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1003 . 3_appendix_-_supp_brief_mtn_re_772_relief_from_rcvrship_order_bukrinsky (1)
 

1003 . 3_appendix_-_supp_brief_mtn_re_772_relief_from_rcvrship_order_bukrinsky (1)

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    1003 . 3_appendix_-_supp_brief_mtn_re_772_relief_from_rcvrship_order_bukrinsky (1) 1003 . 3_appendix_-_supp_brief_mtn_re_772_relief_from_rcvrship_order_bukrinsky (1) Document Transcript

    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 1 of 444 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISIONSECURITIES AND EXCHANGE COMMISSION, § § Plaintiff, § § v. § Civil Action No. 3:09-CV-0298-N §STANFORD INTERNATIONAL BANK, LTD., et al., § § Defendants. §APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER MORGENSTERN & BLUE, LLC 885 Third Avenue New York, NY 10022 Telephone: (212) 750-6776 Facsimile: (212) 750-3128 LACKEY HERSHMAN, L.L.P. 3102 Oak Lawn Avenue, Suite 777 Dallas, Texas 75219 Telephone: (214) 560-2201 Facsimile: (214) 560-2203 Attorneys for the Movants
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 2 of 444 TABLE OF CONTENTSDeclaration of Angela Shaw .............................................................................................................. 1Joint Motion of the SEC and Receiver for Entry of Second Amended Order AppointingReceiver and Appendix in Support of Joint Motion of the SEC and Receiver for Entry ofSecond Amended Order Appointing Receiver [Dkt. No. 958].......................................................... 7Receiver Ralph S. Janvey’s Motion to Amend Order Appointing Receiver [Dkt. No. 146]........... 43Transcript of Oral Argument in Janvey v. Alguire, et al., Civil Action No. 09-10761(5th Cir. Nov. 2, 2009)..................................................................................................................... 57Receiver’s Second Amended Complaint Against Former Stanford Employees, filed inJanvey v. Alguire, et al., Case no. 3:09-cv-0724-N, N.D. Tex. [Dkt No. 156].............................. 171Defendant E. Randolph Robertson, Jr.’s Original Answer to Receiver’s Second AmendedComplaint Against Former Stanford Employees Affirmative Defenses and Counterclaims,filed in Janvey v. Alguire, et al., Case no. 3:09-cv-0724-N, N.D. Tex. [Dkt. No. 207] ................ 197Complaint in Frank, et al., v. The Commonwealth of Antigua and Barbuda,(Case No. 3:09-cv-02165-N).......................................................................................................... 214First Amended Complaint Against Certain Stanford Investors and Appendix in Support ofReceiver’s First Amended Complaint Against Certain Stanford Investors, filed in Janvey v.Alguire, et al., Case no. 3:09-cv-0724-N, N.D. Tex. [Dkt Nos. 128 & 129],................................ 288Answer to Receiver’s First Amended Complaint (Investor Defendants), filed byinvestors Robert B. Crawford, Jr., et al., in Janvey v. Alguire, et al.Case no. 3:09-cv-0724-N, N.D. Tex. [Dkt No. 242]...................................................................... 314Transcript of Proceedings in Janvey v. Alguire, et al., July 31, 2009............................................ 331Order of the Honorable David C. Godbey cancelling the January 21, 2010 hearing in In reStanford International Bank, Ltd., Case no. 3:09-cv-0721-N, N.D. Tex. [Dkt No. 66] ................ 382Letter from Ralph S. Janvey to Sen. Christopher J. Dodd, dated August 12, 2009....................... 383
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    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 958 Filed 02/09/2010 Filed 01/14/2010 Page 9 of 444 Page 1 of 9 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISIONSECURITIES AND EXCHANGE COMMISSION, § § Plaintiff, § §v. § Case No.: 3-09-CV-0298-N §STANFORD INTERNATIONAL BANK, LTD., §STANFORD GROUP COMPANY, §STANFORD CAPITAL MANAGEMENT, LLC, §R. ALLEN STANFORD, JAMES M. DAVIS, and §LAURA PENDERGEST-HOLT, § § Defendants. § JOINT MOTION OF THE SEC AND RECEIVER FOR ENTRY OF SECOND AMENDED ORDER APPOINTING RECEIVER Plaintiff Securities and Exchange Commission and Receiver Ralph S. Janvey request that the Court enter the Second Amended Order Appointing Receiver. Factual Background On February 17, 2009 the Court entered the Order Appointing Receiver. (Doc. 10). Within 10 days, the Receiver complied with the requirements of 28 U.S.C. § 754 by filing the Complaint and Order Appointing Receiver in 29 districts, located in 16 states, the District of Columbia, the Virgin Islands, and Puerto Rico. On March 12, 2009 the Court entered the Amended Order Appointing Receiver. (Doc. 157). As a result of his investigation of the books and records of the Receivership Estate, the Receiver has learned that Receivership Assets and Receivership Records exist in additional districts where § 754 filings have not been made. The Court’s reappointment of the Receiver will permit him to complete § 754 filings in additional districts in furtherance of his duty to “[p]erform all acts necessary to conserve, hold, manage, and preserve the value of the JOINT MOTION OF THE SEC AND RECEIVER FOR ENTRY OF SECOND AMENDED ORDER APPOINTING RECEIVER PAGE 1 APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 7 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 958 Filed 02/09/2010 Filed 01/14/2010 Page 10of 9444 Page 2 ofReceivership Estate, in order to prevent any irreparable loss, damage, and injury to the Estate.”Doc. 157 at 5, ¶ 5(g); See Warfield v. Arpe, 2007 WL 549467, *12-13 (N.D. Tex. 2007); OrderReappointing Temporary Receiver in Civil Action No. 3:02-cv-0605-R, filed 10/04/2006,attached at Appdx. 1-9. Additionally, the Receiver has determined that in order for him to carry out hisduties as receiver, it is not necessary for him to have the authority to file bankruptcy petitions onbehalf of any of the individual defendants. Accordingly, the proposed Second Amended OrderAppointing Receiver clarifies that the Receiver’s exclusive authority to file bankruptcy petitionsapplies only to the corporate, and not the individual, defendants. Finally, despite the litigation injunction contained in the Amended OrderAppointing Receiver, a number of lawsuits have been filed in state and federal courts against theReceiver, Estate entities, and defendants. Many of these have been stayed or referred to theMDL panel. However, a second wave of related litigation is now demanding significantresources from the Receiver, his professionals, and the Estate. Plaintiffs have filed lawsuitsagainst former Stanford financial advisors and are taking the position that the litigationinjunction does not apply to terminated employees. Because the Estate is in possession ofdocuments relating to Stanford client accounts, the plaintiffs and defendants in these suits seekdiscovery from the Receiver. Responding to these requests will consume more and more Estateresources as additional cases are filed and proceed to trial. There have now been more than 50 cases filed in state and federal courts thatsomehow relate to the sale of Stanford CDs or the Receivership. Six cases have named PershingLLC (which was the clearing bank for Stanford Group Company) and four have named SEIInvestments Co. (which provided trust services to Stanford Trust Co.) as defendants in fiveJOINT MOTION OF THE SEC AND RECEIVER FOR ENTRY OFSECOND AMENDED ORDER APPOINTING RECEIVER PAGE 2APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 8MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 958 Filed 02/09/2010 Filed 01/14/2010 Page 11of 9444 Page 3 ofdifferent jurisdictions. A number of arbitrations have also been initiated against Pershing atFINRA. The contracts between Pershing and SGC and SEI and STC require the Estate toindemnify Pershing and SEI in these lawsuits and arbitrations. Despite the Estate’s pecuniaryinterest in these cases, none of the them have been stayed pursuant to this Court’s litigationinjunction, either by agreement or court order. The Estate has already incurred some defensecosts pursuant to the indemnity provisions and if these cases continue, or multiply, they willfurther deplete Estate resources. For example, after being referred to the MDL panel, one groupof plaintiffs simply filed a second, almost identical lawsuit against Pershing in anotherjurisdiction; they refuse to stay the case and maintain that it is not appropriate for referral to theMDL panel. Argument and Authority The Fifth Circuit, and other Circuit Courts, have upheld repeatedly a districtcourt’s authority to enjoin the commencement, or even the continuation of pre-existing litigation,in other venues in order to protect the receivership and the receivership court’s exclusivejurisdiction: The district court may require all such claims to be brought before the receivership court for disposition pursuant to summary process consistent with the equity purpose of the court. The district court may also authorize, to the extent that the court deems appropriate, “satellite” litigation in forums outside of the receivership court to address ancillary issues. However, the receivership court typically retains jurisdiction over any attempt at execution of a judgment in such situations.Liberte Capital Group, LLC v. Capwill, 462 F.3d 543, 552 (6th Cir. 2006) (citations omitted);see e.g., Schauss v. Metals Depository Corp., 757 F.2d 649 (5th Cir. 1985); S.E.C. v. Wencke,622 F.2d 1363 (9th Cir. 1980).JOINT MOTION OF THE SEC AND RECEIVER FOR ENTRY OFSECOND AMENDED ORDER APPOINTING RECEIVER PAGE 3APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 9MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 958 Filed 02/09/2010 Filed 01/14/2010 Page 12of 9444 Page 4 of Because “[t]he receivership court has a valid interest in both the value of theclaims themselves and the costs of defending any suit as a drain on receivership assets,” the court“may issue a blanket injunction, staying litigation against the named receiver and the entitiesunder his control unless leave of that court is first obtained.” Liberte Capital Group, LLC v.Capwill, 462 F.3d 543, 551 (6th Cir. 2006). This injunction can even bind all non-parties withnotice, far exceeding normal limits on the scope of injunctions. See S.E.C. v. Wencke, 622 F.2d1363, 1369 (9th Cir. 1980). Furthermore, the power to enjoin “extends to the institution of anysuit.” Liberte Capital, 462 F.3d at 551. If the injunction so provides, leave of the receivership court must be obtainedbefore suit can be brought against the receiver. See In re Crown Vantage, Inc., 421 F.3d 963,970–71 (9th Cir. 2005); Seaman Paper Co. of Mass., Inc. v. Polsky, 537 F. Supp. 2d 233, 236 (D.Mass. 2007); Fed. Home Loan Mortgage Corp. v. Spark Tarrytown, Inc., 829 F. Supp. 82, 88(S.D.N.Y. 1993). Failure to obtain leave of the receivership court deprives the second court ofsubject matter jurisdiction. See Le v. S.E.C., 542 F. Supp. 2d 1318, 1321 (N.D. Ga. 2008). In Liberte Capital, the district court had entered an injunction on litigation, butcarved out a very narrow exception for litigation against the Receiver for cases challenging thevalidity of life insurance policies prior to the insured’s death. Liberte Capital, 462 F.3d at 549.Insurance companies initiated suits against the entities in receivership that did not fall within thenarrow exception to the injunction, and the district court held them in contempt. The SixthCircuit affirmed, emphasizing the district court’s exclusive jurisdiction over the receivership. Id.at 552. Justice Anthony Kennedy, writing for the Ninth Circuit, has explained thepractical reasons that such an injunction can be necessary and reasonable. It protects theJOINT MOTION OF THE SEC AND RECEIVER FOR ENTRY OFSECOND AMENDED ORDER APPOINTING RECEIVER PAGE 4APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 10MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 958 Filed 02/09/2010 Filed 01/14/2010 Page 13of 9444 Page 5 ofinterests of the very persons enjoined from filing suit, and prevents the estate from becomingoverwhelmed by the expenses of multiple lawsuits: The receiver and the district court also felt it essential for the receiver to be given time to explore all the complex transactions and aspects of the receivership estate so that innocent shareholders suffered no further harm. A receiver appointed by a court in the wake of a securities fraud scheme may encounter difficulties sorting out the financial status of the defrauded entity or entities. There may be a genuine danger that some litigation against receivership entities amounts to little more than a continuation of the original fraudulent scheme. Similarly, the securities fraud may have left the finances of the receivership entities so obscure or complex that the receiver is hampered in conducting litigation. Moreover, the expense involved in defending the many lawsuits which often are filed against an entity in the wake of a securities fraud scheme may be overwhelming unless some are temporarily deferred. A stay of proceeding against receivership entities except by leave of the court may be an appropriate response to the above concerns, and the district court did not abuse its discretion in this case by entering the blanket stay.Wencke, 622 F.2d at 1373. Even where the court entering the injunction was not the first in which suit wasfiled, the Fifth Circuit has vacated a two-year-old judgment and ordered that funds disbursed tothe parties be paid back into the registry of the court. Schauss v. Metals Depository Corp., 757F.2d 649, 655 (5th Cir. 1985). A customer filed suit against MDC in the Northern District ofTexas and MDC’s bank was joined as garnishee. Id. at 651. Soon thereafter, a fraud suit wasfiled in the Southern District of New York. The New York court entered judgment againstMDC, appointed a receiver, and enjoined the commencement of new suits and continuation ofpending suits. Id. A second Texas suit was filed and the two Texas suits consolidated. Pursuantto 28 U.S.C. § 754 the New York receiver filed the New York order appointing him, but did nototherwise answer or enter an appearance in the Texas consolidated case. Id. at 652.JOINT MOTION OF THE SEC AND RECEIVER FOR ENTRY OFSECOND AMENDED ORDER APPOINTING RECEIVER PAGE 5APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 11MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 958 Filed 02/09/2010 Filed 01/14/2010 Page 14of 9444 Page 6 of The Texas case then proceeded to bench trial and the court entered judgmentdisposing of the funds interpleaded by the bank as garnishee. Id. Two years later, the receivermoved to set aside the Texas judgment. The Fifth Circuit granted the motion in the interests ofjustice and comity between federal courts, to discourage duplicative litigation, and in furtheranceof the important goal of preserving assets in receivership: [S]everal courts have recognized the importance of preserving a receivership court’s ability to issue orders preventing interference with its administration of the receivership property. In both securities fraud cases, and bankruptcy proceedings, Courts of Appeals have upheld orders enjoining broad classes of individuals from taking any action regarding receivership property. Such orders can serve as an important tool permitting a district court to prevent dissipation of property or assets subject to multiple claims in various locales, as well as preventing “piecemeal resolution of issues that call for a uniform result.”Id. at 654 (citations omitted). Conclusion For these reasons, the SEC and the Receiver ask the Court to enter their proposedSecond Amended Order Appointing Receiver. For the Court’s convenience a red-line comparingthe proposed Second Amended Order Appointing Receiver and Amended Order AppointingReceiver (Doc. 157) has been filed at Appendix 10-21.JOINT MOTION OF THE SEC AND RECEIVER FOR ENTRY OFSECOND AMENDED ORDER APPOINTING RECEIVER PAGE 6APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 12MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 958 Case 3:09-cv-00298-N Document 1003-3 Filed 01/14/2010 Filed 02/09/2010 Page 15of 9444 Page 7 ofDated: January 14, 2010 Respectfully submitted, BAKER BOTTS L.L.P. By: /s/ Kevin M. Sadler Kevin M. Sadler Texas Bar No. 17512450 kevin.sadler@bakerbotts.com Robert I. Howell Texas Bar No. 10107300 robert.howell@bakerbotts.com David T. Arlington Texas Bar No. 00790238 david.arlington@bakerbotts.com 1500 San Jacinto Center 98 San Jacinto Blvd. Austin, Texas 78701-4039 (512) 322-2500 (512) 322-2501 (Facsimile) Timothy S. Durst Texas Bar No. 00786924 tim.durst@bakerbotts.com 2001 Ross Avenue Dallas, Texas 75201 (214) 953-6500 (214) 953-6503 (Facsimile) ATTORNEYS FOR RECEIVER RALPH S. JANVEYJOINT MOTION OF THE SEC AND RECEIVER FOR ENTRY OFSECOND AMENDED ORDER APPOINTING RECEIVER PAGE 7APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 13MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 958 Filed 02/09/2010 Filed 01/14/2010 Page 16of 9444 Page 8 of CERTIFICATE OF CONFERENCE Counsel for the Receiver conferred with attorneys who have made appearances onbehalf of parties to this case. Counsel for the Receiver conferred with David B. Reece, counsel for the SEC,who stated that the SEC does not oppose the filing of this motion and relief sought herein. Counsel for the Receiver provided the motion to Jeffrey M. Tillotson, counsel forLaura Pendergest-Holt, who stated that Ms. Holt opposes the filing of this motion and reliefsought herein. Counsel for the Receiver conferred with Ruth Schuster, counsel for R. AllenStanford, who stated that Mr. Stanford opposes the filing of this motion and relief sought herein. Counsel for the Receiver conferred with Manuel Lena, counsel for the DOJ (Tax),who stated that he does not oppose the filing of this motion and relief sought herein. Counsel for the Receiver provided the motion to David Finn, counsel for JamesDavis, but has not received a response to requests to confer on this motion and relief soughtherein. Counsel for the Receiver conferred with John Little, Court-appointed Examiner, ,who stated that he does not oppose the filing of this motion and relief sought herein. Counsel for the Receiver conferred with Joe Kendall, counsel for Susan Stanford,who stated that Mrs. Stanford takes no position on the filing of this motion and relief soughtherein. /s/ Kevin M. Sadler Kevin M. SadlerJOINT MOTION OF THE SEC AND RECEIVER FOR ENTRY OFSECOND AMENDED ORDER APPOINTING RECEIVER PAGE 8APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 14MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 958 Filed 02/09/2010 Filed 01/14/2010 Page 17of 9444 Page 9 of CERTIFICATE OF SERVICE On January 14, 2010 I electronically submitted the foregoing motion and theproposed order with the clerk of court for the U.S. District Court, Northern District of Texas,using the electronic case filing system of the court. I hereby certify that I have served all counseland/or pro se parties of record electronically or by another manner authorized by Federal Rule ofCivil Procedure 5(b)(2). /s/ Kevin M. Sadler Kevin M. SadlerJOINT MOTION OF THE SEC AND RECEIVER FOR ENTRY OFSECOND AMENDED ORDER APPOINTING RECEIVER PAGE 9APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 15MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 959 Filed 01/14/2010 Filed 02/09/2010 Page 1 ofof 444 Page 18 27 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISIONSECURITIES AND EXCHANGE COMMISSION, § § Plaintiff, § §v. § Case No.: 3-09-CV-0298-N §STANFORD INTERNATIONAL BANK, LTD., §STANFORD GROUP COMPANY, §STANFORD CAPITAL MANAGEMENT, LLC, §R. ALLEN STANFORD, JAMES M. DAVIS, and §LAURA PENDERGEST-HOLT, § § Defendants. § APPENDIX IN SUPPORT OF JOINT MOTION OF THE SEC AND RECEIVER FOR ENTRY OF SECOND AMENDED ORDER APPOINTING RECEIVER APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 16 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 959 Filed 01/14/2010 Filed 02/09/2010 Page 2 ofof 444 Page 19 27Dated: January 14, 2010 Respectfully submitted, BAKER BOTTS L.L.P. By: /s/ Kevin M. Sadler Kevin M. Sadler Texas Bar No. 17512450 kevin.sadler@bakerbotts.com Robert I. Howell Texas Bar No. 10107300 robert.howell@bakerbotts.com David T. Arlington Texas Bar No. 00790238 david.arlington@bakerbotts.com 1500 San Jacinto Center 98 San Jacinto Blvd. Austin, Texas 78701-4039 (512) 322-2500 (512) 322-2501 (Facsimile) Timothy S. Durst Texas Bar No. 00786924 tim.durst@bakerbotts.com 2001 Ross Avenue Dallas, Texas 75201 (214) 953-6500 (214) 953-6503 (Facsimile) ATTORNEYS FOR RECEIVER RALPH S. JANVEY CERTIFICATE OF SERVICE On January 14, 2010 I electronically submitted the foregoing motion and theproposed order with the clerk of court for the U.S. District Court, Northern District of Texas,using the electronic case filing system of the court. I hereby certify that I have served all counseland/or pro se parties of record electronically or by another manner authorized by Federal Rule ofCivil Procedure 5(b)(2). /s/ Kevin M. Sadler Kevin M. SadlerAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 17MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 255-2 Case 3:09-cv-00298-N Document 959 Filed 01/14/2010 Page 32ofof22 Filed 02/09/2010 Page 20of27 Filed 04/01/2009 Page 444APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 18MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 255-2 Case 3:09-cv-00298-N Document 959 Filed 01/14/2010 Page 43ofof22 Filed 02/09/2010 Page 21of27 Filed 04/01/2009 Page 444APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 19MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 255-2 Case 3:09-cv-00298-N Document 959 Filed 01/14/2010 Page 54ofof22 Filed 02/09/2010 Page 22of27 Filed 04/01/2009 Page 444APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 20MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 255-2 Case 3:09-cv-00298-N Document 959 Filed 01/14/2010 Page 65ofof22 Filed 02/09/2010 Page 23of27 Filed 04/01/2009 Page 444APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 21MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 255-2 Case 3:09-cv-00298-N Document 959 Filed 01/14/2010 Page 76ofof22 Filed 02/09/2010 Page 24of27 Filed 04/01/2009 Page 444APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 22MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 255-2 Case 3:09-cv-00298-N Document 959 Filed 01/14/2010 Page 87ofof22 Filed 02/09/2010 Page 25of27 Filed 04/01/2009 Page 444APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 23MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 255-2 Case 3:09-cv-00298-N Document 959 Filed 01/14/2010 Page 98ofof22 Filed 02/09/2010 Page 26of27 Filed 04/01/2009 Page 444APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 24MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 01/14/2010 Page 10 of 27 Case 3:09-cv-00298-N Document 255-2 Filed 02/09/2010 Page 27of 22 Case 3:09-cv-00298-N Document 959 Filed 04/01/2009 Page 9 of 444APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 25MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 255-2 Case 3:09-cv-00298-N Document 959 Filed 01/14/2010 Page 11 of 27 Filed 04/01/2009 Page 10 of 22 02/09/2010 28 444APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 26MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 959 Filed 01/14/2010 Page 12 of 27 Filed 02/09/2010 Page 29 of 444 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT 0F TEXAS DALLAS DIVISION § SECURITIES AND EXCHANGE COMMISSION § Plaintiff, § § v. § Case No.: 3-09CV0298-N § STANFORD INTERNATIONAL BANK, LTD., § ET AL. § § Defendants. § § § § SECOND AMENDED ORDER APPOINTING RECEIVER This matter came before me, the undersigned United States District Judge, on the motionof Plaintiff Securities and Exchange Commission (“Commission”) for the appointment of aReceiver for corporate Defendants Stanford International Bank, Ltd., Stanford Group Company,Stanford Capital Management, LLC, Robert Allen Stanford, James M. Davis, Laura Pendergest-Holt, Stanford Financial Group, and The Stanford Financial Group Bldg Inc. (“Defendants”). Itappears that, and Individual Defendants Robert Allen Stanford, James M. Davis, and LauraPendergest-Holt, (together the “Defendants”). On February 17, 2009 this AmendedCourt entered its Order Appointing Receiver (the“Order”) is. (Doc. 10). On March 12, 2009 this Court entered its Amended OrderAppointing Receiver. (Doc. 157). The Receiver has informed the Court that after theexpiration of 10 days from the dates of these Orders, the Receiver identified ReceivershipAssets and Receivership Records in districts in which copies of the Complaint and OrderAppointing Receiver have not been filed of record pursuant to 28 U.S.C. § 754. In order toAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF 10 Appx. Page 27MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 959 Filed 01/14/2010 Page 13 of 27 Filed 02/09/2010 Page 30 of 444allow the Court to obtain jurisdiction in these districts, the Court hereby enters this SecondAmended Order Appointing Receiver. The Court finds the entry of this Second AmendedOrder Appointing Receiver to be both necessary and appropriate in order to prevent waste anddissipation of the assets of the Defendants to the detriment of the investors.IT IS THEREFORE ORDERED that: 1. This Court assumes exclusive jurisdiction and takes possession of the assets,monies, securities, properties, real and personal, tangible and intangible, of whatever kind anddescription, wherever located, and the legally recognized privileges (with regard to the entities),of the Defendants and all entities they own or control (“Receivership Assets”), and the books andrecords, client lists, account statements, financial and accounting documents, computers,computer hard drives, computer disks, internet exchange servers telephones, personal digitaldevices and other informational resources of or in possession of the Defendants, or issued byDefendants and in possession of any agent or employee of the Defendants (“ReceivershipRecords”). 