Continuing Story of Stanford Financial Group

On February 17, 2009, United States District Judge Godbey granted a Temporary Restraining Order (TRO) sought by the SEC, and appointed a Receiver to take control of the business of Stanford Financial Group and others. The TRO, later extended to a Preliminary Injunction, was drafted expansively: not only does it grant broad powers to the Receiver, but it purportedly prohibits investors from seeking legal remedies through their own litigation. As a result, many investors sought to intervene in the federal lawsuit in Dallas brought by the SEC.

However, on Monday, April 20, 2009, Judge Godbey denied all motions to intervene in the Dallas federal case. He did not distinguish among any of the various motions to intervene which were filed, or make any exceptions, even though some investors need their money for critical medical treatments. Judge Godbey ruled that the asset freeze was proper, that the Receiver and SEC adequately represent the interests of the investors, and that the Receiver has set up a reasonable process for allowing investors access to those funds which were not associated with the CDs.

This Order means that investors cannot yet take a role in the Dallas litigation, except through the process approved by the Receiver. Although it was not directly decided, investors may further be precluded from filing suits against parties who are not named in the federal suit. That list of parties defendant, by the way, was substantially expanded last week when about 66 individual investment advisors were named as parties who may have received commissions from the illegal sale of securities.

Separately, Allen Stanford and his attorneys on Monday filed a motion requesting the judge to release $10 million so that he can pay his lawyers. The brief for the motion, which is as much a press release as a legal document, claims that the SEC destroyed his business. The brief asks that the funds be placed with Dick DeGuerin’s firm. Stanford continues to claim that his company was viable even as the SEC acted against it in February. Continuing his media strategy, in the April 21, 2009 issue of the Houston Chronicle, Stanford further claims that the company had $5 billion. Investors should hope that he is telling the truth, because otherwise, according to estimates from the Receiver, they can only anticipate obtaining the return of a small fraction of their investments.