Grant Thornton Response to Angela Shaw’s Questions

Grant Thornton Response to Angela Shaw’s Questions

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SEC Sanctions Former Staffer Accused of Thwarting Stanford Probe

By: Scott Cohn Senior Correspondent, CNBC
 

A former regional enforcement director with the Securities and Exchange Commission who allegedly derailed repeated attempts to investigate convicted Ponzi schemer Allen Stanford and then tried to represent Stanford in private practice has been barred from practicing before the Commission for one year, the SEC said.

Spencer Barasch, 54, a partner at Andrews Kurth, previously agreed to pay a $50,000 civil penalty to the Justice Department to settle allegations he violated federal conflict of interest laws.

 Barasch was a top enforcement attorney in the SEC’s Fort Worth office beginning in 1998, around the time the office began receiving complaints about Stanford. An internal investigation found Barasch repeatedly rebuffed other staffers’ requests to investigate Stanford. After Barasch left the Commission in 2005 for private practice, he asked the SEC’s ethics office for permission to represent Stanford and was told he could not. But in 2006, Barasch began representing Stanford anyway, even asking his former colleagues for information about the investigation they had finally begun.

The SEC sued Stanford for fraud in 2009, and a federal grand jury indicted him later that year for running a $7 billion Ponzi scheme. He was convicted on 13 criminal counts in March and is awaiting sentencing.

Asked by then-SEC Inspector General why he was so persistent in attempting to represent Stanford, Spencer Barasch reportedly replied, “Every lawyer in Texas and beyond is going to get rich over this case. Okay? And I hated being on the sidelines.”

The SEC says Barasch has agreed to the one-year bar “without admitting or denying the Commission’s allegations.”

“This action shows that the Commission takes seriously ethical lapses by attorneys who appear and practice before it, and that such violations will result in serious disciplinary action,” SEC Associate General Counsel Richard Humes said in a statement.

Stanford Update re Receiver’s Claims Process and SEC Suit

    KACHROO LEGAL SERVICES, P.C.

Stanford Update re Receiver’s Claims Process and SEC Suit 

Dear Stanford clients:

This update provides information regarding the claims process recently approved by the Court in Dallas, as well as the status of our class action pending against the SEC.

The Stanford Receiver’s Claims Process

On May 4, 2012, the Court in Dallas approved the Receiver’s proposal for a claims process and, on May 11, 2012, the Receiver published the Claim Form that needs to be completed. The deadline to submit your claim is September 1, 2012. For many of you, we have the necessary information and supporting documentation to complete the Claim Form on your behalf. However, if you have any of the following documents and have not previously sent us copies, please do so immediately:

• Personal checks, cashier’s checks, wire transfer advices, Stanford International Bank, Ltd. account statements and other documents showing that you invested funds or paied funds to Stanford;

• Your Stanford International Bank, Ltd. certificate of deposit, and any written contract or agreement made in connection with your investment in Stanford;

• A chronological accounting of all money you received from any Stanford entity;

• All documents and records reflecting any withdrawals ever made by you or payments received by you from Stanford;

• All agreements, promissory notes, purchase orders, invoices, itemized statements of running accounts, contracts, court judgments, mortgages or security agreements relating to your investment in Stanford; and

• Any other documents evidencing the amount and basis of your claim.

If you have not sent us any supporting documentation and you have no supporting documentation, please contact us immediately. We will need to explain to the Receiver why the documentation is unavailable.

Please note that a Claim Form must be completed even if you previously submitted or will be submitting a claim to the Antiguan liquidators. If you are in the Stanford Further Actions (SFA) program, but have decided to submit your own claim, please send it to us so we can check the claim and have a copy of it for our files.

Also note that the submission of a Proof of Claim to the Dallas receivership will submit you to the jurisdiction of the court for all purposes related to the claim. This means that, to the extent there is a dispute regarding your claim,

you may be required to appear in court or provide sworn testimony regarding your claim. You will also be required to sign your Proof of Claim under penalty of perjury. As soon as we complete your Proof of Claim, we will send you a copy to review, sign and send back to us.

