD sales worldwide.
A significant percentage of the CDs were sold to U.S. citizens. By contrast, few CDs were purchased by Antiguans. Indeed, Antigua’s International Business Corporation Act, under which SIBL and STCL were formed, restricted those entities from serving Antiguans. Further, the Receiver believes that most of the CD sales purportedly attributable to Antiguans are related to STCL-administered trusts that have non-Antiguans as beneficiaries.
Most SIBL loan receivables, by dollar amount, are owed by U.S. citizens.
Virtually all activity to invest proceeds from sale of CDs was directed from the U.S. and involved institutions located in the United States and other countries outside of Antigua.
The assets of SIBL are located principally in jurisdictions other than Antigua, and primarily in the United States, Canada, the United Kingdom, Switzerland, Panama, Venezuela and Mexico.
Most, if not all, of the funds received from the sale of SIBL CDs were transmitted for deposit, not to Antigua, but to Canada and/or England and, from there, primarily to accounts in the United States, England and Switzerland, where they were disbursed among other Stanford entities worldwide, pursuant to the directions of U.S. persons.
Administrative and other support for the operations of SIBL was located in and managed from the U.S.
In early March 2009, the Receiver suggested a meeting with the Antiguan receivers. A
meeting did occur on April 1, 2009. While the tone of the meeting was generally positive, no
concrete cooperation agreement resulted. Since the meeting, the Antiguan receivers have sought
and obtained, without prior notice to the Receiver, a registrar’s order in Montreal, Quebec
recognizing them as “foreign representatives” of SIBL and STCL within the meaning of
Canada’s insolvency laws. The Canadian proceedings are further discussed below. In addition,
the Antiguan FSRC moved forward with its application to place SIBL into liquidation and to
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Appx. Page 404
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have the Antiguan receivers appointed its liquidators, which application resulted in the
liquidation order discussed above.
On April 20, 2009, the Antiguan receivers-liquidators filed in this Court a petition for
recognition under Chapter 15 of the U.S. Bankruptcy Code with respect to SIBL, as well as a
motion in the present case seeking, in effect, a retroactive lifting of the injunction against the
filing of bankruptcy petitions contained in the Court’s Receivership Order. The objective of the
two motions appears to be to transfer control, away from this Court’s jurisdiction to the Antiguan
court system, of the winding up of SIBL and the distribution of its asset value to claimants. The
Receiver intends to oppose both filings and any impingement on this Court’s jurisdiction over
the totality of the Stanford group of companies. This Court was the first to place SIBL and the
other entities owned by Allen Stanford into receivership. Further, as described above, the
contacts between the Stanford entities and the U.S. are far more extensive than those between the
Stanford entities (including SIBL) and Antigua.
The Antiguan liquidators essentially request that the U.S. Court cede to the Antiguan
court system control over the marshalling, liquidation, claims adjudication and distribution
process. That, in the Receiver’s view, would be unwise and detrimental to claimants, as the
Antiguan court system lacks experience in the administration and winding up of a business of the
size and scope of the Stanford family of companies. Further, the Antiguan liquidators have
liquidation authority over only SIBL, which is just one of the more than 100 Stanford companies
involved in what was an integral – and allegedly fraudulent – operation.
In sum, the Receiver has found it necessary to oppose the Antiguan receivers in court in
multiple jurisdictions. The Receiver will continue, though, to look for opportunities in which
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Appx. Page 405
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cooperation with the Antiguan receivers is possible and reasonably likely to benefit the
Receivership Estate.
The issues identified in Antigua have begun to emerge in proceedings and activities in
England. According to statements made by the Antiguan-appointed receivers, these issues also
may come into play in Panama, Israel and Switzerland.
Bank of Antigua
Bank of Antigua is a domestic bank of Antigua. Because it was owned by Allen Stanford
on February 16, 2009, when the U.S. Receivership Order was instituted, it was among the assets
of the Receivership Estate.
Subsequent to entry of the U.S. Receivership Order, there was a “run” on Bank of
Antigua by persons seeking to withdraw deposits. This resulted, on February 20, 2009, in the
Eastern Caribbean Central Bank (“ECCB”), the central banking authority for Antigua and seven
other Caribbean island nations, taking control of the Bank of Antigua.8 The Receiver is of the
view that property of the Bank of Antigua that existed on February 16, 2009, falls within the
scope of the U.S. Receivership Order and is therefore within the Receivership Estate. To avoid
confusion, however, the Receiver has been in contact with the ECCB concerning the amounts in
accounts of Bank of Antigua, and has agreed to release to Bank of Antigua the following:
securities and funds sent to Bank of Antigua accounts after the ECCB intervention with the Bank of Antigua;
securities that were in Bank of Antigua accounts prior to the ECCB intervention, but that are owned beneficially or of record by someone other than the Bank of Antigua (or, if relevant, any other Stanford entity); and
funds that were in accounts maintained in the name of the Bank of Antigua prior to the ECCB intervention, but that are owned by a person other than the Bank of Antigua (or, if relevant, any other Stanford entity).
8 The Receiver notes that the description of the ECCB set out above corrects an error in the description of the ECCB contained in the Receiver’s filing with this Court dated March 2, 2009.
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Appx. Page 406
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Action by Antiguan Parliament Authorizing Expropriation of Real Estate
The Antiguan Parliament has authorized the expropriation by the Antiguan government
of most of the real estate owned by Stanford entities in Antigua. The expropriation has not yet
been finalized. If it is completed, the Receiver cannot predict what amount, if any, will be paid
in compensation as required by the Antiguan constitution.
The Receiver has also learned of a lawsuit pending in Antigua challenging the
constitutionality of the proposed government expropriation of real estate. The lawsuit was
purportedly filed by former employees of certain Stanford entities, on the purported authority of
a former director of SIBL. The Receiver is currently monitoring the lawsuit and assessing
appropriate actions with respect to both the suit and the threatened expropriation.
Canadian Matters
As indicated above, the Receiver recently learned that the Antiguan receivers had
obtained an ex parte registrar’s order in Montreal recognizing them as “foreign representatives”
of SIBL and STCL under Canada’s insolvency laws. The Antiguan Receivers did so without
notice to the Receiver and apparently without adequately disclosing to the Quebec registrar
(whose jurisdiction, absent consent of affected parties, extends only to uncontested matters) the
existence of the U.S. Receivership or the U.S. Receiver’s claim to SIBL and other Stanford
assets located in Canada. The Receiver also obtained information suggesting that, before
issuance of the ex parte recognition order, representatives of the Antiguan receivers entered
SIBL’s Montreal offices and purposely “wiped” SIBL’s servers there, after first imaging the
servers and sending the copy images to Antigua, and out of the jurisdiction of Canadian courts.
In response, the Receiver filed a motion in Montreal Superior Court requesting that:
the previous recognition of the Antiguan receivers be revoked, and the Antiguan Receivers be found not to be suitable persons to serve as receivers for SIBL under
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Appx. Page 407
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Canadian laws, as they did not meet the requirements to be receivers in that country;
the Receiver be recognized as the “foreign representative” for all Stanford entities; and
a Canadian receivership be instituted for assets located in Canada and that it be made ancillary to the U.S. Receivership, with Ernst & Young appointed the Canadian receiver and instructed to cooperate with the U.S. Receiver.
This motion was only recently filed and remains pending.
The Receiver had previously been in contact with Toronto Dominion Bank to assure that
funds it holds for SIBL, STCL and the Bank of Antigua are not transferred to unauthorized
persons.
