Ralph Janvey, the court-appointed receiver for R. Allen Stanford ‘s businesses, should be stripped of his power to sue investors for proceeds they got from an alleged $7 billion Ponzi scheme, U.S. regulators said.
The U.S. Securities and Exchange Commission asked the federal judge overseeing civil claims against the Texas financier to block Janvey’s pursuit of so-called clawbacks against investors who have lost millions of dollars on bogus certificates of deposit bought from Stanford International Bank Ltd., the Antiguan bank at the heart of the alleged fraud.
“The commission simply does not make a practice of suing innocent victims of Ponzi schemes for the return of principal, and applies a great deal of discretion and consideration before asserting claims against victims for the return of interest payments received,” David Reece, the SEC’s lead lawyer on the case, said in papers filed yesterday in federal court in Dallas.
The SEC “is not aware of any compelling reason” for Janvey to pursue Stanford investors, he said.
The SEC sued Stanford, two of his executives and three of his companies in February, accusing them of offering depositors “improbable if not impossible” returns by repaying early investors with funds taken from later investors. U.S. prosecutors criminally charged Stanford and five others on the same accusations in June.
Frozen Accounts
Stanford, who denies all wrongdoing, is in jail without bond awaiting trial, which could be a year away. If convicted of the most serious of 21 felony counts against him, he could spend the rest of his life in prison.
Reece said the SEC’s request to narrow Janvey’s powers stems from his plan to file “possibly hundreds of additional claims against innocent investors on or before Aug. 3,” the date when U.S. District Judge David Godbey has ordered the release of virtually all frozen accounts. Accounts owned by certain Stanford executives and employees will remain locked, pending further investigation, a move the SEC supports.
Some Stanford customers have been denied access to their money since Feb. 17, when Godbey froze all of Stanford’s personal and corporate assets and placed them under Janvey’s control while the SEC case is pending. About $4.7 billion in customer brokerage accounts, which were held by two clearinghouses used by Stanford Group Co., were caught up in the initial asset freeze.
Tainted Funds
While the majority of customers’ funds were unfrozen in March by court order, Janvey continues to hold hundreds of customer accounts he suspects are tainted by fraud. He hasn’t accused the investors of any wrongdoing, and he’s told Godbey the freeze and clawbacks are to ensure that investors who managed to redeem their Antiguan certificates before Stanford’s scheme imploded don’t benefit at the expense of others who couldn’t cash out in time.
“Such claims would create further hardship on a small pool of victims and randomly penalize investors” without “contributing to investor recovery in a meaningful way,” Reece said in the filing. “It makes little sense to assert claims against these victims.”
Janvey defended his clawback plans as legal and equitable. He said bringing such actions against about 300 investors could increase the amount of money available to repay all victims by more than $600 million.
‘Best Outcome’
“The receiver’s duty is to provide the best outcome for all investors, not just the small fraction of those who received redemptions,” Janvey said yesterday in an e-mail. “In reality, the money CD customers received was not their money, was not a return on their investment and was not generated by any of Stanford International Bank’s other business ventures.”
The funds used to pay purported CD interest and redemptions came from thousands of CD holders who didn’t retrieve their money before the SEC’s crackdown, he said.
Janvey sued five Stanford investors last week, seeking recovery of $3 million in proceeds from the Antiguan CDs. In a report Janvey submitted last month, he said he hoped to recover as much as $196 million in Antiguan CD proceeds from frozen investor accounts.
Janvey’s clawback action last week cited a 1924 U.S. Supreme Court ruling in the case of Charles Ponzi, the swindler who gave his name to this type of fraud, which found “equality is equity” when dealing with “equally innocent victims.” Janvey said everyone’s fraudulent profits should be pooled with Stanford’s remaining assets to repay victims left holding $7.2 billion in outstanding CDs.
The SEC disagreed.
‘Handy Victims’
“How is equity served by a receiver who pursues only the most handy victims,” Reece asked in his filing. “While the receiver has the authority to pursue claims, that effort should be guided by discretion and good judgment, not by the temptation to pick low-hanging fruit.”
The SEC’s request to limit Janvey’s powers is the third time regulators have sided against the receiver. In early June, the SEC filed back-to-back motions opposing Janvey’s continued hold on investor accounts and his request for $20 million in legal fees and expenses for his first two months’ work as Stanford’s receiver.
Investors have repeatedly complained to Godbey that their wrongly frozen accounts have created tremendous hardship for savers who relied on them for living and medical expenses. They also objected to Janvey’s attitude and the size of his fees.
“It is abundantly clear, from everything that has transpired so far, that the receiver, rather than being their representative, is their worst enemy,” Bart Wulff, a lawyer for investors, said in a June 11 filing in the case.
The SEC case is Securities and Exchange Commission v. Stanford International Bank, 09cv298, U.S. District Court, Northern District of Texas (Dallas). The criminal case is U.S. v. Stanford, 09cr342, U.S. District Court, Southern District of Texas (Houston).
Source: http://www.bloomberg.com/apps/news?pid=20601103&sid=aBN3v1GO1bF8
Artículos Relacionados: