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Tuesday, July 29, 2014

Receiver in Ponzi Case Can't Sue Law Firm

WASHINGTON (CN) - The court-appointed receiver for R. Allen Stanford's $7 billion Ponzi scheme cannot sue Proskauer Rose and Chadbourne & Parke in D.C. federal court because it lacks jurisdiction, the D.C. Circuit ruled.

Janvey sued the law firms and attorney Thomas V. Sjoblom, of Virginia, in January 2012 for breach of fiduciary duty, accusing the lawyers of helping the Stanford Investment Bank evade government oversight and investigation.

Sjoblom was a partner at Chadbourne from 2002 to 2006 and a partner at Proskauer from 2006 to 2009, Janvey alleged in a similar suit against the defendants filed in February 2013 in Dallas federal court.

Janvey's D.C. suit was transferred to Dallas federal in March 2012. The trial court later denied the defendants' motion to dismiss in August 2013, resulting in the case being remanded back to D.C. federal court four months later by the U.S. Judicial Panel on Multidistrict Litigation. The panel agreed with the trial court's determination that the D.C. Court should decide if a transfer to Dallas federal court would be "in the interest of justice."

On July 24, the D.C. Circuit concluded it is not in the interest of justice to transfer the suit back to Dallas federal court. Writing for the court, Judge Colleen Kollar-Kotelly said both parties concede some of the defendants are "stateless" for purposes of diversity jurisdiction, which creates a "special problem."

"Two of the defendants are law firms with partners who are American citizens domiciled abroad," the 12-page opinion stated. "The Supreme Court has held that the citizenship of a partnership for the purposes of establishing diversity jurisdiction 'depends on the citizenship of all members.'"

Kollar-Kotelly notes the plaintiffs are not pro se litigants. She is not convinced they "were simply confused as to the proper forum" to file their lawsuit.

"Rather, plaintiffs are represented by two law firms, Strasburger & Price LLP and Neligan Foley LLP," the opinion stated. "Nor have plaintiffs alleged that there were complex or novel jurisdictional provisions at issue excusing their failure to file this action in the proper court. Instead, plaintiffs' failure to recognize the District of Columbia District Court lacked jurisdiction over their lawsuit suggests that plaintiffs filed their suit in this jurisdiction either in bad faith and/or as an attempt at forum shopping."

Proskauer did not immediately respond to a request for comment Tuesday.

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For a full and open debate on the Stanford receivership visit the Stanford International Victims Group - SIVG official Forum http://sivg.org.ag/


Sunday, July 27, 2014

SIPC A Credible Safety Net?

With great reluctance, its chief says, the agency charged with protecting the financial interests of bilked investors has seized on a legal argument that avoids paying the bilked investors of Allen Stanford — costing many Louisiana families millions of dollars in potential relief.

 Like all legal technicalities, the difference between scam artists like Bernie Madoff and Stanford, both now in prison, is arcane. The law creating the public-private Securities Investor Protection Corp. does not apply to Stanford’s Ponzi scheme because the money went to certificates of deposit in a Stanford-controlled Antigua bank.

 But Madoff’s victims have received $1.7 billion and counting from SIPC. That’s not nearly the $17 billion that Madoff is estimated to have stolen, but it’s something. Many Louisiana investors in Lafayette, Baton Rouge and Covington were bilked by Stanford and have gotten little or no recovery.

 Stanford, 64, is serving a 110-year prison term for his 2012 conviction on multiple counts of mail and wire fraud related to between $5.5 billion and $7 billion in losses by more than 20,000 investors in the U.S. and more than 100 other countries.

 A three-judge panel of the District of Columbia appeals court upheld SIPC’s hands-off decision. The Securities and Exchange Commission, the government agency, rightly ordered SIPC to take the Stanford cases; that is after, though, the SEC in earlier decisions was not helpful to the cause of recovery for Stanford victims.

 We do not know if further appeals will be forthcoming, but if the appeals court decision stands, the loser is not the SEC which acted properly, if late, to protect American investors from global swindlers. Rather, it is the SIPC’s mission which suffers.

 SIPC was created by Congress in 1970 to protect investor money placed with brokerages that failed without ever having purchased the securities selected by their customers. SIPC’s member brokers pay annual fees into the safety net intended to protect such investors.

 The safety net is not that much, compared to the losses. An investor’s recovery is capped at $500,000, and many lost their life savings. But when SIPC washes its hands entirely of the second-largest scam in the Wall Street crash of the last decade, what message does that send to investors about the safety net? The good faith of the American securities industry is one of its enormous assets.

 The credibility of the industry, rather than bureaucrats at SIPC, suffers when immense frauds of this nature occur. In this case, a legal scalpel is being used to cut a large group of investors from protection.

 If Stanford investors were to get something from SIPC, it might cost the fund, and thus the industry, some new increase in dues for a while. But the long-term costs of the Madoff and Stanford scandals require a response better than SIPC provides.

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For a full and open debate on the Stanford receivership visit the Stanford International Victims Group - SIVG official Forum http://sivg.org.ag/


Friday, July 25, 2014

Dallas lawyer at center of Houston trial over whether firm owed clients a warning on fraudster Allen Stanford

Robert Khuzami, director of the division of enforcement at the U.S. Securities and Exchange Commission, left, Carlo di Florio, director of the SEC's office of compliance inspections and examinations, center, and Rose Romero, director of the SEC's Fort Worth regional office, testify at a Senate Banking Committee hearing on the agency's probe of financier R. Allen Stanford's alleged Ponzi scheme, in Washington, D.C., U.S., on Wednesday, Sept. 22, 2010. The SEC told lawmakers that in face of criticism that it bungled fraud claims against Stanford it has strengthened its investigations. Photo by Joshua Roberts/Bloomberg

WASHINGTON — A Dallas lawyer is at the center of a legal malpractice dispute unfolding in a Houston courtroom this week. The jury trial starts Monday in a $51 million suit that pits the former owners of the Houston Galleria and its attached office towers against their former lawyers, Andrews Kurth LLP, a Houston-based firm with offices in Dallas and eight other cities.

 A Harris County district court clerk said Friday the trial before Judge Bill Burke is scheduled to last two to three weeks. In it, lawyers for the former owners of the Houston Galleria will argue Andrews Kurth should have warned the real estate company that another of the law firm’s clients was under suspicion by the of SEC of massive fraud.

 Andrews Kurth represented both Walton Houston Galleria and R. Allen Stanford’s company, Stanford Financial Group, while the two companies were negotiating the long-term lease and possible purchase of the Galleria office buildings.

 Walton alleges that the law firm knew that its other client, Stanford, was under heavy suspicion of fraud by the Securities and Exchange Commission and should have warned the real estate firm that its long-term negotiations were at risk.

 To make its claim, the company has argued that the law firm knew of the SEC’s suspicions because its senior partners had spent months recruiting the chief of enforcement in the Fort Worth offices of the SEC, an attorney named Spencer Barasch.

 Andrews Kurth hired Barasch in 2005, just weeks before the SEC sent Stanford an official inquiry that would later trigger an all-out investigation. R. Allen Stanford would ultimately be convicted of fraud and be sentenced to 110 years in prison. His firm was responsible for one of the largest Ponzi schemes in U.S. history.

 Questions about Stanford Financial Group were raised repeatedly over the years, but the SEC under Barasch had declined to mount a formal investigation. A 2010 Office of Inspector General’s report by the SEC concluded that Barasch had been a key voice in scuttling inquiries into the company’s operations, which included selling certificates of deposit in a bank in Antigua.