In addition, on April 17, 2009, several Canadian CD investors filed two suits in Calgary,
Alberta – one against SIBL and other Stanford entities seeking actual and punitive damages and
another against Toronto Dominion Bank seeking, among other forms of relief, imposition of a
constructive trust on SIBL and other Stanford entity funds held by Toronto Dominion Bank. The
Receiver, with the help of Canadian counsel, is assessing how best to respond.
Latin America Matters
The Stanford companies include various and significant operations in Latin America,
including Colombia, Ecuador, Mexico, Panama, Peru and Venezuela. Stanford owned banks in
Panama and Venezuela, and banking and/or brokerage businesses in each of those other Latin
American countries. The Panama bank is now under the control of government regulators, with
whom the Receiver has agreed to work closely. The Panamanian regulators have currently
decided not to liquidate the business in its entirety, and the Receiver is taking steps to enhance
the possibilities for sale of the business units. The Venezuelan bank was also seized and put
under the control of Venezuelan interveners on February 18, 2009. The government-appointed
interveners in Venezuela have thus far refused to work jointly with the Receiver, and the
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Appx. Page 408
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Receiver has been told that his interests in the Venezuelan bank will be subordinated to any and
all claims by Venezuelan clients, employees, and the Venezuelan government.
The Receiver is investigating and preparing for sale of the local business units in
Columbia, Ecuador and Peru. At this time, the Colombian entity is essentially under the control
of the Antiguan receiver. Nonetheless, the Receiver is exploring all avenues for recovery related
to the Colombian assets. In Ecuador, the Receiver is investigating the possibilities of sale of the
unit. The Receiver is also working with the Peruvian regulators in order to permit the sale of the
Peruvian business assets.
The anticipated potential recovery from the sale of the above-mentioned Latin American
units is currently estimated to be in the range of $30 million. The various Stanford offices in
Mexico have been closed. Operations and customer accounts in Mexico have been handled in a
manner similar to the process used in the U.S.
The Receiver is reviewing information to determine whether proceeds from CD sales
exist in Latin America that may be recoverable by the Estate, and is taking steps to protect assets
in each Latin American location with attention to the unique scenarios posed by the government
regulators and representatives in each nation.
Assistance to and Communication with Governmental and Regulatory Agencies
The Receivership Order directed the Receiver to promptly provide the SEC and other
governmental agencies with all information and documentation they may seek in connection with
their regulatory or investigatory activities. The Receiver and his team have spent substantial
amounts of time on these activities. The principal such activities have been coordination with
the SEC, the FBI and the Department of Justice in identifying and gathering large amounts of
documents and information relevant to their ongoing investigations and responding to numerous
and extensive requests from the SEC, the FBI and the Department of Justice to analyze and
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Appx. Page 409
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provide information and documents. In addition, the Receiver and his team have responded to
numerous information requests and investigations by many other governmental or regulatory
agencies, in both the U.S. and other countries, and many of these matters are ongoing. As further
detailed below, these additional authorities in the U.S. have included at the federal level the
Department of Justice, the Internal Revenue Service, the Drug Enforcement Administration, the
Postal Inspector, the Department of Labor, the Financial Industry Regulatory Authority, the
Department of the Treasury and the Board of Governors of the Federal Reserve System. At the
state level, they have included at least 24 different state securities and banking regulators in at
least 19 states. As noted above, the Receiver has also dealt extensively with regulatory
authorities in foreign jurisdictions.
Asset Recovery
The balance sheets, in the aggregate, of the 62 Stanford companies for which balance
sheets were maintained listed total assets of approximately $10.6 billion as of December 31,
2008. Because of significant doubt about the accuracy of these balance sheets, the Receiver has
directed Ernst & Young to compile balance sheets as of the outset of the Receivership. This
work is ongoing, but the work to date suggests that the value of virtually all non-cash assets
listed on the December 31, 2008 Stanford balance sheets is substantially overstated.
There are three categories of value and potential value that could be used to satisfy claims
against the Estate:
Cash and Other AssetsThe first source is cash and other assets owned by the Estate and
identified to date, as follows:
Approximately $66.5 million of cash on hand in the Estate’s bank account as of April 22, 2009 (net of operating expenditures since February 17, 2009 of approximately $15.8 million for expenses such as employee salaries and benefits, utilities, insurance and expenses for office closures).
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Appx. Page 410
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More than $300 million of cash held in non-U.S. bank accounts that are also claimed by the Antiguan receivers.
Cash in the range of $30 million that may be realized from sale or liquidation of Stanford Latin American entities.
Private equity investments; although the value (based on cost) of the private equity investments shown on Stanford’s balance sheet at December 31, 2008 was $652.5 million, the realizable value of the portfolio appears to be only a fraction of that amount.
Real estate, the value of which is uncertain; the book value, as noted above may not be indicative of fair market value, and in addition much of the real estate is mortgaged to secure debt.
Aircraft estimated to be worth several million dollars (net of associated debt).
Coin and bullion inventory, estimated to be worth several million dollars.
Claims Against Third PartiesThe Receiver recently filed claims against former Stanford
financial advisors seeking disgorgement of more than $40 million in compensation they received
related to the sale of SIBL CDs. The Receiver is considering filing other claims to recover
substantial amounts of cash, including claims to “claw back” proceeds received by a number of
customer account holders from redemption of SIBL CDs, or interest paid on SIBL CDs. If the
clawbacks were to extend back to monies received within a year prior to the commencement of
the Receivership, current estimates of amounts that could be sought would be in the range of
$300 million, or possibly more, but this analysis is ongoing and the estimate may change. If the
time period were longer than that, the amount would be larger.
Cash Unaccounted ForExtensive but still preliminary analysis of Stanford’s available
financial records indicates that a very substantial amount of cash received upon sale of SIBL
CDs over the last few years (assuming the accuracy of available financial records regarding the
amount of CDs sold and redeemed) cannot be accounted for by the amount of cash that the
records reflect was invested in other assets or spent on operations of the Stanford companies.
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Appx. Page 411
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Some of this cash may have been spent in ways that are not reflected in any of the available
financial records and/or that did not result in the acquisition of assets, such as cash that may have
been loaned to Allen Stanford or distributed to him as sole shareholder and then spent on
personal consumption by him. Some of this cash may have been transferred to Mr. Stanford and
then used by him to purchase personal assets or invested in personal bank accounts that are not
reflected in available financial records. This value may be recoverable once identified. This
preliminary analysis suggests that the aggregate amount of such unaccounted for cash may be in
the range of $1 billion. For that reason, the Receiver intends to continue searching for cash
accounts and assets under Mr. Stanford’s direct or indirect control.
Personal Investments of Allen Stanford and James Davis
The SEC has alleged that two of the principal perpetrators of fraudulent activities by the
Stanford companies were Allen Stanford and James Davis. Although neither of them has filed
with the Court the accounting of his own investment accounts and other assets that the Court
ordered them to provide and neither has been available to be interviewed by the Receiver, it does
not appear from available records of the Stanford companies that either of them invested his own
money in SIBL CDs or in Stanford customer accounts. The records of SIBL do not reflect any
ownership of CDs by Mr. Stanford or Mr. Davis, either at the time the Receivership commenced
or at any time during the period January 2003 to the present, the time period for which CD
ownership records are available. The records of Stanford Group Company and Stanford Capital
Management do not reflect any ownership of accounts at either such company by Mr. Stanford or
Mr. Davis, either currently or during the period September 2007 to the present, the time period
for which account ownership records for those companies are available. The available records of
Stanford Trust Company are limited to records regarding ownership when the Receivership
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Appx. Page 412
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commenced, and such records do not reflect any ownership of accounts by either Mr. Stanford or
Mr. Davis.
