New Official Committee to Represent Victims Interests Announced

STANFORD RECEIVER AND VICTIMS ANNOUNCE AGREEMENT ON FORMATION OF
OFFICIAL COMMITTEE TO REPRESENT VICTIMS’ INTERESTS

March 30, 2010

FOR IMMEDIATE RELEASE

CONTACT: Peter Morgenstern (pmorgenstern@mfbnyc.com), 212-750-6776

Kevin Sadler (kevin.sadler@bakerbotts.com), 512-322-2589
Dallas, Texas – Ralph Janvey, the Court-appointed Receiver in the Securities and Exchange Commission’s civil enforcement action against R. Allen Stanford, today announced, together with Peter D. Morgenstern, an attorney representing victims of the alleged $7.2 billion Stanford Financial Group “Ponzi” scheme, that they have reached an agreement to resolve a pending motion seeking to force the Stanford entities into bankruptcy, by establishing an official committee to represent the victims’ interests in the continuing receivership case.
The agreement, submitted as a proposed stipulation and order to Judge David Godbey of the United States District Court for the Northern District of Texas, who is presiding over the case has the support of the SEC, John J. Little, the Court-appointed Examiner, and the Stanford Victims Coalition. Under the terms of the agreement, a formal committee would be established to represent the interests of investors who purchased certificates of deposit (CDs) from Antigua-based Stanford International Bank, Ltd. Among other things, the agreement provides a framework that allows the Receiver and the Committee to coordinate and cooperate in several important areas, including providing access to the Committee to review Stanford records that are under the control of the Receiver and pursuing litigation against third parties. The agreement also provides for regular consultations between the Receiver and the Committee on a variety of issues of importance to the Stanford Receivership.
The agreement, if approved by the Court, would resolve long running dispute over whether investors should have the right to file an involuntary bankruptcy petition against Allen Stanford and one or more of the Stanford companies and have a formal role in the receivership proceedings. In a court hearing last month, the investors argued that a bankruptcy filing would afford them greater rights to participate in the identification and liquidation of Stanford’s assets, and to pursue claims against third parties that may have helped perpetrate the fraud. The Receiver and the SEC opposed that request, arguing that a bankruptcy filing would be disruptive and expensive.
“This agreement recognizes the legitimate rights of Stanford’s thousands of victims to participate in the receivership process, including the pursuit of assets and lawsuits aimed at recovering funds to at least partially satisfy their multi-billion dollar claims,” said Mr. Morgenstern. “We have essentially obtained all of the benefits of a bankruptcy filing for the victims while accommodating the Receiver’s legitimate concerns about the potential difficulties that such a filing would pose. We are hopeful that this agreement represents a turning point in the case, ushering in a new phase characterized by a cooperative effort by the Receiver and investors to maximize recoveries for the thousands of Stanford victims worldwide.”
Ralph Janvey, the Stanford Receiver said that the agreement “is in the best interests of the Receivership Estate and will allow both the Receiver and the Committee to work together to provide the greatest return possible to those injured by the Stanford fraud.”
Angela Shaw, founder and director of the Stanford Victims Coalition, an international advocacy group representing victims of the alleged fraud, supports the agreement and would serve as a member of the newly-formed Committee. Mr. Little has also agreed to serve on the Committee, whose other members would be designated once the Court approves the agreement.
The case is Securities and Exchange Commission v. Stanford International Bank, Ltd., Civil Action No. 3:09-CV-00298-N, United States District Court, Northern District of Texas (Dallas).

Antiguans Were Allowed To Invest in SIB

Chief Executive Officer (CEO) of the Financial Services Regulatory Commission (FSRC) John Benjamin has refused to discuss the contents of a recent report on its practices.

Senator Joanne Massiah said last week that an investigation had resulted in a report being passed to Cabinet.

Benjamin, when asked whether he had already seen the report, said “I have heard of it.”

He added, “I will not discuss the report,” then admitted that he was aware of the Freedom of Information act.

No member of Cabinet has revealed the contents either, although Caribarena.com understands that there are details of some serious allegations.

Caribarena.com has also been reliably informed that a number of Antiguans and Barbudans were allowed to invest in the Stanford International Bank (SIB), although by law, nationals are not allowed to invest in offshore banks in their personal capacities.

An Antiguan national who wishes to invest in an offshore bank can do so by registering an International Business Corporation (IBC) outside the local jurisdiction.

This was designed so that offshore banks cannot compete with domestic banks.

The FSRC is responsible for regulating offshore banks like SIB.

