Allen Stanford’s Receiver Fights Investors Over Pay Increase

By Andrew Harris and Tom Korosec - Apr 4, 2012 LinkedIn Google +1 0

R. Allen Stanford’s court appointed receiver asked a U.S. judge to increase the amount of money he and his team of professionals can get for marshaling and liquidating the financier’s assets.

Dallas lawyer Ralph Janvey and his counsel made the request of U.S. District Judge David Godbey in Dallas in a hearing today. Stanford’s defrauded investors, who haven’t been repaid any of the $7 billion owed to them, opposed the motion.

Janvey’s outside counsel, Kevin Sadler, argued today that the receiver’s team has been working at the same pay rates since 2009. He also said investors might have as much as $1 billion more to recover if the U.S. Securities and Exchange Commission sued Stanford sooner than February 2009.

“When all you are left with is litigation, it’s the most difficult thing to turn into cash,” he told the judge.

A federal jury last month found Stanford, 62, guilty of lying to people who bought certificates of deposit issued by his Antigua bank about what he was doing with their money and with what oversight. He’s scheduled to be sentenced on June 14.

Janvey, whom Godbey appointed in February 2009 -- four months before Stanford was indicted -- and his outside professionals, including Baker Botts LLP (1143L), have been paid more than $52 million. That sum doesn’t include a court-imposed $16 million hold-back.

Billing Discount
Between February 2009 and Oct. 31, 2011, the receivership accrued $211.1 million in cash and assets, while spending $102.4 million on litigation, wind-down costs, professional fees and other expenses.

Janvey and Sadler on March 9 asked Godbey to reduce the hold-back from 20 percent to 10 percent. They also asked the court to allow them to reduce their billing discount from 20 percent to 10 percent.

“By way of comparison,” Sadler said in the March 9 submission, “the law firms representing the trustees in similarly complex fraud/insolvency matters -- the Madoff and MF Global (MFGLQ) cases -- are performing their work at only a 10 percent discount on rates that are significantly higher than the rates that are being charged for this matter.”

Sadler was referring to the $20 billion Bernard L. Madoff investor fraud in New York and to the bankruptcy of MF Global Holdings Inc., parent of commodities broker MF Global Inc. Outside counsel in each instance are discounting their fees by 10 percent, Janvey’s lawyer said.

Hourly Rates
Sadler said his regular hourly rate has been trimmed to $555 from $750, while Janvey -- who regularly charges his clients $500 an hour -- has been billing $340 an hour on the Stanford case and then discounting that by 20 percent.

Madoff trustee Irving Picard, a partner in Cleveland-based Baker Hostetler LLP (1155L), bills $765 an hour. Skadden Arps (1112L), the New York firm acting as counsel for MF Global trustee James Giddens, charges as much as $1,095 an hour, Sadler said.

Differences between the Dallas and New York markets may explain hourly rate variance, the attorney said. They don’t justify a difference in the discount rate, he said.

On March 16, the receivership also asked Godbey for an order establishing a claims bar-date, a step toward establishing a claims-payment process.

If a claims process is established, the receiver would have “$55-to-$65 million” to distribute by the end of this year, Sadler said today.

‘I Have Sympathy’
Godbey told the lawyers he has received letters from investors aggrieved about the fee issue.

“Unsurprisingly, they say, they haven’t received a nickel and Mr. Janvey gets a raise,” the judge said, later adding, “I have sympathy for their frustration.”

“The investors, who have not received any money to date, would be in opposition to a change in rate at this point,” David Kitner, an attorney representing a court-sanctioned investors’ committee, told the judge today.

David Reece, a lawyer for the SEC, told Godbey he disagreed with Sadler’s view of the agency’s actions and that the government opposes an increase in receivership compensation.

“The commission believes the current rates are reasonable given the amount of funds available,” Reece said.

Godbey rejected as irrelevant Sadler’s argument about the timing of the SEC enforcement action. He also said he was inclined to agree with court-appointed investor advocate John Little, who said he supported the professional fee increase and a reduction in the percentage held back by the court because younger lawyers working on the case had more skill and acumen now than when they started in 2009.

Godbey didn’t issue a ruling today.

The judge said he would hold a hearing before the end of April on starting a process to identify investor claims.