Claims
The Receiver has posted on the Receivership website a procedure that permits persons
who believe they have a claim against the Estate to file a notification of their claim, to provide
the Receiver a source of information about claims in addition to Stanford’s internal records. The
procedure asks claimants to indicate which of the following categories applies to their claim:
Certificate of deposit claims.
Secured creditor claims.
Coin and bullion claims.
Employee claims.
Vendor claims.
Landlord claims.
Other claims.
This procedure is voluntary, not mandatory, for purposes of establishing a claim. To
identify claims, the Receiver is also reviewing the records of the Stanford companies. Using
data from all available sources, including both internal records and notifications of claims filed
by claimants, the Receiver will propose and file with the Court a list of proposed recognized
claims at a later stage of the case. This list will be subject to comment and objection by affected
parties.
Major Activities and Priorities for the Near Term
The Receiver anticipates that his major activities and priorities for the near term will
include the following:
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Appx. Page 413
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Continuing to search for and secure cash for the Estate from a variety of potential sources, and determining how CD funds were dispersed.
Continuing to reduce costs of administering the Estate.
Continued participation in litigation or appeals in Antigua, Canada and England to the extent assets in those locations are subject to risk of loss to adverse claims.
Securing and centralizing hard copy files, documents and electronic records.
Developing and implementing plans to sell or monetize Estate assets, including real estate, private equity investments and other assets.
Recovering Receivership assets from foreign entities, including opposing competing claims to those assets.
Releasing additional frozen Stanford Group Company and Stanford Trust Company customer accounts, where appropriate, through processes approved by the Court.
Analyzing and cataloging potential claims against the Estate, including by collecting and processing claims through the Receiver’s online procedure.
Developing and implementing plans to initiate litigation to recover value for the Estate as appropriate.
Responding to claims and litigation initiated by others.
Assisting, reporting to and responding to governmental and regulatory agencies as appropriate. including responses to:
o inquiries from the SEC, Department of Justice and FBI in connection with their investigations;
o discovery requests from the IRS with respect to tax audits of Mr. Stanford;
o audits and criminal investigations by various divisions of the U.S. Department of Labor regarding employee benefit plan issues and federal wage and hour laws compliance; and
o an investigation by the State of Louisiana of Stanford Trust Company operations.
Communicating with this Court, customers, current and former employees, claimants, other constituents of the Estate, and the public.
Working with the Examiner appointed by this Court on April 20, 2009.
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Appx. Page 414
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Working with receivers and other appointed officers in other jurisdictions.
Closing operations of Stanford Group Company, Stanford Capital Management, Stanford Trust Company, and Stanford Coins & Bullion.
Developing protocols for review and release of customer accounts and assets in entities in which that has not yet been done.
Winding-down of Stanford employee benefit plans and arrangements.
In addition, it is likely that the Receiver and his team will be confronted with and have to
respond to emergencies and other matters that cannot be anticipated at this time.
Estate Resolution Process
The goal of the Receivership is to maximize recovery for the Estate and distributions to
defrauded investors and other claimants worldwide. As indicated above, the Receiver expects
that the total value that will ultimately be available for distribution will be far less that the total
amount of claims. Once the Receiver has identified, recovered and monetized the available
assets and identified the claims against those assets, he will develop and file with the Court a
plan for equitable distribution of value to claimants. This plan will be available for comment and
objection by affected parties at that time, pursuant to procedures to be approved by the Court.
After collection of comments and objections, the Court will be asked to issue a decision
regarding the plan, with such modifications, if any, as the Court deems appropriate after hearing
from affected parties. Upon approval of a plan, distributions will be made. Because of the
complexities of the case and the fact that asset recovery efforts are still in an early stage, the
Receiver cannot at this time estimate when he will be able to propose a plan.
Additional Information Regarding Activities and Accomplishments
The following sections contain additional information regarding the major actions taken
by the Receiver and his team to date to implement the Court’s orders and their accomplishments
to date.
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Locating, Securing and Monetizing Assets
Securing the Estate
The Receivership Order directed the Receiver to take control of the Receivership Estate;
to collect, marshal and take custody of the assets and records of the Estate; and to enter and
secure the premises of the Stanford companies. In addition, the TRO/Freeze Order imposed a
freeze on accounts held in the name, on behalf or for the benefit of Defendants at financial
institutions. To accomplish these directives, assure that the Freeze Order was implemented, and
preserve the assets and records of the Estate, the Receiver and his team:
On February 17, took possession of major U.S. control locations in Houston, Memphis and Tupelo, Mississippi, using multidisciplinary teams assembled by the Receiver and with the assistance of SEC representatives and U.S. Marshals.
o These efforts included securing electronic and paper records, making photographic or video documentation, changing locks and security codes and posting security personnel as appropriate.
Over the next several days, closed and ceased operations at 32 additional Stanford offices in 29 U.S. cities, four offices in Mexico and one office in St. Croix (other Latin America offices are under the control of government administrators in their respective countries), pending decisions on whether to continue operations.
Interviewed numerous key Stanford employees in the U.S., the US Virgin Islands and Mexico in major operational departments.
o These interviews included employees in treasury, accounting, information technology, human resources, risk management, real estate, building operations, aviation, security, private equity investments, broker-dealer operations, compliance, legal and Latin American operations.
o The interviews covered numerous topics to acquire information related to existence of data systems, human resource involvement, location of assets, establishment of timelines, collection of cash, identification of related entities, and corporate structure.
Served more than 120 affiliated entities and known control persons in the U.S. and outside the U.S. with the TRO and the Order Appointing Receiver.
Communicated with approximately 240 banks and bank branches in and outside the U.S. holding Stanford cash and investments on deposit to advise them of the
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TRO/Freeze Order and the Order Appointing Receiver and to direct them to cease electronic transfers.
Ceased all other known transfers of assets out of the Estate while its holdings were inventoried.
Issued directions to cease sales of SIBL CDs and the Stanford Allocation Strategy mutual fund wrap program.
Directed that all activity in Stanford customer accounts cease, in order to preclude potential theft and to permit time to analyze which accounts might be associated with fraudulent products or activities.
Coordinated with Pershing LLC and J.P. Morgan Clearing Corp. to accomplish freeze of customer accounts pursuant to TRO/Freeze Order.
Identified and gathered strategic electronic and paper files and had them shipped to a central location.
Imaged approximately 500 computer hard drives and other devices, collected approximately 120 fileshares from multiple servers, locked down the email system and reviewed and took possession of information from approximately 38 file servers from around the world – which resulted in the securing of more than 60 terabytes of information – to preserve information and to avoid potential data alteration.
Collected and secured Stanford electronic data systems to provide information for 138 operational and forensic accounting purposes. These systems include accounting, human resource, and investment systems which are integral to understanding the flow of funds and human resource issues and for identifying assets held by the Stanford entities.
Locked down documents, data and unsecured assets.
Filed section 754 notices in 30 federal district courts in 16 States, the District of Columbia, Puerto Rico, American Samoa and the Virgin Islands in order to gain control of assets in these jurisdictions.
Secured agreed stays of seven federal lawsuits filed after the Receivership was instituted; in seven other federal and state cases, filed joint motions to stay that are pending or otherwise achieved stays of the cases by agreement with plaintiffs’ counsel.