Its former head, Leroy King, is accused of conspiring with R Allen Stanford, the sole owner of SIB, to defraud investors.

King is awaiting an extradition hearing after he was indicted with Stanford in what has been described as a massive Ponzi scheme.

Stanford asks for new team to defend him

Jailed businessman R. Allen Stanford is changing lawyers again and wants to be tried someplace else.

Criminal defense lawyer Michael Essmyer said Monday that Stanford, 60, founder and chairman of Stanford Financial Group who faces 21 federal criminal charges, has asked for new representation.

Since the Securities and Exchange Commission first froze assets of Stanford and the company in February 2009, Stanford’s criminal counselors, at various times, have been lawyers with a Washington firm, a Houston civil lawyer, Houston criminal defense lawyer Dick DeGuerin, a court-appointed public defender and most recently Houston criminal defense lawyers Kent Schaffer and George “Mac” Secrest.

Stanford has pleaded not guilty to charges of conspiracy, fraud and obstruction of justice. Prosecutors allege he ran a $7 billion Ponzi scheme.

Essmyer said Stanford, who is being detained without bail as a flight risk, has asked to be represented by Essmyer and Robert S. Bennett, a Houston-based consumer lawyer who does some criminal work. Essmyer said that if Senior U.S. District Judge David Hittner accepts the change of attorneys, he plans to ask that the trial be moved because the Houston jury pool may be tainted by publicity about the case.

He cited the case of ex-Enron CEO Jeff Skilling, whose appeal before the U.S. Supreme Court includes an argument that he should not have been tried in Houston because Enron’s collapse so deeply shook the Houston community.

In the Skilling case arguments before the high court earlier this month, the justices focused largely on the amount of time the Houston trial judge spent on jury selection and why he didn’t strike some potentially prejudiced people from the pool of jury prospects.

The court is not likely to decide the Skilling case for several months and could rule solely on the other issue in that case — whether the government properly prosecuted Skilling under a federal law that makes it a crime to deprive a business or government of “honest services.”

Hittner is the only Houston judge who granted a change of venue motion in an Enron case. That was in the case against Lea Fastow, an Enron employee and the wife of the chief financial officer. Hittner moved it to Brownsville for trial but Fastow entered into a plea bargain instead.

Schaffer said he and Secrest are happy to step aside for the lawyers Stanford now requests.

Essmyer said if the court approves the new counsel, they may add to the team in the future.

This possible changing of the legal guard for Stanford coincides with an expected attorney payday from Lloyd’s of London. The insurance company has fought paying criminal defense legal fees for Stanford and his codefendants since the day a former Stanford company official pleaded guilty to wrongdoing at the company.

The insurer said that plea triggered an agreement in its contract with the Stanford firms and directors and officers, and that they no longer are covered in criminal cases.

An appellate court recently ruled that Lloyd’s must pay now but can still take the question of its obligations to trial in Houston.

Richard Kuniansky, lawyer for Stanford codefendant Mark Kuhrt, said Monday that he will submit a $94,000 bill to Lloyd’s, and asked the court that he no longer be considered court-appointed and paid by taxpayers.

The trial for Stanford, Kuhrt and codefendants Laura Holt and Gilbert Lopez is scheduled for January 2011.

Some lawyers said Stanford, the only jailed defendant, may now ask that his case be tried sooner or that he be released. But Essmyer said he has no current plans to ask for an immediate trial. Since Hittner is known to run a fast docket, such a motion likely would mean Stanford’s case would be severed from those of his codefendants and he’d be tried quickly.

Stanford investors hoping to recover losses in alleged fraud

Members of the Stanford Victims Coalition from Louisiana and Texas are scheduled to meet today in Washington, D.C., with Mary L. Schapiro, head of the Securities and Exchange Commission.

They will ask Schapiro to require financial-industry coverage of billions in fraud losses allegedly caused by jailed Texas financier Robert Allen Stanford, John Wade of Folsom said Friday.

Wade is a partner in a small business that lost more than $1 million in pension funds in the Stanford case.

Members of Louisiana’s congressional delegation support the effort to help victims of the alleged fraud.

“I’m all for it,” U.S. Rep. Bill Cassidy said Friday.

Added Robert Sawicki, press secretary for U.S. Sen. Mary Landrieu: “Sen. Landrieu supports extending (this) protection to the victims of Allen Stanford’s Ponzi scheme.”

The coverage under discussion — up to $500,000 per investment account — repeatedly has been denied by the Securities Investor Protection Corp. since Stanford was indicted in Houston in June. Stanford remains in federal custody and faces trial in January on charges that he masterminded $7.2 billion in frauds against more than 25,000 investors around the world.