Read the full transcript here:

For a full and open debate on the Stanford receivership visit the Stanford International Victims Group - SIVG official Forum http://sivg.org.ag/

Thursday, July 24, 2014

EX-SEC REGULATOR SPENCER BARASCH RESIGNS FROM LAW FIRM AMID QUESTIONS ABOUT HIS WORK FOR PONZI FRAUDSTER R. ALLEN STANFORD


A former senior Securities and Exchange Commission official, Spencer Barasch, quietly resigned earlier this month as a partner at the Texas law firm Andrews Kurth after facing intensifying scrutiny of his legal work for Houston financier R. Allen Stanford, who is serving a 110-year prison sentence for masterminding a $7 billion Ponzi scheme.

 Barasch stepped down as head of corporate governance practice at Andrews Kurth not long after a five-part series published by VICE detailed previously undisclosed potential violations of federal conflict-of-interest laws by Barasch while representing Stanford and raised questions as to whether Barasch had given false and misleading testimony to federal investigators to conceal from them the nature of that legal work. 

Barasch’s resignation also came shortly after the settlement of a bruising legal malpractice case against Andrews Kurth by a real estate developer. The plaintiff had alleged that his company received substandard legal advice from the law firm because of the firm’s dual representation of the developer and Stanford in the very same real estate transaction.

 A person with firsthand knowledge and involvement in the matter said in an interview that more than one high-level partner at Andrews Kurth had grown increasingly concerned about Barasch’s legal work for Stanford after reading VICE’s investigative series, which detailed potentially false and misleading statements Barasch had previously given to federal investigators regarding his legal work for Stanford.

 This same person said that a senior partner at the law firm independently reviewed many of the original source documents examined by VICE. The reviewer in question arrived at the conclusion that Barasch may have indeed misled the government about his legal work for Stanford. A second person involved in the matter confirmed that Andrews Kurth had sought and obtained Barasch’s resignation in the wake of the aforementioned revelations, but this person declined to give any specific details.

 Barasch’s resignation from Andrews Kurth was first reported Tuesday by the American Lawyer and its affiliated publication Am Law Daily. Reporter Brian Baxter noted that “an entry for Barasch on the rolls of the State Bar is now blank, and his profile on Andrews Kurth’s website was taken down earlier this month.” 

Robert Jewell, Andrews Kurth’s managing partner and the chair of the firm’s executive committee, said in a statement about Barasch’s departure: “Spencer Barasch is still a highly valued member of Andrews Kurth; however, he is in the process of transitioning his legal practice. Under those circumstances, we have agreed that it’s best not to continue to publish his website biography during the transition period. The firm continues to fully support Spence in all of his endeavors.”

 Andrews Kurth gave no reason as to why the firm had pressed for Barasch’s resignation. But a person close to the matter told me in an interview that some of the partners were distressed to learn that Barasch might have given misleading testimony to federal authorities about his legal work regarding Stanford, both at the SEC and later during his tenure at Andrews Kurth. And even worse, an Andrews Kurth attorney, Dennis Ryan, later gave testimony in the civil legal malpractice case that was directly at odds with Barasch's earlier testimony. “You couldn’t leave it hanging out there that one partner was saying one thing and [another] was saying something very different under oath,” said this same person.

 In January 2012, Barasch agreed to pay a $50,000 fine to settle civil charges brought by the Department of Justice, which alleged that he had violated federal conflict-of-interest laws by representing Stanford at Andrews Kurth. Earlier, while he was the top enforcement officer in the SEC’s Fort Worth regional office, Barasch had repeatedly overruled recommendations by examiners to investigate Stanford, even as they believed—rightfully, it turned out—that Stanford was running a Ponzi scheme. Federal law prohibits former regulatory officials from representing anyone as a private attorney if they played a substantial or material role in overseeing the individual’s actions while in government.

 In May 2012, the SEC also banned Barasch for a period of one year from practicing before the agency, contending that he had engaged in “improper professional conduct” related to his legal work for Stanford. Barasch did not have to admit any wrongdoing when he settled with both the Justice Department and the SEC. Barasch was unavailable for comment for this story.