If you have any questions regarding your claim, please contact us. If you want KLS to handle your claim, but you have not yet signed up for the SFA program, please contact us for further information on how to sign up.

Update on Stanford/SEC Case

On February 14, 2012, the United States filed a motion to dismiss our Complaint. As we explained in our last update, the United States is arguing that the government is immune from suit based on a statute that exempts it from liability for certain discretionary actions. In our response brief, we argued that we alleged certain statutory violations by the government and the government has no “discretion” to violate statutes. The motion is now fully briefed and we are waiting on a ruling from the judge. There is no timeline for when the judge will rule on the motion, and it may be several more weeks before we receive a ruling. We believe strongly that the Court should rule in our favor, but we are prepared to immediately appeal should the Court grant the motion to dismiss. We will update you as soon as the Court rules on the motion.

The KLS Stanford Team

Investors Sue Auditor for Stanford Ponzi Fraud

By DAVID LEE
DALLAS (CN) – Investors defrauded by Allen Stanford’s $7 billion Ponzi scheme say in court that the fund’s auditor knowingly participated in the fraud. 
The Official Stanford Investors Committee filed the federal complaint against BDO USA, and related entities BDO International, BDO Global Coordination and Brussels Worldwide Services. The complaint abbreviates Stanford Group Co. as SGC. 
“Despite the pervasive fraud that infected Stanford Financial Group’s operations, BDO USA repeatedly issued unqualified audit opinions on its Stanford clients’ annual financial statements,” the complaint states. “BDO USA’s audit opinions on SGC’s financial statements were critical to Stanford Financial Group’s success.”
In March, Stanford was found guilty of one count of conspiracy to commit mail fraud, four counts of wire fraud, five counts of mail fraud, one count of conspiracy to obstruct a U.S. Securities and Exchange Commission investigation, and one count of obstruction of an SEC proceeding. He was
acquitted of one wire fraud charge. 
“Allen Stanford and his co-conspirators used the promise of SIBL CDs to lure investor money into Stanford Financial Group and then stole billions of dollars in assets from Stanford Financial Group companies for their own personal benefit,” the complaint states, abbreviating Stanford International Bank Ltd. certificates of deposit. 
“Substantial sums of these stolen funds were used to: 
(i) support the lavish lifestyles of Allen Stanford and his Ponzi insiders; 
(ii) issue bogus, unsecured personal “loans” to Allen Stanford; 
(iii) capitalize other entities wholly owned by Allen Stanford; and 
(iv) fund investments in speculative, illiquid, and high-risk assets, including private equity holdings and massive investments in Antiguan real estate.” 
Investors say BDO USA provided critical services to Stanford Financial Group for over a decade, auditing the annual financial statements of Stanford Group Co., a Houston-based broker-dealer and investment adviser that recommended and sold SIBL CDs to investor. 
BDO USA also allegedly audited the annual financial statements of Stanford Trust Company (Louisiana), which served as trustee and custodian to hold the SIBL CDs that SGC sold for its investors’ IRA accounts. And it audited the annual financial statements of Stanford Group Holdings, a holding company for the broker-dealer arm of Stanford Financial Group, including SGC and STC, according to the complaint.
BDO allegedly played a significant role in weakening banking laws in Antigua, where SIBL was based. 
When Antigua came under increased scrutiny from foreign regulators, Stanford formed a task force to rewrite the country’s banking laws, according to the complaint. The task force allegedly succeeded both in weakening regulations, and in effectively eliminating SIBL’s Antiguan competitors, making Stanford the
country’s de facto offshore banking regulator.
“The smashing success of the Stanford task force and its misleading regulatory ‘reforms’ were rooted in its exclusive nine-person membership,” the complaint states. “Every firm represented on the Task Force provided crucial services to Stanford Financial Group, and every individual member of the Task Force was personally appointed by Stanford himself. … BDO USA’s partners and associates comprised nearly half of the Stanford Task Force’s members, more than any other firm represented on the Task Force.”
The key initiative of the task force was to amend Antigua’s Money Laundering Act to ensure that “fraud” and “false accounting” were not included as violations, investors say.
BDO USA allegedly had some of the most important responsibilities in completing the initiative, including reviewing and advising on Antigua’s banking laws, and making recommendations to Antigua’s regulatory
authorities, including procedures for supervising and examining international banks.
BDO USA’s service on the task force completely undermined its independence from SFG and, and as a result, violated generally accepted auditing standards by issuing unqualified audit opinions on its Stanford clients’ annual financial statements during the years that BDO USA served on the Stanford Task Force, the complaint says. Investors also accuse BDO USA’s audit engagement partner, Carlos Ancira, of concealing critical, material information from his own audit engagement team. 
“Ancira knew that SGC was under increasing scrutiny from the SEC years before the U.S. Government seized Stanford Financial Group in February 2009,” the complaint states. “Shockingly, however, Ancira reassured SGC in a February 28, 2007 email that ‘[d]ue to the sensitivity of the situation,’ no other members of BDO USA’s audit engagement team would be told about the SEC’s investigation of SGC for possible securities fraud. Furthermore,
Ancira’s email permitted SGC’s outside legal counsel to omit any discussion of the SEC investigation in its audit response letter.” 
For every year BDO USA audited SGC’s annual financial statements, it failed to confirm that SGC remitted investor funds to purchase SIBL CDs and failed to properly modify its audit opinions, the complaint alleged. It also stated that BDO USA failed to properly consider and apply consolidation principles, failed in its role as a public watchdog and issued unqualified audit opinions in spite of knowing its Stanford clients “substantially” depended on SIBL CDs. 
The investors seek actual and punitive damages for negligence, civil conspiracy, breach of fiduciary duty, fraud and conversion. They are represented by Guy Hohmann with Hohmann, Taube & Summers in Austin.

