Stanford Judge Extends Freeze on Investor Accounts

A U.S. judge extended a freeze on some investor accounts as investigators probe an alleged $8 billion fraud at companies controlled by Texas financier R. Allen Stanford.

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).

The world's billionaires

The world has become a wealth wasteland.

Like the rest of us, the richest people in the world have endured a financial disaster over the past year. Today there are 793 people on our list of the World's Billionaires, a 30 percent decline from a year ago.

Of the 1,125 billionaires who made last year's ranking, 373 fell off the list-355 from declining fortunes and 18 who died. There are 38 newcomers, plus three moguls who returned to the list after regaining their 10-figure fortunes. It is the first time since 2003 that the world has had a net loss in the number of billionaires.

The world's richest are also a lot poorer. Their collective net worth is $2.4 trillion, down $2 trillion from a year ago. Their average net worth fell 23 percent to $3 billion. The last time the average was that low was in 2003.

Bill Gates lost $18 billion but regained his title as the world's richest man. Warren Buffett, last year's No. 1, saw his fortune decline $25 billion as shares of Berkshire Hathaway fell nearly 50 percent in 12 months, but he still managed to slip just one spot to No. 2. Mexican telecom titan Carlos Slim Helú also lost $25 billion and dropped one spot to No. 3.

It was hard to avoid the carnage, whether you were in stocks, commodities, real estate or technology. Even people running profitable businesses were hammered by frozen credit markets, weak consumer spending or declining currencies.

The biggest loser in the world this year, by dollars, was last year's biggest gainer. India's Anil Ambani lost $32 billion - 76 percent of his fortune - as shares of his Reliance Communications, Reliance Power and Reliance Capital all collapsed.

Ambani is one of 24 Indian billionaires, all but one of whom are poorer than a year ago. Another 29 Indians lost their billionaire status entirely as India's stock market tumbled 44 percent in the past year and the Indian rupee depreciated 18 percent against the dollar. It is no longer the top spot in Asia for billionaires, ceding that title to China, which has 28.

Russia became the epicenter of the world's commodities bust, dropping 55 billionaires - two-thirds of its 2008 crop. Among them: Dmitry Pumpyansky, an industrialist from the resource-rich Ural mountain region, who lost $5 billion as shares of his pipe producer, TMK, sank 84 percent. Also gone is Vasily Anisimov, father of Moscow's Paris Hilton, Anna Anisimova, who lost $3.2 billion as the value of his Metalloinvest Holding, one of Russia's largest ore mining and processing firms, fell along with his real estate holdings.

Twelve months ago Moscow overtook New York as the billionaire capital of the world, with 74 tycoons to New York's 71. Today there are 27 in Moscow and 55 in New York.

After slipping in recent years, the U.S. is regaining its dominance as a repository of wealth. Americans account for 44 percent of the money and 45 percent of the list's slots, up seven and three percentage points from last year, respectively. Still, it has 110 fewer billionaires than a year ago.

Those with ties to Wall Street were particularly hard hit. Former head of AIG Maurice Greenberg saw his $1.9 billion fortune nearly wiped out after the insurance behemoth had to be bailed out by the U.S. government. Today Greenberg is worth less than $100 million. Former Citigroup Chairman Sandy Weill also falls from the ranks.

Last year there were 39 American billionaire hedge fund managers; this year there are 28. Twelve American private equity tycoons dropped out of the billionaire ranks.

Blackstone Group's Stephen Schwarzman, who lost $4 billion, and Kohlberg Kravis & Roberts' Henry Kravis, who lost $2.5 billion, retain their billionaire status despite their weaker fortunes.

Worldwide, 80 of the 355 drop-offs from last year's list had fortunes derived from finance or investments.

While 656 billionaires lost money in the past year, 44 added to their fortunes. Those who made money did so by catering to budget-conscious consumers (discount retailer Uniqlo's Tadashi Yanai), predicting the crash (investor John Paulson) or cashing out in the nick of time (Cirque du Soleil's Guy Laliberte).

So is there anywhere one can still make a fortune these days? The 38 newcomers offer a few clues. Among the more notable new billionaires are Mexican Joaquín Guzmán Loera, one of the biggest suppliers of cocaine to the U.S.; Wang Chuanfu of China, whose BYD Co. began selling electric cars in December, and American John Paul Dejoria, who got the world clean with his Paul Mitchell shampoos and sloppy with his Patrón Tequila.

Nationalizing banks would be nightmare

Bank of America Corp's (BAC.N: Quote, Profile, Research, Stock Buzz) chief executive said on Thursday it would be a "nightmare" for U.S. banks to be nationalized, wiping out shareholders and perhaps bondholders, and further damaging an economy that might begin to recover as soon as this year.