2. Ralph S. Janvey of Dallas, Texas, is hereby appointed Receiver for theReceivership Assets and Receivership Records (collectively, “Receivership Estate”), with thefull power of an equity receiver under common law as well as such powers as are enumeratedherein as of the date of this Order. The Receiver shall not be required to post a bond unlessdirected by the Court but is hereby ordered to well and faithfully perform the duties of his office:to timely account for all monies, securities, and other properties which may come into his hands;and to abide by and perform all duties set forth in this Order. Except for an act of willfulmalfeasance or gross negligence, the Receiver shall not be liable for any loss or damage incurredby the Receivership Estate, or any of Defendants, the Defendants’ clients or associates, or theirsubsidiaries or affiliates, their officers, directors, agents, and employees, or by any of 2APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF 11 Appx. Page 28MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 959 Filed 01/14/2010 Page 14 of 27 Filed 02/09/2010 Page 31 of 444Defendants’ creditors or equity holders because of any’ act performed or not performed by himor his agents or assigns in connection with the discharge of his duties and responsibilitieshereunder. 3. The duties of the Receiver shall be specifically limited to matters relating to theReceivership Estate and unsettled claims thereof remaining in the possession of the Receiver asof the date of this Order. Nothing in this Order shall be construed to require further investigationof Receivership Estate assets heretofore liquidated and/or distributed or claims of theReceivership Estate settled prior to issuance of this Order. However, this paragraph shall not beconstrued to limit the powers of the Receiver in any regard with respect to transactions that mayhave occurred prior to the date of this Order. 4. Until the expiration date of this Order or further Order of this Court, Receiver isauthorized to immediately take and have complete and exclusive control, possession, andcustody of the Receivership Estate and to any assets traceable to assets owned by theReceivership Estate. 5. As of the date of entry of this Order, the Receiver is specifically directed andauthorized to perform the following acts and duties: (a) Maintain full control of the Receivership Estate with the power to retain or remove, as the Receiver deems necessary or advisable, any officer, director, independent contractor, employee or agent of the Receivership Estate; (b) Collect, marshal, and take custody, control, and possession of all the funds, accounts, mail, and other assets of, or in the possession or under the control of, the Receivership Estate, or assets traceable to assets owned or controlled by the Receivership Estate, wherever situated, the income and profit therefrom and all sums of money now or 3APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF 12 Appx. Page 29MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 959 Filed 01/14/2010 Page 15 of 27 Filed 02/09/2010 Page 32 of 444 hereafter due or owing to the Receivership Estate with full power to collect, receive, and take possession of without limitation, all goods, chattel, rights, credits, monies, effects, lands, leases, books and records, work papers, records of account, including computer maintained information, contracts, financial records, monies on hand in banks and other financial initiations, and other papers and documents of other individuals, partnerships, or corporations whose interests are now held by or under the direction, possession, custody, or control of the Receivership Estate; (c) Institute such actions or proceedings to impose a constructive trust, obtain possession, and/or recover judgment with respect to persons or entities who received assets or records traceable to the Receivership Estate. All such actions shall be filed in this Court; (d) Obtain, by presentation of this Order, documents, books, records, accounts, deposits, testimony, or other information within the custody or control of any person or entity sufficient to identify accounts, properties, liabilities, causes of action, or employees of the Receivership Estate. The attendance of a person or entity for examination and/or production of documents may be compelled in a manner provided in Rule 45, Fed. R. Civ. P., or as provided under the laws of any foreign country where such documents, books, records, accounts, deposits, or testimony maybe located; (e) Without breaching the peace and, if necessary, with the assistance of local peace officers or United States marshals to enter and secure any premises, wherever located or situated, in order to take possession, custody, or control of, or to identify the location or existence of Receivership Estate assets or records; 4APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF 13 Appx. Page 30MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 959 Filed 01/14/2010 Page 16 of 27 Filed 02/09/2010 Page 33 of 444 (f) Make such ordinary and necessary payments, distributions, and disbursements as the Receiver deems advisable or proper for the marshaling, maintenance, or preservation of the Receivership Estate. Receiver is further authorized to contract and negotiate with any claimants against the Receivership Estate (including, without limitation, creditors) for the purpose of compromising or settling any claim. To this purpose, in those instances in which Receivership Estate assets serve as collateral to secured creditors, the Receiver has the authority to surrender such assets to secured creditors, conditional upon the waiver of any deficiency of collateral; (g) Perform all acts necessary to conserve, hold, manage, and preserve the value of the Receivership Estate, in order to prevent any irreparable loss, damage, and injury to the Estate; (h) Enter into such agreements in connection with the administration of the Receivership Estate, including, but not limited to, the employment of such managers, agents, custodians, consultants, investigators, attorneys, and accountants as Receiver judges necessary to perform the duties set forth in this Order and to compensate them from the Receivership Assets; (i) Institute, prosecute, compromise, adjust, intervene in, or become party to such actions or proceedings in state, federal, or foreign courts that the Receiver deems necessary and advisable to preserve the value of the Receivership Estate, or that the Receiver deems necessary and advisable to carry out the Receiver’s mandate under this Order and likewise to defend, compromise, or adjust or otherwise dispose of any or all actions or proceedings instituted against the Receivership Estate that the Receiver deems necessary and advisable to carry out the Receiver’s mandate under this Order; 5APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF 14 Appx. Page 31MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 959 Filed 01/14/2010 Page 17 of 27 Filed 02/09/2010 Page 34 of 444 (j) Preserve the Receivership Estate and minimize expenses in furtherance of maximum and timely disbursement thereof to claimants; (k) Promptly provide the Commission and other governmental agencies with all information and documentation they may seek in connection with its regulatory or investigatory activities; (l) Prepare and submit periodic reports to this Court and to the parties as directed by this Court; (m) File with this Court requests for approval of reasonable fees to be paid to the Receiver and any person or entity retained by him and interim and final accountings for any reasonable expenses incurred and paid pursuant to order of this Court; 6. The Receiver shall have the sole and exclusive power and authority to manageand direct the business and financial affairs of the Defendants, including without limitation, thesole and exclusive power and authority to petition for relief under the United States BankruptcyCode, 11 U.S.C. §§ 101 et seq. (the “Bankruptcy Code”), for any or all of the corporateDefendants. The Receiver is not authorized, without further Court order, to petition forrelief under the Bankruptcy Code for any of the Individual Defendants. Solely with respectto the authorization to file and execution of a petition for relief under the Bankruptcy Code;without limiting any powers of the Receiver under applicable law and this Order; andirrespective of provisions in any Defendants’Defendant’s corporate organizing documents, by-laws, partnership agreements, or the like, the Receiver shall be deemed to succeed to the positionof and possess the authority of any party with power to authorize and execute the filing of apetition for relief under the Bankruptcy Code, including without limitation corporate directors,general and limited partners, and members of limited liability companies. 6APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF 15 Appx. Page 32MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 959 Filed 01/14/2010 Page 18 of 27 Filed 02/09/2010 Page 35 of 444 7. Before taking action under paragraph 6 of this Order, the Receiver must providethe Commission and the Defendants with at least two business days’ written notice (unlessshortened or lengthened by court order) that the Receiver is contemplating action under theBankruptcy Code; provided that the Receiver may apply for an order under seal or a hearing incamera, as circumstances require. To facilitate an efficient coordination in one district of allbankruptcies of the Defendants, the Northern District of Texas shall be the Receiver’s principalplace of business for making decisions in respect of operating and disposing of each of theDefendants and their respective assets. 8. Upon the request of the Receiver, the United States Marshal’s Office is herebyordered to assist the Receiver in carrying out his duties to take possession, custody, or control of,or identify the location of, any Receivership Estate assets or records. 9. Creditors and all other persons are hereby restrained and enjoined from thefollowing actions, except in this Court and with leave of this Court, unless this Court,consistent with general equitable principals and in accordance with its ancillary equitablejurisdiction in this matter, orders that such actions may be conducted in another forum orjurisdiction: (a) The commencement or continuation, including the issuance or employment of process, of any judicial, administrative, or other proceeding against the Receiver, any of the defendants, any entity within the Receivership Estate, any current or anyformer agent, officer, or employee related toof the Receivership Estate, or of any entity within the Receivership Estate, Pershing LLC, and/or SEI Investment Company arising from the subject matter of this civil action; or 7APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF 16 Appx. Page 33MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 959 Filed 01/14/2010 Page 19 of 27 Filed 02/09/2010 Page 36 of 444 (b) The enforcement, against the Receiver, or any of the defendants, of any judgment that would attach to or encumber the Receivership Estate that was obtained before the commencement of this proceeding. 10. Creditors and all other persons are hereby restrained and enjoined, without priorapproval of the Court, from: (a) Any act to obtain possession of the Receivership Estate assets; (b) Any act to create, perfect, or enforce any lien against the property of the Receiver, or the Receivership Estate; (c) Any act to collect, assess, establish, litigate or recover a claim against the Receiver or that, where such claim would attach to or encumber the Receivership Estate or create or impose an obligation upon the part of the Receivership Estate; (d) The set off of any debt owed by the Receivership Estate or secured by the Receivership Estate assets based on any claim against the Receiver or the Receivership Estate; or (e) The filing of any case, complaint, petition, or motion under the Bankruptcy Code (including, without limitation, the filing of an involuntary bankruptcy petition under chapter 7 or chapter 11 of the Bankruptcy Code, or a petition for recognition of foreign proceeding under chapter 15 of the Bankruptcy Code). 11. Creditors and all other persons are hereby restrained and enjoined from seekingrelief from the injunction contained in paragraph 10(e) of this Order for a period of 180 daysfrom the date of entry of this Order with respect to any Defendant. 11. 12. Defendants, their respective officers, agents, and employees and all persons inactive concert or participation with them who receive notice of this Order by personal service or 8APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF 17 Appx. Page 34MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 959 Filed 01/14/2010 Page 20 of 27 Filed 02/09/2010 Page 37 of 444otherwise, including, but not limited to, any financial institution, broker-dealer, investmentadviser, private equity fund or investment banking fun), and each of them, are hereby ordered,restrained, and enjoined from, directly or indirectly, making any payment or expenditure of anyReceivership Estate assets that are owned by Defendants or in the actual or constructivepossession of any entity directly or indirectly owned or controlled or under common control withthe Receivership Estate, or effecting any sale, gift, hypothecation, assignment, transfer,conveyance, encumbrance, disbursement, dissipation, or concealment of such assets. A copy ofthis Order may be served on any bank, savings and loan, broker-dealer, or any other financial ordepository institution to restrain and enjoin any such institution from disbursing any of theReceivership Estate assets. Upon presentment of this Order, all persons, including financialinstitutions, shall provide account balance information, transaction histories, all account recordsand any other Receivership Records to the Receiver or his agents, in the same manner as theywould be provided were the Receiver the signatory on the account. 12. 13. Defendants, and their respective agents, officers, and employees and allpersons in active concert or participation with them are hereby enjoined from doing any act orthing whatsoever to interfere with the Receiver’s taking control, possession, or management ofthe Receivership Estate or to in any way interfere with the Receiver or to harass or interfere withthe duties of the Receiver or to interfere in any manner with the. exclusive jurisdiction of thisCourt over the Receivership Estate, including the filing or prosecuting any actions orproceedings which involve the Receiver or which affect the Receivership Assets or ReceivershipRecords, specifically including any proceeding initiated pursuant to the United StatesBankruptcy Code, except with the permission of this Court. Any actions so authorized to 9APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF 18 Appx. Page 35MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 959 Filed 01/14/2010 Page 21 of 27 Filed 02/09/2010 Page 38 of 444determine disputes relating to Receivership Assets and Receivership Records shall be filed inthis Court. 13. 14. Defendants, their respective officers, agents, and employees and all persons inactive concert or participation with them who receive actual notice of this Order by personalservice or otherwise, including any financial institution, broker-dealer, investment adviser,private equity fund or investment banking firm, and each of them shall: (a) To the extent they have possession, custody, or control of same, provide immediate access to and control and possession of the Receivership Estate assets and records, including securities, monies, and property of any kind, real and personal, including all keys, passwords, entry codes, and all monies deposited in any bank deposited to the credit of the Defendants, wherever situated, and the original of all books, records, documents, accounts, computer printouts, disks, and the like of Defendants to Receiver or his duly authorized agents; (b) Cooperate with the Receiver and his duly authorized agents by promptly and honestly responding to all requests for information regarding Receivership Assets and Records and by promptly acknowledging to third parties the Receiver’s authority to act on behalf of the Receivership Estate and by providing such authorizations, signatures, releases, attestations, and access as the Receiver or his duly authorized agents may reasonably request; (c) Provide the Commission with a prompt, full accounting of all Receivership Estate assets and documents outside the territory of the United States which are held either: (1) by them, (2) for their benefit, or (3) under their control; 10APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF 19 Appx. Page 36MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 959 Filed 01/14/2010 Page 22 of 27 Filed 02/09/2010 Page 39 of 444 (d) Transfer to the territory of the United States all Receivership Estate assets and records in foreign countries held either: (1) by them, (2) for their benefit, or (3) under their control; and (e) Hold and retain all such repatriated Receivership Estate assets and documents and prevent any transfer, disposition, or dissipation whatsoever of any such assets or documents, until such time as they may be transferred into the possession of the Receiver. 14. 15. Any financial institution, broker-dealer, investment adviser; private equityfund or investment banking firm or person that holds, controls, or maintains accounts or assets ofor on behalf of any Defendant, or has held, controlled, or maintained any account or asset of oron behalf of any defendant or relief defendant since January 1, 1990, shall: (a) Hold and retain within its control and prohibit the withdrawal, removal, assignment, transfer, pledge, hypothecation, encumbrance, disbursement, dissipation, conversion, sale, gift, or other disposal of any of the assets, funds, or other property held by or on behalf of any defendant or relief defendant in any account maintained in the name of or for the benefit of any defendant or relief defendant in whole or in part except: (i) as directed by further order of this Court, or (ii) as directed in writing by the Receiver or his agents; (b) Deny access to any safe deposit boxes that are subject to access by any Defendant; and (c) The Commission and Receiver may obtain, by presentation of this Order, documents, books, records, accounts, deposits, or other information within the custody or control of any person or entity sufficient to identify accounts, properties, liabilities, 11APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF 20 Appx. Page 37MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 959 Filed 01/14/2010 Page 23 of 27 Filed 02/09/2010 Page 40 of 444 causes of action, or employees of the Receivership Estate. The attendance of a person or entity for examination and/or production of documents may be compelled in a manner provided in Rule 45, Fed. R. Civ. P, or as provided under the laws of any foreign country where such documents, books, records, accounts, deposits, or testimony may be located; 15. 16. The Defendants, their officers, agents, and employees and all persons in activeconcert or participation with them and other persons who have notice of this Order by personalservice or otherwise, are hereby restrained and enjoined from destroying, mutilating, concealing,altering, transferring, or otherwise disposing of, in any manner, directly or indirectly, anycontracts, accounting data, correspondence, advertisements, computer tapes, disks or othercomputerized records, books, written or printed records, handwritten notes, telephone logs,telephone scripts, receipt books, ledgers, personal and business canceled checks and checkregisters, bank statements, appointment books, copies of federal, state, or local business orpersonal income or property tax returns, and other documents or records of any kind that relate inany way to the Receivership Estate or are relevant to this action. 16. 17. The Receiver is hereby authorized to make appropriate notification to theUnited States Postal Service to forward delivery of any mail addressed to the Defendants, or anycompany or entity under the direction and control of the Defendants, to himself. Further, theReceiver is hereby authorized to open and inspect all such mail to determine the location oridentity of assets or the existence and amount of claims. 17. 18. Nothing in this Order shall prohibit any federal or state law enforcement orregulatory authority from commencing or prosecuting an action against the Defendants, theiragents, officers, or employees. So Ordered and signed, this ____ day of March 2009.______________, 2010. 12APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF 21 Appx. Page 38MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 959 Filed 01/14/2010 Page 24 of 27 Filed 02/09/2010 Page 41 of 444 _______________________________________ UNITED STATES DISTRICT JUDGE 13APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF 22 Appx. Page 39MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 959 Filed 01/14/2010 Page 25 of 27 Filed 02/09/2010 Page 42 of 444Document comparison done by Workshare DeltaView on Thursday, January 14, 20103:08:25 PMInput:Document 1 PowerDocs://AUS01/547486/1Document 2 PowerDocs://AUS01/570394/4Rendering set 1-Bold Double Underline-StrikethroughLegend:InsertionDeletionMoved fromMoved toStyle changeFormat changeMoved deletionInserted cellDeleted cellMoved cellSplit/Merged cellPadding cellRedline Summary:No. Change Text "AMENDED ORDER APPOINTING RECEIVER" changed to "SECOND1 Change AMENDED ORDER APPOINTING RECEIVER" "the appointment of a...Stanford International"2 Change changed to "the appointment of a...Stanford International" "Stanford Capital...Financial Group, and The"3 Change changed to "Stanford Capital...Financial Group, and The" "Stanford Financial Group... It appears that"4-5 Change changed to "Stanford Financial Group...the “Defendants”)."6 Change "this" changed to "On February 17, 2009 this" "this Amended Order Appointing Receiver"7-8 Change changed to "this Court entered its Order Appointing Receiver"APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF 23 Appx. Page 40MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 959 Filed 01/14/2010 Page 26 of 27 Filed 02/09/2010 Page 43 of 444 "Order Appointing Receiver...and appropriate"9-10 Change changed to "Order Appointing...and appropriate" "and dissipation of the...to the detriment of"11 Change changed to "and dissipation of the...to the detriment of" "Defendants to the detriment of the investors."12 Change changed to "Defendants to the detriment of investors." "et seq. (the “Bankruptcy...for any or all of the"13 Change changed to "et seq. (the “Bankruptcy...for any or all of the" "for any or all of the... Solely with respect"14 Change changed to "for any or all of the... Solely with respect" "irrespective of...organizing documents," changed15-16 Change to "irrespective of...organizing documents," "the following actions,...unless this Court,"17 Change changed to "the following actions,...unless this Court," "that such actions may be...forum or jurisdiction:"18 Change changed to "that such actions may be conducted:" "Receiver, any of the...the Receivership Estate,"19 Change changed to "Receiver, any of the...the Receivership Estate," "the Receivership Estate, or" changed to "the20 Change Receivership Estate, any current or" "or any agent, officer, or employee" changed to21-22 Change "or former agent, officer, or employee" "agent, officer, or...the Receivership Estate"23-24 Change changed to "agent, officer, or...the Receivership Estate" "the Receivership Estate,...from the subject matter"25-26 Change changed to "the Receivership Estate...from the subject matter" "(c) Any act to collect,...against the Receiver"27 Change changed to "(c) Any act to collect,...against the Receiver"28-29 Change "recover a claim against...attach to or encumber" changed to "recover a claim against...attach to orAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF 24 Appx. Page 41MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 959 Filed 01/14/2010 Page 27 of 27 Filed 02/09/2010 Page 44 of 444 encumber" "would attach to or...the Receivership Estate;"30 Change changed to "would attach to or...the Receivership Estate;"31 Deletion chapter 15 of the Bankruptcy Code).32 Deletion 11. Creditors and all...of entry of this Order33 Change "." changed to "with respect to any Defendant." "Defendants, their respective officers," changed to34 Change "12. Defendants, their respective officers," "Defendants, and their respective" changed to "13.35 Change Defendants, and their respective" "Defendants, their respective officers," changed to36 Change "14. Defendants, their respective officers," "Any financial institution, broker-dealer," changed37 Change to "15. Any financial institution, broker-dealer," "The Defendants, their officers," changed to "16.38 Change The Defendants, their officers," "The Receiver is hereby authorized" changed to39 Change "17. The Receiver is hereby authorized" "Nothing in this Order shall prohibit" changed to40 Change "18. Nothing in this Order shall prohibit" "Ordered and signed, this ____ day of March41-42 Change 2009." changed to "Ordered and signed, this...of ______________, 2010."Statistics: CountInsertions 20Deletions 22Moved from 0Moved to 0Style change 0Format changed 0Total changes 42APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF 25 Appx. Page 42MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 146 Filed 03/11/2009 Filed 02/09/2010 Page 1 ofof 444 Page 45 14APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 43MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 146 Filed 03/11/2009 Filed 02/09/2010 Page 2 ofof 444 Page 46 14APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 44MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 146 Filed 03/11/2009 Filed 02/09/2010 Page 3 ofof 444 Page 47 14APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 45MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 146 Filed 03/11/2009 Filed 02/09/2010 Page 4 ofof 444 Page 48 14APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 46MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 146 Filed 03/11/2009 Filed 02/09/2010 Page 5 ofof 444 Page 49 14APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 47MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 146 Filed 03/11/2009 Filed 02/09/2010 Page 6 ofof 444 Page 50 14APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 48MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 146 Filed 03/11/2009 Filed 02/09/2010 Page 7 ofof 444 Page 51 14APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 49MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 146 Filed 03/11/2009 Filed 02/09/2010 Page 8 ofof 444 Page 52 14APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 50MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 146 Filed 03/11/2009 Filed 02/09/2010 Page 9 ofof 444 Page 53 14APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 51MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 146 Filed 03/11/2009 Page 10 of 14 Filed 02/09/2010 Page 54 of 444APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 52MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 146 Filed 03/11/2009 Page 11 of 14 Filed 02/09/2010 Page 55 of 444APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 53MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 146 Filed 03/11/2009 Page 12 of 14 Filed 02/09/2010 Page 56 of 444APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 54MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 146 Filed 03/11/2009 Page 13 of 14 Filed 02/09/2010 Page 57 of 444APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 55MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00298-N Document 146 Filed 03/11/2009 Page 14 of 14 Filed 02/09/2010 Page 58 of 444APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 56MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 59 of 444 1 1 BEFORE THE FIFTH CIRCUIT COURT OF APPEALS 2 RALPH JANVEY, § 3 § Appellee, § 4 § CIVIL ACTION NO. v. § 5 § 09-10761 JAMES ALGUIRE, et al, § 6 § Appellants. § 7 8 9 * * * * * * * * * * * * * * * * * * 10 ORAL ARGUMENTS BEFORE 11 SENIOR JUDGE WILL GARWOOD 12 JUDGE EDWARD C. PRADO JUDGE JAMES L. DENNIS 13 November 2, 2009 14 (Via Online Recording) 15 16 * * * * * * * * * * * * * * * * * * 17 18 19 20 APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 57 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPHfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (1 of 114)BY THE EXAMINER PM] 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED [11/9/2009 9:02:26
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 60 of 444 21 22 23 24 25 APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 58 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPHfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (2 of 114)BY THE EXAMINER PM] 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED [11/9/2009 9:02:26
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 61 of 444 2 1 APPEARANCES 2 FOR THE RECEIVER: 3 Kevin Sadler 4 Baker Botts, LLP 98 San Jacinto Blvd., Suite 1500 5 Austin, Texas 78701 6 FOR THE SECURITIES AND EXCHANGE COMMISSION: 7 Michael Post US Securities & Exchange Commission 8 Burnett Plaza Suite 1900 801 Cherry St Unit # 18 9 Fort Worth, Texas 76102-6882 10 THE EXAMINER: 11 John Little Little Pedersen Fankhauser 12 901 Main St., Suite 4110 Dallas, Texas 75202 13 FOR THE APPELLEES: 14 Michael Quilling 15 Quilling Selander Cummiskey & Lownds, P.C. 2001 Bryan St., Suite 1800 16 Dallas, Texas 75201 17 18 INDEX 19 Page 20 Oral Argument by Mr. Sadler - - - - - - - - - - - - 3 APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 59 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPHfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (3 of 114)BY THE EXAMINER PM] 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED [11/9/2009 9:02:26
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 62 of 444 21 Oral Argument by Mr. Little - - - - - - - - - - - - 21 22 Oral Argument by Mr. Quilling - - - - - - - - - - - 35 23 Oral Argument by Mr. Post - - - - - - - - - - - - - 44 24 Rebuttal by Mr. Sadler - - - - - - - - - - - - - - 48 25 Reporters Certification - - - - - - - - - - - - - 57 APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 60 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPHfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (4 of 114)BY THE EXAMINER PM] 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED [11/9/2009 9:02:26
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 63 of 444 3 1 ********** 2 PROCEEDING 3 ********** 4 5 ORAL ARGUMENT 6 MR. SADLER: This case arises 7 out of one of the largest Ponzi schemes ever to be 8 perpetrated in the United States. It is rivaled 9 probably only by the Madoff Ponzi scheme scandal. 10 There are thousands of victims scattered across 11 almost all of the 50 states, as well as victims in 12 other countries. Since this scheme collapsed and 13 following the filing of a lawsuit by the SEC, which 14 was in February, the receiver has been doing what 15 receivers always do when these Ponzi schemes 16 collapse, and that is, carry out the specific 17 court-ordered duty. 18 And we have a very specific 19 court-ordered duty to prosecute litigation to 20 recover assets traceable to this estate, and were APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 61 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPHfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (5 of 114)BY THE EXAMINER PM] 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED [11/9/2009 9:02:26
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 64 of 444 21 doing that simply so that those assets can be 22 brought back into the estate and used to compensate 23 all the victims of this fraud; and there are 24 thousands. 25 That duty and how we are carrying out APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 62 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPHfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (6 of 114)BY THE EXAMINER PM] 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED [11/9/2009 9:02:26
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 65 of 444 4 1 really brings us to why were here today on this 2 appeal and two fundamental legal questions for you, 3 the resolution to which will really affect how this 4 receivership proceeds. The first basic question is, 5 as it always is in Ponzi schemes -- and weve all 6 read about them. The way a Ponzi scheme works is, 7 funds are taken in by fraud, and then they are 8 diverted to all manner of different purposes. 9 One purpose for the diversion of the 10 funds is to pay out selectively to mask the fraud 11 and to keep it going. Because, of course, someone 12 running a Ponzi scheme, as soon as they stop making 13 those payments to some investors, people make claims 14 and the fraud is exposed. 15 And so the first important question 16 for this panel is, when funds are taken by fraud 17 from one investor and then are simply turned around 18 and used to selectively make partial payments to 19 other investors, do those funds remain assets 20 traceable to the estate which our court-ordered APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 63 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPHfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (7 of 114)BY THE EXAMINER PM] 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED [11/9/2009 9:02:26
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 66 of 444 21 mandate requires us to return to the estate to 22 benefit all the victims of the fraud and to use 23 those as compensation for those victims? And that 24 is the first fundamental question before you. 25 I submit to you that if you follow APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 64 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPHfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (8 of 114)BY THE EXAMINER PM] 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED [11/9/2009 9:02:26
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 67 of 444 5 1 the case of SEC versus George -- and it is cited in 2 our briefs, it is discussed extensively -- and it is 3 a case from the Sixth Circuit involving Ponzi 4 schemes, involving claims against investors who 5 receive preferential payments. And the Sixth 6 Circuit decided that those investors had to return 7 the money they received. Not just a portion of it, 8 not just what might have been called interest, but 9 they had to return all of it even though there was 10 no allegation of wrongdoing, even though there was 11 no allegation of complicity. 12 And the Sixth Circuit in SEC versus 13 George relied on this Courts opinion in Forex 14 Management for the proposition that investors who 15 were paid with other investors stolen money have no 16 preferential right to retain that money, and that 17 deals -- yes, sir? 18 JUDGE GARWOOD: Is that a legal 19 difference between paying a -- somebody for services 20 or buying something with what you call stolen money, APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 65 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPHfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (9 of 114)BY THE EXAMINER PM] 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED [11/9/2009 9:02:26
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 68 of 444 21 or are you using it to pay some other investor who 22 has a claim? 23 MR. SADLER: There can be a 24 difference, and the other case that we cite to this 25 Court -- APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 66 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (10 of 114) [11/9/2009 9:02:26 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 69 of 444 6 1 JUDGE GARWOOD: What is the 2 legal basis for the difference? If its stolen 3 funds -- its really not stolen funds, actually. 4 Its not -- its funds acquired by fraud. 5 MR. SADLER: Yes, sir. And 6 under SEC versus George the simple holding of that 7 case is those funds that are used to pay investors 8 cannot be retained preferentially by those investors 9 to the harm of others who are equally innocent. And 10 your question is what is the difference? 11 JUDGE GARWOOD: Yeah. 12 MR. SADLER: And the difference 13 in this case, which goes to the holding of not only 14 SEC versus George and the Kimberlynn Creek Ranch 15 case -- which is the other case were asking you to 16 follow and to adopt, and its discussed extensively 17 in our briefs. These two cases, George and 18 Kimberlynn Creek Ranch, were asking you to follow, 19 were asking you to adopt their holdings; and if you 20 do, almost all of the issues in this appeal are not APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 67 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (11 of 114) [11/9/2009 9:02:26 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 70 of 444 21 only resolved, but resolved in the receivers favor. 22 But the difference is this: We are 23 not saying that people who received payments do not 24 have a legitimate claim against the estate. This is 25 very much like a bankruptcy preference action where APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 68 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (12 of 114) [11/9/2009 9:02:26 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 71 of 444 7 1 the trustee -- 2 JUDGE GARWOOD: Are you willing 3 to be judged by the standards by which a bankruptcy 4 preference is judged? 5 MR. SADLER: We want to be 6 judged by the standards of the SEC versus George 7 case, because thats -- 8 JUDGE GARWOOD: You are willing, 9 then, to be judged by bankruptcy preference 10 standards? 11 MR. SADLER: Yes, sir. 12 Bankruptcy -- Im drawing an analogy here. 13 Bankruptcy has a -- 14 JUDGE GARWOOD: You dont want 15 to follow that analogy? 16 MR. SADLER: Im sorry, sir? 17 JUDGE GARWOOD: You do not want 18 to follow the bankruptcy preference analogy; is that 19 correct? 20 MR. SADLER: No, sir. I think APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 69 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (13 of 114) [11/9/2009 9:02:26 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 72 of 444 21 the bankruptcy preference analogy works, and 22 heres why: Because what a bankruptcy trustee does 23 is no different than what were doing in this 24 respect. The bankruptcy trustee is appointed over 25 an insolvent debtor -- we have an insolvent debtor APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 70 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (14 of 114) [11/9/2009 9:02:26 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 73 of 444 8 1 here -- and when he identifies payments made 2 by that insolvent debtor within the preference 3 period defined by the statute -- and thats one 4 difference, there is actually a statutory preference 5 period -- he goes to that debtor and says, You have 6 no right to retain that money. You may have a valid 7 claim. You may have a contract that needed to be 8 paid or some bill that needed to be paid, but you 9 have no preferential right to retain that money. 10 And that really is the principle applied in SEC 11 versus George. 12 JUDGE PRADO: In George the four 13 investors werent completely innocent, were they, as 14 opposed to what we have here? 15 MR. SADLER: Your Honor, and I 16 know the SEC tries very, very hard to suggest that 17 the investors who were ordered to disgorge in that 18 case were somehow complicit or not innocent, but the 19 fact of the matter is when you read the George case 20 and you read the George holding, it says these APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 71 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (15 of 114) [11/9/2009 9:02:26 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 74 of 444 21 people are accused of no wrongdoing. They are found 22 to have not committed any wrongdoing. 23 And that is the fundamental precept 24 of a case like SEC versus George and Kimberlynn 25 Creek Ranch: How do we deal with people who were APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 72 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (16 of 114) [11/9/2009 9:02:26 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 75 of 444 9 1 paid proceeds of fraud? How do we have a mechanism 2 to return those funds to the estate? And the George 3 case, the Cavanaugh case, the Colello case, the 4 Kimberlynn Creek Ranch case say you can be innocent, 5 you can be accused of no wrongdoing. And that was 6 exactly the situation in George. Those people were 7 not found to have been complicit or to have engaged 8 in any wrongdoing. 9 Now, the SEC has come in and in their 10 amicus brief they say, Well, now, these people 11 really were guilty. But thats not what the Sixth 12 Circuit based its decision on, and its certainly 13 not appropriate, I think, to try to undermine the 14 precedential value of the George case by coming in 15 and saying, Well, there were these other facts that 16 were not presented to the Court and were not part of 17 the record but that should change the result. 18 So the answer to your question is, in 19 all of these cases -- if you look at George, if you 20 look at Kimberlynn Creek Ranch, if you look at APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 73 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (17 of 114) [11/9/2009 9:02:26 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 76 of 444 21 Cavanaugh, if you look at Colello -- all of those 22 people are ordered to return funds they received 23 without a finding that theyve committed any 24 wrongdoing. And the fundamental principle it is, is 25 I understand the distinction between stolen as in a APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 74 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (18 of 114) [11/9/2009 9:02:26 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 77 of 444 10 1 thief robs it at gunpoint versus taken by fraud. 2 But if we go all the way back to the 3 original Ponzi scheme case, the Cunningham case, and 4 the principle announced there is whats being 5 followed in all these cases, which is, among equally 6 innocent investors -- and theyre all for this 7 purpose being treated as equally innocent -- no one 8 has a preferential right to retain funds that were 9 simply taken from one investor to another. And 10 thats -- 11 JUDGE GARWOOD: Let me ask you 12 about -- 13 MR. SADLER: Yes, sir? 14 JUDGE GARWOOD: -- I still dont 15 get your answer to the bankruptcy preference. I 16 thought you didnt have a bankruptcy preference if 17 you paid full value. 18 MR. SADLER: And Your Honor, 19 in questions of bankruptcy, in fraudulent 20 transfer -- and weve covered this in our APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 75 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (19 of 114) [11/9/2009 9:02:26 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 78 of 444 21 briefs -- were not bringing a fraudulent transfer 22 case. We dont think were subject to the 23 restrictions of -- 24 JUDGE GARWOOD: But you said -- 25 MR. SADLER: -- the fraudulent APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 76 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (20 of 114) [11/9/2009 9:02:26 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 79 of 444 11 1 transfer case. 2 JUDGE GARWOOD: You said the 3 bankruptcy. 4 MR. SADLER: Yes, sir. 5 JUDGE GARWOOD: What I want to 6 know is, in bankruptcy can you get a preference from 7 a person who paid full value? 8 MR. SADLER: I think within the 9 90-day statutory preference period preferences are 10 set aside without regard to value. Theres also a 11 one-year preference period for insiders. The point 12 about the analogy to the preference action is not 13 that were trying to adopt a bankruptcy statutory 14 process. The point is simply that the arguments we 15 are making -- which is to say these people who are 16 the minority of investors who have over $275 million 17 in funds currently frozen, those funds were taken 18 directly from other investors, and the -- 19 JUDGE GARWOOD: But I dont, I 20 still dont understand why those people are any APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 77 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (21 of 114) [11/9/2009 9:02:26 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 80 of 444 21 different than the person who sold a car to the 22 company and made a little profit on his car as a 23 dealer. Why, why are they different? 24 MR. SADLER: They are different, 25 Your Honor, for this reason: We have over 20,000 APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 78 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (22 of 114) [11/9/2009 9:02:26 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 81 of 444 12 1 investors who bought these fraudulent CDs. They all 2 have exactly the same contract claim to be paid on 3 their CD. The difference is, some of them have been 4 paid preferentially, and they have been paid 80 5 percent, 90 percent, a hundred percent. 6 JUDGE GARWOOD: Thats exactly 7 the same in the car case. Some people who got a 8 note from the company when they sold the car, they 9 havent been paid. Some who sold the, sold the car 10 for cash have been paid. I mean, theres nothing 11 unique about that. 12 MR. SADLER: Well, the 13 difference, though, is it would make a difference. 14 Questions of full value, reasonably equivalent 15 value, objective good faith, all of that would be 16 relevant in a fraudulent transfer statutory case 17 brought under the Bankruptcy Code or brought under 18 state statute. But under the holding of SEC versus 19 George what is important is, can we -- 20 JUDGE GARWOOD: Youre asking us APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 79 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (23 of 114) [11/9/2009 9:02:26 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 82 of 444 21 to follow that case, and Im asking you why we 22 should adopt that reasoning when the Uniform 23 Transfer -- Fraudulent Transfer Act and the 24 Bankruptcy Code and all this seem to proceed on a 25 different basis. APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 80 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (24 of 114) [11/9/2009 9:02:26 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 83 of 444 13 1 MR. SADLER: They do proceed on 2 a different basis because they were designed for 3 different purposes, and Im glad you asked that, 4 because that really does get to a fundamental 5 question here. Because the arguments of many of the 6 appellees is that you should restrict an equity 7 receiver in a federal securities fraud case to state 8 law remedies. I think one of the appellees flat out 9 says that you should rule that a equity receiver in 10 a federal securities law case can only bring state 11 law claims for attachment and state law fraudulent 12 transfer claims. 13 And I have two things to say about 14 that. First, there is no case holding that a 15 federal equity receiver in a federal securities law 16 case ought to be limited to state law remedies. 17 This would be the first Court to so hold. It is 18 also fundamentally contrary to the holdings of the 19 relief defendant cases like Kimberlynn Creek and 20 SEC versus George. APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 81 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (25 of 114) [11/9/2009 9:02:26 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 84 of 444 21 And heres why, Your Honor. It is 22 fundamentally unfair for one investor to be paid off 23 with money taken from another investor when the 24 principle that is at issue -- and it is a 25 fundamental principle -- is that all investors, just APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 82 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (26 of 114) [11/9/2009 9:02:26 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 85 of 444 14 1 like it was held in the Forex and in the Durham 2 case, when we have a Ponzi scheme theres never 3 enough money to pay everyone off. 4 JUDGE GARWOOD: Why is -- you 5 say thats the case, but the car dealer who sold the 6 car for cash, he gets a preference over the other 7 car dealer who sold it for credit. 8 MR. SADLER: And Your Honor, 9 there may be differences, and in fact, the 10 Kimberlynn Creek Ranch case talks about the fact 11 that if somebody was employed by the Ponzi scheme 12 and provided services to the Ponzi scheme, he may 13 not be subject to being ordered to return what he 14 was paid. And in the car dealer case, again, Your 15 Honor, if we proceeded under fraudulent transfer 16 theories where reasonably equivalent value was an 17 issue, that might be different. 