Established Receivership oversight of numerous litigation matters pending at the time of the Receivership. This effort involves monitoring and evaluation of approximately 70 cases pending in the United States, the Caribbean, Latin America and Europe.
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Obtained dominion of many deposit accounts and securities accounts of the Estate including, after extensive discussion and negotiation with certain custodians, both U.S. and foreign.
Secured a fleet of 6 aircraft and 2 marine vessels.
Developed and implemented policies and protocols to deal with lending matters and lenders.
Conferred with government officials in Canada, Colombia, Ecuador, Guatemala, Israel, Mexico, Panama, Peru and Venezuela.
Collected and analyzed records to determine identity and status of entities subject to the Order.
Arranged physical security assistance in U.S. control centers and certain international locations.
Developed and implemented document management and control policies and procedures.
Other Efforts to Recover Cash
The Receivership Order directed the Receiver to collect, marshal and take control of
assets of the Estate. Efforts by the Receiver and his team to recover cash for the benefit of the
Estate have included the following:
Identifying accounting and financial information to secure and track cash, and tracing of cash activities through a large number of banks and Stanford’s general ledger system to determine the ultimate recipients of funds for possible retrieval by the Estate.
Identified all known Stanford accounts maintained at financial institutions, including banks and investment houses (more than 300 accounts).
Compiled a comprehensive listing of all available information regarding cash, cash equivalents, marketable securities and private equity investments.
Determined contact information including name, telephone number, email address, etc., for each cash account for which assets were believed to be available for potential recovery, and pursued all available contacts in efforts to recover cash.
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Analyzed clearing agreements with Pershing and JP Morgan, and negotiated stipulation with Pershing to release from its custody $10 million of proprietary funds belonging to Stanford.
Negotiated with an investment fund and obtained approximately $10.5 million in cash related to investments held in the name of a Stanford entity.
Negotiated with a brokerage firm and obtained an agreement to release approximately $5.6 million in cash that had been held in the name of Stanford entities; filed a motion with the Court seeking to obtain an additional $500,000.
Negotiated with a bank and obtained the return of approximately $17 million in cash held in the name of Stanford entities.
Negotiated with escrow agent for pending private equity transaction and obtained the return of $9.7 million in cash to the Estate.
Negotiated with a hedge fund to obtain $4 million on an early redemption of an interest in the fund, without payment of early redemption fee.
Negotiated with a bank and obtained the return of approximately $1.3 million in cash collateral related to letters of credit.
Requested that elected officials and campaign committees to whom Defendants and their political action committees had made political contributions return those amounts to the Estate for the benefit of claimants against the Estate; to date, 15 elected officials have returned a total of $72,300 to the Estate and an additional 5 have advised the Estate that they intend to return a total of $16,300.
Requested law firms that had received legal retainers to return those monies to the Estate.
Analyzed broker/financial advisor compensation information for purposes of recovering for the Estate compensation paid to advisors for sale of fraudulent CDs.
Performing extensive funds tracing through available bank account records and entities, including reviews of significant wire transfers and other disbursements.
Performing extensive but not complete funds tracing of disbursements through the companies’ general ledger system to identify the ultimate third-party recipients of disbursements from the company.
Conducting review of the companies’ financial records pertaining to certain pre-paid asset accounts to identify possible sources of asset recoveries.
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Performed relevant investigative due diligence checks on entities and individuals identified, as needed, and determined and documented existing relationships with Allen Stanford, Stanford entities and/or other Stanford employees.
Aggregated names of current and former employees most likely to provide relevant information in regards to other assets/accounts and conducted selected interviews.
Contacted all foreign locations and inquired as to the existence of all assets that may be available for potential recovery.
Performed extensive “hard copy” document reviews for documents obtained in control centers in Houston, Tupelo and Memphis to identify other possible accounts containing cash and/or investments that could be recovered for the Estate.
Conducted targeted e-mail searches for selected custodians to identify other possible accounts containing cash and/or investments that could be recovered for the Estate.
Conducted other efforts to recover cash and other assets that are listed in other sections below, including those relating to real estate, private equity and aircraft.
Corporate Structure Analysis
In order to properly identify and categorize assets and claims, the Receiver needs to
identify all Stanford entities and accurately understand the ownership relationships among them.
Upon taking control, the Receiver found numerous inconsistent organizational charts and plans
for internal restructuring. To compile accurate information, the Receiver and his team have
worked to:
Develop master lists of Stanford entities (this ongoing work has resulted in the identification of approximately 140 potential Stanford entities so far; that number does not include more than 100 other potential Stanford entities the names of which are referenced in various documents as having a Stanford relationship but as to which the Receiver’s team has not yet found appropriate ownership records and/or other corporate or financial records).
Develop an understanding of a complex and often confusing corporate structure and the business operations of these companies.
Develop detail regarding parent/subsidiary and other relationships among entities.
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Preparation of Financial Statements
In order to marshal, value and ultimately monetize the assets of the Estate and to
determine the claims against the Estate, the Receiver needs to have reliable financial statements
and data. The Receiver engaged Ernst & Young to summarize combined financial statements,
working with best available Stanford Group data. Much of the necessary data has resided
outside the U.S., presenting logistical challenges in locating it. Ernst & Young has:
Worked to summarize a combined balance sheet, as of February 19, 2009 and as of December 31, 2008, for all identified Stanford controlled entities located throughout the world.
Gathered supporting documentation to assist with summarizing a combined balance sheet, as of February 19, 2009.
Worked to identify available assets for all entities controlled by the Estate along with associated liabilities.
Reviewed company books and records, collected and analyzed electronic and paper-based evidence and engaged in numerous interviews with Stanford personnel to assemble information.
Generated lists of assets by category (such as private equity investments, real estate, financial assets and coin and bullion inventory) under the control of the Estate, as well as associated liabilities, so that the Receiver can properly preserve or dispose of the assets and deal with the liabilities, as appropriate.
Real Estate
With a view to maximizing the value of the Estate, the Receiver and his team have taken
the following actions regarding real estate:
Developed comprehensive listings of 54 owned properties and 58 leased properties in 17 U.S. states, Canada, St. Croix, St. Kitts and Europe, with information regarding ownership, encumbrances and value, as well as 49 owned properties in Antigua.
Worked to collect information and determine rights with respect to owned and leased real property in the Estate by reviewing leases, deeds, mortgages, insurance schedules, financial information and other relevant documentation.
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Began efforts and engaged brokers to assess values and markets in an attempt to monetize real estate assets.
Assessed threats and risks of expropriation of Antiguan lands and related procedures, determinations and requirements.
Developed an overall strategy and plan regarding rejection of leased properties, in order to save costs, and prepared and filed motion with the Court regarding procedures for rejection of leases and sale of furniture and equipment in leased space.
Facilitated the lease rejection process, including removal of files and personal property, sale of furniture, rejection of leases (subject to execution of termination agreements with landlords whereby the Receiver agreed to quitclaim the personal property in exchange for landlord’s full waiver and release of claims) and negotiations with landlords regarding the amount to be paid as administrative costs for the period of time of the Receiver’s occupancy of the space, credits for furniture and limits on unsecured damage claims.
Researched landlord’s lien law in several jurisdictions as it relates to the Receiver’s ability to sell the personal property free and clear of liens.
Worked to determine rights with respect to security deposits and letters of credit in the Receivership in an attempt to free up cash that is tied up as collateral.