Speaking to the Chief Executive Officers Club of Boston, CEO Kenneth Lewis also said he is confident that Bank of America, the largest U.S. bank, will pass the government's pending "stress test," and would not need more government capital. Bank of America took $45 billion from the U.S. Treasury Department's Troubled Asset Relief Program (TARP), including some funds in a January bailout to help absorb debt-ravaged Merrill Lynch & Co.

Lewis faces heavy pressure from investors to show that Bank of America can make it through the recession on its own, and is in much better shape than rival Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz). Some critics have called for his removal in the wake of the rushed --and so far troubled -- Merrill purchase.

Lewis praised government efforts to revive banks hurt by hundreds of billions of dollars in writedowns and credit losses, but agreed with Federal Reserve Chairman Ben Bernanke that full takeovers are the wrong way to go.

Nationalization "would be a nightmare" and "send shudders" through investors, he said.

"It would give the false impression that all banks are insolvent, and investors would immediately start betting on which banks would be next, possibly creating a self-fulfilling prophecy," he said. "And government control of large banks would politicize lending decisions and the capital allocation process, damaging the economy."

Lewis said government efforts so far to spur lending and consumer spending should turn the economy around. "We are going to break the back of this thing, and I still believe we'll do it this year," Lewis said. "There is too much ammunition being fired from too many directions to not bring this beast down."

He also said banks have to reassess how they manage risk, but that TARP has "worked very well" and enabled banks to lend more. "What's gone is the easy credit that got us into this mess, as unregulated nonbank lenders have failed," he said.

Lewis also touched on two areas that have drawn fire from politicians and banking industry critics: executive pay and sponsorships of sports teams.

Alluding to a provision in February's government stimulus package, Lewis said it is wrong to require TARP recipients to cap pay of executives who are just below the top level and produce high amounts of revenue. He said they could be lured by foreign banks or boutique firms not subject to such limits.

He also said Bank of America's sports marketing efforts generate $3 of profit and $10 of revenue for every dollar spent. The bank has a wider array of sports sponsorships than any other lender. It is the official bank of Major League Baseball and NASCAR, and has the naming rights to the Carolina Panthers football team in its hometown, Charlotte, north Carolina.

Madoff Life Prison Term Means Inmate Blame for Crash

Bernard Madoff, who pleaded guilty today to masterminding the largest Ponzi scheme in history, may have to fight off prison inmates who want to squeeze him for money or blame him for the Wall Street crash.

“Madoff isn’t going to be real popular,” said Larry Levine, who served 10 years in federal prisons for securities fraud and narcotics trafficking and now advises convicts on surviving time behind bars. “All the guys there will have wives or parents who are losing their homes or their jobs or who can’t send money to them anymore. Everybody’s going to be blaming Bernie.”

The 70-year-old investment adviser was ordered to jail by U.S. District Judge Denny Chin until sentencing scheduled for June 16. He faces as much as 150 years in prison.

Madoff ran a $65 billion fraud that fleeced thousands of investors, including Palm Beach retirees, trustees of Yeshiva University and Holocaust survivor Elie Wiesel, who lost his savings and his foundation’s assets.

The financier was undone by the Wall Street collapse as last year’s 38 percent decline in the Standard & Poor’s 500 Index forced his customers to withdraw money, said Roy Smith, a finance professor at New York University’s Stern School of Business and former Goldman Sachs Group Inc. partner.

“No one has ever made a Ponzi scheme pay off for so long,” Smith said of the scam that prosecutors said dated back two decades. “‘Madoff’ may become a verb. It certainly is already an adjective. We can replace the old Ponzi scheme with a new Madoff version. It is a monument to the foolishness of people putting money in these places.”

Prison Target

Ponzi schemes are named for 1920s financier Charles Ponzi. Money from new investors goes to pay off previous ones.

After hunting down victims for decades, Madoff will now become a target, according to Park Dietz, a forensic psychiatrist at the David Geffen School of Medicine of University of California at Los Angeles.

“In the beginning, he will be besieged by mail that will be threatening and accusatory,” said Dietz, who heads a Newport Beach, California-based consulting firm that participated in more than 12,000 criminal investigations, according to its Web site.

“There will be people trying to scam him and people who think he’s hiding money,” Dietz said. “There will be inmates asking for money, and you don’t want them to disbelieve you when you say you don’t have it.”

Madoff is likely to be looking at decades behind bars, given the severity of the charges, said Alan Ellis, a Mill Valley, California-based attorney and co-author of “Federal Prison Guidebook.”

‘Over 20 Years’

“He’s looking at well over 20 years, probably at least 30,” said Ellis, former president of the National Association of Criminal Defense Lawyers in Washington, D.C. “That’s a life sentence for him.”

Madoff didn’t agree to a plea deal with prosecutors because they demanded he admit to a conspiracy, according to people familiar with the matter. That would have required him to say he worked with others in the alleged scheme, they said.

Ira Sorkin, Madoff’s lawyer, had no comment on his client’s possible sentence before the investment adviser arrived at court today.