18 But we are dealing with one set of 19 claimants here, every investor who has the identical 20 claim; and what we are saying is they all need to APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 83 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (27 of 114) [11/9/2009 9:02:26 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 86 of 444 21 get in line. What were trying to -- 22 JUDGE PRADO: How would you 23 trace this? I mean, what if they had taken their 24 money out and put it in another account in another 25 bank? I mean, how far down the road are you going APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 84 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (28 of 114) [11/9/2009 9:02:26 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 87 of 444 15 1 to trace this money that some of the victims got 2 back? 3 MR. SADLER: Well, right now we 4 are focused on the funds that are frozen in the 5 accounts to which they were deposited. If youre 6 talking about tracing, I mean, bank records can be 7 followed. Now, what we are -- 8 JUDGE GARWOOD: They went out 9 and bought something in the car dealer with what 10 they were paid, they dont have any money in that 11 account. You going to get that back from that car 12 dealer if theyre bankrupt? 13 MR. SADLER: And Your Honor, you 14 are, youre raising proper questions about equitable 15 considerations which are not in front of you. The 16 district court -- 17 JUDGE GARWOOD: Theyre 18 practical considerations. 19 MR. SADLER: Yes, sir. They are 20 practical considerations, and the practical APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 85 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (29 of 114) [11/9/2009 9:02:26 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 88 of 444 21 consideration comes at the later part of this 22 proceeding. Right now all we are here about is the 23 legal question Judge Godbey faced and said he needed 24 guidance on from this Court. He decided that he did 25 not have the legal authority to allow us to go APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 86 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (30 of 114) [11/9/2009 9:02:26 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 89 of 444 16 1 forward to recover all of these funds. He said we 2 should go forward but be limited to only what the 3 Ponzi scheme designated as interest. 4 When we get into issues of whether 5 people have dispensed these funds in ways that 6 cannot be recovered, all of those are equitable 7 considerations that would have to come to not only 8 Judge Godbey, but later to you on a totally 9 different record. 10 I mean, Judge Godbey crystallized it 11 in this way: He said, "If Im wrong on the law, 12 then you, the receiver, should pursue these funds." 13 But in particular cases if we come up -- for 14 example, someone got $10,000 paid preferentially but 15 theyve spent it and theyve put it into a house or 16 theyve put it into a car or theyve paid for their 17 childrens college education, under those 18 circumstances would we pursue that person? Thats 19 based on equitable considerations that are not in 20 front of you right now. APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 87 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (31 of 114) [11/9/2009 9:02:26 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 90 of 444 21 JUDGE GARWOOD: To what extent 22 does the George case -- was this the SEC proceeding 23 in that or was it a receiver, a separate receiver? 24 MR. SADLER: In the George case 25 the SEC was the plaintiff, just like in the APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 88 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (32 of 114) [11/9/2009 9:02:26 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 91 of 444 17 1 Kimberlynn Creek Ranch case the Commodity Futures 2 Trading Commission was the plaintiff. 3 JUDGE GARWOOD: Well, here the 4 plaintiff is the SEC, and -- 5 MR. SADLER: The plaintiff in 6 the main case certainly is. 7 JUDGE GARWOOD: Is the SEC. And 8 they dont want to do what you want to do here. 9 Theyre not, theyre not seeking to recover from 10 these people. What -- 11 MR. SADLER: Id be happy to 12 respond to that. 13 JUDGE GARWOOD: Yeah. 14 MR. SADLER: And that is an 15 issue raised by all the appellees. 16 JUDGE GARWOOD: Yeah. 17 MR. SADLER: And Im going to 18 tell you this: Not only should you not defer to the 19 SEC in this circumstance, there are very powerful 20 reasons you should not defer. There is no APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 89 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (33 of 114) [11/9/2009 9:02:26 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 92 of 444 21 compelling reason to do it and compelling reason 22 against it, and let me tell you why. 23 The case thats given to you is the 24 Chevron case, which talks about deference to formal 25 agency action. We dont have any formal agency APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 90 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (34 of 114) [11/9/2009 9:02:26 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 93 of 444 18 1 action here. There is no formal policy rule thats 2 ever been adopted by the SEC to deal with Ponzi 3 schemes. Secondly, Your Honor, the position thats 4 being offered by the SEC is fractured, and here 5 whats I mean by that. In their amicus brief they 6 say, Were not taking a position about whether the 7 receiver should even pursue false profits or false 8 interests. They simply back off and say, Were not 9 taking a position. So theres nothing for you to 10 defer to there. 11 JUDGE GARWOOD: But what George 12 relied on, as I understand it, was the Sixth 13 Circuits broad view of the powers that the statute 14 granted the SEC. 15 MR. SADLER: Sir, I believe if 16 you read George and Kimberlynn Creek Ranch, its 17 actually a little different. What is being pursued 18 here is an ancillary action for equitable relief, 19 and the broad powers that are being referred to 20 there are the broad powers of the district court to APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 91 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (35 of 114) [11/9/2009 9:02:26 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 94 of 444 21 grant equitable relief. Thats a quote that comes 22 out of Colello and Kimberlynn Creek Ranch and SEC 23 versus George. And we as the equity receiver, we 24 are the agent for the Court. The Court cant go out 25 and gather evidence. APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 92 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (36 of 114) [11/9/2009 9:02:26 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 95 of 444 19 1 JUDGE GARWOOD: The SEC, though, 2 has not elected to sue these investors. In George, 3 as I understand your answer to me, in George the SEC 4 did elect to sue. 5 MR. SADLER: That is absolutely 6 correct, and what they -- 7 JUDGE GARWOOD: What gives you 8 the authority, the statutory authority to sue people 9 that the SEC has not sued? 10 MR. SADLER: It is not statutory 11 authority, Your Honor. It is equitable power that 12 derives from the cases that say in this circumstance 13 where there is an ancillary action where we are the 14 plaintiff, we are the ones charged -- 15 JUDGE GARWOOD: SEC versus 16 George doesnt support that, if Im understanding 17 your answer correctly, because its the SEC who 18 sought to get the money from those so-called 19 investors. 20 MR. SADLER: That is absolutely APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 93 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (37 of 114) [11/9/2009 9:02:26 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 96 of 444 21 right, and they were innocent investors, and in 22 this -- 23 JUDGE GARWOOD: So the SEC says, 24 Here, section such and such says I can do this. I 25 can do almost anything under section such and such; APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 94 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (38 of 114) [11/9/2009 9:02:26 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 97 of 444 20 1 which I cant remember what it is, but you dont 2 have any section such and such. 3 MR. SADLER: And Your Honor, 4 what Im saying is under these cases that we have 5 cited to you is it the equitable power, not 6 anybodys statutory power, but it is the equitable 7 power of the Court to recover proceeds of the fraud 8 that were proceeding under. And if you look at the 9 Kimberlynn Creek Ranch case, the exact wording in 10 that case says a plaintiff, paren, the Commission 11 here, but a plaintiff can invoke the equitable power 12 of the Court. And thats what were doing in this 13 case. 14 JUDGE GARWOOD: The SEC is a 15 proper plaintiff. Theyre not, theyre not relying 16 on any statute. It seems to me like the plaintiff 17 in a case ought to be the one or a defendant -- we 18 dont have -- I mean, frankly, in a sense youre 19 nobody. I mean, the plaintiff is the SEC, theres 20 some defendants; youre not either one. APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 95 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (39 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 98 of 444 21 MR. SADLER: No, sir. But we 22 have a very specific court-ordered duty that none of 23 these other people have, and in the order appointing 24 the receiver we are directed to pursue litigation to 25 recover assets traceable to the estate. And nobody APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 96 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (40 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 99 of 444 21 1 has appealed that order, nobody has said that order 2 is invalid or that the -- 3 JUDGE DENNIS: Mr. Sadler, your 4 time has expired. Do you want to save it for 5 rebuttal? 6 MR. SADLER: I will save the 7 balance of my remarks for rebuttal. Thank you, Your 8 Honor. 9 JUDGE DENNIS: Mr. Little? 10 ORAL ARGUMENT 11 MR. LITTLE: May it please the 12 Court, my name is John Little. I was appointed by 13 the district court to serve as the examiner in this 14 receivership proceeding. I was charged by the 15 district court with the task of conveying to the 16 Court such information that I would find helpful to 17 the Court in considering the interests of the 18 investors in any Stanford product, account, vehicle, 19 or venture. Here Im an intervenor. In the 20 district court I was one of the parties, together APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 97 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (41 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 100 of 444 21 with the SEC, that opposed the SECs -- 22 JUDGE GARWOOD: Speak up a 23 little bit, Counselor. 24 MR. LITTLE: Oh, Im sorry. 25 Certainly. In the district court I was one of two APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 98 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (42 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 101 of 444 22 1 parties with the SEC to oppose the receivers 2 account freeze and to oppose these clawback claims. 3 Im here today with 11 groups of appellees, and they 4 have permitted me to make the opening presentation 5 for the appellees. Im going to take 15 minutes, as 6 you know, and then pass to Mr. Quilling. We have a 7 plan on how were dividing that, but either one of 8 us is happy to answer whatever questions come up. 9 I want to start here today by 10 responding to a couple of things the appellant has 11 said. First, these 500 or so investors are not 12 lucky. Theyre not lucky. Theyre not folks who 13 got all their money out. There is a very, very 14 small fraction of folks who really did get all their 15 money out of Stanford. Some got it out in the year 16 before the thing collapsed, some got it out four 17 years before the thing collapsed. 18 These 500 people include people who 19 got all their money out with interest, it includes 20 people who got only interest and lost all of their APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 99 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (43 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 102 of 444 21 CD principal, it includes some folks who had 22 multiple CDs, redeemed some, didnt redeem others. 23 JUDGE PRADO: Does it include 24 any people who were part of the fraud? 25 MR. LITTLE: No. APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 100 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (44 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 103 of 444 23 1 JUDGE PRADO: Are all -- every 2 one of these is an innocent investor? 3 MR. LITTLE: Your Honor, by 4 definition the receiver acknowledges the absolute 5 innocence of every one of these relief defendants. 6 All 500-plus of them are pled to be innocent. No 7 suggestion has been made that they have anything 8 other than pure-as-the-driven-snow innocence with 9 respect to this. These are folks who made 10 investments. They bought CDs, they received 11 interest, they redeemed them pursuant to the terms 12 of the CDs. They have done nothing wrong, and the 13 receiver acknowledges that. 14 Now, theyre not the only folks who 15 got CD proceeds. Over the many years that this 16 scandal occurred there were tens of thousands of 17 investors. Many of those investors could well have 18 cashed out of the CDs years and years ago, taken 19 their money and gone elsewhere. We dont know how 20 many of those folks there are. There are thousands APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 101 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (45 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 104 of 444 21 and thousands of investors who took money out in the 22 year prior to this receivership who have not been 23 sued. 24 The receivers own expert has found, 25 forensic expert, has found that $2 billion was taken APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 102 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (46 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 105 of 444 24 1 out of the bank in the 13 months prior to the 2 receivership. These folks represent a tiny fraction 3 of that amount, because the total that these folks 4 are being sued for is about $275 million, but that 5 amount is not over a year. It reaches back a year, 6 two, five, eight. Some of the folks who are the 7 retirees here from Louisiana received interest for 8 years and years and years on their CDs. Thats what 9 they lived on. Thats what theyre being sued for, 10 is the CD interest they received over the years. 11 JUDGE PRADO: Can we distinguish 12 between getting back the money you invested or the 13 interest that I think the Court, the district court 14 said that maybe they should return any interest that 15 they made on their investment? 16 MR. LITTLE: Judge, theres, 17 theres -- the case law under the Fraudulent 18 Transfer Act is very clear that an investor who 19 invests in a fraudulent scheme like this one is able 20 to recover and retain an amount up to what his APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 103 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (47 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 106 of 444 21 investment is; the amounts above that are viewed as 22 false profits and can be disgorged. 23 JUDGE DENNIS: Were acquainted 24 with that, but we arent acquainted with the George 25 case and these cases that your client is relying on APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 104 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (48 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 107 of 444 25 1 that get away from all of those mainstream law 2 youre talking about right now. 3 MR. LITTLE: Well, and -- 4 JUDGE DENNIS: Can you tell us 5 why we shouldnt follow the George case -- 6 MR. LITTLE: Yes. I am -- 7 JUDGE DENNIS: -- and the 8 Kimberlynn Ranch case? 9 MR. LITTLE: Yeah. Id be happy 10 to. The cases that they primarily rely upon do not 11 involve innocent investors. Cavanaugh involves a 12 relief defendant who was in the middle of the fraud. 13 Colello involves a relief defendant whos in the 14 middle of the fraud. Kimberlynn Creek, the opinion 15 says expressly the relief defendants were holding 16 funds on behalf of the defendants. Thats a classic 17 relief defendant, someone who is holding funds for 18 the bad guys. 19 JUDGE DENNIS: Who doesnt claim 20 an interest in it? APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 105 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (49 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 108 of 444 21 MR. LITTLE: Excuse me? 22 JUDGE DENNIS: Who does not 23 claim an interest? 24 MR. LITTLE: Who does not have a 25 legitimate interest in those funds. George is the, APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 106 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (50 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 109 of 444 26 1 is the one case that they hang their hat on 2 consistently, and George involves four relief 3 defendants. One really doesnt play into this. 4 Shes the girlfriend/fiancee/wife of the bad guy, 5 and shes ordered to disgorge a car and a diamond 6 ring and some money. The other three, as the SEC 7 explains in its briefing, were all folks who were 8 somehow not innocent. 9 Now, if you read the opinion, the 10 opinion speaks in terms of innocence, but you see 11 that in all the relief defendant cases. The fiancee 12 or wife who is ordered to disgorge dollars is not 13 guilty of the fraud, but shes tied into the fraud 14 because of the husband who is depositing money into 15 her account. And so -- 16 JUDGE GARWOOD: In other words, 17 she did not invest money, the wife certainly didnt. 18 MR. LITTLE: The Lehmann case, 19 for example, involves a wife whose husband was 20 involved in the fraud, gets $500,000, sticks it in APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 107 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (51 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 110 of 444 21 her account. She hasnt done anything wrong, but 22 she has money that the husband took out of the 23 fraud. Hes involved, shes a relief defendant. 24 She has no legitimate claim on that money. She 25 didnt even know it was in the account. APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 108 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (52 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 111 of 444 27 1 These folks are different, and if I 2 may, these folks simply are not relief defendants, 3 and the receiver acknowledges three things that make 4 that so. First, these folks have done nothing 5 wrong. Weve talked about that. Second, the 6 receiver acknowledges that the assets in these 7 frozen accounts belong to these investors. These 8 are not assets that belong to Stanford, these are 9 not assets that belong to his cohorts. These are 10 assets that belong to these individual investors, 11 and they sit in accounts titled in the investors 12 names. And the receiver acknowledged that back in 13 April in his status report to the Court. 14 The third thing, Mr. Sadler just told 15 you that each of these relief defendants will have a 16 claim against the estate. How does one get a claim 17 against the estate? You have a legitimate ownership 18 interest in the instrument that gives you that 19 claim. If these folks have a -- if these folks have 20 done nothing wrong on the assets in their frozen APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 109 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (53 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 112 of 444 21 accounts and will have a claim against the estate 22 for anything that theyre ordered to disgorge, then 23 they have an ownership interest and cannot be relief 24 defendants. 25 And the relief defendant cases are APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 110 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (54 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 113 of 444 28 1 very clear. I think its one of the few things we 2 agree on. If you have an ownership interest, if you 3 have a legitimate claim, you are not, cannot be a 4 relief defendant. All of these folks on the face of 5 the pleadings have an ownership interest; therefore, 6 they cannot be relief defendants. 7 That has two implications for this 8 Court. That either means that the claims fail at 9 sort of a motion-to-dismiss level, because on the 10 face of the pleadings you have pled facts which make 11 your claim fail. Alternatively, it deprives the 12 Court of subject matter jurisdiction. Relief 13 defendants can be joined without additional subject 14 matter jurisdiction being alleged as to them. If 15 these folks are not relief defendants, there is no 16 subject matter jurisdiction as to the claims against 17 them and the action against them would be dismissed 18 and the freeze would go away. 19 JUDGE DENNIS: Why is that? Why 20 is there no subject matter jurisdiction? APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 111 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (55 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 114 of 444 21 MR. LITTLE: Because in order to 22 have subject matter jurisdiction, they must be 23 relief defendants. If they are not relief 24 defendants, then there is no subject matter 25 jurisdiction. They are not ancillary -- they cannot APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 112 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (56 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 115 of 444 29 1 be brought in in an ancillary action. The receiver 2 would have to bring an honest-to-god lawsuit and 3 state a cause of action for fraudulent transfer or 4 whatever other claim he can come up with, and he 5 would then have to assert that claim and assert 6 subject matter jurisdiction as to these folks. 7 The way the Court gets these people 8 is because there is no need for subject matter 9 jurisdiction if they are, in fact, relief 10 defendants. If they are not, there is no subject 11 matter jurisdiction. 12 JUDGE DENNIS: The lead 13 defendant is another word for nominal -- 14 MR. LITTLE: Yes. 15 JUDGE DENNIS: -- defendant who 16 has no really real interest? 17 MR. LITTLE: Right. And the 18 genesis of that concept, of course -- 19 JUDGE GARWOOD: [Indiscernible] 20 or something of that [indiscernible] -- APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 113 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (57 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 116 of 444 21 MR. LITTLE: Judge, you know, 22 the genesis of that concept comes out of banks, 23 trust accounts, depository institutions that hold 24 things in a custodial sense. It was expanded over 25 the years from those very traditional relief APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 114 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (58 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 117 of 444 30 1 defendants to folks who are related to the bad 2 guys -- the wife, the brother, the parents, the 3 affiliated company, the partnership -- but theyre 4 all things that are -- these are all relief 5 defendants tied in. Theyre holding assets -- 6 Kimberlynn, the Kimberlynn Creek case 7 says holding assets on behalf of the defendants, the 8 bad guys. These relief defendants arent holding 9 assets on behalf of any of the Stanford folks. 10 These are their assets. They own them. Theyre not 11 relief defendants for that reason. 12 I wanted to also talk a minute about 13 the notion of timing. In the receivers plead -- in 14 the receivers briefing you get the sense that there 15 is no sense of time here. Judge Prado, you asked 16 the question about how far back theyre reaching. 17 Theyve never actually answered that question. We 18 know from the relief defendants who have, who have 19 lawyers and who have responded to some of the claims 20 that the reach-back is one, two, five, eight years. APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 115 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (59 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 118 of 444 21 JUDGE GARWOOD: Is what? 22 MR. LITTLE: It goes back one, 23 two, five, eight, many, many years back. There 24 doesnt appear to be any limitations period to this 25 clawback claim thats being pursued. Essentially, APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 116 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (60 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 119 of 444 31 1 the receivers position is that equity wipes out all 2 of the timing requirements of any of this sort 3 of -- any of these causes of action. 4 But its important to remember that 5 time, timing does matter. It does matter. The 6 cases are pretty clear. If an investor deposits 7 money with a fraud scheme but that moneys deposited 8 the day after the accounts are frozen, the investor 9 gets that back. If he invests two days before the 10 accounts are frozen, he doesnt get that back. 11 Timing matters. Timing matters with respect to 12 limitations under the Fraudulent Transfer Act. 13 The -- 14 JUDGE DENNIS: Is it your 15 position that these investors are entitled to 16 recover or hold onto their principal investment? 17 MR. LITTLE: Yes. 18 JUDGE DENNIS: Regardless of 19 whether its called interest or what, whatnot? 