I recognize that he is not the most popular fellow in Houston investment circles these days, but is anyone else but me a tad uncomfotable that the federal government is running roughshod over R. Allen Stanford?
As everyone following the Stanford Financial Group scandal knows by now, at the request of the Department of Justice, U.S. District Judge David Hittner overruled a federal magistrate’s order last week that would have allowed Stanford to remain free on bond pending his trial on business fraud charges. As a result, Stanford is imprisoned in Houston’s Federal Detention Center pending his trial, which will probably not occur until sometime next year.
Meanwhile, the DOJ, the SEC, a federal court-appointed receiver and a British receiver operating in Antigua have frozen all of Stanford’s personal assets, as well as the assets of the Stanford Financial empire. Consequently, Stanford has no funds with which to retain counsel.
And now he doesn’t even have the freedom to help his attorneys prepare his defense.
However, it’s now become reasonably clear that the DOJ and the SEC’s repeated public allegations that Stanford was running a Ponzi Scheme through Stanford Financial are, if not outright false, at least misleading and irresponsible.
Stanford Financial clearly owned substantial assets, including the Antiguan Bank that also owned substantial assets itself. Perhaps those assets were over-valued and perhaps Stanford and his associates misled investors on the bank’s capability of repaying the certificates of deposit that the company promoted and sold. But that’s a far cry from running a Ponzi Scheme.
Moreover, the government’s efforts to prevent Stanford from paying for defense counsel are downright scary.
The fact that Stanford Financial is not in a position to pay them is not particularly surprising. The company would probably be in bankruptcy if it were not already in receivership, and it’s unlikely that either a bankruptcy judge or a U.S. district judge would allow the company to pay for Stanford’s criminal defense.
But putting aside for the moment the issue of Stanford not being allowed to use his personal assets to defend himself, Stanford Financial has a Director’s & Officer’s insurance policy that provides for payment of at least a portion of Stanford’s defense However, the Stanford Financial receiver has threatened to seek contempt charges against the insurer (Lloyds) if it pays Stanford’s defense costs as it is contractually obligated to do under the policy. At the same time, the receiver, the DOJ, and the receiver are spending millions in preparing the case against Stanford. My conservative estimate is that the government’s tab is more than $25 million already (the receiver alone has a pending request for $20 million in fees).
Finally, Stanford has exhibited absolutely no inclination to flee from the charges against him. He has numerous family ties to Texas and the Houston area, and he has no prior criminal record. And it’s not as if Stanford can just walk away from the charges if he is allowed out on bond. He has no passport and, with the GPS tracking device that the U.S. Marshal’s Office requires criminal defendants to wear these days, the U.S. Marshals know immediately when a defendant is going somewhere that he is not supposed to be.
It’s easy to look the other way when this type of concerted effort by the federal government essentially strips an unpopular businessman of the capacity to defend himself against charges that could imprison him for the rest of his life.
But remember — if it can happen to R. Allen Stanford, then it can certainly happen to you and me.
A copy of Stanford’s motions seeking release of funds for his defense and for reconsideration of his detention order are below.
How can the receiver affect the D & O disbursement of Lloyd’s funds? The second document makes clear that the government would be the one urging contempt proceedings. Are the prosecution and receiver one and the same?
Also, I didn’t think it was possible for me to feel sorry for this dude. But…holy crap I might.
The receiver and the DOJ do not have any connection with each other — the DOJ is a part of the Executive Branch and the receiver is appointed by the Judicial Branch to administer assets. However, it’s clear that the receiver is working closely with the DOJ in the Stanford case.
As the D&O policy, the only rationaliztion that I can come up with for the receiver’s position is that the policy is an asset of Stanford Financial and, thus, no claims can be made against of the receivership. A specious argument if you ask me, but such arguments are typical in criminal cases against unpopular businesspeople.
I don’t think anyone who understands how the U.S. Stanford companies were operated would disagree that Allen did a horrible job of hiring key executives. Allen had quite a number of people making horrendously stupid decisions in his name and many of those decisions are coming back to bit him on the ass. His in-house counsel did a bang up job of pissing off the SEC by refusing to cooperate and the record shows that when the company offered cooperation, they offered false testimony and sought to obstruct the investigation. I personally witnessed two Stanford senior executives offer false and misleading testimony under oath during a hearing (on another matter that you are aware of). As a group, these people just did not believe that laws, rules and regulations applied to them. I know this from personal knowledge.
I have no doubt that senior Stanford managers have done everything possible to infuriate the SEC during the course of this. The arrogance displayed by Stanford executives is a direct reflection of Allen Stanford. He has refused to give any accounting of the monies in question. I would not be surprised to learn he has also. sought to obstruct the investigation.
I knew from the start that the powers that be were going to make an example of Allen Stanford. They have to send a message to others in the securities industry that refusal to cooperate with the SEC and intentional obstruction of investigations will be dealt with harshly. I have every faith that Judge Hittner will ensure Allen’s rights are respected, but Allen and his cronies brought these problems on themselves. Allen will have to fight tooth and nail every step of these proceedings. The DOJ is taking a very tough stand and I, for one, am glad to see it happen. I only hope the SEC also goes after the other senior Stanford managers who bear responsibility for their actions.
Allen should just be thankful they didn’t assign the case to Vanessa Gilmore. As long as he has Judge Hittner, i’m not going to cry that he is being treated unfairly. Hopefully others will learn from what Allen brought upon himself.
