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Tuesday, August 13, 2013

SEC wins dismissal of lawsuit over handling of $7 bln Stanford fraud

Published: Tuesday, 13 Aug 2013 | 12:40 PM ETBy: Jonathan Stempel

* SEC protected by exception to Federal Tort Claims Act

* Victims say SEC knew of Stanford Ponzi scheme in 1997

* Stanford serving 110-year prison term for $7.2 bln fraud

Aug 13 (Reuters) - A federal judge in Florida has thrown out a lawsuit accusing the U.S. Securities and Exchange Commission of negligence for failing to report that the now-imprisoned swindler Allen Stanford was running a $7.2 billion Ponzi scheme.

U.S. District Judge Robert Scola in Miami said the market regulator was shielded under an exception to the Federal Tort Claims Act that bars claims arising from misrepresentation or deceit.

The plaintiffs, Carlos Zelaya and George Glantz, said they lost a combined $1.65 million with Stanford, and sought class-action status on behalf of investors who were victims of his fraud. They plan to appeal Monday's decision, their lawyer Gaytri Kachroo said. SEC spokesman Kevin Callahan declined to comment.

Stanford, 63, is serving a 110-year prison sentence after he was convicted on criminal charges in March 2012 for a fraud that the government said was centered in certificates of deposit issued by his Antigua-based Stanford International Bank.

Zelaya and Glantz claimed that the SEC considered Stanford's business a fraud after each of four examinations between 1997 and 2004, but failed to advise the Securities Investor Protection Corp, which compensates victims of failed brokerages.

The SEC filed civil charges against Stanford in February 2009, two months after the multibillion-dollar Ponzi scheme of New York-based swindler Bernard Madoff was uncovered. In a typical Ponzi scheme, investors are promised high or consistent returns relative to the amount of risk taken, and older investors are paid with money from newer investors.

Last September, Scola let the lawsuit against the SEC go forward, saying the plaintiffs could argue that the regulator had breached a duty to report Stanford's misconduct.

But on Monday, he said the FTCA exception barring claims of misrepresentation deprived him of jurisdiction.

"The plaintiffs claim that they were induced into entering disadvantageous business transactions because of the SEC's misrepresentation," he wrote. "The plaintiffs' cause of action is a classic claim for misrepresentation."

Their lawyer Kachroo said: "We believe that the judge did not draw the appropriate distinction between a claim based on a misrepresentation and our claim based on a failure to warn in line with the SEC's mandatory duty to notify SIPC."

In 2010, the SEC's inspector general criticized the regulator, finding that it knew as early as 1997 that Stanford was likely running a Ponzi scheme.

Earlier this year, federal appeals courts in New York and California dismissed lawsuits against the SEC by victims of Madoff's fraud.

The case is Zelaya et al. v. U.S., U.S. District Court, Southern District of Florida, No. 11-62644.

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

Stanford Victims’ Suit Over SEC Handling of Probe Tossed

Stanford Victims’ Suit Over SEC Handling of Probe Tossed
By Andrew Harris - Aug 13, 2013 3:30 PM CT

Two of R. Allen Stanford’s investors lost a bid to hold the federal government liable for the U.S. Securities and Exchange Commission’s alleged failure to tell another agency the financier’s business was in trouble.

The investors sued the U.S. two years ago claiming the SEC failed in its statutory duty to tell the Securities Investor Protection Corp. it suspected Stanford was running a fraud scheme before suing him in February 2009.

Stanford, 63, was later indicted. He was found guilty last year of running a $7 billion Ponzi scheme and is serving a 110-year prison sentence. Yesterday, a U.S. judge in Fort Lauderdale, Florida, ruled the federal government is immune from the investors’ suit.

“The plaintiffs claim is that they were induced into entering disadvantageous business transactions because of the SEC’s misrepresentation,” U.S. District Judge Robert N. Scola Jr. said in his ruling.

That type of claim isn’t allowed by the Federal Tort Claims Act, which sets forth under what circumstances the U.S. will let itself be sued, Scola said. Scola last year denied a defense bid for dismissal of the case, accepting as true at the time that the SEC had a duty to inform SIPC of its concerns.

SEC Probes
The SEC probed Houston-based Stanford Group Co. four times from 1997 and 2004, according to the investors’ revised complaint filed last year. While suspecting the business was a Ponzi scheme, with early investors paid from funds of those who followed, the agency took no action until 2009.