Worked to implement the relocation of the Receiver’s team, including retained Stanford Houston employees, from rented to owned space so that the lease on the larger leased space can be rejected, in order to save costs; negotiated with the landlord of the Houston headquarters to obtain its cooperation with the relocation process so as to maintain the Receiver’s operations with minimal disruption.
Collected and responded to multiple default notices and lien notices from landlords and contractors.
Prepared letters to landlords regarding the effects of the receivership on their ability to exercise remedies.
Prepared letters to tenants regarding payment of rent.
Coordinated property tax appraisals, insurance, maintenance and other activities necessary to preserve value of owned properties.
Coordinated management and leasing activities of Stanford in its capacity as landlord of the St. Croix properties related to the continuing occupancy by building tenants.
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Implemented required procedures to collect back rent from the General Services Administration for office space in St. Croix.
Developed procedures for sale of real property that is owned by the Estate and prepared and filed motion with the Court for approval of these procedures.
Established brokerage arrangements with CB Richard Ellis to market and sell owned properties in a reasonably expeditious manner while attempting to maximize value.
Private Equity
With a view to maximizing the value of the Estate as directed by the Receivership Order,
the Receiver and his team have taken the following actions regarding the numerous private
equity investments held by the Estate:
Developed comprehensive listings of private equity holdings, with information regarding ownership, potential current value and loans outstanding.
Reviewed information and contracts related to private equity investments and evaluated rights and responsibilities with respect thereto.
Communications with portfolio companies and counsel regarding status of investments and rights to immediate cash withdrawals where available.
Evaluated various investment holdings for potential sale to third parties; these efforts have included, with respect to several investments, negotiations with potential interested purchasers.
Interviewed potential advisors regarding possible engagement to market Stanford’s private equity holdings.
Aircraft
With a view to maximizing the value of the Estate as directed by the Receivership Order,
the Receiver and his team took the following actions regarding the six aircraft held by the Estate:
Supervised security and developed protocol for dealing with aircraft and aircraft facilities, including maintenance and insurance issues.
Reviewed information and contracts related to aircraft title and liens.
Communicated extensively with the lender that holds liens on five of the six Stanford aircraft to obtain two independent fair market value appraisals of the five
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aircraft, in connection with negotiations concerning orderly sale and/or return of the aircraft to the lender and release of a portion of the substantial cash collateral held by the lender to the Receiver.
Began making arrangements, including retaining aircraft broker, to assist in the sale of the Stanford aircraft.
Litigation and Interaction with Governmental and Regulatory Agencies
Litigation and Other Disputed Matters Commenced at or after Appointment
The Receiver’s tasks included responding to the proceedings in or related to this case. In
particular, the Receiver or his counsel:
Appeared and filed papers at two preliminary injunction hearings in this Court, and prepared for potential Receiver testimony at those hearings.
Appeared at two TRO hearings in the Southern District of Texas at the request of the Judge in that Court.
Briefed and defeated a petition for mandamus to the Fifth Circuit related to this Court’s jurisdiction to appoint the Receiver.
Initiated litigation against financial advisors who sold fraudulent CDs, to seek return of more than $40 million in commissions and other tainted compensation.
Responded with two consolidated briefs to more than 40 motions by account holders and brokers seeking intervention or similar relief.
Considered scores of communications and demands by putative intervenors and their counsel.
Litigated matters related to coin and bullion disputes.
Analyzed and responded to motion to appoint an examiner.
Analyzed and filed responses to motions to permit filing of litigation in other forums.
Filed show cause motion to force the return of $3 million to the Receiver.
Filed show cause motion to stop litigation against the Receiver in the Southern District of Texas.
Communicated with counsel and other courts to obtain abatements in light of this Court’s stay of litigation against the estate.
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Addressed issues raised by the individual Defendants regarding Receivership actions.
Served subpoenas on several third parties who are in possession of Stanford records or assets that must be turned over to the Receiver.
Prepared and filed appropriate papers regarding account release procedures and approvals.
Prepared and filed appropriate papers regarding Receiver’s procedures for rejection of leases.
Responded to inquiries from numerous claimants regarding the injunction against proceedings outside the Northern District of Texas.
Assistance to and Communication with Governmental and Regulatory Agencies
The Receivership Order directed the Receiver to promptly provide the SEC and other
governmental agencies with all information and documentation they may seek in connection with
their regulatory or investigatory activities. To accomplish this direction, the Receiver and his
team:
Conducted numerous telephone conferences and meetings with governmental and regulatory agency representatives, including meetings with SEC representatives to advise them of the Receiver’s work plans and progress to date, and to coordinate regarding numerous issues related to administration of the Receivership.
Coordinated with the SEC, the FBI, the U.S. Postal Inspector and the U.S. Department of Labor in identifying and gathering documents and information relevant to their ongoing investigations and responded to numerous requests from these authorities to analyze and provide information and documents.
Presented the results of preliminary investigative work to representatives of the Department of Justice, FBI, IRS, and U.S. Postal Services, including collection and provision of supporting corporate documentation.
Communicated with FINRA regarding broker dealer activities, regulatory reporting and compliance issues.
Working with employees in Stanford Capital Management's compliance department, considered compliance issues related to termination of personnel as well as updating filings related to the Investment Advisors Act of 1940, the broker-dealer regulations under the Securities Exchange Act of 1934 and applicable FINRA regulation.
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Communicated with the Board of Governors of the Federal Reserve System on banking and trust matters.
Established, with the assistance of the SEC and Texas State Securities Board, a weekly call with various state securities regulatory authorities to respond to their information requests and to provide such regulators with status reports.
Communicated with state banking agencies in Texas, Louisiana, North Carolina and Florida regarding Stanford branches and other offices.
Communicated with foreign bank and securities regulators, particularly Mexico, Panama and Canada regarding wind-down of operations, liquidations, investor questions and arrangements for claims processes.
Communicated with the Secretary of State and staff of various states to discuss issues regarding broker dealer activities and Stanford Trust Company.
Responded to, and gathered documentation for production relating to, subpoenas and other formal document requests made by various state regulatory agencies.
Conferred and coordinated with officials in Canada, Colombia, the Eastern Caribbean, Ecuador, Guatemala, Israel, Mexico, Panama, Peru, and Venezuela regarding Estate issues in those jurisdictions.
International Matters
For a discussion of matters related to Antigua and Canada, see “Issues Related to
Antigua” in this Report above.
Latin American Matters
The Estate includes several Latin American subsidiaries with numerous offices and assets
located in several countries. In this connection, the Receiver and his team have:
Coordinated resources and researched locations of Stanford offices and receivership assets and records in Colombia, Ecuador, Mexico, Panama, Peru and Venezuela.
Conferred and coordinated with SEC and Latin American securities and bank regulators regarding office closures and asset recovery in Latin America.
Conferred, coordinated and attended numerous meetings with officers of Comision Nacional Bancaria Y De Valores (CNBV) and Mexican government officials regarding access to and securing of receivership assets in Mexico and regarding funds revocation and liquidation process under Mexican law.
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Prepared authorization letters and necessary powers of attorney, reviewed public deeds, obtained access to and closed and secured Stanford offices in Mexico City, Monterrey, and Puebla, Mexico.
Conferred with Peruvian Embassy representatives regarding concerns of Peruvian investors and regarding asset recovery efforts.
Conferred with Panamanian regulators regarding access to Stanford assets in Panama and extensively coordinated with those regulators regarding Stanford Bank (Panama).
Reviewed and analyzed communications regarding leads for disposition and recovery of assets in office in Ecuador.
