110 years for Allen Stanford

ABOUT THE AUTHOR: Tim Prudhoe TEP is a Partner and Barrister at Kobre & Kim LLP

On 14 June 2012, financier and cricket mogul Allen Stanford was sentenced to 110 years in jail, having been convicted on 13 of 14 charges against him arising from his involvement in a USD7 billion Ponzi scheme.

While the legal saga is far from over, financial realities may spell a US victory. The recent US decision on (or, more specifically, against) the application for, in effect, primacy of the Antiguan liquidation in respect of Stanford International Bank (SIB) goes a long way towards making the assets of all Stanford entities available to all creditors of those entities, including the US Internal Revenue Service (the IRS). Excluding any reversal on appeal, the adverse implications for the (many) victims of the Stanford Ponzi scheme run through SIB are certain to be dire.

It is a depressing, post-Madoff world where a fraudulent scheme as large as USD7 billion seems barely newsworthy. However, the Stanford saga, and in particular the recent decision for Chapter 15 recognition of the Antiguan liquidation as the main insolvency proceedings, continues to have significant implications for cross-border insolvency, with a particular focus on international financial centres (so-called offshore tax havens).

The Stanford US receivership (note, not bankruptcy) decision of 30 July 20121 deals with many issues, including determination of the centre of main interest (COMI) for a company involved in cross-border insolvency proceedings. It found in favour of the US receiver, dismissing the Antiguan attempt for ‘main proceedings’ status, and instead granting it ‘foreign non-main proceedings’ (i.e. ancillary) status. Notice of the Antiguan liquidators’ appeal against that decision was filed on 7 August 2012.

110-year sentence
The jury trial in Houston (US v Stanford 09-cr-342, US District Court, Southern District of Texas) lasted six weeks, with Stanford’s lawyers arguing that the scheme was the design of his Chief Financial Officer and requesting a mere 44-month sentence. In contrast, US Department of Justice prosecutors recommended the statutory maximum of 230 years, stating ‘[it]will not get anyone their money back but on sleepless nights they will know that [Stanford] got the maximum’. During his 40-minute statement in court Stanford denied culpability, saying ‘I’m not here to ask for sympathy or forgiveness or to throw myself at your mercy… I did not run a Ponzi scheme. I didn’t defraud anybody.’ The presiding judge, David Hittner, described Stanford’s actions as ‘egregious criminal frauds’, while one victim spokeswoman, Angela Shaw of the Stanford Victims Coalition, stated that Stanford ‘stole more than millions… he stole our lives as we knew them’. Stanford’s sentence is 40 years shorter than that handed down to Bernard Madoff, whose Ponzi scheme was estimated at USD17.3 billion. However, Shaw stated that Stanford’s conduct was worse than that of Madoff because he preyed on middle-class rather than wealthy investors.

From the perspective of extracting value for the many victims, the real battle over where the insolvency proceedings should be heard is still being played out. The Antiguan liquidators have already managed to halt efforts by the US Department of Justice (DoJ) to repatriate tens of millions of dollars of frozen Stanford assets to the US from the UK, Canada and Switzerland. The oral hearing on the Chapter 15 application made to the US courts by the Antiguan liquidators for recognition of Antigua as the foreign main proceeding took place in early December 2011. The adverse effect of a protracted wait for a decision was such that on 23 July 2012 a formal court pleading was actually filed solely to ask the Court for a decision2. Subject to the pending appeal, this decision will be key to the future direction of the Stanford saga as we move past the fate of Stanford himself.