Plaintiff Carlos Zelaya invested $1 million with Antigua-based Stanford International Bank Ltd., losing almost all of it, while co-plaintiff George Glantz Revocable Trust lost almost all of a $650,000 investment, according to the complaint.

Their lawyer, Gaytri Kachroo of Cambridge, Massachusetts, didn’t immediately reply to a voice-mail requesting comment on the court’s decision. Kevin Callahan, a spokesman for the SEC, declined to comment.

Stanford investors lost about $5.1 billion in the scheme.

The case is Zelaya v. U.S., 11-cv-62644, U.S. District Court, Southern District of Florida (Miami).

To contact the reporter on this story: Andrew Harris in Chicago federal court at

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

Monday, August 12, 2013

Golden Receivers – Trustees make a killing mopping up frauds

Golden Receivers – Trustees make a killing mopping up frauds
New York Post | August 12, 2009
Link to article

There’s a bull market on Wall Street.
Not for investors, but for a handful of elite lawyers and financial pros acting as court-appointed receivers or trustees of firms whose principals have been snagged by authorities and charged with running Ponzi schemes.
These lucky few, whose jobs most times are built around retrieving assets and winding down operations, can earn anywhere from $4,500 an hour to almost $2 million a week.
In the larger cases, professionals can earn $100 million over the life of the case.
And with the economy in recession and a surge in fraud cases being filed — from Bernie Madoff to R. Allen Stanford, Tom Petters and Ezra Merkin — there is no shortage of work.
“Many of the receivers I know are pretty busy,” said Robb Evans, whose firm has been appointed receiver in 28 cases this year through July, including the $1.5 billion fraud at WG Trading, which snared New Yorkers Paul Greenwood and Stephen Walsh.
Over the same period last year, Evans was appointed in 11 cases.
Ralph Janvey, the receiver winding down Stanford Financial Group, asked the court to approve more than $27 million of fees for just a few months’ work on the case. Janvey will pay accountants and lawyers at 14 different firms with the funds.
When the Securities and Exchange Commission and investors objected to Janvey’s massive fees, he told them he had already given them a 20 percent discount “out of concerns for the victims.”
While it is hard to pinpoint exactly what percentage of the total assets in any fraud will be eaten up by the professional fees of these “Golden Receivers,” in one recent $6.6 million fraud, the receiver distributed 43 percent of the assets to the victim — the rest went to professionals.
The percentage of assets eaten up by professional fees in the larger, $1 billion-plus cases, is expected to be lower.
“It’s a gravy train,” said Billy Procida, CEO of Procida Inc, who for a short time was appointed receiver to The Petters Group Worldwide after its founder, Tom Petters, was accused of running a $4 billion Ponzi scheme.
Procida, a Donald Trump protégé who was asked to become the receiver by a group of Petters creditors, was forced aside when a Minnesota court appointed Doug Kelley, a local lawyer and former Republican gubernatorial candidate, to wind down the business.
“I have dealt with a number of receiverships, and for these lawyers it’s like the full employment act,” Procida said.
In all, five $1 billion-plus frauds and alleged frauds have been unearthed in the last year.
Irving Picard, the court-appointed trustee in the Madoff fraud, is also raking in the dough. Picard last week asked for more than $15 million of fees for just 15 weeks of work — but got only $12.6 million.
Bart Schwartz, one of two receivers presiding over Merkin’s investment funds in New York, has had his fees capped by the court at just $150,000 a month but isn’t going to finish soon.
“There is a strong possibility that this receivership will last a fairly long time,” he said. “It is our job to make as much money for the investors as possible. Given current market conditions, it might be better to wait until things improve before we liquidate some of these assets.”
And while Schwartz is waiting, the meter is still running.
Procida believes the Golden Receivers should be paid on performance, not on time taken to complete their task. “They should get paid a percentage of their net proceeds, not gross. This would stop them from spending a million dollars to recoup hundreds.”
One of Madoff’s former investors filed court papers asking Picard to make public his time sheets, so the victims could see how the receiver spends his $1 million a week
Picard has said his work on the Madoff case could last at least five years, which means he could make upwards of $250 million if the court continues to allow his billing at the current rate.
“If he drags it out long enough,” said Helen Davis Chaitman, a lawyer representing hundreds of Madoff victims, “he will make more money than Madoff.”
Tags: Billy Procida, Doug Kelley, James Doran, New York Post, Ponzi Schemes, Receiver, Tom Petters
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One Response to “Golden Receivers – Trustees make a killing mopping up frauds”
Laser Haas says:
November 25, 2009 at 5:32 pm
You have published a story that has hit the nail on the proverbial head.
Receivers, Trustees and others that are elite. Need not compete for jobs. As is evident by the comments within the story Procida. He was not removed for excess billings or bad performance. He was removed so that a “good ole boy” could be placed within.
Doug Kelley was initially hired by PGW and even went public stating Creditors are a last consideration. Then he was made a Federal Receiver – violating Ethics, Model Rules and common sense.
Being that the law is being cast assunder – the Judge gave Doug Kelley and his counter Hansen Judicial Immunity.
Exactly where does one find the Federal authority to hand out Judicial Immunity?
Then Doug Kelley – with willful blindness of the US Trustee (the police of the system) – where the US Trustee even then overtly Helped Doug Kelley to illegally become the Trustee.
Even the American Bar Association states that once a bankruptcy is filed the Receiver is moot.
This means the Bankruptcy Judge joined the fray in permitting skirts of the Law.
When ordinary citizens skirt (break) the Law – they go to jail!
We barked about Petters, Traub and others for years now. Even with all the arrests and pleads of guilt – felony violations and Collusions continue – including the Polaroid sale(s) etc.
This website fits the bill – for cronyism & corruption we must kill!

