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Thursday, October 10, 2013

Victims of Stanford Ponzi scheme fear they’ve been burned again

Ralph Janvey, the receiver in the Stanford case, has mailed checks from $2.81 to $110,000 to investors -- less than a penny of return on the dollar.

 Center for Public Integrity 
 Published: 10 October 2013 05:01 AM 
 Updated: 10 October 2013 07:14 AM 

 When 18,000 people got fleeced in R. Allen Stanford’s $7.2 billion Ponzi scheme, the court appointed a receiver in 2009 to recover as much money as possible from Stanford’s failed companies to return to investors.

 After 41/2 years, the receiver, Ralph Janvey, began mailing checks ranging from $2.81 to $110,000 to hundreds of investors. That amounts to about $55 million of the $6 billion lost in the scheme, less than a penny on the dollar.

 Unlike the investors, Janvey, who has billed from $340 to $400 an hour for his services, is making out quite well. To date, Janvey and his team have recovered $234.9 million from the bankrupt Stanford Financial Group and spent more than half the total — about $124 million — on personnel and other expenses.

 “From the victims’ point of view, there is no way, shape or form that the receivership could be viewed as successful, this has been one of the biggest failures of a liquidation in history".

” The largest chunk of the Janvey team’s expenses — $67.1 million — was spent on “receivership’s professional fees and expenses,” according to court documents. Those fees and expenses add up to more than 28.5 percent of the money recovered from Stanford’s assets so far.

 Janvey has “complete and exclusive control, possession, and custody” of the assets left behind by Stanford’s business, according to the court order that named him receiver on Feb. 17, 2009.

 Janvey’s attorney, Kevin Sadler of Houston law firm Baker Botts, said the high costs are an unfortunate downside of unwinding R. Allen Stanford’s 18-year financial house of cards, which had offices in 23 states and 13 countries and more than 3,000 employees.

Worldwide tug of war 

 Sadler said Janvey has been fighting a “worldwide tug of war over what was left of Stanford’s assets,” involving multiple national governments and liquidators in Antigua, where Stanford International Bank was located. In March, Janvey reached a settlement to recover about $300 million of Stanford’s assets that have been frozen in Switzerland, Canada and the United Kingdom.

 Sadler said such lawsuits are now the best hope for getting more money back for Stanford’s victims.

 Janvey has been enmeshed in controversy regarding the Stanford liquidation. The Securities and Exchange Commission, which nominated Janvey and rarely has public disputes with receivers, won a motion to rein in some of his spending in June 2009 after the first fee applications were submitted.

 The expenses included a $160,000 payment to a public relations firm called Pierpont Communications for three months of reviewing, sorting and forwarding emails in 2009. In a written objection to the fee application, court-appointed examiner John Little said he had “significant doubt that Pierpont has created any benefit for the receivership estate.”

 $9,439 a day 

 FTI Consulting, a forensic accounting firm, billed more than $528,000 in airfare, parking, hotels, taxis and subway costs to the estate for its first 56 days on the job. Little objected, pointing out that this amounted to “$9,439 in travel-related expenses per day, every day, during the first 56 days.”

 A large part of the receivership’s early spending — $48 million — went to winding down the more than 100 companies in the Stanford Group, costs that were unavoidable, Sadler says.

 Today, Little says, Janvey’s spending has slowed. In the 12 months ending June 30, he’s spent $9.1 million, compared with $20 million spent in the first two months of the receivership in 2009.

 U.S. District Judge David C. Godbey denied a 2011 request by unhappy investors to intervene in the case because they believed Janvey was spending too much. Godbey noted that “the rate of expenditures on professional fees has decreased markedly over time, with the bulk of such expenses incurred relatively early in the receivership.”

 When large Ponzi schemes or companies go bankrupt, court-appointed receivers often find themselves employed for long stretches with a guaranteed income. There are no clear rules or guidelines dictating how a receiver should go about unwinding a failed or fraudulent business or recovering its assets, Sadler said.

 That allows receivers like Janvey to work full time for years on an estate, billing either investors or the congressionally chartered Securities Investor Protection Corp., or SIPC.

 R. Allen Stanford’s $7 billion scam was just one of many Ponzi schemes to fall apart within the past five years. Most notably, Bernard Madoff was sentenced to 150 years in prison for operating a $50 billion Ponzi scheme that cost investors more than $17 billion.

 Irving Picard, the Madoff receiver who was appointed in December 2008, says he has spent about $850 million trying to recover money for investors. The number is huge, but it’s less than 10 percent of the $9.5 billion he has returned to Madoff’s victims. He’s distributed $4.9 billion.

 He declined to say whether he believes Janvey’s costs are too high.

 “I don’t know enough about the specifics about what he had to do,” Picard said.

 Sadler said Madoff’s scheme was a “compact operation to wind down” compared with Stanford’s, which involved more than 100 interconnected companies.

 Like Picard, he said, Janvey watches his costs.

 “We’ve been pretty sensitive to the fact that we can’t spend $10 to recover $10 — or even $5,” he said. 

Janvey has sued about 1,800 former Stanford employees and customers who he says got money from the company, either in salary, bonuses or investment returns, that rightfully belongs to the defrauded investors. 

“Everyone we have sued, we have sued because in both fact and law we believe they received money they were not entitled to,” Sadler said.

 He said the total amount that Janvey could recover from these lawsuits is $1 billion, the only remaining source of money for the defrauded investors. Most of the former employees and clients are fighting the suits because they believe they only got money they were entitled to.

Political parties sued

 Janvey has sued thousands of people, but he has forgone many lawsuits because the return wasn’t worth it. For example, Janvey sued the Democratic and Republican national party committees to recover Stanford’s contributions. He also sent letters to the more than 50 senators and House members who received Stanford contributions but did not go to court.

 Fewer than 20 returned the money, he said.

 Janvey has been widely criticized for spending too much, but Sadler insists it’s the only way to resolve a major fraud.

 “When these things collapse, they just cost a lot of money to clean up,” he said.

 The Center for Public Integrity is a nonprofit, independent investigative news outlet. For more of its stories on this topic, go to

 $7.2 billion - Amount bilked from investors by R. Allen Stanford’s Ponzi scheme
 $234.9 million - Amount recovered from the bankrupt Stanford Financial Group
 $124 million - Amount spent by the receiver on personnel and other expenses
 $55 million - Amount returned to investors so far

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 For a full and open debate on the Stanford Receivership visit the Stanford International Victims Group - SIVG official forum

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