Stanford Group Co. investors seeking help to access their frozen brokerage accounts while investigators probe a suspected $8 billion fraud have been turned down by the U.S. Court of Appeals in New Orleans.
The Fifth Circuit Court of Appeals didn’t explain its denial, in an order posted to the federal court’s Web site this afternoon.
Stanford Group Co.’s court-appointed receiver claims he hasn’t violated investors’ rights by freezing their accounts while he investigates assets linked to Texas financier R. Allen Stanford, according to court papers filed in New Orleans today.
Investors had asked the U.S. Fifth Circuit Court of Appeals yesterday to overrule a Dallas judge and order Ralph Janvey, Stanford’s receiver, to release their accounts, claiming he’d violated their constitutional rights to due process. About $1.7 billion in investor funds remains frozen under a court order issued when federal regulators accused Stanford of running a massive Ponzi scheme.
“Maintaining a temporary freeze on 15 percent of customer accounts while the receiver has the opportunity to properly scrutinize each of them protects both the public and individual customers,” Kevin Sadler, one of Janvey’s lawyers, said in court papers filed in New Orleans today.
Some of the frozen accounts may contain fraudulent proceeds, including interest earned on Antiguan certificates of deposit at the heart of the suspected fraud, he said.
“The receivership estate is entitled to recover such funds and share them equitably with other estate claimants, including people who were not able to redeem” CDs issued by Antigua-based Stanford International Bank, Sadler said.
Neither Michael Quilling, Carlos Lopez or Michael Stanley, all lawyers representing Stanford investors, could immediately be reached for comment on the appeals court decision.
Baseball Pitcher
The investors, who filed their appellate brief in the name of former all-star baseball pitcher Robb Nen, whose family has more than $1.25 million in frozen Stanford brokerage accounts, also told the New Orleans court that U.S. District Judge David Godbey of Dallas and Janvey lacked jurisdictional authority to seize Stanford’s non-U.S. assets or to control the estate of a foreign-based entity.
The Dallas court’s actions violated Antiguan sovereignty, since the island government has appointed its own receiver over the bank and Stanford’s Antiguan properties, the investors claimed.
Janvey said he’s found hundreds of millions of dollars in bank accounts and assets held worldwide in the name of 198 Stanford entities. He said he intends to recover those assets for the benefit of all investors defrauded through what the U.S. Securities and Exchange Commission calls a Stanford-led Ponzi scheme, in which early investors were repaid with funds taken from later participants.
“Securities transactions that defraud U.S. citizens cannot evade judicial scrutiny under U.S. law merely because the transactions run through an offshore bank, especially one controlled by U.S. citizens acting within our borders,” Sadler said in the filing.
Consent Form
Sadler said the Antiguan bank “long ago filed a Form U-2 uniform consent to service of process” form, which expressly gave the bank’s consent to jurisdiction in the U.S. for “suits arising out of alleged violations of state securities laws related to its CDs.”
Stanford, 59, was founder and sole shareholder of the Stanford Financial Group of companies headquartered in Houston. The Texas native holds both U.S. and Antiguan citizenship and was given an honorary knighthood by the Antiguan government.
Stanford was named the world’s 605th richest person by Forbes Magazine last year, with more than $2 billion in assets, according to papers in a 2008 paternity case filed by a Florida mother of two children. The SEC claims Stanford skimmed as much as $1.6 billion in personal loans from his companies.
Stanford, who hasn’t been charged with criminal activity, has denied any wrongdoing.
Fraud Alleged
The SEC sued Allen Stanford, two associates and three affiliated companies on Feb. 17, accusing them of running a “massive ongoing” fraud involving the sale of high-yield CDs through the offshore bank.
Godbey froze all of Stanford’s personal and corporate assets and placed them under Janvey’s control. The freeze included some 32,000 brokerage accounts of Stanford Group customers that were held by Pershing LLP and JPMorgan Chase & Co.
In March, Godbey released about 28,000 accounts, containing roughly $4.6 billion, at Janvey’s request. He extended the court freeze on about 4,000 remaining accounts, worth roughly $1.7 billion, which Janvey said are owned either by certain Stanford executives or employees, which contain Antiguan CDs or which are linked to those categories of funds by common ownership.
Hundreds of investors have challenged Janvey’s authority to freeze their accounts and have asked Godbey to let them formally join the SEC case against Stanford. Godbey has so far declined to hear the investors’ complaints, and investors asked the appellate court for help in freeing their funds.
The case is SEC v. Stanford International Bank, 09-00298, U.S. District Court, Northern District of Texas (Dallas). The appellate case is In Re: Robb Nen, 09-10325, in the U.S. Court of Appeals for the Fifth Circuit (New Orleans).
To contact the reporter on this story: Laurel Brubaker Calkins in Houston at [email protected] .
Source:http://www.bloomberg.com/apps/news?pid=newsarchive&sid=afcqfVhI1KOo
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