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

Monday, August 5, 2013

US SEC judge rules Stanford executives are liable for fraud

In a victory for federal regulators, an administrative judge has found three former executives who worked for Allen Stanford's now-defunct brokerage liable for fraud and said they should banned from the industry.
The ruling comes more than a year after Stanford was sentenced to 110 years in prison for bilking investors through a Ponzi scheme with fraudulent certificates of deposit issued by Stanford International Bank, his bank in Antigua.
In her ruling, Securities and Exchange Commission Judge Carol Fox Foelak described as "egregious" the conduct of former Stanford Group Co. chief compliance officer Bernerd Young, former president Daniel Bogar and Jason Green, a former head of the private client group.
Foelak also ordered the three executives to pay fines and forfeit ill-gotten profits.
The SEC's case against the three executives did not allege they actually knew about Stanford's Ponzi scheme.
Instead, it hinged on whether they sufficiently ensured that marketingmaterials and other disclosures were adequate for investors.
All three executives have vigorously denied any wrongdoing.
Young, who was previously a regulator with the group now known as the Financial Industry Regulatory Authority, told Reuters in the summer of 2012 that he took due diligence steps including reviewing quarterly financial statements and reading annual reports about the bank.
But he said in the exclusive interview that Antiguan privacy laws kept him from seeing more details about the investment portfolio, so he relied on the bank's compliance experts.
"If there is such a thing as a...perfect scam, this was the perfect scam," Young told Reuters last year.
Foelak ordered Young, Bogar and Green to each pay a $260,000 civil penalty.
In addition, Young was ordered to return roughly $592,000 plus interest. Bogar was ordered to forfeit about $1.5 million, and Green must pay $2.6 million.
Lawyers for both Young and Bogar said they were disappointed in the judge's ruling and are still considering their options.
If they decide to appeal, the case would first go before the full five-member SEC.
"Mr. deeply troubled by the initial decision's disturbing implications for the securities compliance industry and the newer and more Draconian standards that compliance officers may be facing," said Randle Henderson, Young's attorney.
"The decision demonstrates the real danger to compliance officers relying upon advice of independent outside counsel, fully licensed and qualified accounting firms and the audited financial opinions they issue, and the sovereign financial regulatory agencies of foreign countries."
Thomas Taylor, a lawyer for Bogar, said that while he felt his client got a "full and fair hearing," he disagreed with her outcome profoundly.
An attorney for Green could not be immediately reached.
Friday's ruling by the administrative judge marked the second big trial victory for the SEC in one week.

On Thursday, a jury in New York found former Goldman Sachs Group Inc. vice president Fabrice Tourre liable for federal securities law violations for his role in a complex mortgage deal that cost investors $1 billion when it failed.
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For a full and open debate on the Stanford Receivership visit the Stanford International Victims Group - SIVG official forum