The Queens, New York-born financier is a former Nasdaq Stock Market chairman and owns a penthouse on Manhattan’s Upper East Side, vacation homes in Palm Beach and the French Riviera and a 55-foot Rybovich sport-fishing yacht called “Bull.” He started his investment business in 1960, at the age of 22, with $5,000 saved from summer jobs.

Aging Convicts

Madoff will likely join a corps of aging white-collar convicts including former WorldCom Inc. Chief Executive Officer Bernard Ebbers, 67, now housed at the Federal Correctional Institution in Oakdale, Louisiana, and John Rigas, 84, the ex-CEO of Adelphia Communications Corp. who is imprisoned at the Federal Correctional Institution in Butner, North Carolina.

Ebbers, who was convicted in an $11 billion accounting fraud, is due for release on July 4, 2028, while Rigas’s sentence for securities and bank fraud and conspiracy runs until Jan. 23, 2018, according to the Federal Bureau of Prisons Web site.

Federal prisons carry different designations, ranging from minimum to maximum, based on levels of security.

The two former CEOs are doing time in low-security prisons featuring double-fenced perimeters, mostly dormitory housing and work programs, according to the bureau Web site.

Madoff probably would be assigned to a low- or medium- security facility, said Levine, whose firm, Wall Street Prison Consultants, is in Los Angeles. Medium-level lockups usually house inmates in cells and are ringed with electronic escape- detection systems, the bureau site says.

‘Least Violent’

Because crimes such as rape and murder are usually prosecuted under state laws, “in general, the federal system is less violent,” said Peter Henning, a law professor at Wayne State University in Detroit. “Madoff will be put in with the least violent.”

Madoff, who is Jewish, may be assigned to one of several U.S. facilities in the New York area, including the Federal Correctional Institution in Otisville, New York, 70 miles from Manhattan, where ultra-Orthodox Jews run religious services inside the prison, he said.

The financier may be sent instead to a low-security facility at Fort Dix, New Jersey. It’s next to a minimum-security camp housing former fund manager Martin Armstrong, founder of now- defunct Princeton Economics International Ltd., who’s serving a five-year sentence for securities fraud.

11 Counts

Madoff pleaded guilty to 11 counts, including securities, investment-adviser, mail and wire fraud as well as money laundering and theft from an employee-benefit plan.

The addition of money-laundering charges “may make this a life sentence” and push Madoff into a medium-security prison, at least at first, Ellis said. “Where you end up has as much to do with where the BOP has a bed open as your sentence.”

Before Madoff’s plea, two judges dismissed a government motion to revoke his $10 million bail and jail the financier after he sent a diamond bracelet and watches to friends and relatives in violation of an asset freeze. He awaited his hearing under house arrest at his $7 million duplex at 64th Street and Lexington Avenue.

Madoff may be sent first to the 12-story Metropolitan Correctional Center in lower Manhattan or the Metropolitan Detention Center in Brooklyn. Both house criminals from “swindlers to murderers,” Wayne State’s Henning said.

‘Bleak’ House

The “bleak” MCC is “horrendous,” according to defense attorney Sam Schmidt, who visits the jail several times a week and represented Wadih el-Hage, convicted of federal terrorism charges related to the 1998 bombings of the U.S. embassies in Africa. He visited el-Hage at the facility between 1998 and 2001.

Conditions are worse at the Brooklyn jail, according to a court filing by Flora Edwards, a lawyer for fund manager Raffaello Follieri. He was convicted in 2008 in a real-estate investment fraud that led investors to believe he had a special relationship with the Vatican. Edwards’ filing described the MDC as having an “intolerable” stench and free-roaming rats.

‘They’re Nuts’

Money manager Armstrong spent seven years at the MCC on civil-contempt charges before pleading guilty to securities fraud. He started out in the facility’s high-security wing with accused terrorists because there were no beds in a regular unit, he said in a January interview, quoting his jailers.

“Sometimes they’re good guys,” Armstrong said of his fellow prisoners. “Sometimes they’re nuts.”

Madoff would be housed in a special unit at either facility because his high profile would restrict his contact with the general population, Levine said

In prison, Madoff will be able to stay in touch with the outside world via TV and the Internet, according to psychiatrist Dietz. He’ll have access to cable television and will probably get access to e-mail, Dietz said.

Unless he qualifies for a medical exemption, Madoff will have to take a job in prison that will pay anywhere from 12 cents to 40 cents an hour, Levine said. Offering inmates help with legal or financial needs might give Madoff a certain “diplomatic immunity,” said Levine, who said he acted as a jailhouse lawyer for other convicts while behind bars.

“Once he gets in, he’s not getting out except in a box,” he said. “There is no parole.”

The criminal case is U.S. v. Madoff, 09-cr-00213, U.S. District Court for the Southern District of New York (Manhattan).