SEC reining in receiver in Stanford $7B Ponzi case

DALLAS — A federal judge ruled Friday that a court-appointed receiver who took over companies run by Texas billionaire R. Allen Stanford can recover only the interest — not the principal — on investments that federal prosecutors say fed a multibillion-dollar Ponzi scheme.

Judge David C. Godbey sided with the Securities and Exchange Commission. In an emergency motion, the SEC said lawyer Ralph Janvey was targeting innocent investors who should not have to return their original investments in certificates of deposit at Stanford’s bank in Antigua.

The CDs are central to what the federal government said was a massive scheme by Stanford and his company’s top officers to defraud an estimated 20,000 investors.

Stanford and four executives, who also face criminal charges in Houston, are accused of advising clients to invest more than $7 billion in CDs from the Stanford International Bank and then misusing the money, in part to pay for Stanford’s lavish lifestyle.

In a concession to Janvey, the judge agreed to extend by 10 days a freeze on accounts containing principal invested in CDs. The freeze was set to expire Monday, which would have allowed investors to get their money back.

The move gives Janvey time to appeal Godbey’s ruling, which Janvey said he plans to do. Janvey is responsible for tracking down billion of dollars that federal prosecutors said was lost and try to help jilted investors.

Janvey said the $925 million he is trying to get back from 650 investors and former financial advisers — a move known as a “clawback” — was money essentially stolen from roughly 20,000 other investors. Janvey wants to redistribute that money to Stanford’s creditors and investors. The accounts Janvey is attempting to clawback generally contain at least $250,000, since most accounts containing less than that were already released to investors.

But the SEC said many of those 650 people also are victims. In Ponzi schemes, money is recycled by using new investments to pay people who made earlier investments. The SEC is often reluctant in such scams to assert claims against victims for the return of interest payments, but believes it is appropriate in this case, agency attorneys said.

Janvey wants to go even further by seeking to have victims return the principal they invested, the SEC said.

Left unsettled on Friday was whether the SEC would be able to take over clawback claims. SEC officials noted that Janvey and his team are charging about $1 million a week — about $4,500 an hour — for their work. That money comes out of the Stanford money being returned to investors.

The judge denied an SEC motion that would have limited Janvey’s authority as receiver, an unusual tactic by the SEC since it was instrumental in getting the longtime securities lawyer appointed.

“Has the SEC ever tried to rein in a receiver?” Godbey asked SEC attorney Kevin Edmundson, then later asked if the SEC still wanted to keep Janvey as the receiver.

“We still want the receiver. We still support the receiver,” Edmundson said. “We disagree on this clawback claim.”

Janvey told Godbey he answered to the judge.

“I work for you,” Janvey said. “I do not work for the SEC.”

Stanford and four executives of his now defunct Stanford Financial Group are accused of orchestrating the massive Ponzi scheme. Investigators said Stanford secretly diverted more than $1.6 billion in investor funds as personal loans to himself.

Stanford and executives Laura Pendergest-Holt, Gilberto Lopez and Mark Kuhrt pleaded not guilty to various charges, including wire and mail fraud, in a 21-count indictment issued June 18. The three Stanford executives are free on bond while Stanford himself remains jailed in the Houston area.

James M. Davis, ex-chief financial officer for Stanford’s business empire, has been cooperating with prosecutors and is free on bond. He is set to plead guilty to charges as part of a deal with the Justice Department during a court hearing Aug. 6.