Communicated with regulatory officials in Colombia regarding access to and securing of Stanford office for the Receiver; prepared Colombian proxies and prepared for shareholders meeting.
Investigated, researched and advised Receiver regarding situation of Stanford Venezuelan bank and assets.
Researched and began preparation of appropriate corporate resolutions and documentation to allow the recovery of Receivership assets from the various foreign entities.
Worked to assist sales processes for Stanford bank and brokerage accounts in Panama and brokerage accounts in Columbia, Ecuador and Peru.
Analyzed specific information regarding Latin American cash and investment accounts, as well as investments noted in over ten Latin American entities for asset identification.
See also the discussion under “Latin American Matters” in this Report above.
Switzerland Matters
The Estate includes a Swiss entity, Stanford Group (Suisse) AG, that owns substantial
assets, including cash on deposit and an office building. In this connection, the Receiver and his
team have:
Placed various Swiss banks holding Stanford accounts of the Swiss entity and other Stanford entities on notice of the Receivership.
Participated in efforts with Swiss directors of the Swiss entity regarding orderly wind-down of that entity to preserve and monetize assets; these efforts include
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wind-down of business activities, managing employee reductions, marketing and sale of Zurich office tower currently owned by the entity, handling existing liabilities, addressing leased properties, resolving liquidity issues, and appointment of liquidator.
Examined issues of Swiss procedural expectations and venues as related to liquid assets in Switzerland.
Evaluated issues raised by Swiss federal prosecutor's investigation into Stanford activities in Switzerland.
Retained Swiss counsel to assist in the above efforts.
Customer Related Matters
Releases of Stanford Group Company Customer Accounts from Freeze and Related Broker Matters
The accounts at financial institutions that were frozen by the TRO/Freeze Order included
Stanford customer accounts. Following efforts to confirm that the freeze had been implemented
as directed by the TRO/Freeze Order, the Receiver collected data to analyze the accounts and the
potential that the accounts or their owners were associated with fraudulent products or activities.
The Receiver engaged in a balancing of the hardship the freeze was causing to owners of the
accounts compared to the benefits of the freeze to the Estate, considering both the likelihood that
the accounts are associated with fraudulent products or activities and the amount potentially
recoverable by the Estate from those accounts if they are tainted. These activities led to the
filing of motions with the Court requesting permission to release certain accounts, in stages, and
the release of those accounts upon Court approval. In addressing these issues, the Receiver,
assisted by a multi-disciplinary team of lawyers, forensic accountants, broker dealer experts and
information technology experts:
Established protocols to allow liquidating orders and other interim measures to provide customers flexibility to reduce market exposure.
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Analyzed certain mutual fund assets of Stanford clients held outside of Stanford’s custodial arrangements and determined that they should be released from the freeze.
Developed criteria by which Stanford Group Company customer brokerage accounts could be evaluated and released:
o Approximately 50,000 accounts at Pershing and JP Morgan were initially identified.
o The number was reduced to approximately 32,000 accounts after identifying and eliminating dormant accounts.
Identified, gathered, analyzed and applied information for purposes of potential release of accounts, including available databases regarding potential for accounts having a probability of being associated with fraudulent products or activities, as well as lists of directors, senior management and employees.
Coordinated with Pershing to develop procedures for transferring eligible account assets using ACATS process.
Prepared motions and orders for release of two rounds of customer accounts totaling 28,452 accounts; as of April 22, 2009, transfers of 20,840 accounts had been completed.
Developed an account review process to enable owners of the remaining approximately 4,000 Stanford Group Company accounts to provide information to the Receiver that may be relevant to whether their accounts should be released; filed motion with the Court seeking approval of the process; and upon receiving such court approval, implemented the process with both online and mail-in versions and began processing applications; as of April 22, 2009, this process had been initiated by holders of 1,521 accounts.
Filed motions to approve compromises concerning releases of certain frozen accounts in which the Receiver will retain certain funds in the accounts pending final adjudication of Receiver’s claims.
Reviewed Stanford Group Company's form client agreements, analyzed the legal requirements and obligations of the parties and developed a strategy to unwind such relationships.
Reviewed and analyzed Clearing Agreement between Stanford Group Company and Pershing LLC and other relevant documentation regarding rights and obligations of Pershing LLC and Stanford and applicable expense and fee arrangements.
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Stanford Trust Company Matters
Communicated and met with the Commissioner and staff of the Louisiana Office of Financial Institutions to discuss regulatory matters related to Stanford Trust Company.
Conducted the same analysis of Stanford Trust Company accounts that was performed for Stanford Group Company accounts, including gathering and reviewing similar types of information, in order to make the same type of decisions, with respect to the approximately 1,480 accounts at Stanford Trust Company.
Prepared and filed a motion with the Court seeking approval of a process to release Stanford Trust Company accounts in certain categories; this motion is pending.
Gathered trust documents from Stanford Trust Company locations and began to review those documents to determine the legal requirements applicable to having a successor trustee appointed under each trust instrument.
Stanford Private Label Funds
During Stanford's operations, it had, to varying degrees, formed, promoted and managed
several private-label investment funds, including SCM Alternative Income I, L.P. and SCM Beta
Partnership I, L.P. Stanford also promoted and sometimes invested in other investment funds.
The establishment of the Receivership and implementation of the TRO/Freeze Order affected the
day-to-day operations of some of these funds and the oversight and information reporting
functions of some others. In addition, the existence of the Receivership has created concerns of
various customers, vendors and other contractual counter-parties related to the continued
viability of these funds as well as the effect of the TRO/Freeze Order on them. To provide
information to these persons and to begin to resolve the issues related to these funds, the
Receiver and his team:
Reviewed and analyzed the agreements and private placement memorandums related to these funds regarding the legal rights and obligations of investors, Stanford and third-parties.
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Began developing strategies to facilitate the appointment of a successor general partner for the fund, terminate Stanford’s involvement in the fund and/or recover funds for Stanford’s investments in the fund to the extent possible.
In some cases, began a dialogue with some of the largest investors in the fund regarding resolution of these issues.
Responded to numerous requests for information from investors related to Stanford's private-label investment funds.
Analyzed various issues under partnership agreements and applicable law related to investors’ rights for information regarding the private-label investment funds.
Reviewed and analyzed Financial Services Agreement by and between MadisonGrey Fund Services, LLC and Stanford and other supporting documentation regarding administrative services provided to the private-label investments funds regarding relative rights and obligations of MadisonGrey and Stanford.
Interfaced with MadisonGrey, the administrator of the Stanford private-label funds to attempt to maintain the level of administrative services being provided to investors as well as respond to investors' information requests.
Coins and Bullion
One of the Stanford entities is Stanford Coins and Bullion, which engages in trading and
customer investments in coins and gold bullion. In connection with this operation, the Receiver
and his team have:
Analyzed coin and bullion company operations.
Moved coin and bullion inventory from Stanford facilities to large commercial bank safety deposit boxes to assure safety.
Conducted physical inventory of coin and bullion inventory.
Retained a numismatic consultant to assist in valuation and wind down of coin and bullion operations.
Begun an analysis of customer claims to coins and bullion held by Stanford Coins and Bullion.
Begun a review process to enable customers, vendors and other persons to provide information to the Receiver that may be relevant to determine the status of their claims.
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Reached agreements with two coin and bullion companies involving settling of disputed accounts between Stanford Coins and Bullion and these companies.
