A U.S. appeals panel had tough questions on Monday for the receiver in Allen Stanford ‘s civil fraud case, who is suing to recover proceeds from several hundred investors in the firm’s offshore bank.
Stanford, 59, faces civil and criminal charges for masterminding an alleged $7 billion Ponzi scheme centered on fraudulent certificates of deposit issued by Stanford International Bank Ltd in Antigua.
At issue is whether receiver Ralph Janvey has a right to pursue “clawback” claims for principal from Stanford clients who redeemed their certificates of deposit (CDs) in the weeks before civil fraud charges were filed and the firm’s assets were seized and customer accounts frozen.
Janvey has said the clients named in his lawsuit unfairly cashed out and were paid with money stolen from other Stanford clients.
“All of these people were paid with someone else’s money,” Kevin Sadler, an attorney representing Janvey, told the appeals panel.
U.S. District Court Judge David Godbey in Dallas ruled in July that Janvey only has a right to sue the investors for the interest on their certificates of deposit and not the principal, so the matter was sent to the Fifth Circuit Court of Appeals in New Orleans.
But the three-judge panel in New Orleans took issue with some of the case law Janvey used to support his appeal and questioned why the receiver, rather than the plaintiff in the case — the U.S. Securities and Exchange Commission — was suing the investors.
“What gives you statutory authority to sue people the SEC did not?” Senior Judge Will Garwood asked. “It seem to me that the plaintiff or defendant ought to be the ones… Frankly, in a sense, you’re nobody. You are neither one.”
The SEC has also objected to Janvey’s lawsuit, saying it would wrongly penalize the victims of a fraud.
Michael Quilling, a lawyer representing the investors, told the appeals panel his clients, who have had their accounts frozen since February, have suffered enough.
“This has been nine months,” Quilling told the court. “These investors need their money now. Retirees, many of them, have been getting their interest for eight years. They can’t get their principal. They are victims.”
About $275 million in funds are being held in accounts at Bank of New York Mellon Corp’s Pershing LLC, JP Morgan Chase & Co and SEI Investments Co.
Stanford has denied any wrongdoing. He is in jail in downtown Houston awaiting trail.