20 MR. LITTLE: The case law, the APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 117 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (61 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 120 of 444 21 case law that I know the Court is familiar with 22 under the Fraudulent -- 23 JUDGE DENNIS: Once they recover 24 up to that, then theyre not entitled to any more? 25 MR. LITTLE: Under the APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 118 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (62 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 121 of 444 32 1 Fraudulent Transfer Act the case law is very clear 2 that up to the amount of the initial invest -- of 3 their investment, theyre entitled to retain any 4 proceeds theyve received. In the case -- 5 JUDGE GARWOOD: It doesnt 6 matter what they -- 7 MR. LITTLE: It doesnt matter 8 what you call it. You know, the Shoals case and a 9 lot of the other cases in that area make it clear 10 that whats -- 11 JUDGE DENNIS: But Mr. Sadler 12 says hes not proceeding under that -- under those 13 statutes. 14 MR. LITTLE: I understand that, 15 and thats one of the things thats very troubling 16 about what he is proceeding under, because there 17 dont appear to be any rules that Mr. Sadler is 18 following. Its all just equity. The Court in 19 equity can do anything it wants. The Court can 20 ignore limitations, the Court could ignore the APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 119 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (63 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 122 of 444 21 ownership interest. 22 JUDGE DENNIS: Its your 23 position, I suppose, it would be inequitable for us 24 to depart from the principles that are in most of 25 the cases regarding fraudulent conveyances, APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 120 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (64 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 123 of 444 33 1 constructive fraud and all of that? 2 MR. LITTLE: I think we have, I 3 think we have a body of case law that speaks in 4 great detail to how receivers are to go about 5 bringing back proceeds from a fraud scheme. And 6 thats the Fraudulent Transfer Act. Its been 7 adopted in all 50 states. Its -- that body of law 8 is very clear. False profits can be recovered. 9 JUDGE DENNIS: What about by 10 analogy to the bankruptcy section? 11 MR. LITTLE: Well, and the 12 Fraudulent Transfer Act provisions are mirrored in 13 the Bankruptcy Code. Those same sorts of claims 14 could be made in the bank -- under the Bankruptcy 15 Code. The Uniform Fraudulent Transfer Act and the 16 Bankruptcy Code have essentially identical 17 provisions for those sorts of claims, and that is 18 the rubric under which receivers proceed. 19 Judge Garwood, I think you raised the 20 question of the difference between the SEC and a APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 121 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (65 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 124 of 444 21 receiver, and thats an important and critical 22 difference. The SEC is charged with enforcing the 23 securities laws, and it filed this lawsuit, the 24 primary action, and decided who to sue. 25 Now, in virtually all of the cases APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 122 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (66 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 125 of 444 34 1 cited by the receiver the SEC is the plaintiff 2 and the SEC is deciding who to sue. The 3 receive -- there is not a receiver bringing those 4 lawsuits. Theyre brought by the SEC. 5 Also, the asset freeze in place here 6 was originally obtained by the SEC. The SEC has a 7 far lower bar for getting an injunction asset 8 freeze. The receiver is trying to coattail the 9 SECs asset freeze that it got via its special 10 statutory ability to do that, but the problem is the 11 SEC is sitting over here with me. It opposes the 12 asset freeze and has done so since May. So the 13 receiver has never made a showing to get the 14 injunctive relief hes gotten, and he cant coattail 15 the SECs asset freeze. 16 JUDGE GARWOOD: Which does seem 17 to me odd, somehow, that the receiver isnt 18 representing or whatever, acting on behalf of any 19 party to the lawsuit, either a defendant or the 20 plaintiff, which is the SEC. Now, since hes acting APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 123 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (67 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 126 of 444 21 under the authority of the Courts appointment, it 22 seems to me we cant or shouldnt be expanding that 23 appointment to make the receiver in effect a trustee 24 in bankruptcy, because weve got a bunch of statutes 25 that say how you do that. And its all right to APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 124 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (68 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 127 of 444 35 1 expand it a little bit if the people that are being 2 reached are just nominal custodians, but to reach it 3 all out you wonder where the, where the jurisdiction 4 comes from. 5 JUDGE DENNIS: Mr. Quilling 6 [sic], your time expired during that question. If 7 you need to give a short answer, go ahead. 8 MR. LITTLE: Ill give Judge 9 Garwood -- 10 JUDGE GARWOOD: [Indiscernible.] 11 MR. LITTLE: Ill give Judge 12 Garwood a quick answer, and then Mr. Quilling will 13 come up and say his piece. I think youre exactly 14 right, Judge. The issue here is that this receiver 15 is moving far beyond the pale of what his order 16 really charges him to do. Hes not seeking -- hes 17 not going after Stanfords assets. Hes going after 18 these relief defendants assets. 19 JUDGE DENNIS: Thank you, 20 Mr. Little. That was a [indiscernible] of the APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 125 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (69 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 128 of 444 21 question, so you dont need to belabor it. 22 Mr. Quilling? 23 ORAL ARGUMENT 24 MR. QUILLING: May it please the 25 Court, Im Mike Quilling. I speak on behalf of all APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 126 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (70 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 129 of 444 36 1 of the appellees; the investors is the way Ill 2 refer to them. Judge Garwood, youve asked the 3 question directly of the appellants, which they 4 either did not answer or would not answer, and 5 thats because they dont want to -- they dont want 6 to give you that answer, I believe. 7 I urge the Court to look at In Re: 8 Independent Clearinghouse. Its a bankruptcy case 9 where the very same thing that this receiver is 10 trying to do in a court of equity was discussed in 11 that court of equity, the bankruptcy court. And Im 12 not going to recite very much, but two sentences is 13 incredibly instructive, and this is at page 855. 14 "In theory, the most equitable 15 resolution of cases may well be for each undertaker 16 to return all the money he received from the debtors 17 so that the money can be redistributed pro rata." 18 This is what the Court said after that. "The 19 equitable powers of the bankruptcy court are limited 20 by the express terms of the code. A court of APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 127 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (71 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 130 of 444 21 equity," which this is, "may not create totally new 22 substantive rights under the guise of doing equity. 23 In the absence of any statutory or judicial 24 precedent, the Court may not invoke its equitable 25 powers to substantially enlarge the trustees APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 128 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (72 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 131 of 444 37 1 avoiding powers as urged." 2 Their position has been considered 3 and rejected even by the courts of law. Now, as a 4 court of equity in this order that they champion 5 that theyre acting under, it doesnt say go destroy 6 the world. It says go collect assets like all 7 receivers do. Go do what normal receivers do. Go 8 file your causes of action, state your cause of 9 action, get your judgment, and then collect it. 10 It is time for this Court to call, as 11 the Eleventh Circuit did in the Mitsubishi case, a 12 duck a duck. This freeze started off in February of 13 this year, and it was something that SEC acting 14 under its powers could do. It was a normal type of 15 freeze. This receiver interpreted it to give him 16 carte blanche authority to go take the accounts of 17 innocent investors who had no clue Stanford was a 18 fraud. 19 It was turned into an agreed 20 injunction on March 2nd, eight months ago to this APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 129 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (73 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 132 of 444 21 day, and that agreed injunction was between the 22 receiver and Allen Stanford and his cohorts who are 23 in jail. Not one investor was consulted, not one 24 investor was allowed to speak. Indeed, until today, 25 Your Honors, not one single investor has been able APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 130 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (74 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 133 of 444 38 1 to speak at the district court level to be heard. 2 Now, if somebody walked into my 3 office and said, Hey, I bought this company and Ive 4 been looking at some old records, and I think 5 somebody owes me some money. Well, how far back? 6 Eight years. Where do you -- wheres the money now? 7 Well, its in his IRA account. Well, do you know 8 how much he owes you? No. But Ive got an 9 estimate, so I want to go down and get a freeze of 10 his account. And oh, by the way I dont want to 11 offer any evidence. I dont want to have a hearing. 12 I dont want the in -- that person who owes me the 13 money to ever have a hearing. I just want to go 14 take it because I think that he owes it. 15 Thats exactly what is occurring 16 here. This is the duck. This is a prejudgment 17 attachment. You cant get around it. It is a 18 prejudgment attachment. In some instances -- and 19 this receiver cant tell you how much interest these 20 folks got, they cant tell you how much principal APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 131 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (75 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 134 of 444 21 they have. All they can say is, They have accounts 22 and we know some money went there, and we dont care 23 what time frame it was, and it doesnt even matter 24 if its not the same amount. 25 Lets say you had an account at Chase APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 132 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (76 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 135 of 444 39 1 Bank and went into Comerica and the bad guy sent the 2 money to Comerica, and youve got an account at 3 Chase and he happens to have the account frozen at 4 Chase. He says thats all his money. That is an 5 attachment. I dont care how you phrase it -- as a 6 freeze, an injunction -- its an attachment. That 7 is a duck. 8 And they say under the equity field 9 they get to do anything they want. You dont get 10 counsel, youre going to have a summary proceeding 11 on some day never to be set and apparently sometime 12 off in the years from now when these retirees who 13 are sitting in this room may well be dead. They 14 need their money now. This has been nine months. 15 This money is in their IRS accounts, many of them. 16 And Judge Prado, I know the issue of 17 are these people real victims or did they get some 18 sort of preferential treatment is on, is on 19 everybodys mind. These are net losers. Many of 20 these people are net losers. The retirees that have APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 133 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (77 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 136 of 444 21 been sitting here for eight years getting their 22 interest check, they still have their principal tied 23 up there. Theyre going to lose that money. 24 One of my clients, the Mississippi 25 Polymers Pension Fund that gives benefits to 300 APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 134 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (78 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 137 of 444 40 1 retirees in Mississippi, steelworkers, they have 2 $3 million of the pension funds assets sitting in 3 that bank in Antigua. They got $300,000 of interest 4 over a period of five years. That interest went to 5 partially fund distributions to retirees. Now, they 6 are not a winner. They are not unlucky [sic]. They 7 are very unlucky. They are a victim and they should 8 not be penalized further. They got a $3 million 9 loss. Thats going to hurt the pension. But they 10 shouldnt have to go give -- find a way to get 11 $300,000 to put back into this receivers pocket. 12 No. Thats not how the law works. There is -- 13 JUDGE PRADO: But do they fit 14 the definition of relief defendants? 15 MR. QUILLING: Absolutely not. 16 Theres not a single one of these people who fits 17 the definition of a relief defendant, and Mr. Little 18 addressed the three points. First of all, they have 19 an ownership interest. Thats the end of the 20 discussion. You dont even get to the second point. APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 135 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (79 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 138 of 444 21 And he says, Well, this is stolen money. Its not 22 stolen. It was a fraud. They didnt steal it from 23 anybody. They miss -- they diverted money. 24 JUDGE DENNIS: Mr. Quilling, 25 what judgment do you and Mr. Little seek -- APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 136 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (80 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 139 of 444 41 1 MR. QUILLING: What judgment -- 2 JUDGE DENNIS: -- from this 3 Court? 4 MR. QUILLING: What judgments we 5 seek? I seek the one that eliminates all of this, 6 both as to principal and interest. If you find that 7 there arent -- that these are not proper relief 8 defendants, this injunction, this freeze, this duck 9 is dead and all money gets released, principal -- 10 JUDGE DENNIS: Do we have 11 jurisdiction? 12 MR. QUILLING: -- and interest. 13 JUDGE DENNIS: Do we have 14 jurisdiction to give you the clarity of relief or 15 anything like that? 16 MR. QUILLING: Well, I think 17 that that depends on how you want to fashion it, 18 Your Honor. Theres several ways to get there. If 19 youre not a relief defendant, this is dissolved. 20 If you want to also say, We believe that in this APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 137 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (81 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 140 of 444 21 district or this circuit there will be no ability 22 to pursue principal or any amount above what 23 their -- up until you get your investment back. 24 If you made false profits, thats the 25 law in this circuit, and frankly, that is the law APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 138 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (82 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 141 of 444 42 1 and probably out to be the law. But the problem 2 that is not really being followed here -- and this 3 is a court of equity, and they champion that. They 4 carry this banner of, This is what we want done. 5 Well, the problem is, its not 6 equitable to pursue 500 victims to get their money, 7 part of it back in and make their loss bigger, i.e., 8 the Mississippi Polymers, or pick out one of the 9 retirees in this room today. They are victims, and 10 youre going to take even more money from them and 11 make them a bigger victim. 12 JUDGE GARWOOD: Well, how you 13 going to know -- in other words, suppose the 14 district court said that you cant freeze anybody 15 who hasnt got his money -- you cant freeze anybody 16 whos a net loser, in other words? 17 MR. QUILLING: We wouldnt be 18 here today, Your Honor, if that -- 19 JUDGE GARWOOD: I understand 20 that, but hows anybody going to know whos a net APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 139 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (83 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 142 of 444 21 loser? 22 MR. QUILLING: Well, I can tell 23 you each of the victims -- 24 JUDGE GARWOOD: These people are 25 all named, is what Im saying. APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 140 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (84 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 143 of 444 43 1 MR. QUILLING: Right. Each of 2 the victims know whether theyre a net loser, and 3 weve been offering since day one to provide that 4 information to the receiver. He simply says, Ive 5 got the cards, youre not getting to look at them 6 and I dont want to know what the real cards say. 7 We know who the victims are, and we know -- if there 8 would just be a procedure that the district judge, 9 if you submit your evidence -- 10 JUDGE GARWOOD: Some sort of 11 summary proceeding? Is that what you would do? I 12 dont quite understand what you -- 13 MR. QUILLING: Yes, Your Honor. 14 Let me go to court on behalf of my clients and say, 15 Heres the evidence, this is how much we got, this 16 is the time frame; were a net loser, all your money 17 gets released. That could happen. 18 I know my times about to run out. I 19 just want to repeat this: These are net losers. 20 This is a duck. It is time for this Court to shoot APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 141 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (85 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 144 of 444 21 this duck and let this money go. Its been nine 22 months. Thank you. 23 JUDGE DENNIS: Thank you, 24 Mr. Quilling. Mr. Post? 25 APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 142 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (86 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 145 of 444 44 1 ORAL ARGUMENT 2 MR. POST: Thank you, Your 3 Honor. May it please the Court, Michael Post on 4 behalf of the Securities and Exchange Commission. 5 The freeze that has been on these innocent fraud 6 victims accounts since February of this year should 7 finally be lifted. The receivers claims lack 8 statutory and case law support, and they are 9 inequitable. It bears emphasizing that the standard 10 before the Court here that governs its decision is a 11 likelihood -- 12 JUDGE GARWOOD: Lift the mic a 13 little bit there. 14 MR. POST: Im sorry. The 15 element for the injunctive relief that bears 16 emphasizing here is the receiver has the ultimate 17 burden of showing a likelihood of success on the 18 merits. He, however, has failed to cite a single 19 case even involving what hes attempting here, a 20 claim by a receiver for -- against an innocent APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 143 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (87 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 146 of 444 21 investor named as a relief defendant. And its 22 difficult to understand how he could have carried 23 his burden to show a likelihood of success on the 24 merits in this situation. 25 The most logically applicable body of APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 144 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (88 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 147 of 444 45 1 law is that of Fraudulent Transfer Acts, and thats 2 the law under which receivers and trustees and 3 bankruptcy have proceeded in these factual 4 scenarios. Its undisputed that his claims would 5 fail under fraudulent transfer provisions, because 6 these investors took in good faith and gave 7 reasonably equivalent value. 8 So the receiver is attempting to make 9 an end run around the most logically applicable body 10 of law and invoking the Courts generic equity 11 powers. He hasnt asserted a recognized cause of 12 action in equity. He seeks a constructive trust of 13 the investors assets; but a constructive trust is a 14 remedy, not a cause of action. 15 If he had asserted a cause of action 16 for unjust enrichment, it would also certainly fail 17 because it wouldnt be inequitable for the receiver, 18 for the investors to keep the benefit that they 19 received up to the amount of their initial 20 investment. APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 145 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (89 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 148 of 444 21 The cases the receiver cites, 22 including from this circuit, sanctioning a pro rata 23 distribution, are off point. What were talking 24 about here is a plaintiff seeking a judgment, 25 disgorgement of monies from the investors that the APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 146 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (90 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 149 of 444 46 1 receiver has acknowledged the investors own. The 2 pro rata distribution cases are simply approving a 3 principle that once youve already amassed monies 4 into the receivership estate, that its equitable to 5 distribute it on a pro rata basis, and its within 6 the district courts discretion to do that. 7 Entirely different equities and legal 8 principles are implicated when, as in this instance, 9 the receiver has already been -- has -- the 10 receiver -- the investors already have an ownership 11 interest in the funds. 12 JUDGE GARWOOD: If one concedes 13 or concludes that these defendant investors are not 14 relief defendants, that is to say, that they have 15 some legitimate claim, some right to a portion of 16 these assets at least, if one concludes that theyre 17 not historic relief defendants, what -- how does the 18 receiver have the right to bring this as opposed to 19 the SEC? 20 In other words, the receiver is not a APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 147 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (91 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 150 of 444 21 party to the case, and I guess the courts have 22 recognized some expansion of what a receiver can do 23 to handle these so-called relief defendants who are 24 not -- dont really have any actual substantive 25 claim at all to the assets in question. But why APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 148 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (92 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 151 of 444 47 1 shouldnt it be the SEC that seeks to recover from 2 these people? 3 MR. POST: It should be the SEC, 4 Your Honor. The SEC is the primary agency entrusted 5 by Congress with the enforcement of the federal 6 securities laws and the protection of the investing 7 public. The Commission is the agency that filed the 8 underlying enforcement action here. The receiver 9 was appointed at the SECs request. The Commission 10 has authority to ask courts to set up fair funds 11 under the Sarbanes-Oxley act in order to distribute 12 disgorgement funds into victim investors. 13 If, as Your Honors question 14 supposes, if the investors are not proper relief 15 defendants, the receiver could assert claims against 16 investors such as these in this case under the 17 Fraudulent Transfer Act. Those claims, however, 18 would be dead on arrival and the receiver could not 19 show a likelihood of success on the merits and this 20 freeze should be lifted. APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 149 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (93 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 152 of 444 21 JUDGE DENNIS: Mr. Post, your 22 time is expired. 23 MR. POST: Thank you, Your 24 Honor. 25 JUDGE DENNIS: Thank you. APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 150 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (94 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 153 of 444 48 1 Mr. Sadler, you have 10 minutes on rebuttal. 2 REBUTTAL 3 MR. SADLER: Thank you, Your 4 Honor. Let me pick up -- there are a number of 5 points to cover in a limited time. But let me pick 6 up on what was just said, the idea that if the 7 receiver were restricted by this Courts ruling to 8 pursue only statutory fraudulent transfer claims. 9 Lets focus on that for a minute. 10 First, look at the Shoals case and 11 the Donnell case and what is boilerplate, 12 black-letter, fraudulent transfer law. In a Ponzi 13 scheme you have actual fraud, and what that means is 14 a receiver can recover the entire payment unless an 15 investor can prove his affirmative defense. That 16 is fraudulent transfer law. So this idea that 17 our -- if we brought this as a fraudulent transfer 18 claim itd be dead on arrival is dead wrong. 