 In settling with Barasch, the Justice Department agreed to close out a far more serious criminal investigation of the former SEC official, a decision that largely relied on testimony Barasch had given to federal authorities in which he claimed to have totally forgotten that he had done Stanford-related work at the SEC when he agreed to represent the banker before the agency. But sources close to both the Justice Department and SEC investigations say they had no idea that a law partner of Barasch’s would later give testimony raising questions as to whether Barasch had told them the truth on such a crucial issue to their case.

 In 2010, the SEC’s then inspector general, David Kotz, was conducting a broader investigation of the SEC’s regulatory failure in investigating and closing down Stanford before he had stolen billions of dollars. During that investigation, Kotz stumbled upon records seized by authorities from Stanford by the FBI and postal inspectors that showed that Barasch and Andrews Kurth had provided legal representation to Stanford in 2006.

 Questioned by Kotz, Barasch said he had undertaken the representation because he had completely forgotten his involvement in Stanford-related matters while at the SEC: “I didn’t remember. I just didn’t remember anything,” Barasch testified. Presented with records documenting his deep involvement in making decisions as to whether or not the SEC should investigate Stanford, Barasch explained to Kotz: “Quite frankly, until you sent it all to me, I didn’t remember really any of that.”

 As first reported by VICE, however, Dennis Ryan, a senior partner at Andrews Kurth who worked closely with Barasch on securing billable legal work from Stanford, contradicted the account that Barasch had no memory of the Stanford-related work he had done at the SEC while considering taking on Stanford as a client. Ryan testified in a deposition in the recent civil legal malpractice case that, during discussions with Barasch in 2005, Barasch had openly expressed to Ryan reservations about representing Stanford because of his previous work at the SEC regarding Stanford, saying such past work might make any private legal representation of Stanford illegal. Ryan also testified that Barasch had repeated these same concerns with the then-general counsel of Stanford’s bank, Mauricio Alvarado, during a conference call with Ryan and Alvarado in the summer of 2005.

 When told of Ryan’s recent testimony, current and former government officials involved in the earlier investigations of Barasch and Stanford said that the Justice Department and SEC should reopen their investigation of Barasch, or open a new one to examine whether he had possibly made false statements to federal investigators or engaged in obstruction of justice.

 Initially, in 2005, Barasch and Andrews Kurth turned Stanford down when he asked them to represent him before the SEC, telling him that to do so would violate federal conflict-of-interest laws. In 2006, however, Barasch ignored the legal prohibition and agreed to do so anyway.

 In his deposition in the legal malpractice case, Ryan also testified that Barasch had undertaken his representation of Stanford in 2006 without Ryan knowing about it. Within the law firm, Barasch denied any rogue representation of Stanford, saying that Ryan had encouraged him and worked with him to obtain new legal business from Stanford. Confidential Andrews Kurth emails and billing records appear to bear out Barasch’s claim: They show that Ryan and Barasch worked closely on efforts to obtain new legal business from Stanford during the time that Stanford was pressing Barasch and Andrews Kurth to help fend off the SEC.

 Indeed, the firm’s confidential billing records indicate that Stanford retained Andrews Kurth for eight new legal representations in 2005 and 2006—while Stanford was pressing for Barasch to defend him before his former agency.

 The recent legal civil malpractice case brought against Andrews Kurth by the real estate investment firm Walton Houston Galleria Office was settled in the midst of a hotly disputed trial in mid-June for undisclosed terms. (More information about that case can be found in this article in the Texas Lawyer and this one in the Dallas Morning News.)

 In the meantime, the vast majority of American investors defrauded by Stanford are no closer to recovering even a small portion of their live savings. Only last week, a federal appeals court rejected an effort by the SEC to compel the Securities Investor Protection Corporation, a nonprofit created by Congress and funded by the securities industry to protect investors, to reimburse Stanford’s victims.

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For a full and open debate on the Stanford receivership visit the Stanford International Victims Group - SIVG official Forum http://sivg.org.ag/