Procedural history of the SIB insolvency

Of the many steps in the complicated procedural background to the insolvency, the following are particularly noteworthy:

  • 16 February 2009: the US Securities and Exchange Commission (SEC) applied successfully to the Northern District Court of Texas for an order appointing a US receiver over the assets of SIB and Stanford.
  • April 2009: two orders issued by the UK High Court froze all SIB assets held in the UK following an application by the Serious Fraud Office, acting on behalf of the DoJ. The US was granted a similar restraint order for around USD140 million of assets held in Switzerland.
  • 15 April 2009: the Court of Antigua granted an order for the liquidation of SIB and for the appointment of Mr Wastell and Mr Hamilton-Smith as its joint liquidators. This order meant that all of the assets of SIB, wherever situated, were vested in the Antiguan joint liquidators.
  • 22 April 2009: the Antiguan liquidators applied to the High Court in England under Article 15 of the Model Law for an order for recognition of the Antiguan liquidation of SIB as the ‘foreign main proceeding’.
  • 8 May 2009: the US receiver also applied to the English High Court for recognition of the US receivership of SIB.
  • June 2009: the competing recognition applications of the Antiguan joint liquidators and the US receiver were heard by Lewison J. He accepted the application of the Antiguan liquidators and dismissed that of the US receiver.
  • 25 February 2010: the English Court of Appeal3 held that the US receiver was not a ‘foreign proceeding’ within the meaning of that expression as defined in Article 2(1) of the Model Law (and that the Antiguan liquidation was a foreign proceeding). It held that SIB’s COMI was Antigua.
  • 12 May 2011: the High Court of Justice for Antigua and Barbuda appointed Marcus Wide and Hugh Dickson of Grant Thornton as the new liquidators for SIB (the Antiguan liquidators).
  • 5 December 2011: the Antiguan liquidators applied to the US District Court seeking recognition of a foreign main proceeding.
  • 16 January 2012: Gloster J, in the Central Criminal Court in London, upheld the restraint order but ruled that the Antiguan liquidators should be granted a USD20 million line of credit from the assets to help fund the liquidation and realisations.
  • 23–25 January 2012: SIB applied to the UK Supreme Court for permission to appeal the freezing order. The respondent applied for permission to cross-appeal in respect of the decision of the Court of Appeal to quash the original order.
  • 15 February 2012: the UK Supreme Court granted permission to appeal. Judgment on the freezing order is unlikely to be given before 2013.
  • 10 April 2012: the same Texas judge hearing the recognition application by the Antiguan liquidators issued a request for evidence (a letter of request) to the English Court, the basis for which was to completely ignore the current primacy of the Antiguan liquidation.
  • 3 July 2012: Judge Robert Wilkins for the US District Court for the District of Columbia ruled against the SEC, which wanted the Securities Investor Protection Corp (SIPC) to start liquidation proceedings for the victims4. The SIPC previously handled high-profile liquidations such as Madoff’s Ponzi scheme but here maintained that it did not have jurisdiction over Stanford’s offshore bank. Although the Texas-based brokerage Stanford Group Company was a SIPC member, SIB was not. The judge agreed and found that the SEC did not meet its legal burden of showing why the SIPC should be compelled to act. The SEC has 60 days to decide whether or not to appeal the judge’s ruling; the agency is said to be ‘reviewing the decision’.
Statutory framework for cross-border insolvency

The legal framework within the US for recognition of cross-border insolvency is Chapter 15 of the Bankruptcy Code, which is based on the UNCITRAL Model Law. It came into force in 2005 and has been successfully invoked many times, especially since the financial crisis of 2008 (Fairfield Sentry, BVI and New York; Millennium Global Emerging Credit Master Fund, Bermuda and New York).

Under Chapter 15, an application can be made for insolvency proceedings in another jurisdiction to be recognised as a ‘foreign proceeding’ in the US. Section 101(23) of the Bankruptcy Code defines a foreign proceeding as ‘a collective judicial or administrative proceeding in a foreign country… under a law relating to insolvency… in which… the assets and affairs of the debtor are subject to control or supervision by a foreign court for the purpose of… liquidation’. Section 1517(b) provides that a foreign proceeding ‘shall be recognised… if it is pending in the country where the debtor has the center of its main interests; [n.b. which was refused in the decision of 30 July 2012] or… if the debtor has an establishment within the meaning of section 1502 in the foreign country where the proceeding is pending’. This second scenario (foreign non-main) was the limited recognition granted in the 30 July 2012 order.

