Stanford Update

1. United States District Judge Godbey last week established the briefing schedule for arguments on whether Allen Stanford should be able to obtain money to pay his attorneys. John Little-the court-appointed Examiner representing the interests of CD investors-has been given until today (May 4) to file his response. Since the Court denied the proposed interventions of the CD investors two weeks ago, they do not have the right to respond. Allen Stanford’s attorneys have been given until May 8 to reply. Allen Stanford has also filed an appeal with the Fifth Circuit Court of Appeals seeking to lift the Order freezing his assets, and Judge Godbey has questioned whether he has authority to amend that Order while it is being appealed. There is no date set to decide that issue.

2. A similar briefing process applies to the motion of the Antiguan Receiver seeking to place Stanford International Bank into bankruptcy, and the date has been extended to May 15, 2009. Judge Godbey earlier in this case ordered that only the Receiver could place Stanford in bankruptcy. The briefing issues relate only to whether the judge has to amend his Order to recognize the Antiguan receiver’s efforts, and not to the central issues in any SIB bankruptcy.

3. The Receiver’s Interim Report filed two weeks ago contained one story that explains why SIB is unlikely to have significant cash or assets to repay CD investors. According to the report, SIB bought 1,587 acres of undeveloped land in Antigua for $63.5 million in April 2008 and immediately sold it to Allen Stanford for that price. He placed the land in a company he controlled and then set the land value at $3.2 billion, a 50-fold increase, with no justification. He then transferred some of the shares in the land company to SIB, and SIB forgave a $1.7 billion loan to Allen Stanford. In other words, Allen Stanford had taken $1.7 billion in cash from SIB (presumably funded by CD purchases) and repaid the loan with highly overvalued land. This suggests that, by early 2008, SIB lacked sufficient collateral to support the CD program since Allen Stanford had used the program as a personal “piggy bank.” We hope that evidence like this will cause Judge Godbey to deny Stanford’s request for money to pay attorneys.

4. Allen Stanford staged an attempt to surrender to authorities. He and his attorney pulled a publicity stunt last week by offering to surrender at the federal courthouse in Houston. Presumably, the move is intended to support an argument that he is willing to be available for any criminal proceedings in order to keep the amount of any bail set for him in the future low; this also may be an attempt to bring pressure on prosecutors to move forward.

5. The Stanford Victims Coalition is asking Congress to modify SIPC rules to allow compensation for CD investors. The argument being made is that investors purchased the CDs in the United States through an SIPC member, Stanford Financial Group, so the United States regulatory agencies should have uncovered the fraud. The argument admits that current SIPC regulations do not provide compensation, but argues that the rules should cover situations like this. There are no significant reports on the progress of this effort.