Stanford auction to be held this weekend

Source: Deborah Wrigley 
Facebook, News Team 

HOUSTON (KTRK) — Hundreds of items that once belonged to disgraced money manager R. Allen Stanford are going on the auction block this weekend. Stanford was convicted two months ago for running a massive Ponzi scheme that lost around $7 billion of investors’ money.

The warehouse is in northeast Houston, and it looks like a scene from an Indiana Jones movie. The warehouse just keep on going with row after row of merchandise. Most of it is office furniture but some of it is personal furniture belonging to a former Stanford executive.

Until three years ago, this furniture would have been found in the offices of Stanford financial near the Galleria. Now it sits in a warehouse, organized, numbered and awaiting buyers.

“If these could talk, what do you think they’d say?” we asked Auctioneer Seth Worstell.

“I don’t know, couldn’t tell you,” he said.

When R. Allen Stanford’s empire crashed, taking investor and clients money in what was called a $7 billion Ponzi scheme, whatever assets could be found became the property of the court and its receiver. That includes the personal contents of Stanford CFO Jim Davis. Everything was seized, from a $310,000 grandfather clock to a baby grand piano, a now-ironic inspirational poster and a pair of inflated exercise balls.

“With the nature of this sale, everything is going to sell absolutely – no minimums, no reserves, so there’s absolutely an opportunity here for people to get a great deal,” Worstell said.

 It’s the end of an era at Worstell Auctions. Founder Harry Worstell is retiring Saturday, and his son will take over the business. Worstell oversaw the last Stanford auction. Before that, he auctioned off Enron assets. This, he says, is better stuff

“There are many exciting things in this, there many things I’ve never sold,” Harry Worstell said.

 They say there’s no minimum bid for the stuff up on the auction and they say everything must go.

The warehouse opens for viewing at 8am Saturday and the auction begins at 10am.