SIPC was created by Congress in 1970, but it is funded by member brokers and dealers across the nation.

The nonprofit corporation granted more than $500 million in coverage to fraud victims of confessed swindler Bernard Madoff of New York. Madoff is serving a 150-year prison term.

As many as 1,000 residents of the Baton Rouge, Lafayette and Covington areas lost as much as $1 billion to Stanford’s promotions, Baton Rouge lawyer Phillip W. Preis and state Rep. Bodi White, R-Central, have estimated.

And residents of other states have lost additional billions to Stanford, but SIPC repeatedly has refused to help them.

Wade said SEC and SIPC officials base that denial on the fact that most of Stanford’s investors lost money earmarked for his offshore Stanford International Bank.

Wade added, though, that he and many other investors sent their payments to Stanford Group Co., a member of SIPC, and bank statements show those funds were never sent to Stanford’s bank on the Caribbean island of Antigua.

“A lot of people didn’t even know they were dealing with Antigua,” Wade said. “They were dealing with Stanford Group Co. That’s our message.”

Preis, the Baton Rouge attorney who represents more than 100 Stanford investors, said the policy technically favors Schapiro’s and SIPC’s current stance against extending coverage to his clients.

But Preis noted that Schapiro easily could authorize an exception in the Stanford case.

“If Ms. Schapiro were to focus on who is more deserving between the Madoff and Stanford victims, she would have to conclude the Stanford victims are more deserving of SIPC coverage,” Preis added.

“Most of the Madoff victims were not retirees,” Preis said. “Most were very wealthy people.

“The Stanford victims, as a group, are smaller investors and retirees,” Preis said.

In November, Cassidy, R-La., spearheaded a request by the entire Louisiana congressional delegation and 40 other federal lawmakers for a directive from Schapiro that would require SIPC coverage.

“I am elated that the Stanford victims are having a chance to meet with Schapiro,” Cassidy said Friday.

In a written statement, Landrieu, D-La., added that she and 16 other senators are pushing a bill that would enable individual Stanford investors to deduct as much as $1.5 million of their losses from their income taxes.

“The massive fraud perpetrated by the Stanford Financial Group robbed people of their entire life savings and of their trust in our financial institutions and in our government’s capacity to regulate markets,” Landrieu said. “That’s why it is so important for us to act quickly in correcting this injustice.”

Magistrate Dithers on Leroy King Extradition Decision

Leroy King, the former head of the Financial Services Regulatory Commission (FSRC), will have to wait a bit longer to find out whether he will be committed for extradition to the United States (US).

King appeared in the St. John’s Magistrates’ Court yesterday before Chief Magistrate Ivan Walters, who informed him that he (Walters) was not ready with his decision.

Chief Magistrate Walters adjourned the matter until 26 April and told King that his bail will continue in the same terms as before.

The former FSRC head has been charged by the United States Securities and Exchange Commission (SEC) with taking hundreds of thousands of dollars in bribes to ignore wrongs in relation to the alleged Sir Allen Stanford $8 billion Ponzi scheme. He is facing 10 counts of conspiracy to commit mail fraud, seven counts of conspiracy to commit wire fraud, conspiracy to obstruct the SEC, and conspiracy to launder illegal proceeds.

The SEC’s complaint alleges that King facilitated the Ponzi scheme by ensuring that the FSRC conducted sham audits and examinations of Stanford International Bank Limited’s (SIBL’s) books and records. They also allege that in exchange for bribes paid to him over several years, King made sure the FSRC did not examine SIBL’s investment portfolio.

In January, King’s lawyer, Dane Hamilton QC, made submissions before the court as to why his client should not be sent to the US to stand trial for his alleged involvement in a Ponzi scheme with Sir Allen Stanford and others.

Hamilton said it has not been

shown in anyway whatsoever that King benefitted from sums of monies lodged with Stanford Bank in the USA by investors Jonathon Davis and William Julian.

He said SIBL was an offshore banking corporation that was registered in Antigua and Barbuda and fell under the regulatory purview of the FSRC. Hamilton explained that the regulatory body (the FSRC) is headed by a board of directors and King was the administrative head of the commission at the material time.

Hamilton stated that King had no control of the processes of the FSRC and added that there was no evidence to show that in any way, he (King) influenced the examination of the supervisor of banking over SIBL.

Director of Public Prosecutions (DPP), Anthony Armstrong, in his submissions said the government’s case was based on three areas- direct, circumstantial and documentary evidence.