Charles, you make a persuasive case for Stanford being guilty of business fraud. However, my point is that the government should be required to prove that before its allowed to mete out punishment on him. If we don’t require that dodgy characters such as Stanford be prosecuted under the same set of rules as everyone else, you will soon see the DOJ use the pre-trial jailing of Stanford as precedent for similar pre-trial treatment of defendants in far more questionable cases, such as those that we’ve seen over the past several years against Jamie Olis, Jeff Skilling, Kevin Howard, the NatWest Three and the Merrill Lynch bankers.
What is the legal definition of a Ponzi scheme? Is it covered under general fraud or is there a specific area in securities law that covers it.
Warren, I am unaware of any formal statutory definition of a Ponzi Scheme. Rather, lawyers involved in business litigation generally refer to a Ponzi Scheme as one in which the promoter raises funds from investors based on a fraudulent and non-existent business and then pays the promised returns to the investors by using proceeds raised from new investors. Such schemes can last for a long time so long as the promoter can continue to attract new investors into the scheme. Alas, all such schemes eventually burst because even the most inventive promoter eventually runs out of new investors to attract.
Inasmuch as all highly-leveraged businesses need to raise capital when the value of their assets decline and place the solvency of the business in question, many folks characterize such money-raising activities as a Ponzi Scheme. However, that’s not accurate because a Ponzi Scheme does not involve a legitimate business in the first place.
Tom,
I understand your point, but it is important to remember consider the circumstances. (allegedly) Allen Stanford went to great lengths and great expense to structure his organization such that avoided any and all regulatory oversight of U.S. authorities. He hired former high ranking regulatory professionals to help him perpetuate his schemes. When U.S. regulators attempted to exercise the limited powers they had, Allen directed his minions to refuse to cooperate and to obstruct any and all investigations. He corrupted officials of foreign governments to ensure at least one foreign government purposely gave false information to U.S. officials.
It is extremely important for the SEC and DOJ to send the message to the financial services industry that these types of activities will be dealt with in the harshest terms. Yes, they are treating Allen Stanford harshly. However, Allen Stanford has probably the most capable attorney available. This is going to be one hell of a fight. This moron and his minions engaged in unlawful activities far removed from the dealings of the bank in Antigua. I cannot fault the powers that be for taking the totality of Allen Stanford’s actions into account and deciding to give him no consideration.
It is the responsibility of Judge Hittner and the 5th Circuit to ensure Allen Stanford’s rights are being respected. The treatment he is experiencing is sending a valuable message to the financial services industry. My only problem with the handling of this affair so far is that the SEC and DOJ seem to be giving a free pass to the other unlawful activities and to those who were responsible for those activities. We don’t have one too many individuals locked up in Conroe, we have about 15 too few.
Charles, Stanford is not a threat to the safety of the community. He is also not a realistic flight risk. Under those circumstances, our criminal justice system requires that a defendant, who is innocent until proven guilty, be given the opportunity to post bond and have the freedom to assist in the defense of his case. Stanford is being deprived of those important rights.
Given that Stanford’s ability to finance a defense has been severely hampered as a result of the arguably justified actions that the government has taken to freeze assets, that sends a sufficiently powerful message of deterrence to the financial community that engaging in the type of conduct that Stanford did risks being deprived of the capacity to mount an effective defense.
If I have a choice of constraining the power of government to deprive citizens of their rights, on one hand, and sending a valuable message to the financial services industry, on the other, I will choose the former every time.
I understand your point and somewhat agree with you. My point is that the judiciary is responsible for ensuring Allen Stanford’s rights are respected. The DOJ is not wrong for making the argument that he is a flight risk. One of the purposes of the entire prosecution is to send a message to the financial community and in playing hardball they are doing just that.
Stanford’s attorneys are quite capable of ensuring his rights are respected. Judge Hittner is quite capable of sorting out the opposing arguments. I don’t agree Judge Hittner is acting with impure motives and is railroading Allen Stanford.
Charles, over the past decade, the judiciary has not distinguished itself in mitigating the executive branch’s abuse of power in prosecutions of businessmen. One need only look at the prosecutions and sentencings locally of Jamie Olis, the Merrill Lynch bankers in the Nigerian Barge case, and Jeff Skilling to recognize this fact. Allowing such abuses to occur in a case against a probably guilty defendant such as Stanford only makes it easier for the same thing to occur in the case against a wrongfully accused one.
If Allen Stanford was given one chance to defend himself, like any American deserves (remember our Constitution?), he would prove his innocence. But guess what? Our government has made such a catastrophic mistake that now it is too late. They cannot take their mistake back so their only solution is to get rid of Stanford or to “break” him prior to trial.
It has been almost eleven months since the government seized or froze all of Allen Stanford’s personal and corporate assets worldwide and, in the process shut down a vibrant strong group of companies employing 5,000 people he spent 25 years of his life building.
The actions of the government in moving in with such catastrophic force in a “civil” complaint are mind boggling. The government not only took Allen Stanford’s life’s work in building significant financial wealth and resources away, but also, in simple language, rendered him a homeless person with two suits and $300 cash to his name. All the while he is portrayed in the media as another Maddoff type villain running a multibillion dollar ponzi scheme.
The whole exercise in denying Allen Stanford bond, keeping him locked up under the worst of conditions, and fighting him every step of the way while he tries to gain access to insurance money or assets so he could hire a quality defense team is of course to render him defenseless and break his spirit to fight. I have spoken with criminal attorneys who have seen Allen Stanford and have said “not even murderers are treated the way Allen Stanford is being treated.” Something is really wrong; a person with half a brain should be able to see that.
You can choose to believe or not believe in Allen Stanford’s innocense, but you cannot choose to look to the side and disregard his rights; Allen Stanford deserves the right to defend himself.