The fight between the US court-appointed receiver and the Antiguan liquidators over which jurisdiction has the main insolvency proceedings will now continue on appeal. Unless that appeal succeeds, the Antiguan liquidators will not be able to assume the rights of a US bankruptcy trustee in US courts.

The decision of the Texas Court covers 60 pages, of which 46 are devoted to the discussion of ‘foreign main’ versus ‘foreign non-main’. From page 16 onwards there is a helpful review of the following:

  • The right to sue and be sued in US courts, as well as the authority to apply directly to the US courts for other relief (such as stays, injunctions, examine witnesses) is an automatic result of recognition as ‘foreign main’, but not automatically for ‘foreign non-main’ proceedings.
  • The Antiguan Stanford proceeding had the necessary ‘collective’, judicial, foreign and insolvency nature by which to satisfy the Chapter 15 test.
  • The test – at least from the US perspective – for COMI is widely cast.
COMI

In general terms, the English position is a rebuttable presumption that the COMI will match the jurisdiction of the company’s registered office. Again in general terms, the position under US Chapter 15 is more expansive, with the registered office having only evidential value, and control and management of assets carrying much more weight.

As is well known, this issue was previously examined in the Stanford English High Court decision5 and then by the English Court of Appeal6, with both courts ultimately holding that the COMI was Antigua rather than the US. The courts also held that the Antiguan proceeding was the ‘foreign main proceeding’. Although this gave the Antiguan liquidators rights to SIB’s assets, these rights were quickly blocked by the restraint order granted in favour of the DoJ. Both the DoJ (via its agent the Serious Fraud Office) and the Antiguan liquidators appealed to the Supreme Court and the judgment is still pending (although the Antiguan liquidators were granted a USD20 million loan from the SIB assets to fund their proceedings). It will be interesting to see what the Supreme Court’s interpretation of the COMI test will be.

The term COMI has not been defined in any of the legislation governing cross-border insolvency: the UK Cross Border Insolvency Regulations 2006, the Model Law, the relevant provisions of the EU Insolvency Regulation (the Regulations) or the US Bankruptcy Code. The presumption under Article 16 of the Regulations that a company’s registered office is its COMI is often called into question if a company’s operations are handled elsewhere. In the case of the UK Stanford litigation, it was found that this presumption could not be rebutted. The registered office of SIB, its headquarters, accounting departments, human resources departments and 88 of the bank’s 93 employees were all based in Antigua and were subject to Antiguan regulation. Most of the bank’s senior managers resided in the US or the US Virgin Islands and board meetings were usually held by telephone. The bank’s network had a global reach; its investors were not purely US based, and assets were held in the US, the UK, Switzerland and Canada.

Proliferating corporate fictions would protect sinister characters such as Ponzi schemers who may target offshore jurisdictions to run their fraudulent empires

While awaiting a ruling in Texas on the Chapter 15 recognition application, the Antiguan liquidators filed, in support of their position, a decision on the issue of COMI on 3 July 2012. This was the decision of 25 June 2012 to uphold the Bankruptcy Court’s ruling in In Re Millennium Global Emerging Credit Master Fund Ltd, 11 CIV 7865-LBS, which affirmed that: ‘(i) each debtor has a “center of main interest”; (ii) that the “center of main interest” is discerned objectively; and (iii) that the debtor’s recognition as a foreign main proceeding was not manifestly contrary to the public policy of the United States.’ In the Millennium case the Court held that it is the petitioner’s burden to show that the debtor’s COMI is the location of the foreign proceedings or, alternatively, that the debtor has an establishment in that place.

A favourable decision in Texas would have been a real game changer for the Antiguan liquidators, granting control over the funds already frozen in UK and Switzerland.