Operational and Administrative
Operations
The Order directed the Receiver to conserve, hold, manage and preserve the value of the
Estate. The Receiver and his team:
Analyzed available financial and other information to determine whether the Stanford companies included businesses that could continue as viable businesses.
Soon after taking control, upon concluding that most of the businesses of the Stanford companies were not financially viable, issued directions and began implementing plans to cease those business activities.
Developed and implemented protocol, consistent with regulatory and other requirements, for the receipt and delivery of mail at Stanford’s headquarters in Houston, as well as implemented plan to coordinate the collection of mail at all domestic and St. Croix offices for forwarding to a central location.
Reviewed existing operational roles and identified critical personnel to retain for continued administration of corporate functions.
Developed and implemented procedures for payment of payroll, including the administration and resolution of pre-receivership payroll obligations.
Coordinated with company personnel to ascertain ongoing operational obligations of the Stanford entities.
Developed and implemented protocol for the identification and payment of other expenses and obligations of the Estate, as well as pre-receivership obligations of Stanford to certain critical vendors necessary to ensure ongoing operations and liquidation of the Estate.
Developed and implemented treasury functions, including the establishment of new and secure bank accounts.
Developed operational protocols for obtaining and moving cash to the new bank accounts.
Developed operational protocols for the creation, approval and submission of wire transfer and other payment types for the payment of vendors.
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Completed permanent physical closure of 24 U.S. branch offices of Stanford entities through April 20, 2009 so that applicable office leases can be rejected in order to reduce ongoing expenses of the Estate; closure of an additional 12 U.S. offices is scheduled; each such shutdown required sending personnel to the branch office to oversee the closing process, including removal and safeguarding of records and documents.
Employee Matters
At the outset of the Receivership, the Stanford Companies had more than 3,000
employees, of whom approximately 1,200 were in the U.S. and the balance in numerous other
countries. The Receivership Order directed the Receiver to take control of and preserve the
assets of the Estate, necessitating management of the business. The Order also directed the
Receiver to minimize expenses in furtherance of maximum and timely disbursement thereof to
claimants. To accomplish these directives, and to do so consistently with the Receiver’s
determination (see above) that most of the businesses of the Stanford companies were not
financially viable, the Receiver and his team:
Assessed workforce in U.S. and Latin America and determined which employees should be retained to assist in managing and liquidating the Estate.
After careful review and with a view to reducing costs to the Estate, issued notices of termination of employment to more than 1,000 U.S. employees, which necessitated, among other things:
o Assessing and complying with federal and numerous state notification requirements and pay/payroll requirements.
o Communicating with affected employees.
o Responding to state and local governmental inquiries regarding layoffs.
Responded to three separate inquiries/investigations from the U.S. Department of Labor (“DOL”) from three separate groups within the DOL with respect to:
o An audit of the Stanford employee benefit plans subject to the Employee Retirement Income Security Act (“ERISA”).
o An investigation of potential violations of federal wage and hour laws in connection with Stanford payroll issues.
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o A criminal investigation with respect to non-Stanford ERISA plans that may have invested in certificates of deposit issued by Stanford International Bank Ltd.
The DOL audit and investigatory activities have required numerous on-site meetings with the various DOL agents; due diligence review of documents and other information requested by the DOL agents and analysis of the legal authorities, obligations and constraints on the Receiver with respect to the audit and investigatory actions and disclosure of documents and information requests by the various DOL agents.
Reviewed numerous employee benefit plans, programs and arrangements and practices (both in the U.S. and outside the U.S.) and individual employment-related agreements established and/or entered into by the various Stanford companies.
Analyzed Estate’s obligations to employees, employee benefit plans and government agencies under Stanford employee benefit plans, programs and practices, including those identified below, and determined to cease some plans, where appropriate.
Took action, via resolutions and amendments, as appropriate, to reconstitute the administrative committees of the Stanford ERISA and non-qualified U.S. employee benefit plans, programs and arrangements.
Modified and/or discontinued operations of benefit plans in light of the reduced employee population and in order to preserve assets and reduce expenses of the Estate, which included:
o Addressing the mandatory matching contributions and partial termination issues of the Stanford 401(k) plan.
o Securing welfare benefit plan benefits, including employee medical coverage, until April 30, 2009 and terminating thereafter.
o Securing administration of these benefits through April 30, 2009 and the defined “run-out” period thereafter.
o Preparing and distributing to plan participants ERISA-required summaries of material modifications as required for such changes.
Prepared and updated website and other communications to address changes to employee benefits coverages for former employees and retained employees.
Reviewed benefit plan compliance with applicable law and initiated corrective action, where appropriate, including analyzing impact of recent federal legislation
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enacted by Congress regarding continuing health coverage under group health plans and the required notice requirements related to the same.
Reviewed and assessed employee obligations to Estate under a broker loan program pursuant to numerous loan agreements with varying terms.
Handled regulatory filings necessitated by termination of employment of registered representatives and financial advisors.
Developed and administered protocol for controlled access and removal by employees of personal items from various office locations.
Prepared and updated a statement regarding employee benefits that addressed health care, COBRA, flexible spending accounts, disability insurance, AD&D insurance, 401(k) plans, personal belongings and severance or bonus contracts.
Insurance Matters
The Receiver and his team have taken the following actions relating to insurance matters
affecting the Estate and its assets:
Performed a comprehensive review of the insurance program that was maintained by the Stanford entities before the receivership, and communicated with brokers and other parties to cancel coverage that is no longer needed in view of the Receiver’s appointment.
Provided initial and supplemental notices of claims to insurance carriers under policies providing primary and excess directors and officers liability coverage, excess Securities Investor Protection Corporation coverage, Financial Institutions Crime and Professional Indemnity coverage, and Foreign Political Risk coverage.
Evaluated numerous claims and demands made by various parties relating to the Estate’s insurance policies.
Taken steps to recover letters of credit that were posted before the Receiver’s appointment to secure customs bonds that are no longer necessary.
Taken steps to obtain replacement insurance coverage for domestic and international Estate assets where coverage has expired by its terms or the Receiver has been informed by the carrier of policy cancellation.
Discussed ongoing litigation matters and insurance matters with in-house counsel and employees.
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Tax Matters -- Allen Stanford Personal Returns
The IRS has advised the Receiver that it has proposed or asserted against Allen Stanford
a total of approximately $226.6 million in federal taxes (including interest and penalties) for tax
years 1999-2003. Because Mr. Stanford personally is a named party to the Receivership and was
the owner of the assets of the Estate, the Receiver must become familiar with potential tax
liability of Mr. Stanford which could lead to possible tax claims being filed by the IRS in the
Receivership. To that end, the Receiver has collected and is analyzing available files and records
pertaining to these proposed and assessed tax liabilities. The Receiver has also been negotiating
with the Department of Justice Tax Division (“DOJ Tax”) with respect to the pending IRS
motion to intervene in this receivership. A description follows of each of Mr. Stanford’s tax
years for which the IRS has proposed or asserted possible tax liability and of the IRS motion to
intervene in the proceeding before this Court.
1999 Tax Litigation. The IRS has advised the Receiver that it has proposed a deficiency of approximately $7.2 million (inclusive of interest and penalties) with respect to Mr. Stanford’s 1999 joint tax return.
2000 Tax Litigation. The IRS has advised the Receiver that it has proposed a deficiency of approximately $30 million (inclusive of interest and penalties) with respect to Mr. Stanford’s 2000 joint tax return.
2001 Tax Litigation. The IRS has advised the Receiver that it has proposed a deficiency of approximately $72.8 million (inclusive of interest and penalties) with respect to Mr. Stanford’s 2001 joint tax return.