19 Now, why did we not bring fraudulent 20 transfer claims? And if thats where this Court is APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 151 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (95 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 154 of 444 21 headed, an opinion that says we are restricted to 22 state law fraudulent transfer claims, heres what 23 happens. We have hundreds of trials under different 24 states fraudulent transfer laws on the investors 25 affirmative defense of objective good faith. We APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 152 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (96 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 155 of 444 49 1 will spend millions of dollars wasted in litigation 2 pursuing that kind of process when we have a claim, 3 an equitable claim and remedy that was designed to 4 take care of the Ponzi scheme problem. 5 Fraudulent transfer statutes do 6 differ. For example, here in Louisiana there is not 7 even a fraudulent transfer statute. They have 8 something called a revocatory action with a one-year 9 prescriptive period. Why, why does that matter? 10 Because, Your Honor, were here trying to establish 11 a uniform rule for dealing with this horrendous 12 problem where we have a few investors who did get 13 some money out and we have thousands of others who 14 have nothing, and we have cases like -- 15 JUDGE GARWOOD: Why should you 16 have greater powers than a bankruptcy trustee? 17 MR. SADLER: Your Honor, you 18 said, and I understand the context of what you said, 19 you said were nobody, and I have to differ with 20 you. We are a federally appointed statutory APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 153 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (97 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 156 of 444 21 receiver under 28 USC, Section 754. Were the only 22 party standing before you whose job it is, whose 23 core job it is to recover assets. That is our 24 specific directive under the Courts order and under 25 the statute. APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 154 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (98 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 157 of 444 50 1 And why does that matter? Because 2 the SEC has admitted, and we heard other arguments, 3 the SECs core job is enforcement of the securities 4 laws; and theyve come in for a substantial amount 5 of scrutiny on how theyve handled that job in both 6 the Madoff case and the Stanford case. The only 7 party before you whose core function it is to 8 recover assets is the receiver. 9 And so whats being asked of you 10 right now is to write an opinion that says an equity 11 receiver appointed ancillary to a federal securities 12 law cannot invoke an equitable remedy to provide 13 equitable relief to thousands of victims, and that 14 is wrong. 15 JUDGE GARWOOD: See, the 16 receiver is an agent of the Court, I think is what 17 youre saying. Its appointed by the Court. Its 18 not appointed by any party to the case. 19 MR. SADLER: Well, thats 20 absolutely right, but we have standing to sue for APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 155 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (99 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 158 of 444 21 the benefit of the victims. Look at the Shoals 22 case, look at the Donnell case, those fraudulent 23 transfer cases they talk about. Thats exactly what 24 they say. The receiver steps in once the people 25 running the fraud are removed, and he files lawsuits APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 156 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (100 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 159 of 444 51 1 to recover assets for the benefit of who? Not for 2 the benefit of the receiver, but for the benefit of 3 all the fraud victims. And members of the panel, 4 this is whats getting missed here. 5 JUDGE GARWOOD: But what I still 6 dont understand, why would the law want to give 7 such a receiver powers in excess of a bankruptcy 8 trustee which the Congress passed all these 9 complicated bankruptcy laws and they set up the 10 person whos to collect all this stuff and theyve 11 got United States trustees, and all this very 12 sophisticated system with the whole centuries of law 13 behind it? Why should we invent kind of a new 14 system? 15 MR. SADLER: Oh, Your Honor, 16 were not inventing anything new. Equity receivers, 17 especially equity receivers in Ponzi schemes, have 18 been a feature of federal law for decades. This 19 isnt the first time an equity receiver has been 20 appointed after a Ponzi scheme failed. APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 157 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (101 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 160 of 444 21 And Your Honor, what is being 22 overlooked here, what is being overlooked here is 23 the only person who is standing before you 24 attempting to get relief, not for this minority, but 25 for the thousands of people who have nothing, who APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 158 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (102 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 161 of 444 52 1 literally have one piece of paper that is a phony 2 CD -- they dont have any frozen assets, they dont 3 have assets of any kind, and the only person in this 4 case whose job it is to marshal assets to compensate 5 those victims is this receiver. 6 And it is the most difficult, the 7 most thankless job that anyone can have and what 8 it -- if you tell us we cannot invoke federal 9 equitable principles but instead we have to invoke 10 the fraudulent transfer statutes of 46 states, you 11 have made a job that is already difficult almost 12 impossible. 13 JUDGE GARWOOD: Well, as we told 14 you yesterday, invoke the fraudulent provisions of 15 the Bankruptcy Code. 16 MR. SADLER: But the case is not 17 in bankruptcy, Your Honor. It is following -- 18 JUDGE GARWOOD: Well, it 19 would -- I mean, its got to be eventually for sure. 20 Because, I mean, the whole premise of this thing is APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 159 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (103 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 162 of 444 21 that this defendant or these defendants, other than 22 the innocent transferees, but that these defendants 23 dont have enough money. Thats the whole principle 24 of this thing. 25 MR. SADLER: Absolutely its the APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 160 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (104 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 163 of 444 53 1 whole principle, and -- 2 JUDGE GARWOOD: And therefore, 3 theyre bankrupt. 4 MR. SADLER: And Your Honor, 5 Ponzi schemes have been wound up by equity receivers 6 time and time and time again, and we submitted 7 extensive briefing on this in the district court. 8 But if youre going to follow the principle from the 9 Cunningham case, from the original Ponzi scheme 10 case, it says people who are quick enough or lucky 11 enough to get money out from a Ponzi scheme have no 12 preferential right to keep it. 13 And we cited examples in the district 14 court of a baseball player who got $3.6 million out 15 of this Ponzi scheme in the few short weeks before 16 it collapsed at the same time millions of dollars 17 were still pouring into this Ponzi scheme. And the 18 only evidence, the only evidence in this record is 19 our 22-page declaration from our accounting expert 20 who traced the money, just like the money was traced APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 161 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (105 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 164 of 444 21 in SEC versus George. 22 And that affidavit shows that all of 23 these investors were paid with other peoples money. 24 There was no real return, there was no interest, 25 there was no return of principal. Thats what APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 162 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (106 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 165 of 444 54 1 happens in a Ponzi scheme. Their money was spent 2 years ago. What they received is someone elses 3 money, and that someone else stands to receive 4 pennies, if anything, from the receiver if the funds 5 that were not -- that were preferentially paid are 6 not returned to the estate. 7 And that is the result were trying 8 to get to here: All of these assets assembled in a 9 fund where everyone can submit a claim and be 10 treated ratably and equitably, just like was done in 11 the Durham case and in the Forex Asset Management 12 case. And what this does, if you write an opinion 13 that says youre relegated to state fraudulent 14 transfer law, go do that, the money will disappear. 15 These people will be allowed to keep preferential 16 payments when it is undisputed on this record that 17 the money they got was not a real return of 18 principal, it was not a real payment of interest. 19 It came from somebody else who is standing here with 20 nothing, hoping the receiver can collect enough to APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 163 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (107 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 166 of 444 21 make some kind of payment. And if you follow the 22 SEC versus George case, and if you disagree with -- 23 JUDGE GARWOOD: [Indiscernible] 24 the SEC seeking that relief and relying on a broad 25 statute concerning the powers of the SEC. APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 164 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (108 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 167 of 444 55 1 MR. SADLER: I differ with you, 2 and heres why: They invoked the equitable power of 3 the Court for that remedy just like the CFTC invoked 4 the equitable power of the Court -- 5 JUDGE GARWOOD: Theyre invoking 6 that equitable power on behalf of and at the request 7 of a party whom the Congress has said has very broad 8 powers. 9 MR. SADLER: Understood, Your 10 Honor, and the problem in this case -- 11 JUDGE GARWOOD: And then youre 12 not doing that -- 13 MR. SADLER: Were doing it, 14 Your Honor, because the SEC has abandoned, has 15 abandoned its duty and responsibility. They have 16 absolutely abandoned it. They have no policy on 17 these clawback claims. They came to this Court with 18 an amicus brief and said, You know, we dont even 19 have an opinion about whether false profits should 20 be recovered. APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 165 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (109 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 168 of 444 21 You would think in 60 years the SEC 22 should have come up with a formal policy that this 23 Court could look to and defer to. But what do they 24 have? They have a litigation position that is one 25 thing in this case, its different in SEC versus APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 166 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (110 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 169 of 444 56 1 George. 2 And this may have missed your notice, 3 but what did they just do in one of the biggest 4 hedge fund fraud cases in New York? They went to 5 a federal district judge and they asked that 6 federal district judge, the Reserve Fund Management 7 case -- and its cited in our reply brief -- and 8 they asked the federal district judge to appoint an 9 equity receiver to do what? To pursue clawback 10 claims against investors who cashed out early. 11 That is exactly what were doing 12 here. We ask that the judgment of the district 13 court insofar as letting us pursue our equitable 14 claim be affirmed, that it be reversed as to any 15 limits on that and we be allowed to bring all of 16 these assets back into the estate. Thank you very 17 much. 18 JUDGE DENNIS: Now that 19 concludes this case and we will have a... 20 [End of recording.] APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 167 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (111 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 170 of 444 21 22 23 24 25 APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 168 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (112 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 171 of 444 57 1 REPORTERS CERTIFICATION 2 OF ONLINE RECORDING OF ORAL ARGUMENTS BEFORE THE FIFTH CIRCUIT COURT OF APPEALS 3 4 I, Sandra S. Givens, Certified Shorthand 5 Reporter in and for the State of Texas, hereby 6 certify to the following: 7 That this transcript of the aforementioned 8 online recording is a true record of the recorded 9 arguments as taken down by me; 10 That the transcript was submitted on November 11 4, 2009, via electronic mail, to Baker Botts, LLP; 12 I further certify that I am neither counsel 13 for, related to, nor employed by any of the parties 14 or attorneys in any action to which this recording 15 may relate, and further, that I am not financially 16 or otherwise interested in the outcome of any such 17 action. 18 Certified to by me this 4th day of November, 19 2009. 20 GIVENS COURT REPORTING APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 169 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (113 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 172 of 444 21 9532 Morgan Creek Drive Austin, Texas 78717 22 (512) 301-7088 23 24 ___________________________ SANDRA S. GIVENS, CSR 25 Certification No. 5000 Certificate Expires 12/31/09 APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 170 MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINERfile:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (114 of 114) [11/9/2009 9:02:27 PM]
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 156 Filed 02/09/2010 Filed 12/18/2009 Page 173 of 444 Page 1 of 26 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISIONRALPH S. JANVEY, IN HIS CAPACITY AS §COURT-APPOINTED RECEIVER FOR THE §STANFORD INTERNATIONAL BANK, LTD., §ET AL. § § Case No. 03:09-CV-0724-N Plaintiff, § §v. § §JAMES R. ALGUIRE, ET AL. § § Defendants. § ________________________________________________________________________ RECEIVER’S SECOND AMENDED COMPLAINT AGAINST FORMER STANFORD EMPLOYEES ________________________________________________________________________ The Receiver, Ralph S. Janvey, (the “Receiver”) hereby files his SecondAmended Complaint Against Former Stanford Employees (the “Second Amended Complaint”),stating as follows: SUMMARY 1. The ultimate purpose of this Receivership is to make the “maximum disbursementto claimants.” This requires the Receiver to maximize the pool of assets that will be available fordistribution. To accomplish this, the Receiver must take control of all assets of the Estate andtraceable to the Estate, “wherever located,” including money stolen from investors through fraud. 2. The Receiver’s investigation to date reveals that CD sales generated substantiallyall of the income for the Stanford Defendants and the many related Stanford entities. Revenue,let alone any profit, from all other activities and investments was miniscule in comparison.Money that new investors were deceived into paying to purchase CDs funded the StanfordRECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 1APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 171MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 156 Filed 02/09/2010 Filed 12/18/2009 Page 174 of 444 Page 2 of 26network; lavish offices and appointments; extravagant lifestyles for the individual defendantsand their families; employees’ salaries; Loans, SIBL CD commissions, SIBL Quarterly Bonuses,Performance Appreciation Rights Plan (“PARS”) Payments, Branch Managing DirectorQuarterly Compensation, and Severance Payments (collectively, “CD Proceeds”) to the financialadvisors, managing directors, and other Stanford employees named herein (collectively, the“Former Stanford Employees”); and purported CD payments in the form of interest andredemptions to unwitting investors. This fraud endured, in part, by incentivizing a sales forceand its support staff with big commissions and other compensation relating to the sale of CDs. 3. When Stanford paid CD Proceeds to the Former Stanford Employees, he did nomore than take money out of investors’ pockets and put it into the hands of the Former StanfordEmployees. For the more than 20,000 investors who have thus far received little or nothing fromtheir investment in Stanford CDs, money recovered from wherever it resides today is likely theonly money they will ever receive in restitution. CD Proceeds — comprising Loans, SIBL CDCommissions, SIBL Quarterly Bonuses, PARS Payments, Branch Managing Director QuarterlyCompensation, and Severance Payments paid to the Former Stanford Employees — are littlemore than stolen money and do not belong to the Former Stanford Employees who received suchfunds but belong, instead, to the Receivership Estate. 4. The Stanford Defendants kept their fraudulent scheme going by employing theFormer Stanford Employees to lure new investors and then divert the investors’ funds for theStanford Defendants’ own illicit purposes. The CD Proceeds paid to the Former StanfordEmployees came not from revenue generated by legitimate business activities, but from moniescontributed by defrauded investors. The Former Stanford Employees received assets traceable toRECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 2APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 172MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 156 Filed 02/09/2010 Filed 12/18/2009 Page 175 of 444 Page 3 of 26the Stanford Defendants’ fraudulent scheme, and they necessarily hold the assets in trust for theReceivership Estate for the benefit of defrauded investors. 5. At this stage of the Receivership, the Receiver has identified substantial sums ofCD Proceeds paid to the Former Stanford Employees and, through this Second AmendedComplaint, seeks the return of those funds to the Receivership Estate in order to make anequitable distribution to claimants. 6. At a minimum, the CD Proceeds received by the Former Stanford Employees totalover $215 million. A substantial portion of the fraudulent proceeds were received into accountsin the name of or controlled by the Former Stanford Employees in the custody of Pershing LLC(“Pershing”).1 The Former Stanford Employees named herein include: (1) Former StanfordEmployees who have frozen accounts at Pershing, JP Morgan, and SEI; and (2) Former StanfordEmployees who do not presently have any frozen accounts. 7. The Receiver seeks an order that: (a) CD Proceeds received directly or indirectlyby the Former Stanford Employees from fraudulent CDs were fraudulent transfers or, in thealternative, unjustly enriched the Former Stanford Employees; (b) CD Proceeds received directlyor indirectly by the Former Stanford Employees from fraudulent CDs are property of theReceivership Estate held pursuant to a constructive trust for the benefit of the ReceivershipEstate; (c) each of the Former Stanford Employees is liable to the Receivership Estate for anamount equaling the amount of CD Proceeds he or she received from fraudulent CDs; (d) theReceiver may withdraw the assets contained in Pershing, JP Morgan, and SEI accounts in thenames of or controlled by the Former Stanford Employees and add those assets, up to theamounts of fraudulent CD Proceeds received by the Former Stanford Employees, to the assets of1 In some instances, the CD Proceeds were received into accounts in the name of or controlled by the FormerStanford Employees in the custody of JP Morgan or SEI Private Trust Company (“SEI”).RECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 3APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 173MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 156 Filed 02/09/2010 Filed 12/18/2009 Page 176 of 444 Page 4 of 26the Receivership Estate; (e) the Former Stanford Employees must pay to the Receiver thedifference, if any, between the amounts contained in their Pershing, JP Morgan, and SEIaccounts, if any, and the total amount of fraudulent CD Proceeds received; and (f) awardsattorney’s fees and costs to the Receiver. PARTIES 8. The parties to this complaint are the Receiver and the Former Stanford Employeesnamed below and in the Appendix filed concurrently herewith. 9. The named Former Stanford Employees either have already been served or will beserved pursuant to the Federal Rules of Civil Procedure, through their attorneys of record, or byother means approved by order of this Court. PROCEDURAL HISTORY 10. On April 21, 2009, the Receiver filed a Complaint Naming Stanford FinancialGroup Advisors as Relief Defendants (Doc. 2). On July 28, 2009, the Receiver filed anAmended Complaint Naming Relief Defendants (Doc. 14) and an Appendix in support thereof(Doc. 15). The July 28th Amended Complaint named investors, certain former Stanfordfinancial advisors, Pershing, and SEI as relief defendants. On August 26, 2009, the Receiverfiled a Supplemental Complaint against Stanford Financial Group Advisors (Doc. 52) and anAppendix in support thereof (Doc. 53). On September 29, 2009, the Receiver filed a SecondSupplemental Complaint against Stanford Managing Directors and Additional Stanford FinancialGroup Advisors (Doc. 95) and an Appendix in support thereof (Doc. 96). On November 13,2009, the Receiver filed a First Amended Complaint Against Former Stanford Employees (Doc.118) and an Appendix in support thereof (Doc. 119), in which he asserted relief-defendant claimsand, in the alternative, fraudulent-transfer and unjust-enrichment claims against the FormerRECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 4APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 174MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 156 Filed 02/09/2010 Filed 12/18/2009 Page 177 of 444 Page 5 of 26Stanford Employees. The Receiver now respectfully files this Second Amended ComplaintAgainst Former Stanford Employees and an Appendix in support, amending herein his claimsagainst the Former Stanford Employees to dismiss the relief-defendant claims against them inlight of the recent decision of the U.S. Court of Appeals for the Fifth Circuit in Janvey v. Adams,Nos. 09-10761 & 09-10765, 2009 WL 3791623 (5th Cir. Nov. 13, 2009). The Receivercontinues to assert fraudulent-transfer claims and, in the alternative, unjust-enrichment claimsagainst the Former Stanford Employees. 11. This complaint does not amend nor is it intended to impact the claims asserted bythe Receiver in this lawsuit against any category of defendants other than the Former StanfordEmployees. This Second Amended Complaint Against Former Stanford Employees does notalter or amend the claims the Receiver asserted against certain Stanford investors in his FirstAmended Complaint Against Certain Stanford Investors (Doc. 128) and the Appendix thereto(Doc. 129). Moreover, this Second Amended Complaint Against Former Stanford Employeesdoes not alter or amend the claims the Receiver asserted against Pershing and SEI in hisAmended Complaint Naming Relief Defendants (Doc. 14) and the supporting Appendix (Doc.15). JURISDICTION & VENUE 12. This Court has jurisdiction over this action, and venue is proper, under Section22(a) of the Securities Act (15 U.S.C. § 77v(a)), Section 27 of the Exchange Act (15 U.S.C.§ 78aa), and under Chapter 49 of Title 28, Judiciary and Judicial Procedure (28 U.S.C. § 754). 13. Further, as the Court that appointed the Receiver, this Court has jurisdiction overany claim brought by the Receiver to execute his Receivership duties.RECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 5APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 175MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 156 Filed 02/09/2010 Filed 12/18/2009 Page 178 of 444 Page 6 of 26 14. Further, within 10 days of his appointment, the Receiver filed the originalComplaint and Order Appointing the Receiver in 29 United States district courts pursuant to 28U.S.C. § 754, giving this Court in rem and in personam jurisdiction in each district where theComplaint and Order have been filed. 15. Further, each of the Former Stanford Employees who submitted an Applicationfor Review and Potential Release of Stanford Group Company (“SGC”) Brokerage Accountsmade the following declaration: “By filing this application, I submit to the exclusive jurisdictionof the United States District Court for the Northern District of Texas, Dallas Division andirrevocably waive any right I or any entity I control may otherwise have to object to any actionbeing brought in the Court or to claim that the Court does not have jurisdiction over the mattersrelating to my account.” 16. Further, a number of the Former Stanford Employees have filed motions tointervene in SEC v. Stanford International Bank, Ltd., et al., Case No. 3:09-cv-298-N. By filingmotions to intervene, they have consented as a matter of law to the Court’s personal jurisdiction.See In re Bayshore Ford Trucks Sales, Inc., 471 F.3d 1233, 1246 (11th Cir. 2006); County Sec.Agency v. Ohio Dep’t of Commerce, 296 F.3d 477, 483 (6th Cir. 2002); Pharm. Research &Mfrs. v. Thompson, 259 F. Supp. 2d 39, 59 (D.D.C. 2003); City of Santa Clara v. Kleppe, 428 F.Supp. 315, 317 (N.D. Ca. 1976). STATEMENT OF FACTS 17. On February 16, 2009, the Securities and Exchange Commission commenced alawsuit in this Court against R. Allen Stanford, two associates, James M. Davis and LauraPendergest-Holt, and three of Mr. Stanford’s companies, Stanford International Bank, Ltd.