The Texas Court’s reasoning on COMI

First, the Court was prepared to apply the ‘corporate disregard’ doctrine (i.e. to step around the issue of separate corporate personality) to the (many) Stanford entities, and did so on the basis of the acknowledged fraud. It therefore applied COMI analysis to the aggregated Stanford entities and in doing so applied ‘federal principal place of business’ doctrines:

‘It is axiomatic that a corporation is a legal entity existing separate and apart from the persons composing it and entities related to it. However, courts equally accept that they should disregard the corporate form where that form was the means to a subversive end.’ (Page 20 of the judgment.)

‘… disallowing corporate disregard doctrines would proliferate recognition of foreign proceedings that have no real or rightful interest in liquidating the real estate. Proliferating corporate fictions in the Chapter 15 context would also protect sinister characters such as Ponzi schemers who may target offshore jurisdictions to run their fraudulent empires.’ (Page 23 of the judgment.)

Judge Golbey was careful to cite authority for this approach in not only the 5th Circuit of Appeals (i.e. the one encompassing Texas) but also the 1st, 7th, 9th and 11th Circuits as well. The absence of consolidated financials among the various Stanford entities was rejected as insignificant on the basis that the financial statements were manufactured or altered fraudulently anyway.

Secondly, the presumption as to registered office equating to COMI was taken as (i) rebutted by the US receiver and (ii) insufficiently proved as being Antigua. The COMI analysis to be extracted is as follows:

  1. Important that the COMI is ascertainable to third parties: insolvency is a foreseeable risk and a debtor’s potential creditors must be able to calculate permissible risk.
  2. COMI determination is based on the debtor’s administration, management and operations, along with whether reasonable and ordinary third parties can discern where the debtor is conducting these various functions.
  3. The test (at least in the US context) is analogous to the ‘principal place of business analysis’ or ‘nerve centre’ test7, and the registered office might give (at best) insight.
  4. The factual findings against the Antiguan liquidators were (p50 of the judgment):
  5. SIB was only nominally headquartered in Antigua.
  6. SIB’s major activities, certificates of deposit sales and fund investment took place outside Antigua, and a substantial number of the aggregated Stanford entities were headquartered outside Antigua.
  7. The senior management of the aggregated Stanford entities based outside of Antigua (and in the US).hThe primary assets of the Stanford entities were held outside Antigua.
  8. Most of the investor victims/creditors reside outside Antigua.jThe Texas Court is the jurisdiction locus (i.e. hub) of the Stanford entities.
  9. The nerve centre of the Stanford entities is in the US.
Runner-up prize for Antigua: ‘foreign non-main proceeding’

This was not sought in the petition and did not have to be. A favourable finding on ‘foreign non-main proceedings’ from the US perspective requires a ‘local place of business’ in that jurisdiction, and this was found in respect of Antigua:

Physical structures there.578 Antiguan clients: 31 individual and 547 trust and corporate entities (2 per cent of total SIB customers and 4 per cent of total monies invested) 3 SIB employees carried out functions in relation to three types of accounts, credit cards, loan facilities, letters of credit, letters of guarantee and private banking services.SIB issued loans to the Antiguan government.

This equated to ‘a measurable amount of local business in Antigua sufficient to have an establishment there’ (p53 of the judgment)
.
Recognition in this much more limited way (i.e. as an ancillary proceeding, lacking primacy, real power and any practical abilities other than a recognised basis by which to seek US court relief) did not come without heavy criticisms of the Antiguan liquidators for the following (p54 onwards in the judgment)
:

  1. The prior liquidators’ behaviour in Canada in terms of destroying computer records;
  2. Efforts to unseat the US receiver as recognised foreign representative in Canada;
  3. Challenges to DoJ criminal seizures in Canada, the UK and Switzerland;
  4. The preference for a US bankruptcy rather than the current receivership (criticised by the US Court as the basis for delay and disruption).

