Hearing Held Today in Stanford Case

I attended a hearing that United States District Judge David C. Godbey conducted today in the Stanford fraud case. The hearing was set at the request of the SEC for a Preliminary Injunction to preserve the assets of the Stanford companies until the final trial of the case. An agreed Preliminary Injunction was entered regarding Laura Pendergest-Holt and the companies. For the other defendants, the initial Temporary Restraining Order was extended to March 12, 2009 at 10:00 a.m. Additionally, Ralph Janvey, the Receiver, provided a report to Judge Godbey concerning the status of the receivership.

Today’s hearing was moved from Judge Godbey’s customary courtroom on the 13th floor to a larger courtroom on the 15th floor of the United States Courthouse in Dallas in order to accommodate the large number of people involved. The lawyers representing the SEC, the Receiver, and the defense sat at counsels’ tables. Before the hearing, courtroom staff told lawyers representing investors and intervenors that the judge would not hear from them today. Thirty minutes before the hearing, the gallery had filled up with reporters and lawyers representing investors, so the courtroom deputies had to place temporary chairs in the aisles.

When Judge Godbey took the bench at 9:30 a.m., he requested announcements from the parties about their intentions for the hearing. The SEC, represented by David Reece, indicated that the agency sought a Preliminary Injunction, and that counsel wanted to describe the status of the legal discovery proceedings for the Court. The attorney for the Receiver indicated that the Receiver would provide a report to the judge of the Receiver’s activities. None of the defendants attended the hearing. But Jeffrey Tillotson, the one lawyer present for any defendant, who represents Ms. Pendergest-Holt, informed the Court that she had been arrested late last week in Houston after reaching an agreed Preliminary Injunction with the SEC. Although he filed a motion to “continue” (postpone) today’s hearing on Friday after she was released from custody at 4:30 p.m., he indicated that, since then, with minor modifications, she remained in agreement with the Preliminary Injunction.

While these issues were being announced to the judge, a lawyer named Chuck Meadows entered and told the Court that he had been retained to represent Allen Stanford for the limited purpose, thus far, of seeking a continuance of today’s Preliminary Injunction hearing. He recommended the Temporary Restraining Order remain in effect. Judge Godbey inquired of the SEC what harm that would entail. The SEC mentioned the inconvenience of witnesses who had traveled to the hearing, and pointed out the complete non-compliance of the defendants with the investigation. Taking everything into consideration, the judge ruled that the Temporary Restraining Order will remain in force against him for ten more days.

After that, Mr. Janvey provided a report to the Court of his activities as the Receiver. He opened with remarks about his desire to release significantly more investment accounts, since he is aware of the hardship the receivership has caused many investors. He then described numerous experts he has retained, from the specialties of securities, forensic accounting, law, and global networking. He told the judge there were approximately 175 Stanford-related entities which he has encountered so far, and they were engaged in a wide spectrum of financial activities, from securities, to precious metals, to financial planning, to real estate developments. Next, Mr. Janvey informed the judge that many foreign governments have gotten involved in this matter, with two receivers being appointed in Antigua. Nations around the Caribbean have taken steps to seize assets. Further, Mr. Janvey’s office has interviewed officers from Stanford, stopped Stanford’s operations, changed the locks, secured documents, and has sent notices to 70 financial institutions informing them of the Temporary Restraining Order. He has begun an inventory of the holdings, and has requested politicians who received contributions, as well as law firms who received retainers, to return the funds. He is presently evaluating Stanford’s employees and the litigation affecting the group of companies. Mr. Janvey stressed to Judge Godbey the extreme liquidity problems faced by the Stanford entities, which face multi-millions of dollars of bills and expenses. The judge asked about the value of Stanford’s assets; Mr. Janvey demurred, but the judge courteously pressed him further; finally, he estimated they were in the millions – not billions – of dollars.

Mr. Janvey stated that, at the outset of the receivership, the safest approach was to freeze all accounts, even those involving Pershing. There is great administrative difficulty distinguishing among these 35,000 accounts – in some of the 20 different investment products which passed through Stanford – to determine which are “tainted” with Stanford’s fraud and which are not. This is more critical now that the SEC has alleged that a Ponzi-scheme existed. But, he plans to request the Court on March 16, 2009 to allow the release of investment accounts with Pershing and J.P. Morgan under $100,000. This request will specifically exclude any accounts held by Stanford or its employees.

He recognizes that this process may release some funds which are “tainted,” and further that any released funds will be nearly impossible to recoup, but he is balancing that with the hardship that has been imposed upon investors by the freeze. When asked how many of the intervenors would be “taken care of” by the release of accounts less than $100,000, he was unable to provide an estimate. But, as an aside, Mr. Janvey indicated that the customers’ accounts in Pershing and J.P. Morgan may be protected, and further that the SIPC may provide benefits. Mr. Janvey concluded that portion of his remarks by urging the Court to maintain control to ensure that there is ultimately a fair distribution.

Mr. Janvey closed his report with an outline of his four priorities: 1) to deal with the employees and the payroll issues; 2) to release as many brokerage accounts as possible; 3) to make sure the assets of Stanford are preserved; and 4) to increase communication from his office, especially through the website. He stated that, to date, he had not communicated much because he did not have much to communicate; he is still performing his initial assessment. But, going forward, he plans to provide investors with more information. For instance, foreign countries want funds, and the Receiver’s office wants to gain information and protect the assets; so, there has been considerable “push-back” from them, but he continues the dialog with them.

At that point, Judge Godbey directed the parties to file a consolidated response by March 16, 2009 to the many motions to intervene. The potential intervenors will then have until March 23, 2009 to respond.