Hundreds of investors in Stanford Group Co. asked U.S. District Judge David Godbey in Dallas to unlock funds frozen last month, when regulators accused Stanford and his companies of devising a massive Ponzi scheme. Godbey today granted the U.S. Securities and Exchange Commission’s request for a restraining order that would apply to about 16,000 accounts, or half the total, valued by receiver Ralph Janvey at more than $1 billion.
The SEC sued Stanford, two associates and three affiliated companies on Feb. 17, claiming they orchestrated an $8 billion fraud through the sale of high-yield certificates of deposit through Antigua-based Stanford International Bank. Godbey froze all of Stanford’s corporate and personal assets and appointed Janvey, a Dallas lawyer, as receiver for the companies.
In court papers filed this morning, Janvey asked Godbey to formally release a second wave of accounts, including those “of any size,” so long as they aren’t linked to the suspected fraud or certain Stanford executives or employees. Janvey estimates this will allow roughly 16,000 accounts valued at $4.1 billion to be retrieved by investors.
About 12,000 Stanford customers began retrieving an estimated $500 million in frozen funds on March 9, when Godbey ordered Janvey to release accounts valued at less than $250,000 that weren’t tied to the suspected fraud.
Godbey originally set the freeze on all accounts to expire tonight. He ordered Janvey to submit a plan addressing investor concerns regarding the remaining frozen accounts by March 16.
‘Far Short’
Janvey’s request “falls far short of what the receiver says he is trying to accomplish,” attorney Michael Quilling said in a motion filed March 9 on behalf of investors whose accounts remain frozen. “The litmus test is not size. Size is meaningless. The only true litmus test is ‘tainted’ versus ‘not tainted.’”
Janvey and the SEC were sued March 4 by more than 30 former Stanford financial advisers and clients who claim their rights under the U.S. Constitution were violated when their assets were seized even though they hadn’t been accused of wrongdoing.
In addition to the SEC, the Federal Bureau of Investigation, Internal Revenue Service and U.S. Postal Service are investigating Stanford Financial Group companies and officials.
Neither Chairman Allen Stanford nor Chief Financial Officer James M. Davis has been charged with a crime. Chief Investment Officer Laura Pendergest-Holt, who also was sued by the SEC, was charged with criminal obstruction and released on $300,000 bond. Her lawyer, Dan Cogdell, said she is innocent and was cooperating with investigators when she was arrested Feb. 25.
Lawyer Withdraws
Stanford and Davis didn’t send lawyers to today’s hearing or appear in court. Godbey said Dallas lawyer Charles Meadows, who represented Stanford at a previous hearing, had contacted the court to withdraw from the case.
Godbey asked the receiver when he might file bankruptcy petitions for any of the Stanford entities. In court papers filed yesterday, Janvey asked for sole authority to seek creditor protection for any of the Stanford entities or defendants if he decides it is necessary.
“We don’t have any active plans” for filing bankruptcy, Janvey’s lawyer, Kevin Sadler, replied. “Our reason for not filing so far has been driven by a strong desire to get through this early process of releasing investors bank accounts.”
Jeffrey Tillotson, a lawyer for Pendergest-Holt, said in an interview after the hearing that Janvey agreed to return personal belongings and mail improperly seized from her Mississippi home. The receiver also agreed not to share any information gathered in the search with government investigators, Tillotson said.
The case is SEC v. Stanford International Bank, 3:09-cv- 00298-N, U.S. District Court, Northern District of Texas (Dallas).
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