On the basis of these criticisms only limited relief was granted to the Antiguan liquidators, for example the taking of evidence: ‘[t]his limited relief facilitates the Joint Liquidators’ US discovery needs related to the Antiguan liquidation’. This was made conditional on the following:

  1. The Antiguan liquidators making available to the US receiver and the US Securities and Exchange Commission (SEC) any and all records the Antiguan liquidators have;
  2. The Antiguan liquidators attempting (by ‘best efforts’) to allow the US receiver reciprocal rights in the Antiguan courts;
  3. The Antiguan liquidators not disrupting the efforts of the US receiver or the SEC;
  4. The Antiguan liquidators not duplicating their efforts;
  5. The Antiguan liquidators not initiating US court actions, but instead consulting with the US receiver and attempting to adopt a common claims and distribution process for victims.

Further, the US Court was not troubled by the fact that permission for any of these requirements would be necessary in the Antiguan context:

‘To the extent that the Joint Liquidators require a court order from Antigua to comply with the above conditions, the Court leaves it up to the Joint Liquidators to attempt to obtain one. This Court will not modify its conditions simply because the Joint Liquidators are unable to secure the authority to comply.’

The Antiguan liquidators could be forgiven for feeling somewhat shell-shocked, and it will be interesting to see the reaction of the Antiguan Court on the necessary application(s).

Location of the assets and next steps, pending the outcome of the appeal by the Antiguan liquidators

It is believed that SIB has around USD8 billion in assets located all over the world, with 92 per cent of these assets yet to be traced. This sum is made up of 30,000 depositors in 100 different countries. 15.74 per cent of these depositors are US nationals, representing 22.21 per cent of the actual investments. Depositors from Latin America represent 71.17 per cent of total depositors and 58.56 per cent of investments. Before the decision of 30 July 2012, it was thought that these figures speak for themselves on this issue of whether it is accurate for insolvency proceedings to be carried out in the US and whether dealings with victims of the scheme should be characterised as necessarily US-centric.

On the part of the Antiguan liquidators, their latest ‘Communication to Creditors’ (dated 20 July 2012) reveals their perspective on the proceedings and requests patience from the investors:

‘The question to ask yourself is, “Do I want a small return at some future date, when the appeal process undertaken by Stanford in the US has run its course?” or “Do I want an earlier distribution recognizing that a small part will be invested to significantly increase my ultimate recovery?”’

Those questions now appear irrelevant in light of the recent Texas decision. The more pertinent question is now whether there will be any assets left to distribute now that the creditor pool has been aggregated by the US Court.

  1. Northern District Court of Texas (Dallas) Civil Action 3:09-CV-00721-N (Judge Godbey), 30 July 2012
  2. ‘The lack of a ruling is causing severe prejudice to the [Antiguan joint liquidators]. Among other things, the absence of a ruling is:
  3. Re Stanford International Bank Ltd (In Liquidation) [2010] EWCA Civ 137
  4. SEC v Stanford International Bank Ltd and Others, Civil Action No 3:09–CV–0298–N
  5. In Re Stanford International Bank Ltd [2009] EWHC 1441 (Ch)
  6. In Re Stanford International Bank [2010] EWCA Civ 137
  7. Which itself was subject to recent (2010) review in the US Supreme Court decision of Hertz Corp v Friend, 130 S Ct 1181, 1192
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Stanford Accountants Face Final Criminal Trial Over Ponzi Scheme

By Laurel Brubaker Calkins and Andrew Harris on October 17, 2012

Two accountants accused of helping R. Allen Stanford swindle investors in a $7 billion Ponzi scheme are set to begin the last criminal trial stemming from the plot with opening statements in federal court in Houston.
Stanford Financial Group Co. Chief Accounting Officer Gilbert Lopez, 70, and Global Controller Mark Kuhrt, 40, face 10 counts of wire fraud and one count of conspiracy to commit wire fraud, which could send them to prison for more than 20 years if convicted by a jury. The men pleaded not guilty when they were indicted with the Texas financier in June 2009.
“Kuhrt and Lopez fabricated the financial statements that enabled Stanford to lie to investors about the circumstances surrounding their investments,” Robert Khuzami, enforcement director for the U.S. Securities and Exchange Commission, said in a statement the day the men were indicted.
Stanford, 62, was convicted in March of misappropriating more than $1.7 billion from investors who bought bogus certificates of deposit from Antigua-based Stanford International Bank Ltd. The former Texas billionaire is now serving a 110-year sentence in federal prison in Florida. He is appealing his verdict and sentence.
Stanford told investors their money was invested in conservative liquid assets. Evidence at his jury trial showed he was actually siphoning cash to fund risky private equity ventures, speculative real estate developments, cricket tournaments and a lavish personal lifestyle that included a fleet of private jets, yachts and multiple mansions.

