(Updates with comment from Sadler in 16th paragraph.)
Oct. 13 (Bloomberg) -- R. Allen Stanford’s court-appointed receiver may need to stop searching for a secret “pot of gold” and pay defrauded investors from the assets he has recovered so far, the judge overseeing the case said.
“I’m concerned the receiver is expending resources that could otherwise be distributed to investors trying to track down missing resources,” U.S. District Judge David Godbey said during a hearing today in Dallas for dozens of Stanford-related civil cases.
Stanford, 61, was sued by the U.S. Securities and Exchange Commission in February 2009 on claims he swindled investors of more than $7 billion through allegedly bogus certificates of deposit at his Antigua-based Stanford International Bank.
“If we knew where it was and were able to go get it, we would have,” SEC attorney David Reece told Godbey, referring to Stanford’s missing billions.
“When the U.S. Justice Department has already checked and there’s no pot of gold, then the receiver can stand down,” Godbey told lawyers for the receiver and investors. “There’s apparently not some trail to a $5 billion secret Swiss bank account that anyone knows about.”
Stanford, who denies all wrongdoing, has been in custody as a flight risk since his indictment on parallel criminal charges in June 2009. He is being treated for a prison-acquired addiction to anxiety drugs while he awaits trial, set for January in Houston federal court.
Godbey told lawyers in Dallas today he’s concerned that receiver Ralph Janvey is duplicating efforts by U.S. prosecutors, who are also tracking Stanford’s assets overseas. The Justice Department has won administrative freezes on more than $300 million in Stanford-related bank accounts in Switzerland and the United Kingdom. These accounts are beyond Janvey’s control and may represent the receivership’s largest category of recoverable assets, according to court filings.
The Stanford receivership has about $100 million in unrestricted cash on hand, Kevin Sadler, Janvey’s lead lawyer, told Godbey today. This represents proceeds from the sale of virtually all of Stanford’s U.S. real estate and private equity holdings, after payment of the receivership’s fees and expenses.
Stanford owned additional real estate in the Caribbean nation of Antigua and Barbuda, which is under the control of a separate liquidator appointed by that nation’s government. Lawyers for Janvey and Stanford’s Antiguan liquidators told Godbey today that they can’t agree how to share control of Stanford’s island properties and investor records located in Antigua.
“The U.S. receiver has liquidated 95 percent of what the receiver has control over that’s sellable,” Sadler told Godbey. “We’re basically out of the real estate business and the private equity business. We’ve got some lawsuits that’ll go on for years. And we’ve got some cash, but not enough to distribute right now because of the cost.”
Sadler said if the U.S. receiver gained control of the frozen U.K. and Swiss bank accounts, then there might be enough cash to justify the cost of creating a claims process to distribute recovered assets to investors.
“It’s not going to get cheaper the longer you wait,” Godbey told Sadler.
“If we leave this just in limbo for another two or three years waiting to see if there’s a bigger pot of money, it may be difficult for people to put together claims,” Godbey said. “The prospects of finding a secret Swiss bank account with $5 billion in it is not something you’re holding out much hope for.”
The U.S. receiver and an official investors’ committee have filed more than 100 fraudulent transfer and aiding-and-abetting lawsuits, seeking to claw back proceeds from CD investors or payments to vendors, consultants or financial advisers who worked with Stanford’s companies. Court filings estimate these actions, if successful, could return as much as $500 million to the estate.
“We’ve sued everyone we can find,” Sadler told Godbey today.
“I’m getting a very clear sense,” Sadler added, that the judge wants a claims process initiated “no matter how much money we have.”
Godbey asked the receiver for a plan detailing “what needs to be done to bring this to a conclusion and what it will cost” to complete the task of repaying Stanford’s investors. He didn’t set a timetable for further action on the matter.
The criminal case is U.S. v. Stanford, 09cr342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission vs. Stanford International Bank, 09cv298, U.S. District Court, Northern District of Texas (Dallas).
--Editors: Mary Romano, Fred Strasser
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