2002 Tax Litigation. The IRS has advised the Receiver that it assessed tax of approximately $32.1 million (inclusive of interest and penalties) against Mr. Stanford with respect to his 2002 tax year, and that Mr. Stanford initiated a Collection Due Process or Equivalent Hearing before the IRS Office of Appeals.
2003 Tax Litigation. The IRS has advised the Receiver that it assessed tax of approximately $84.5 million (inclusive of interest and penalties) against Mr. Stanford with respect to his 2003 tax year, and that Mr. Stanford initiated a Collection Due Process or Equivalent Hearing before the IRS Office of Appeals.
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IRS Motion for Intervention. On March 13, 2009, DOJ Tax, on behalf of the IRS, filed a motion asking this Court to permit the IRS to be an intervening party and to lift its injunction to (i) allow the IRS to proceed with the pending Tax Court case for Mr. Stanford related to his 1999, 2000, and 2001 tax years; (ii) allow the IRS to proceed with the pending IRS Office of Appeals matter related to Mr. Stanford’s 2002-03 tax years, (iii) recognize that the IRS may issue additional assessments against Mr. Stanford at any time because of the receivership, and (iv) compel Mr. Stanford to file his personal income tax return for 2007. On April 16, 2009, DOJ Tax, the SEC and the Receiver agreed to the terms of a proposed order in response to the IRS Motion and on April 17, 2009, this Court granted such order. Under the terms of the proposed order:
o The IRS is allowed to intervene in this case before this Court.
o The pending Tax Court cases involving Mr. Stanford’s 1999, 2000, and 2001 tax years is transferred to this Court, and this Court will adjudicate the merits of the proposed tax deficiencies, including an adjudication of the underlying merits and amounts of the proposed tax deficiency.
o It is recognized that the IRS has the right to issue an assessment against Mr. Stanford for his tax years 1999-2008 and to conduct audits and issue notices of deficiencies with respect to Mr. Stanford’s tax liability.
o The pending IRS Office of Appeals Collection Due Process or Equivalent Hearing involving Mr. Stanford may be resumed, but the IRS Office of Appeals retains the discretion as to when to issue its notice of determination with respect to such hearing. Mr. Stanford retains his right to appeal any such determination to the U.S. Tax Court. Any such appeal would be immediately stayed until this Court takes further action.
o Any IRS claim made before this Court will be adjudicated by this Court, including an adjudication of the underlying merits and amount of any proposed, determined or assessed tax liability and assets available to satisfy any proposed, determined or assessed tax liability.
o Mr. Stanford is directed to file his 2007 tax return on or before May 15, 2009.
Tax Matters -- Stanford Entities
Similarly, the IRS or other taxing authorities may assert tax claims against the Stanford
entities. In assessing these issues, the Receiver and his team have:
Determined that there is in excess of 250 jurisdictions (Federal, State, Local and Foreign) requiring tax support for the Estate.
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Identified approximately 100 returns currently required or in arrears and prepared extensions.
Initiated a review of all foreign tax filings.
Claims Identification
The Receivership Order requires the Receiver to identify claims against the Estate. To
begin this work, the Receiver and his team have:
Begun compiling and categorizing known claims based on Stanford’s internal records.
Established a formal claims filing process, which is posted on the Receivership’swebsite.
Claim categories include certificate of deposit claims, vendor claims, secured creditor claims, coin and bullion claims, employee claims, landlord claims and other claims.
Communications with Customers, Employees and the Public
The establishment of the Receivership and implementation of the TRO/Freeze Order
significantly affected the lives and financial affairs of many people and businesses, including
customers, employees, vendors, creditors, landlords and others. To provide information to these
persons, the Receiver and his team:
Established a website for the Receivership, www.stanfordfinancialreceivership.com, that was available on the day the Receivership was announced.
Used the website to provide regular updates with time sensitive information for investors, employees, media, other interested parties and the public.
Provided an email address for persons to contact the Receiver, monitored and sorted into categories the more than 11,000 emails that have been received, and directed certain emails to team members for individual response if appropriate.
Issued numerous public statements that were posted on the website and sent to media.
Posted and updated numerous sets of Frequently Asked Questions (“FAQs”) regarding a variety of subjects.
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o Subjects include account status, account transfer procedures for unfrozen accounts, account review procedures to seek release of frozen accounts, employee issues, coin and bullion issues, CD issues, brokerage account issues in non-U.S. entities, political contributions, mutual funds, and general receivership information.
o FAQs are detailed and written in plain English.
Posted Court orders and filings of greatest likely interest to users of the website, in addition to other material information.
Translated major website materials into Spanish.
Established a media alert system with major national and Houston media to facilitate the flow of information to investors and consumers.
Established an email outbox to be used for replying to investors with questions on the account review process and claim notification process; began corresponding with investors where appropriate.
Held an interview with the Houston Chronicle, which subsequently ran on international newswires, to increase information flow to constituents of the Estate and the public.
Addressed status of and need for 17 separate websites that had originally been maintained by various Stanford entities.
Team Assembled by the Receiver
The Receivership Order authorizes the Receiver to employ such managers, agents,
custodians, consultants, investigators, attorneys and accountants as he judges necessary to
perform his duties. The following experts have been retained to assist him:
Krage & Janvey, L.L.P., the Receiver’s law firm.
Baker Botts L.L.P, an international law firm headquartered in Texas.
CB Richard Ellis, a real estate consulting firm.
Ernst & Young, an international accounting and professional services firm.
Financial Industry Technical Services, Inc., a brokerage operations specialist firm.
Frizzell Group International, LLC, a security consultant.
FTI Consulting, Inc., a forensic accounting and information technology firm.
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Pierpont Communications, Inc., a communications firm.
Paul Montgomery, a numismatic expert.
Strategic Capital Corporation, a business restructuring advisor with substantial broker dealer experience.
Thompson & Knight L.L.P, an international law firm based in Texas with offices in Latin America.
Local counsel and experts as needed in certain U.S. States, Canada, the United Kingdom, Switzerland and Antigua.
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Dated: April 23, 2009 Respectfully submitted,
BAKER BOTTS L.L.P.
By: / s/ Kevin M. Sadler
Richard B. Roper, IIITEXAS BAR NO. 17233700THOMPSON & KNIGHT LLP1722 ROUTH STREETSUITE 1500DALLAS, TEXAS 75201(214) 969-1700(214) 969-1751 (FACSIMILE)
Kevin M. SadlerTexas Bar No. [email protected] Shell Plaza910 LouisianaHouston, Texas 77002-4995(713) 229-1234(713) 229-1522 (Facsimile)
1500 San Jacinto Center98 San Jacinto Blvd.Austin, Texas 78701-4039(512) 322-2500(512) 322-2501 (Facsimile)
Timothy S. DurstTexas Bar No. [email protected] BOTTS L.L.P.2001 Ross AvenueDallas, Texas 75201(214) 953-6500(214) 953-6503 (Facsimile)
ATTORNEYS FOR RECEIVER RALPH S. JANVEY
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CERTIFICATE OF SERVICE
On April 23, 2009, I electronically submitted the foregoing Report with the clerk of court
for the U.S. District Court, Northern District of Texas, using the electronic case filing system of
the court. I hereby certify that I have provided copies to the Examiner in this case and to all
counsel of record electronically or by another manner authorized by Federal Rule of Civil
Procedure 5(b)(2).
/s/ Kevin M. SadlerKevin M. Sadler
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