(“SIB,” “SIBL,” or “the Bank”), SGC, and Stanford Capital Management, LLC (collectively, theRECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 6APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 176MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 156 Filed 02/09/2010 Filed 12/18/2009 Page 179 of 444 Page 7 of 26“Stanford Defendants”). On the same date, the Court entered an Order appointing a Receiver,Ralph S. Janvey, over all property, assets, and records of the Stanford Defendants, and all entitiesthey own or control.I. Stanford Defendants Operated a Fraudulent Ponzi Scheme 18. As alleged by the SEC, the Stanford Defendants marketed fraudulent SIBL CDsto investors exclusively through SGC financial advisors pursuant to a Regulation D privateplacement. SEC’s First Amended Complaint (Doc. 48), ¶ 23.2 The CDs were sold by StanfordInternational Bank, Ltd. Id. 19. The Stanford Defendants orchestrated and operated a wide-ranging Ponzi scheme.Defendant James M. Davis has admitted that the Stanford fraud was a Ponzi scheme from thebeginning. Doc. 771 (Davis Plea Agreement) at ¶ 17(n) (Stanford, Davis, and other conspiratorscreated a “massive Ponzi scheme”); Doc. 807 (Davis Tr. of Rearraignment) at 16:16-17, 21:6-8,21:15-17 (admitting the Stanford Ponzi fraud was a “massive Ponzi scheme ab initio”). 20. In marketing, selling, and issuing CDs to investors, the Stanford Defendantsrepeatedly touted the CDs’ safety and security and SIBL’s consistent, double-digit returns on itsinvestment portfolio. Id. ¶ 31. 21. In its brochure, SIBL told investors, under the heading “Depositor Security,” thatits investment philosophy is “anchored in time-proven conservative criteria, promoting stabilityin [the Bank’s] certificate of deposit.” SIBL also emphasized that its “prudent approach andmethodology translate into deposit security for our customers.” Id. ¶ 32. Further, SIBL stressedthe importance of investing in “marketable” securities, saying that “maintaining the highestdegree of liquidity” was a “protective factor for our depositors.” Id. ¶ 45.2 Unless otherwise stated, citations to Court records herein are from the case styled SEC v. Stanford Int’lBank, Ltd., et al., Civil Action No. 3-09-CV-0298-N.RECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 7APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 177MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 156 Filed 02/09/2010 Filed 12/18/2009 Page 180 of 444 Page 8 of 26 22. In its 2006 and 2007 Annual Reports, SIBL told investors that the Bank’s assetswere invested in a “well-balanced global portfolio of marketable financial instruments, namelyU.S. and international securities and fiduciary placements.” Id. ¶ 44. More specifically, SIBLrepresented that its 2007 portfolio allocation was 58.6% equity, 18.6% fixed income, 7.2%precious metals and 15.6% alternative investments. Id. 23. Consistent with its Annual Reports and brochures, SIBL trained SGC financialadvisors, in February 2008, that “liquidity/marketability of SIB’s invested assets” was the “mostimportant factor to provide security to SIB clients.” Id. ¶ 46. In training materials, the StanfordDefendants also claimed that SIBL had earned consistently high returns on its investment ofdeposits (ranging from 11.5% in 2005 to 16.5% in 1993). Id. ¶ 24. 24. Contrary to the Stanford Defendants’ representations regarding the liquidity of itsportfolio, SIBL did not invest in a “well-diversified portfolio of highly marketable securities.”Instead, significant portions of the Bank’s portfolio were misappropriated by Defendant AllenStanford and were either placed in speculative investments (many of them illiquid, such asprivate equity deals), diverted to other Stanford Entities “on behalf of shareholder” - i.e., for thebenefit of Allen Stanford, or used to finance Allen Stanford’s lavish lifestyle (e.g., jet planes, ayacht, other pleasure craft, luxury cars, homes, travel, company credit card, etc.). In fact, atyear-end 2008, the largest segments of the Bank’s portfolio were: (i) at least $1.6 billion inundocumented “loans” to Defendant Allen Stanford; (ii) private equity; and (iii) over-valued realestate. Id. ¶¶ 24, 48. 25. In an effort to conceal their fraud and ensure that investors continued to purchasethe CD, the Stanford Defendants fabricated the performance of SIBL’s investment portfolio. Id.¶ 5.RECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 8APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 178MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 156 Filed 02/09/2010 Filed 12/18/2009 Page 181 of 444 Page 9 of 26 26. SIBL’s financial statements, including its investment income, were fictional. Id.¶ 37. In calculating SIBL’s investment income, Defendants Stanford and James Davis providedto SIBL’s internal accountants a pre-determined return on investment for the Bank’s portfolio.Id. Using this pre-determined number, SIBL’s accountants reverse-engineered the Bank’sfinancial statements to reflect investment income that SIBL did not actually earn. Id. 27. For a time, the Stanford Defendants were able to keep the fraud going by usingfunds from current sales of SIBL CDs to make purported interest and redemption payments onpre-existing CDs. See id. ¶ 1. However, in late 2008 and early 2009, CD redemptions increasedto the point that new CD sales were inadequate to cover redemptions and normal operatingexpenses. As the depletion of liquid assets accelerated, this fraudulent Ponzi scheme collapsed.II. The Stanford Defendants Transferred CD Proceeds from the Fraudulent PonziScheme to the Former Stanford Employees 28. The Stanford Defendants used an elaborate and sophisticated incentive program tokeep the Former Stanford Employees highly motivated to sell SIBL CDs to brokerage customers.Id. ¶¶ 27-28. The program included Loans, high SIBL CD Commission rates, SIBL QuarterlyBonuses, PARS Payments, Branch Managing Director Quarterly Compensation, and SeverancePayments all closely tied to maintaining the Stanford Defendants’ portfolio of CDs. In 2007,SIB paid SGC and its affiliates more than $291 million in management fees for CD sales, upfrom $211 million in 2006. Id. ¶ 29. As a result of SGC’s aggressive sales tactics, a significantpercentage of SGC customers bought CDs from SIBL. Id. ¶ 22. 29. In addition to the other categories of CD Proceeds, Former Stanford Employeeswho were managing directors received Branch Managing Director Quarterly Compensationpayments for their respective branches’ sales of SIBL CDs. These Branch Managing DirectorRECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 9APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 179MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 156 Filed 12/18/2009 Filed 02/09/2010 Page 10 ofof 444 Page 182 26Quarterly Compensation payments were based upon each branch’s gross CD revenue and uponany profits from the sales of CDs. 30. CD Proceeds from the fraudulent Ponzi scheme described above were transferredby the Stanford Defendants to the Former Stanford Employees solely for the purpose ofconcealing and perpetuating the fraudulent scheme. Such CD Proceeds were paid to the FormerStanford Employees from funds supplied by investors who bought the fraudulent CDs. TheFormer Stanford Employees either performed no services in exchange for the CD Proceeds orperformed only services that were in furtherance of the Ponzi scheme in exchange for the CDProceeds. See Warfield v. Byron, 436 F.3d 551, 558-60 (5th Cir. 2006) (transfers made fromPonzi scheme are made with intent to defraud; broker who worked for Ponzi scheme did notprovide reasonably equivalent value in return for fraudulent transfers); In re Randy, 189 B.R.425, 438-39 (Bankr. N.D. Ill. 1995) (as illegal services premised on illegal contracts, brokerservices provided in furtherance of a Ponzi scheme do not provide reasonably equivalent value).The CD Proceeds the Former Stanford Employees received are, therefore, properly consideredassets of the Receivership Estate and must be returned to the Receivership Estate to compensatevictims of the Stanford fraud according to principles of law and equity. REQUESTED RELIEF 31. This Court appointed Ralph S. Janvey as Receiver for the “assets, monies,securities, properties, real and personal, tangible and intangible, of whatever kind anddescription, wherever located, and the legally recognized privileges (with regard to the entities),of the Defendants and all entities they own or control,” including those of the Stanford GroupCompany brokerage firm. Order Appointing Receiver (Doc. 10) at ¶¶ 1-2; Amended OrderRECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 10APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 180MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 156 Filed 02/09/2010 Filed 12/18/2009 Page 11 ofof 444 Page 183 26Appointing Receiver (Doc. 157) at ¶¶ 1-2. The Receiver seeks the relief described below in thiscapacity. 32. Paragraph 4 of the Order Appointing Receiver, entered by the Court on February16, 2009, authorizes the Receiver “to immediately take and have complete and exclusive control,possession, and custody of the Receivership Estate and to any assets traceable to assets owned bythe Receivership Estate.” Order Appointing Receiver (Doc. 10) at ¶ 4; Amended OrderAppointing Receiver (Doc. 157) at ¶ 4. Paragraph 5(c) of the Order specifically authorizes theReceiver to “[i]nstitute such actions or proceedings [in this Court] to impose a constructive trust,obtain possession, and/or recover judgment with respect to persons or entities who receivedassets or records traceable to the Receivership Estate.” Order Appointing Receiver (Doc. 10) at¶ 5(c); Amended Order Appointing Receiver (Doc. 157) at ¶ 5(c). 33. One of the Receiver’s key duties is to maximize distributions to defraudedinvestors and other claimants. See Amended Order Appointing Receiver (Doc. 157) at ¶ 5(g), (j)(ordering the Receiver to “[p]reserve the Receivership Estate and minimize expenses infurtherance of maximum and timely disbursement thereof to claimants”); Scholes v. Lehmann, 56F.3d 750, 755 (7th Cir. 1995) (receiver’s “only object is to maximize the value of the [estateassets] for the benefit of their investors and any creditors”); SEC v. TLC Invs. & Trade Co., 147F. Supp. 2d 1031, 1042 (C.D. Cal. 2001); SEC v. Kings Real Estate Inv. Trust, 222 F.R.D. 660,669 (D. Kan. 2004). But before the Receiver can attempt to make victims whole, he must locateand take exclusive control and possession of assets of the Estate or assets traceable to the Estate.Doc. 157 ¶ 5(b).RECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 11APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 181MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 156 Filed 12/18/2009 Filed 02/09/2010 Page 12 ofof 444 Page 184 26I. The Receiver is Entitled to Disgorgement of CD Proceeds Fraudulently Transferred tothe Former Stanford Employees 34. The Receiver is entitled to disgorgement of all CD Proceeds paid to the FormerStanford Employees because such payments constitute fraudulent transfers under applicable law.The Stanford Defendants transferred the CD Proceeds to the Former Stanford Employees withactual intent to hinder, delay, or defraud their creditors; as a result, the Receiver is entitled to thedisgorgement of those CD Proceeds from the Former Stanford Employees. 35. The Receiver may avoid transfers made with the actual intent to hinder, delay, ordefraud creditors. “[T]ransfers made from a Ponzi scheme are presumptively made with intent todefraud, because a Ponzi scheme is, as a matter of law, insolvent from inception.” Quilling v.Schonsky, No. 07-10093, 2007 WL 2710703, at *2 (5th Cir. Sept. 18, 2007); see also Warfield,436 F.3d at 558. The uncontroverted facts establish that the Stanford Defendants were running aPonzi scheme and, to keep the scheme going, paid the Former Stanford Employees with CDProceeds taken from unwitting SIBL CD investors. The Receiver is, therefore, entitled todisgorgement of the fraudulently transferred CD Proceeds that the Former Stanford Employeesreceived. 36. Consequently, the burden is on the Former Stanford Employees to establish anaffirmative defense, if any, of both objective good faith and provision of reasonably equivalentvalue. See, e.g., Scholes, 56 F.3d at 756-57 (“If the plaintiff proves fraudulent intent, the burdenis on the defendant to show that the fraud was harmless because the debtor’s assets were notdepleted even slightly.”). The Receiver is, therefore, entitled to recover the full amount of CDProceeds that the Former Stanford Employees received, unless the Former Stanford Employeesprove both objective good faith and reasonably equivalent value.RECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 12APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 182MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 156 Filed 12/18/2009 Filed 02/09/2010 Page 13 ofof 444 Page 185 26 37. The good-faith element of this affirmative defense requires that the FormerStanford Employees prove objective — not subjective — good faith. Warfield, 436 F.3d at559-560 (good faith is determined under an “objectively knew or should have known” standard);In re IFS Fin. Corp., Bankr. No. 02-39553, 2009 WL 2986928, at *15 (Bankr. S.D. Tex. Sept. 9,2009) (objective standard is applied to determine good faith); Quilling v. Stark, No.3-05-CV-1976-BD, 2007 WL 415351, at *3 (N.D. Tex. Feb. 7, 2007) (good faith “must beanalyzed under an objective, rather than a subjective, standard. The relevant inquiry is what thetransferee objectively knew or should have known instead of examining the transferee’s actualknowledge from a subjective standpoint.”) (internal citations and quotation marks omitted). 38. In addition, the Fifth Circuit has held that providing brokerage services infurtherance of a Ponzi scheme does not confer reasonably equivalent value and that a receivercan recover from brokers the commissions they received for recruiting other investors into thescheme. Warfield, 436 F.3d at 555, 560. The Warfield court eloquently observed that “[i]t takescheek to contend that in exchange for payments he received, the . . . Ponzi scheme benefitedfrom [the broker’s] efforts to extend the fraud by securing new investments.” Id. at 560 (citingRandy, 189 B.R. at 438-39, for the proposition that “as illegal services premised on illegalcontracts, broker services provided in furtherance of a Ponzi scheme do not provide reasonablyequivalent value”). The Former Stanford Employees cannot now claim that, in return forfurthering the Ponzi scheme and helping it endure, they should be entitled to keep the Loans,SIBL CD Commissions, SIBL Quarterly Bonuses, PARS Payments, Branch Managing DirectorQuarterly Compensation, and Severance Payments taken from the defrauded victims whoinvested in SIBL CDs. Because the Former Stanford Employees cannot meet their burden toRECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 13APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 183MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 156 Filed 02/09/2010 Filed 12/18/2009 Page 14 ofof 444 Page 186 26establish that they provided reasonably equivalent value for the CD Proceeds, the Receiver isentitled to the disgorgement of those funds. 39. Moreover, under applicable fraudulent transfer law, the Receiver is entitled toattorney’s fees and costs for his claims against the Former Stanford Employees. See, e.g., TEX.BUS. & COM. CODE ANN. § 24.013 (Vernon 2009) (“[T]he court may award costs and reasonableattorney’s fees as are equitable and just.”). As a result, the Receiver requests reasonableattorney’s fees and costs for prosecuting his fraudulent-transfer claims against the FormerStanford Employees. 40. In order to carry out the duties delegated to him by this Court, the Receiver seekscomplete and exclusive control, possession, and custody of the CD Proceeds received by theFormer Stanford Employees. 41. The Stanford Defendants, who orchestrated the Ponzi scheme, transferred the CDProceeds to the Former Stanford Employees with actual intent to hinder, delay, or defraud theircreditors. The Receiver is, therefore, entitled to disgorgement of all CD Proceeds fraudulentlytransferred to the Former Stanford Employees. Pursuant to the equity powers of this Court, theReceiver therefore seeks an order (a) establishing that the CD Proceeds received directly orindirectly by the Former Stanford Employees from fraudulent CDs were fraudulent transfers; (b)ordering that CD Proceeds received directly or indirectly by the Former Stanford Employeesfrom fraudulent CDs are property of the Receivership Estate held pursuant to a constructive trustfor the benefit of the Receivership Estate; (c) ordering that each of the Former StanfordEmployees is liable to the Receivership Estate for an amount equaling the amount of CDProceeds he or she received; (d) allowing the Receiver to withdraw the assets contained inPershing, JP Morgan, and SEI accounts in the names of or controlled by the Former StanfordRECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 14APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 184MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 156 Filed 02/09/2010 Filed 12/18/2009 Page 15 ofof 444 Page 187 26Employees and add those assets, up to the amounts of CD Proceeds received by the FormerStanford Employees, to the assets of the Receivership Estate; (e) ordering the Former StanfordEmployees to pay to the Receiver the difference, if any, between the amounts contained in theirPershing, JP Morgan, and SEI accounts and the total amount of CD Proceeds received by theFormer Stanford Employees; and (f) awarding attorney’s fees and costs to the Receiver.II. In the Alternative, the Receiver is Entitled to Disgorgement of CD Proceeds from theFormer Stanford Employees under the Doctrine of Unjust Enrichment 42. In the alternative, the Receiver is entitled to disgorgement of the CD Proceedspaid to the Former Stanford Employees pursuant to the doctrine of unjust enrichment underapplicable law. The Former Stanford Employees hold CD Proceeds that in equity and goodconscience belong to the Receivership for ultimate distribution to the defrauded investors. TheFormer Stanford Employees have been unjustly enriched by the CD Proceeds, and it would beunconscionable for them to retain the CD Proceeds. 43. In order to carry out the duties delegated to him by this Court, the Receiver seekscomplete and exclusive control, possession, and custody of all CD Proceeds received by theFormer Stanford Employees. 44. The Former Stanford Employees have been unjustly enriched by their receipt ofthe CD Proceeds. Pursuant to the equity powers of this Court, the Receiver therefore seeks anorder (a) establishing that each of the Former Stanford Employees were unjustly enriched by CDProceeds received directly or indirectly from fraudulent CDs; (b) ordering that CD Proceedsreceived directly or indirectly by the Former Stanford Employees from fraudulent CDs areproperty of the Receivership Estate held pursuant to a constructive trust for the benefit of theReceivership Estate; (c) ordering that each of the Former Stanford Employees is liable to theReceivership Estate for an amount equaling the amount of CD Proceeds he or she received; (d)RECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 15APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 185MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 156 Filed 12/18/2009 Filed 02/09/2010 Page 16 ofof 444 Page 188 26allowing the Receiver to withdraw the assets contained in Pershing, JP Morgan, and SEIaccounts in the names of or controlled by the Former Stanford Employees and add those assets,up to the amounts of CD Proceeds received by the Former Stanford Employees, to the assets ofthe Receivership Estate; (e) ordering the Former Stanford Employees to pay to the Receiver thedifference, if any, between the amounts contained in their Pershing, JP Morgan, and SEIaccounts and the total amount of CD Proceeds received by the Former Stanford Employees; and(f) awarding attorney’s fees and costs to the Receiver. THE FORMER STANFORD EMPLOYEES’ CD PROCEEDS 45. The Former Stanford Employees named below and in the Appendix wereemployed as financial advisors, as managing directors, or in other positions with the StanfordDefendants.3 These Former Stanford Employees received CD Proceeds ranging in amounts from$50,000 to over $4.5 million. See App. 1-10. Each of these Former Stanford Employeesreceived, at a minimum, the CD Proceeds amounts associated with his or her name in theAppendix. See id. Collectively, the Former Stanford Employees received more than$215 million in such payments, at least. Id. at 10. 46. The Former Stanford Employees who received each category of CD Proceeds —namely Loans, SIBL CD Commissions, SIBL Quarterly Bonuses, PARS Payments, BranchManaging Director Quarterly Compensation, and Severance Payments — are named below. 47. The Receiver is entitled to disgorgement of all of these CD Proceeds fraudulentlytransferred to the Former Stanford Employees, since the Stanford Defendants transferred the CD3 In his First Supplemental Complaint, the Receiver brought relief-defendant and, alternatively, fraudulent-transfer claims against Elsida Prieto. But because Elsida Prieto has since filed for bankruptcy, the Receiver is notamending his claims as to her at this time. Moreover, the Receiver brought relief-defendant and, alternatively,fraudulent-transfer and unjust-enrichment claims against David Haggard in the Receiver’s First Amended ComplaintAgainst Former Stanford Employees. But because Haggard has since filed for bankruptcy, the Receiver is notamending his claims as to Haggard at this time.RECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 16APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 186MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 156 Filed 02/09/2010 Filed 12/18/2009 Page 17 ofof 444 Page 189 26Proceeds to them with actual intent to hinder, delay, or defraud the Stanford Defendants’creditors. 