Primary Evidence

The primary evidence against Lopez and Kuhrt are e-mails in which they discussed Stanford’s unreported loans and how to value certain assets to disguise that debt in the months before U.S. securities regulators seized Stanford’s businesses in February 2009.
Lopez, Kuhrt and James M. Davis, who was Stanford’s chief financial officer, discussed in these messages how to repeatedly flip a Caribbean resort property among Stanford entities so that its value could be inflated from $63.5 million to $3.2 billion in a matter of months, according to the indictment. The inflated value was intended to plug the hole in the books caused by Stanford’s personal loans and bad investments, prosecutors have said.
Lopez and Kuhrt also helped represent to investors that Stanford made a $741 million capital contribution to bolster the bank’s balance sheet in late 2008, when “Stanford did not make such capital contributions,” prosecutors have said.
Lawyers for Lopez and Kuhrt said during a 2011 court proceeding over legal-defense insurance coverage that the accountants were only following orders from Stanford and Davis and never intended to break any laws.

Draft Form

The accountants’ lawyers have said prosecutors are misconstruing documents that were in draft form at the time regulators seized the company. They claim that Stanford and his accountants were in the process of consolidating the private enterprises Stanford funded with investor loans onto the bank’s balance sheet, and that they were prevented from completing the rollup by the government shutdown.
Davis pleaded guilty to his role in the fraud scheme in 2009, testified against Stanford at trial and is awaiting sentencing. Laura Pendergest Holt, Stanford’s investment chief, pleaded guilty in June to obstructing a federal investigation into Stanford’s companies and was sentenced to three years in prison.
As of May 31, more than 20,000 Stanford CD investors had received nothing from about $220 million that court-appointed receiver Ralph Janvey has recovered from the sale of Stanford’s corporate and personal assets. About $108 million of that recovery has gone to cover the U.S. receivership’s expenses and windup costs on Stanford’s sprawling business empire.
An additional $335 million in Stanford assets have been identified in banks in the U.K., Switzerland and Canada. Janvey is fighting for control of those assets with a rival Antiguan-appointed receiver, who has spent about $20 million pursuing Stanford assets on behalf of defrauded investors.
The case is U.S. v Lopez, 4:09-cr-00342, U.S. District Court, Southern District of Texas (Houston).

Allen Stanford: From Billionaire to Inmate


The case of Allen Stanford, a former billionaire who once allegedly sealed a deal with blood and is currently serving a 110-year federal prison sentence, could soon be back in the headlines. A federal judge ruled last month that investors could proceed with a lawsuit that alleges the Securities and Exchange Commission (SEC) was negligent in its handling of the fraud.

 Texas-born Robert Allen Stanford exuded wealth. At his height in 2008, he was one of the richest men in America, listed on the Forbes 400, and worth an estimated $2.2 billion.

He defined conspicuous consumption. In one three year period alone, he spent $100 million on aircraft, which included helicopters and private Lear Jets. He even spent $12 million lengthening his yacht by just 6 feet.
As it happened, however, Stanford indulged in these perks with ill-gotten gains. In early 2009, the scale and scope of Stanford’s extravagances finally caught up to him.
Stanford was eventually convicted of selling fraudulent certificates of deposit from his offshore bank on the island of Antigua in an international $7 billion Ponzi scheme, a case that drew comparisons to disgraced broker Bernie Madoff‘s multibillion dollar fraud. To date, none of the more than 20,000 investors he bilked have recovered any money.
In their lawsuit, the investors claim that on four instances and as early as 1997, the SEC determined that Stanford was running a Ponzi scheme. Still, the agency did not act accordingly and failed to notify the Securities Investor Protection Corporation. Investigators did not bring charges against Stanford until 2009, in the wake of the global financial crisis.