The DPP told the court that King wrote to Elizabeth Jacobs, the deputy director of SEC on 10 Feb., 2006, assuring her that the FSRC had examined SIBL’s conduct some five months before and that the bank was complying with all the applicable laws and regulations. King also assured that all the other relevant things were examined and were in place.

According to Armstrong, King’s role in the conspiracy was indeed critical because of what he said in his letter-that on site examination proved that the bank was complying with depositors’ safety and insolvency.

Armstrong said in 2005, King was put on notice by the SEC that all was not well at SIBL. The DPP said the SEC had disclosed that evidence was gathered by its staff about legitimacy of the CDs, which King had assured were safe and solvent.

King, Armstrong said was put on guard in no uncertain manner.

It is alleged that King sought advice from Sir Allen Stanford’s legal counsel pertaining to questions being raised by the Eastern Caribbean Central Bank (ECCB.)

Armstrong said in one of the hand-written letters King writes, “My good friend (referring to the attorney.) In another letter written to the attorney, he (King) again writes, “To America’s best and greatest attorney. Maurice (Alvarado), I am sending you two versions- one short and one long with a little more knock out punch. I prefer the shorter version, a little more subtle and diplomatic.”

It was further quoted in that letter by King to Alvarez, “Any other idea? Must conclude tomorrow. Will send you a package to include the annual report for SIBL and STCL. I am sending a message to these guys that the institutions concerned are not run of the mill, they are great quality institutions and the numbers speak for themselves. Please do not bill me (laugh) Thanks a million, Lee (short for Leroy.)”

The DPP questioned why King would be sending these letters from the ECCB concerning SIBL and STCL to his “good friend Maurice Alvarado” when he is refusing to disclose any information to the US regulatory body (the SEC.)

Ben Barnes Sued for $5 million by Stanford Receiver

Democratic lobbyist and former Texas Lieutenant Gov. Ben Barnes has been slapped with a $5 million lawsuit over lobbying and consulting services he provided to R. Allen Stanford, the indicted financier accused of running a multibillion-dollar Ponzi scheme.

The suit was filed on Mar. 15 by Ralph Janvey, the receiver appointed by the court to recoup the investors’ losses. It alleges that Barnes raked in millions doing consulting and lobbying work for Stanford’s fraudulent investment empire since 2005. Stanford is accused of bilking tens of thousands of investors out of nearly $8 billion, in one of the largest phony investment schemes of all time.

Barnes’s attorney, Jay Madrid, said that the lawsuit was baseless because his client was unaware that Stanford’s businesses were illegitimate at the time the services were provided. “This lawsuit is without merit and creates a dangerous precedent for service providers in all fields,” said Madrid in a written statement. “This is particularly true of those who deal in good faith with entities that have all the characteristics of legitimate enterprises but who after-the-fact become subject to receiverships, bankruptcies or similar business failings.”

But the lawyer for the court-appointed receiver said that that argument does not absolve Barnes of responsibility. “In a fraudulent transfer action, lack of knowledge of the fraud is not a defense,” attorney Kevin Sadler told the NLPC over email. He said that Barnes must prove that he was both unaware of the fraud and that the services he provided to Stanford were equivalent in value to the fees he collected.

“Barnes will not be able to establish the affirmative defense of objective good faith and reasonably equivalent value. His services left creditors of the Stanford entities with nothing of value,” wrote Sadler.

The lawsuit alleges that in many cases Barnes’s company “performed services [for Stanford] that simply furthered the Ponzi scheme.” This work reportedly included consulting Stanford on how to reduce his personal federal income taxes through the Virgin Islands tax incentive laws and providing investment advice. The lawsuit also says that marketing work done by Barnes for Stanford’s businesses “had the unfortunate effect of attracting new victims to [Stanford’s] fraudulent investment scheme.”

Barnes, a heavy-hitter in Democratic political circles, is no stranger to financial scandals. While serving as Texas Lt. Gov. the early 1970s, allegations that Barnes and other state politicians accepted bribes for political favors surfaced in an incident known as the Sharpstown scandal. Barnes was never charged, but the episode helped contribute to his exit from career politics.

Now a successful lobbyist, Barnes is still very much involved in the political arena. Last September, he hosted a Democratic Congressional Campaign Committee fundraiser for House Speaker Nancy Pelosi (D-CA) at his home in Austin, TX. Barnes and his wife have given $249,800 in political contributions in 2010, with 100 percent of those contributions going toward Democratic candidates, according to Open Secrets.

Click here to download a 14-page pdf of the Complaint.