Stanford Receiver Seeks Rapid Sale of Private-Equity Stake

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The court-appointed receiver for R. Allen Stanford ‘s businesses asked for emergency approval to sell the accused swindler’s stake in two limited partnerships by next week to avoid meeting cash calls or diluting the investments.

“The sale of these investments will allow the receivership estate to avoid having to choose between injecting millions of dollars worth of capital into the partnerships or defaulting under the agreements,” Kevin Sadler, a lawyer for receiver Ralph Janvey, said in papers filed yesterday in federal court in Dallas.

Stanford’s companies are already past-due on $2.5 million in capital calls issued by two Israeli development funds since the U.S. Securities and Exchange Commission sued Stanford and seized his businesses in February, Sadler said in the filing. If the stakes aren’t sold by July 27, Stanford’s $14.3 million investment in the two funds will shrink to $400,000.

Janvey, who is selling the Texas financier’s assets to repay investors who were allegedly defrauded of more than $7 billion, asked U.S. District Judge David Godbey last week for permission to hire an adviser to analyze and sell Stanford’s estimated $650 million private-equity portfolio.

Dick DeGuerin, Stanford’s criminal-defense lawyer, told Bloomberg last week that the private-equity portfolio was worth at least $1.9 billion, while Janvey said it was probably worth far less than Stanford’s records indicated.

Janvey’s advisers negotiated a sale price of $4.1 million for the stakes in Israel Opportunity Fund I and II, which would generate $1.6 million in cash for the receivership estate, Sadler said. The remaining $2.5 million would go to cover the outstanding capital calls and relieve the Stanford companies of $61 million in future capital commitments to the two funds.

‘Fire Sales’

Stanford, who denies any wrongdoing, is fighting criminal charges and SEC claims that he ran a Ponzi scheme that paid investors “improbable if not impossible” returns on bogus certificates of deposit sold by Antigua-based Stanford International Bank Ltd. Stanford has criticized Janvey for conducting “fire sales” of assets and businesses that the receiver doesn’t understand.

“Allen Stanford made many investments that would take years to mature, where the investments would bring excellent returns, but only if allowed to mature,” DeGuerin said yesterday in an e-mail. Janvey’s plans to “prematurely” sell assets such as undeveloped real estate or commercial banks in Latin America “does not bring maximum value and frequently causes what would have been a money-making investment to be a loser,” DeGuerin said.

Stanford is in jail awaiting trial on 21 felony counts of fraud, conspiracy and obstruction.

Clawback Lawsuits

Also yesterday, an investors’ advocate urged Godbey to act quickly to block Janvey from suing investors over proceeds they got from the Antiguan CDs. John J. Little said Janvey intends to sue about 300 investors to recover $600 million in so-called “clawback” actions before Aug. 3, the date Godbey has ordered all frozen customer accounts to be released. These suits will cause both the receiver and the investors to incur huge legal bills that will wipe out a large part of any benefit victims might see from the recovered funds, Little said in his filing.

Stanford’s lawyers filed papers yesterday asking Godbey to force Janvey to hand over assets and profits from Stanford’s coin and bullion unit, which was seized along with his other businesses. Janvey has said that the unit wasn’t part of the fraud scheme. Stanford claims he should be able to use those funds to pay his legal bills. Godbey has ruled Stanford can only pay legal expenses from funds he can prove aren’t tainted.

Plea Delay

In a criminal case against James M. Davis, the Stanford Financial Group Co. finance chief accused of helping perpetrate the fraud, U.S. District Judge David Hittner in Houston yesterday granted a request by David Finn, Davis’s lawyer, to postpone a court appearance for Davis to change his not guilty plea until Aug. 27

Finn had asked to postpone Davis’s initial Aug. 6 court date by two weeks because of a scheduling conflict. Federal prosecutors, who have spent hundreds of hours debriefing Davis, didn’t oppose the change.

Davis, 60, pleaded not guilty on July 13 to felony charges before a federal magistrate. His attorney said afterward that Davis planned to change that plea to guilty within two weeks.

The criminal case is U.S. v. Stanford, 09cr342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank, 09cv298, U.S. District Court, Northern District of Texas (Dallas).


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