The government moved to dismiss the case, but U.S. District Judge Robert Scola rejected the motion. He ruled that if the SEC knew Stanford was running a Ponzi scheme as alleged by plaintiffs, the agency was obligated to report it. Scola added that the government could argue that it did not know Stanford was running a fraud if and when the case moved to summary judgment.
SEC spokesman John Nester declined to comment to “American Greed.” Nonetheless, the attorney for the investors, Gaytri Kachroo, said the ruling was significant. “It truly provides the investing public a precedent and therefore the hope that a case against the SEC can succeed if meritorious under the law,” the lawyer said.

 A Conman’s Bogus Empire of Epic Proportions
Beyond fancy toys, Stanford bought a small island for $63 million. He owned mansions in Houston, Antigua, and St. Croix. And in Coral Gables, Fla. an enormous 18,000 square foot castle. It was fit for a king: the property included 57 rooms, a tower and a moat. Yet after just one year of living there, he grew tired of the sprawling estate – moving out and having it demolished.

He also loved the game of cricket. By 2008, he was considered the world’s number one promoter of the sport, even offering up a $20 million cash prize, the largest ever for a team sporting event, for a match in London.

Yet according to the U.S. Attorney’s office, Stanford was not playing with honest money. He got it by siphoning off loans to himself, approximately $2.2 billion from depositor’s CD holdings, without ever revealing these loans to investors.

From Brash Texan to Big Money Banker
Stanford grew up in a small town 90 miles south of Dallas. Much like his home-state, everything about the man was Texas-sized.

Doug Birdsong, who used to workout with Stanford, recalled him as a muscular man, standing 6’5″ and weighing about 330 pounds. “He was the biggest, he was the best, and he was the boss,” Birdsong told “American Greed.”

His early business ventures ended in failure. After losing a string of health clubs to bankruptcy in 1982 and racking up $13 million in personal debt, Stanford took a few more stabs at entrepreneurship before heading to the Caribbean, where he first entered banking.
He founded “Stanford International Bank” in 1991 on Antigua. It was there that he laid the foundation of his empire, becoming the island’s largest employer.
He targeted wealthy Latin Americans worried about the stability of their governments, and it worked. Within three years, the bank’s assets skyrocketed to $350 million.

One year later, he moved into the U.S. market, establishing Stanford Financial Group in Houston. The company became known for selling certificate of deposits (CDs). Synonymous with safety, CDs seemed like a smart choice for potential buyers. As Stanford’s investors piled into these instruments, in less than a decade the group grew to $3 billion.

Unwitting investors, however, had no idea that Stanford’s CDs were anything but safe.

A Scam from the Start

Yet suspicions rose in 2005 when SEC investigators began taking a hard look at Stanford Financial Group, specifically his Certificates of Deposit from Antigua. Three years later, when two whistleblowers came forward, the agency was handed hard proof of Stanford’s fraud.
Assistant U.S. Attorney Paul Pelletier got the case from the SEC. He landed a huge break when Jim Davis – Stanford’s right-hand man since the 1980’s and the company’s chief financial officer – agreed to talk in exchange for a reduced sentence.
Davis confessed that from his first day on the job, the company simply made up numbers and cooked the books. “That’s what his job was as CFO, and he continued to do that from 1987 or ’88 all the way until 2009,” Pelletier said.

When they first started the business, Davis said Stanford could do whatever he wanted on Antigua. He had the island’s chief banking regulator in his back pocket. In a bizarre twist, the two even sealed a bribery scheme deal by becoming “blood brothers,” cutting their fingers to mix their blood, according to Davis.