Case Preview: Stanford International Bank (acting by its joint liquidators) v Director of the Serious Fraud Office

(i) Stanford International Bank Limited (acting by its joint liquidators) (Appellant) v Director of the Serious Fraud Office (Respondent); and

(ii) Stanford International Bank (acting by its joint liquidators) (Respondent) v The Director of the Serious Fraud Office (Appellant) (Oral Hearing) 

Earlier this year, the Supreme Court heard a complex dispute arising from the collapse of Stanford International Bank (“SIB”) in early 2009. The two appeals concern the proper administration of the world-wide assets of SIB in order to compensate the victims of an alleged “Ponzi” scheme perpetrated by (the then “Sir”) Allen Stanford and other individuals charged in the U.S. The key legal questions facing Lords Phillips, Brown and Kerr are likely to concern the interpretation of:

(1) The Cross Border Insolvency Regulations 2006;
(2) UNCITRAL Model Law on Cross-Border Insolvency; and
(3) The Proceeds of Crime Act 2002 (External Requests and Orders) Order 2005. SI No. 3181 (the “ERO Order”).

The facts 

SIB was incorporated in 1990 (and at all times thereafter had its registered office) in Antigua and Barbuda. The bank was allegedly involved in a ‘Ponzi’ fraud in which around 27,000 (primarily Central, North and South American) investors bought certificates of deposit amounting to $104bn.

In February 2009, a Texan Court made an order enabling the U.S. Securities and Exchange Commission to appoint a receiver (the “US Receiver”) over the assets of SIB, Allen Stanford and other individuals who were allegedly running the scheme. In April 2009, the Antiguan High Court approved an application and a petition presented by the Financial Services Regulatory Commission of Antigua to appoint joint liquidators of SIB (the “Antiguan Liquidators”) and approve the compulsory winding up of SIB. Under the terms of the order, all of the assets of SIB, wherever situated, were vested in the Antiguan Liquidators.

On 6 April 2009, shortly before the handing down of the above order, the U.S. Department of Justice wrote to the U.K. (the “Letter of Request”) to request immediate assistance in relation to the fraud investigation by the DOJ pursuant to the U.S./U.K. Mutual Assistance in Criminal Matters Treaty. The Letter of Request sought restraint in the UK of all assets of SIB, Allen Stanford and other named individuals so that they might be secured for confiscation at a later date. The Serious Fraud Office then applied to the Central Criminal Court for an external restraint order, a request by an overseas authority to prohibit dealing with relevant property under Article 8 of the ERO Order, in respect of the assets set out in the Letter of Request. The application was successful and the Restraint Order was granted to the SFO and served on SIB in late April 2009.

The Model Law – recognition applications

When $110m of SIB assets were identified as being held by certain financial institutions in England, the Antiguan Liquidators applied to the English High Court on 22 April 2009 for recognition of the Antiguan liquidation of SIB and for an order entrusting to them the distribution of the assets of SIB situated in the U.K. This application was made under article 15 of the Model Law which was implemented in the U.K. by the Regulations.
On 8 May 2009 the US Receiver also applied to the High Court in England under Article 15 of the Model Law for recognition of the US Receivership of SIB (and the other SIB entities) as the foreign “main proceeding” and of himself as the foreign representative of SIB.

The First Instance decision in the High Court 

In the approved judgment by Mr Justice Lewison on 3 July 2009, the recognition application of the Antiguan Liquidators as foreign representatives of a main proceeding under the Regulations was accepted, as the bank’s “centre of its main interest” (“COMI”) was Antigua. As SIB’s registered office was in Antigua, it was presumed that the COMI must be there too. Approving the ECJ’s judgment in Re Eurofood IFSC Ltd, Re (C-341/04) (2006), it was held that the onus was on the U.S. Receiver to rebut the presumption that the company’s COMI was at its registered office with factors that were both objective and ascertainable by third parties. The presumption was not rebutted and the U.S. Receiver’s application was dismissed.