A decade-and-a-half after Stanford Financial Group first opened its Houston headquarters, the SEC shut its U.S. operations down. In June 2009, Stanford was mired in charges of fraud, conspiracy to launder money and conspiracy to obstruct justice.

Throughout his trial, however, the former high-flying billionaire steadfastly maintained his innocence. He attempted to put the blame on Davis, but a jury did not buy his story. This March, he was found guilty on 13 counts, and later sentenced to more than a century in prison.

Investors Devastated by Economic Homicide
Many of the investors at the sentencing were satisfied, with Sandra Dorrell being one of them.
In 2005, after selling off an office furniture business, she invested her money in the Stanford Group’s CDs. A single mother who was battling a rare, life-threatening condition called Caroli’s disease, she had planned to use her investment to give her peace of mind and financial security as she endured medical treatment.
Instead, she lost every penny.
“To lose $1.3 million to someone that absolutely stole the money from me is just horrific,” Dorrell told CNBC’s “American Greed.”
Fellow investor Cassie Wilkinson, who along with her husband lost six-figures to Stanford’s treachery, agreed.
“The sentencing for crimes like this has become so big and so long that they’re comparing it to economic homicide, and really, that’s what it is,” she said. “Someone murdered the life that I knew, that I worked hard for. We were not born with money; we earned every single penny,” Wilkinson added.
For 62-year-old Stanford, a projected release date of 2105 is a life sentence -one that he deserves, according to many of his victims.

KLS has requested that we post the following on the blog for your information

“KLS continues to file administrative claims against the SEC on behalf of Stanford victims in order to have such investors included in the Stanford class action against the SEC. KLS on your behalf will likely face challenges to your inclusion in the class of litigants represented on the basis of the timeliness of your claim. However, KLS believes there are strong arguments to support later filings of such SEC claims. If you have filed a claim with a different attorney and need to file an amended claim or if you have never filed a claim with the SEC, please contact KLS immediately at the following address: info@kachroolegal.com

High Court Seeks Views on Stanford Fraud Lawsuits

WASHINGTON–The U.S. Supreme Court on Monday asked the Obama administration for its views on whether victims of financier R. Allen Stanford’s $7 billion Ponzi scheme can sue insurance brokers, law firms and other third parties on allegations they assisted the fraud.

The defendant third-party firms have petitioned the Supreme Court to stop the lawsuits, which were brought by multiple investor groups based on state law in Louisiana and Texas. The defendants argue the suits are barred by the federal Securities Litigation Uniform Standards Act, which largely prohibits state-law class action lawsuits for securities fraud.

The New Orleans-based 5th U.S. Circuit Court of Appeals ruled in March that the lawsuits could proceed. The appeals court said the fraudulent certificates of deposit that Mr. Stanford sold to investors weren’t securities covered by the act. The court also said the alleged actions of the third parties were only tangentially connected to the sale of securities.

The Supreme Court, in a short written order, asked the U.S. solicitor general to file a brief expressing the federal government’s views on whether the court should hear the case or leave the lower court ruling in place.

Plaintiffs allege that insurance brokers, including subsidiaries of Willis Group Holdings PLC, aided and abetted Mr. Stanford’s scheme by representing that the Antigua-based bank he controlled was regulated and insured. They alleged Mr. Stanford’s lawyers lied to the SEC and helped the financier evade regulatory oversight. Investors also sued SEI Investments Co., alleging the financial firm represented that the fraudulent CDs were a low-risk investment.

The defendants said the plaintiffs were seeking to lay blame on deep-pocketed third parties because the Stanford operation was insolvent.

Mr. Stanford attracted investors by offering CDs with above-average rates of return, which he touted as safe and secure. Prosecutors said he diverted the investment proceeds to fund his own businesses, risky real estate assets and lavish lifestyle. He was convicted in March of masterminding the Ponzi scheme, a fraud that prosecutors said was one of the largest in history. He was sentenced in June to 110 years in prison.

-Write to Brent Kendall at brent.kendall@dowjones.com