Mr Justice Lewison also observed that the Texan court order appointing the U.S. Receiver was not made “pursuant to a law relating to insolvency” but rather to prevent the detriment of investors. Lewison J said that the common law should supplement the Regulations and not usurp them. If it is established that liquidators have been properly appointed with the power and duty to collect assets on behalf of all the creditors, then – unless exceptional circumstances arise – they should be able to continue such duties without outside interference from others. This would promote a general policy of universalism, to enable there to be one collective proceeding in which all creditors were entitled to participate, irrespective of where they were located.

The Antiguan Liquidators were therefore the proper liquidators and were permitted to take possession of SIB assets within the jurisdiction and to remit the SIB assets toAntigua.

Misrepresentation and Material non-disclosure

It later emerged that the court had not been informed of the Restraint Order and as such, the SFO had not been provided with the opportunity to be heard on the applications pursuant to Article 17 of the ERO Order. When the Restraint Order was made known to him at a subsequent hearing to determine the form of the High Court order, Lewison J modified his High Court order so as to take effect subject to the Restraint Order.

Central Criminal Court – HH Judge Kramer QC

The Antiguan Liquidators applied to Judge Kramer QC in the Central Criminal Court to vary the Restraint Order to enable the High Court judgment to be carried out. During the hearing for this application, the evidence submitted to the court when the Restraint Order was made (in April 2009) was put for the first time before the Antiguan Liquidators, who then expanded their application to Judge Kramer QC in order to seek the discharge of the Restraint Order altogether on grounds of misrepresentation and material non-disclosure. Both the respective applications to discharge and vary the Restraint Order were deemed unsuccessful.

The Court of Appeal decision

In February 2010, the Court of Appeal held as follows:

(1) Dismissing the U.S. Receiver’s appeal against the recognition of the Antiguan Liquidators as the foreign main proceeding as defined in Article 2 of the Model Law. The Antiguan liquidation proceeding satisfied the conditions for the application of the Model Law because it was collective, judicial and pursuant to a law relating to insolvency. Despite new evidence being presented before the court, the U.S. Receivers were held not to possess the necessary characteristics to be deemed a “foreign representative”. Accordingly, the High Court was correct in following Re Eurofood to hold that the presumption could be rebutted only by factors that were both objective and ascertainable by third parties.

(2) (Arden LJ dissenting) allowing the U.S. Receiver’s appeal against the refusal of Judge Kramer QC at the Central Criminal Court to discharge or vary the Restraint Order which he made in April 2009 against those named in the Letter of Request under article 8 of the ERO Order. The Restraint Order was set-aside on grounds of substantial misrepresentation and non-disclosure of material matters on behalf of the SFO when the Restraint Order was obtained without notice. The granting of an order unlimited in point of time could not have been justified by proper disclosure (Brinks Mat Ltd v Elcombe [1988] 1 WLR 1350, 1357).

(3) However, the Restraint Order was re-granted but with effect from 29 July 2009, making it later in time than the date on which SIB was wound up by the High Court of Antigua. Referring to article 46 of the Model Law, the Court of Appeal decided to re-grant the Restraint Order (which was to be tailored so as avoid inconsistency between the two orders) conferring on the SFO administrative priority in respect of SIB’s assets in the U.K.

The Court of Appeal relied on Article 46(1)-(3) which states, at Article 46(2)(b), that the power to grant an external restraint order must be exercised “with a view to securing that there is no diminution in the value of the property identified in the external request”. Using this guidance, the Court of Appeal, having deemed references to “property” held by SIB to include references to property vested in the Antiguan Liquidators, held that the re-granting of the Restraint Order was necessary to stop the risk of diminution in the value of the deposits held in U.K. banks in the name of SIB in paying the costs of the Antiguan liquidation proceedings.

Comment

Practitioners of international insolvency law will be interested to see how the Supreme Court responds to the new appeals. Of particular interest will be the interpretation of the COMI test in respect of the application of the Re Eurofood principles and how the competing claims under the Regulations which implement the Model Law are managed.