48. In the alternative, the Receiver is entitled to disgorgement of all of these CDProceeds from the Former Stanford Employees because they have been unjustly enriched bysuch funds.I. Former Stanford Employees Who Received Loans 49. The following Former Stanford Employees received CD Proceeds in the form ofLoans: Paul Adkins; James R. Alguire; John Michael Arthur; Donald Bahrenburg; Brown Baine;Timothy Bambauer; Stephen R. Barber; Jonathan Barrack; Teral Bennett; Andrea Berger;Norman Blake; Stephen G. Blumenreich; Michael Bober; Nigel Bowman; Brad Bradham;Charles Brickey; Alan Brookshire; Nancy Brownlee; Richard Bucher; George Cairnes; RobertBryan Cannon; Frank Carpin; James C. Chandley; Naveen Chaudhary; Susana Cisneros; RonClayton; Neal Clement; Christopher Collier; Jay Comeaux; Michael Conrad; James Cox; JohnCravens; Ken Crimmins; Shawn M. Cross; Patrick Cruickshank; Greg R Day; William S.Decker; Michael DeGolier; Ray Deragon; Arturo R. Diaz; Matthew Drews; Sean Duffy;Christopher Shannon Elliotte; Jason Fair; Nolan Farhy; Evan Farrell; Bianca Fernandez; JohnFry; Roger Fuller; Attlee Gaal; David Braxton Gay; Mark Gensch; Gregory C. Gibson; MichaelD. Gifford; Steven Glasgow; John Glennon; Susan Glynn; Larry Goldsmith; Russell WardenGood; John Grear; Stephen Greenhaw; Billy Ray Gross; Donna Guerrero; John Gutfranski;Rodney Hadfield; Gary Haindel; Charles Hazlett; Robert Hogue; John Holliday; CharlesHughes; Wiley Hutchins, Jr.; David Innes; Allen Johnson; David Wayne Krumrey; Bruce Lang;Grady Layfield; James LeBaron; William Leighton; Robert Lenoir; Gary Lieberman; JasonLikens; Trevor Ling; Robert Long, Jr.; Christopher Long; Humberto Lopez; David Lundquist;Michael MacDonald; Anthony Makransky; Michael Mansur; Bert Deems May, Jr.; CarolRECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 17APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 187MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 156 Filed 02/09/2010 Filed 12/18/2009 Page 18 ofof 444 Page 190 26McCann; Douglas McDaniel; Matthew McDaniel; Lawrence Messina; Nolan N. Metzger;William J. Metzinger; Donald Miller; Trenton Miller; Brent B. Milner; Peter Montalbano; DavidMorgan; Shawn Morgan; Jonathan Mote; Carroll Mullis; Spencer Murchison; Jon Nee; AaronNelson; Scott Notowich; Monica Novitsky; Kale Olson; John D. Orcutt; Zack Parrish; TimParsons; William Peerman; Lou Perry; Brandon R. Phillips; Randall Pickett; Christopher Prindle;A. Steven Pritsios; Michael Ralby; David Rappaport; Charles Rawl; Steven Restifo; WalterRicardo; Jeffrey Ricks; Alan Riffle; Randolph E. Robertson; Steve Robinson; Timothy D.Rogers; Eddie Rollins; John Santi; Christopher K. Schaefer; Harvey Schwartz; William Scott;Haygood Seawell; Leonard Seawell; Doug Shaw; Nick Sherrod; Jordan Sibler; Brent Simmons;Edward Simmons; Steve Slewitzke; Sanford Steinberg; Heath Stephens; William O. Stone Jr.;David M. Stubbs; Mark V. Stys; Paula S. Sutton; William Brent Sutton; Scot Thigpen;Christopher Thomas; Mark Tidwell; Jose Torres; Al Trullenque; Audrey Truman; Eric Urena;Miguel Valdez; Tim Vanderver; Ettore Ventrice; Chris Villemarette; Charles Vollmer; JamesWeller; Bill Whitaker; Donald Whitley; Charles Widener; John Whitfield Wilks; ThomasWoolsey; Michael Word; Ryan Wrobleske; and Bernerd E. Young. Each of these FormerStanford Employees received, at a minimum, the Loan amount associated with his or her name inthe Appendix.II. Former Stanford Employees Who Received SIBL CD Commissions 50. The following Former Stanford Employees received CD Proceeds in the form ofSIBL CD Commissions: Paul Adkins; Jeannette Aguilar; James R. Alguire; Peggy Allen;Orlando Amaya; Victoria Anctil; Tiffany Angelle; Susana Anguiano; Sylvia Aquino; GeorgeArnold; John Michael Arthur; Donald Bahrenburg; Brown Baine; Timothy Bambauer; EliasBarbar; Jonathan Barrack; Robert Barrett; Marie Bautista; Teral Bennett; Andrea Berger;Norman Blake; Michael Bober; Nigel Bowman; Brad Bradham; Alexandre Braune; CharlesRECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 18APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 188MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 156 Filed 02/09/2010 Filed 12/18/2009 Page 19 ofof 444 Page 191 26Brickey; Nancy Brownlee; Fausto Callava; Scott Chaisson; Susana Cisneros; Ron Clayton; NealClement; Christopher Collier; Jay Comeaux; Michael Conrad; Don Cooper; Jose Cordero; JamesCox; John Cravens; Ken Crimmins; Patrick Cruickshank; Michael DeGolier; Ray Deragon;Arturo R. Diaz; Matthew Drews; Abraham Dubrovsky; Thomas Espy; Jason Fair; Nolan Farhy;Evan Farrell; Rosalia Fontanals; James Fontenot; John Fry; Roger Fuller; Attlee Gaal; Miguel A.Garces; Gregg Gelber; John Glennon; Larry Goldsmith; Joaquin Gonzalez; Russell WardenGood; Jason Green; Mark Groesbeck; Vivian Guarch; Gary Haindel; Jon Hanna; Dirk Harris;Virgil Harris; Daniel Hernandez; Patrica Herr; Steven Hoffman; Robert Hogue; John Holliday;Charles Hughes; Charles Jantzi; Allen Johnson; Joseph L. Klingen; Bruce Lang; Grady Layfield;James LeBaron; Jason LeBlanc; William Leighton; Robert Lenoir; Trevor Ling; ChristopherLong; Humberto Lopez; Michael MacDonald; Anthony Makransky; Manuel Malvaez; MariaManerba; Michael Mansur; Janie Martinez; Claudia Martinez; Aymeric Martinoia; DouglasMcDaniel; Matthew McDaniel; Pam McGowan; Gerardo Meave-Flores; Lawrence Messina;Donald Miller; Trenton Miller; Hank Mills; Peter Montalbano; Rolando H. Mora; DavidMorgan; Shawn Morgan; Spencer Murchison; David Nanes; Jon Nee; Aaron Nelson; Russell C.Newton, Jr.; Norbert Nieuw; Lupe Northam; Scott Notowich; Monica Novitsky; Tim Parsons;William Peerman; Roberto Pena; Roberto A. Pena; Dulce Perezmora; Saraminta Perez; TonyPerez; Lou Perry; Randall Pickett; Edward Prieto; Christopher Prindle; A. Steven Pritsios; JudithQuinones; Sumeet Rai; Michael Ralby; Leonor Ramirez; Nelson Ramirez; Charles Rawl; StevenRestifo; Walter Ricardo; Jeffrey Ricks; Alan Riffle; Steve Robinson; Eddie Rollins; Rocky Roys;John Santi; Louis Schaufele; John Schwab; Harvey Schwartz; William Scott; Haygood Seawell;Leonard Seawell; Doug Shaw; Brent Simmons; Steve Slewitzke; Paul Stanley; SanfordSteinberg; Heath Stephens; William O. Stone Jr.; Christopher Thomas; Mark Tidwell; JoseRECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 19APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 189MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 156 Filed 02/09/2010 Filed 12/18/2009 Page 20 ofof 444 Page 192 26Torres; Al Trullenque; Audrey Truman; Roberto Ulloa; Eric Urena; Miguel Valdez; TimVanderver; Jaime Vargas; Pete Vargas; Ettore Ventrice; Maria Villanueva; Charles Vollmer; BillWhitaker; David Whittemore; Charles Widener; Thomas Woolsey; Michael Word; and RyanWrobleske. Each of these Former Stanford Employees received, at a minimum, the SIBL CDCommissions associated with his or her name in the Appendix.III. Former Stanford Employees Who Received SIBL Quarterly Bonuses 51. The following Former Stanford Employees received CD Proceeds in the form ofSIBL Quarterly Bonuses: Jeannette Aguilar; James R. Alguire; Peggy Allen; Orlando Amaya;Susana Anguiano; Sylvia Aquino; Juan Araujo; Monica Ardesi; George Arnold; John MichaelArthur; Mauricio Aviles; Timothy Bambauer; Isaac Bar; Elias Barbar; Jonathan Barrack; RobertBarrett; Oswaldo Bencomo; Teral Bennett; Andrea Berger; Norman Blake; Michael Bober;Nigel Bowman; Fabio Bramanti; Fernando Braojos; Charles Brickey; Fausto Callava; RafaelCarriles; Jane Chernovetzky; Susana Cisneros; Ron Clayton; Neal Clement; Christopher Collier;Jay Comeaux; Michael Conrad; Don Cooper; Jose Cordero; Oscar Correa; James Cox; JohnCravens; James Cross; Patrick Cruickshank; Andres Delgado; Pedro Delgado; Ray Deragon;Arturo R. Diaz; Ana Dongilio; Matthew Drews; Abraham Dubrovsky; Torben Garde Due; NeilEmery; Thomas Espy; Jason Fair; Marina Feldman; Ignacio Felice; Freddy Fiorillo; RosaliaFontanals; James Fontenot; John Fry; Roger Fuller; Attlee Gaal; Gregg Gelber; Eric Gildhorn;Luis Giusti; Ramiro Gomez-Rincon; Joaquin Gonzalez; Juan Carlos Gonzalez; Jason Green;Mark Groesbeck; Vivian Guarch; Gary Haindel; Virgil Harris; Luis Hermosa; Daniel Hernandez;Martine Hernandez; Alfredo Herraez; Marcos Iturriza; Charles Jantzi; Allen Johnson; FaranKassam; Grady Layfield; James LeBaron; Jason LeBlanc; William Leighton; Robert Lenoir;Humberto Lepage; Francois Lessard; Trevor Ling; Humberto Lopez; Luis Felipe Lozano; MariaManerba; Michael Mansur; Iris Marcovich; Janie Martinez; Claudia Martinez; DouglasRECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 20APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 190MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 156 Filed 02/09/2010 Filed 12/18/2009 Page 21 ofof 444 Page 193 26McDaniel; Matthew McDaniel; Gerardo Meave-Flores; Lawrence Messina; Donald Miller;Trenton Miller; Hank Mills; Peter Montalbano; Alberto Montero; David Morgan; SpencerMurchison; David Nanes; Jon Nee; Lupe Northam; Scott Notowich; Monica Novitsky; WalterOrejuela; Alfonso Ortega; Tim Parsons; Beatriz Pena; Ernesto Pena; Roberto Pena; Roberto A.Pena; Saraminta Perez; Lou Perry; Randall Pickett; Eduardo Picon; Arturo Prum; Maria Putz;Sumeet Rai; Michael Ralby; Leonor Ramirez; Nelson Ramirez; Walter Ricardo; Alan Riffle;Steve Robinson; Eddie Rollins; Julio Ruelas; Tatiana Saldivia; John Santi; Louis Schaufele; JohnSchwab; Morris Serrero; Doug Shaw; Rochelle Sidney; Peter Siragna; Steve Slewitzke; NancySoto; Sanford Steinberg; Heath Stephens; William O. Stone Jr.; Ana Tanur; Juan CarlosTerrazas; Christopher Thomas; Mark Tidwell; Yliana Torrealba; Jose Torres; Al Trullenque;Audrey Truman; Roberto Ulloa; Eric Urena; Miguel Valdez; Nicolas Valera; Tim Vanderver;Pete Vargas; Ettore Ventrice; Mario Vieira; Evely Villalon; Maria Villanueva; FransVingerhoedt; Daniel Vitrian; Charles Vollmer; Bill Whitaker; David Whittemore; CharlesWidener; Michael Word; Ryan Wrobleske; Ihab Yassine; and Leon Zaidner. Each of theseFormer Stanford Employees received, at a minimum, the SIBL Quarterly Bonuses associatedwith his or her name in the Appendix.IV. Former Stanford Employees Who Received PARS Payments 52. The following Former Stanford Employees received CD Proceeds in the form ofPARS Payments: Virgil Harris; Zack Parrish; Louis Schaufele; and Mark V. Stys. Each of theseFormer Stanford Employees received, at a minimum, the PARS Payments associated with his orher name in the Appendix.RECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 21APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 191MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 156 Filed 02/09/2010 Filed 12/18/2009 Page 22 ofof 444 Page 194 26V. Former Stanford Employees Who Received Branch Managing Director QuarterlyCompensation 53. The following Former Stanford Employees received CD Proceeds in the form ofBranch Managing Director Quarterly Compensation: Lori Bensing; Brad Bradham; ScottChaisson; Jay Comeaux; John Glennon; Jason Green; Marty Karvelis; Grady Layfield; CarolMcCann; Scott Notowich; and Al Trullenque. Each of these Former Stanford Employeesreceived, at a minimum, the Branch Managing Director Quarterly Compensation associated withhis or her name in the Appendix.VI. Former Stanford Employees Who Received Severance Payments 54. The following Former Stanford Employees received CD Proceeds in the form ofSeverance Payments: Jeffrey E. Adams; James F. Anthony; Patricio Atkinson; Jane E. Bates;Timothy W. Baughman; Marc H. Bettinger; Michael Contorno; Bernard Cools-Lartigue; CarterW. Driscoll; Jordan Estra; Lori J. Fischer; Juliana Franco; Gustavo A. Garcia; Kelley L.Hawkins; Roberto T. Helguera; Helena M. Herrero; Nancy J. Huggins; Susan K. Jurica; MartyKarvelis; Joseph L. Klingen; Robert A. Kramer; Mayra C. Leon De Carrero; James C. Li; MeganR. Malanga; Francesca McCann; Gail Nelson; Russell C. Newton, Jr.; Zack Parrish; James D.Perry; Nelson Ramirez; Syed H. Razvi; Kathleen M. Reed; Giampiero Riccio; Juan C. Riera;Peter R. Ross; Thomas G. Rudkin; Nicholas P. Salas; John Santi; Jon C. Shipman; Mark V. Stys;and Timothy W. Summers. Each of these Former Stanford Employees received, at a minimum,the Severance Payments associated with his or her name in the Appendix. PRAYER 55. The Receiver respectfully requests the following: (a) An Order providing that CD Proceeds received directly or indirectly by the Former Stanford Employees from fraudulent CDs were fraudulent transfersRECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 22APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 192MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 156 Filed 02/09/2010 Filed 12/18/2009 Page 23 ofof 444 Page 195 26 under applicable law or, in the alternative, that the Former Stanford Employees were unjustly enriched by CD Proceeds received directly or indirectly from fraudulent CDs; (b) An Order providing that CD Proceeds received directly or indirectly by the Former Stanford Employees from fraudulent CDs are property of the Receivership Estate; (c) An Order providing that CD Proceeds received directly or indirectly by the Former Stanford Employees from fraudulent CDs are subject to a constructive trust for the benefit of the Receivership Estate; (d) An Order establishing the amount of CD Proceeds each of the Former Stanford Employees received; (e) An Order providing that each of the Former Stanford Employees is liable to the Receivership Estate for an amount equaling the amount of CD Proceeds he or she received from fraudulent CDs; (f) An Order allowing the Receiver to withdraw the assets contained in the Pershing, JP Morgan, and SEI accounts in the names of or controlled by the Former Stanford Employees and add those assets, up to the amounts of CD Proceeds received by the Former Stanford Employees, to the assets of the Receivership Estate; (g) An Order requiring the Former Stanford Employees to pay to the Receiver the difference between the amounts contained in their Pershing, JP Morgan, and SEI accounts and the total amount of CD Proceeds received by the Former Stanford Employees;RECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 23APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 193MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 156 Filed 12/18/2009 Filed 02/09/2010 Page 24 ofof 444 Page 196 26 (h) An award of costs, attorney’s fees, and prejudgment interest; and (i) Such other and further relief as the Court deems proper under the circumstances.RECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 24APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 194MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00724-N Document 156 Case 3:09-cv-00298-N Document 1003-3 Filed 12/18/2009 Filed 02/09/2010 Page 25 ofof 444 Page 197 26Dated: December 18, 2009 Respectfully submitted, BAKER BOTTS L.L.P. By: /s/ Kevin M. Sadler Kevin M. Sadler Texas Bar No. 17512450 kevin.sadler@bakerbotts.com Robert I. Howell Texas Bar No. 10107300 robert.howell@bakerbotts.com David T. Arlington Texas Bar No. 00790238 david.arlington@bakerbotts.com 1500 San Jacinto Center 98 San Jacinto Blvd. Austin, Texas 78701-4039 (512) 322-2500 (512) 322-2501 (Facsimile) Timothy S. Durst Texas Bar No. 00786924 tim.durst@bakerbotts.com 2001 Ross Avenue Dallas, Texas 75201 (214) 953-6500 (214) 953-6503 (Facsimile) ATTORNEYS FOR RECEIVER RALPH S. JANVEYRECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 25APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 195MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 156 Filed 12/18/2009 Filed 02/09/2010 Page 26 ofof 444 Page 198 26 CERTIFICATE OF SERVICE On December 18, 2009, I electronically submitted the foregoing document with the clerkof the court of the U.S. District Court, Northern District of Texas, using the electronic case filingsystem of the Court. I hereby certify that I will serve the Former Stanford Employeesindividually or through their counsel of record, electronically, or by other means authorized bythe Court or the Federal Rules of Civil Procedure. /s/ Kevin M. Sadler Kevin M. SadlerRECEIVER’S SECOND AMENDED COMPLAINTAGAINST FORMER STANFORD EMPLOYEES 26APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 196MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 207 Filed 02/09/2010 Filed 01/15/2010 Page 199 of 444 Page 1 of 17 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF TEXAS DALLAS DIVISIONRALPH S. JANVEY IN HIS CAPACITY §AS COURT-APPOINTED RECEIVER FOR §THE STANFORD INTERNATIONAL §BANK, LTD., ET AL § § Plaintiff, § Cause No. 03:09-CV-0724-N §V. § JURY DEMANDED §JAMES R. ALGUIRE, ET AL. § § Relief Defendants. § DEFENDANT E. RANDOLPH ROBERTSON, JR.’S ORIGINAL ANSWERTO RECEIVER’S SECOND AMENDED COMPLAINT AGAINST FORMER STANFORD EMPLOYEES AFFIRMATIVE DEFENSES AND COUNTERCLAIMS COME NOW, Defendant, E. RANDOLPH ROBERTSON, JR., (“Robertson”), and fileshis Original Answer to Receiver’s Second Amended Complaint Against Former StanfordEmployees, Affirmative Defenses and Counterclaims filed by Plaintiff, RALPH S. JANVEY,COURT-APPOINTED RECEIVER FOR STANFORD INTERNATIONAL BANK, LTD., ETAL. (“Receiver”), and would show the following:1. Robertson is without knowledge or information sufficient to form a belief as to the truthof the allegations contained in paragraph 1 of Receiver’s Second Amended Complaint.2. Robertson is without knowledge or information sufficient to form a belief as to the truthof the allegations contained in paragraph 2 of Receiver’s Second Amended Complaint.Robertson denies that he ever received “CD Proceeds”. Answering further, Robertson denies anyinvolvement or complicity in the alleged conduct.3. Robertson is without knowledge or information sufficient to form a belief as to the truthAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 197MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 207 Filed 02/09/2010 Filed 01/15/2010 Page 200 of 444 Page 2 of 17of the allegations in Paragraph 2 of the Second Amended Complaint, except to the extent thathe admits that he was provided a contract to work as a financial advisor for Stanford GroupCompany just before the SEC action giving rise to this lawsuit was made public, and that hadhe ever sold any CD’s on behalf of Stanford pursuant to that contract (which he did not), thecontract terms would have entitled him to a commission on such sale. However, because of theSEC action giving rise to this case, Robertson did not ever sell any CD’s on behalf of Stanfordpursuant to the contract. Robertson did provide routine brokerage services and sold non-CDinvestments, but was not paid the earned commissions. Robertson denies that he ever received“CD Proceeds”.4. Robertson denies that he ever received “CD proceeds”. Robertson denies anyinvolvement or complicity in the alleged conduct. Robertson is without knowledge orinformation sufficient to form a belief as to the truth of the remaining allegations contained inparagraph 4 of the Second Amended Complaint.5. Robertson denies that he ever received “CD proceeds”. Robertson is without knowledgeor information sufficient to form a belief as to the truth of the remaining allegations inParagraph 5 of the Second Amended Complaint.6. Robertson denies that he ever received “CD proceeds”. Robertson is without knowledgeor information sufficient to form a belief as to the truth of the remaining allegations inParagraph 6 of the Second Amended Complaint.7. Robertson denies that he ever received “CD proceeds”. Robertson admits the allegationin Paragraph 7 of the Second Amended Complaint that the Receiver seeks the describedorder(s), but denies that the Receiver is entitled to any such order(s) with respect to him or thathe is liable to the Receivership Estate in any amount. Robertson is without knowledge orAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 198MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 207 Filed 02/09/2010 Filed 01/15/2010 Page 201 of 444 Page 3 of 17information sufficient to form a belief as to the truth of the remaining allegations in Paragraph 7of the Second Amended Complaint.8. Paragraph 8 contains only legal conclusions, and not allegations of fact which Robertsonmust admit or deny.9. Paragraph 9 contains only legal conclusions, and not allegations of fact which Robertsonmust admit or deny.10. Paragraph 10 contains only legal conclusions, and not allegations of fact whichRobertson must admit or deny.11. Paragraph 11 contains only legal conclusions, and not allegations of fact whichRobertson must admit or deny.12. Paragraph 12 contains only legal conclusions, and not allegations of fact whichRobertson must admit or deny.13. Paragraph 13 contains only legal conclusions, and not allegations of fact whichRobertson must admit or deny.14. Paragraph 14 contains only legal conclusions, and not allegations of fact whichRobertson must admit or deny.15. Robertson denies the allegations contained in paragraph 15 of the Second AmendedComplaint to the extent it suggest he submitted such an application.16. Robertson denies that he has filed any motion to intervene in SEC v. StanfordInternational Bank, Ltd., et al., Case No. 3:09-cv-298-N. Robertson is without knowledge orinformation sufficient to form a belief as to the truth of the remaining legal allegations in thesecond sentence of Paragraph 16 of the Second Amended Complaint.17. Robertson is without knowledge or information sufficient to form a belief as to the truthAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 199MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 207 Filed 02/09/2010 Filed 01/15/2010 Page 202 of 444 Page 4 of 17of the allegations in Paragraph 17 of the Second Amended Complaint.18. Robertson is without knowledge or information sufficient to form a belief as to the truthof the allegations in Paragraph 18 of the Second Amended Complaint. Answering further,Robertson denies any involvement or complicity in the alleged conduct.19. Robertson is without knowledge or information sufficient to form a belief as to the truthof the allegations in Paragraph 19 of the Second Amended Complaint. Answering further,Robertson denies any involvement or complicity in the alleged conduct.20. Robertson is without knowledge or information sufficient to form a belief as to the truthof the allegations in Paragraph 20 of the Second Amended Complaint. Answering further,Robertson denies any involvement or complicity in the alleged conduct.21. Robertson is without knowledge or information sufficient to form a belief as to the truthof the allegations in Paragraph 21 of the Second Amended Complaint. Answering further,Robertson denies any involvement or complicity in the alleged conduct.22. Robertson is without knowledge or information sufficient to form a belief as to the truthof the allegations in Paragraph 22 of the Second Amended Complaint. Answering further,Robertson denies any involvement or complicity in the alleged conduct.23. Robertson is without knowledge or information sufficient to form a belief as to the truthof the allegations in Paragraph 23 of the Second Amended Complaint. Answering further,Robertson denies any involvement or complicity in the alleged conduct.24. Robertson is without knowledge or information sufficient to form a belief as to the truthof the allegations in Paragraph 24 of the Second Amended Complaint. Answering further,Robertson denies any involvement or complicity in the alleged conduct.25. Robertson is without knowledge or information sufficient to form a belief as to the truthAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 200MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 207 Filed 02/09/2010 Filed 01/15/2010 Page 203 of 444 Page 5 of 17of the allegations in Paragraph 25 of the Second Amended Complaint. Answering further,Robertson denies any involvement or complicity in the alleged conduct.26. Robertson is without knowledge or information sufficient to form a belief as to the truthof the allegations in Paragraph 26 of the Second Amended Complaint. Answering further,Robertson denies any involvement or complicity in the alleged conduct.27. Robertson is without knowledge or information sufficient to form a belief as to the truthof the allegations in Paragraph 27 of the Second Amended Complaint. Answering further,Robertson denies any involvement or complicity in the alleged conduct.28. Robertson is without knowledge or information sufficient to form a belief as to the truthof the allegations in the Paragraph 28 of the Second Amended Complaint, except to the extentthat he admits that his contract with Stanford Group Company included compensation.Answering further, Robertson denies any involvement or complicity in the alleged conduct.29. Robertson denies he ever received such Quarterly compensation payments and is withoutknowledge or information sufficient to form a belief as to the truth of the allegations inParagraph 29 of the Second Amended Complaint. Answering further, Robertson denies anyinvolvement or complicity in the alleged conduct.30. Robertson is without knowledge or information sufficient to form a belief as to the truthof the allegations in Paragraph 30 of the Second Amended Complaint, except to the extent thathe admits that he received a sum of money from Stanford Group Company in connection withhis contract, and denies that he “did not perform services (or performed only services that werein furtherance of the Ponzi scheme).” Although Robertson admits that he never sold any CD’spursuant to his contract with Stanford Group Company, he did perform services in the form oftransferring his pre-existing, legitimate clients to Stanford Group Company, for the purpose ofAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 201MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 207 Filed 02/09/2010 Filed 01/15/2010 Page 204 of 444 Page 6 of 17continuing to service those clients legitimately in the future on behalf of Stanford GroupCompany. Robertson also legitimately traded non-CD investments for some of his clients.However, due to the SEC’s action in this matter, Robertson never received any earnedcommissions in furtherance of his contract with Stanford Group Company. Robertson denies thelegal allegation in the fourth sentence (and subsequent case citations) of Paragraph 30 of theSecond Amended Complaint, to the extent that those legal allegations are directed at him. To theextent those allegations are directed at other parties, Robertson is without knowledge orinformation sufficient to form a belief as to their truth. Answering further, Robertson denies anyinvolvement or complicity in the alleged conduct. Robertson denies he ever received paymentsthat belong to the Receivership Estate and is without knowledge or information sufficient to forma belief as to the truth of the remaining allegations in Paragraph 30 of the Second AmendedComplaint.31. Robertson admits the allegation in Paragraph 31 of the Second Amended Complaint thatthe Receiver seeks the described relief, but denies that the Receiver is entitled to such relief withrespect to him or that he is liable to the Receivership Estate in any amount. Robertson denies thathe ever received “CD Proceeds”.32. Robertson is without knowledge or information sufficient to form a belief as to the truthof the allegations in Paragraph 32 of the Second Amended Complaint, but denies that Receiver isentitled to any “relief” from him. Robertson denies that he ever received “CD Proceeds”.33. Robertson is without knowledge or information sufficient to form a belief as to the truthof the allegations in Paragraph 33 of the Second Amended Complaint, but denies that Receiver isentitled to any “relief” from him. Robertson denies that he ever received “CD Proceeds”.34. Robertson denies the allegations in Paragraph 34 of the Second Amended Complaint, andAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 202MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 207 Filed 02/09/2010 Filed 01/15/2010 Page 205 of 444 Page 7 of 17denies that the Receiver is entitled to disgorgement of any funds received by him. Robertsondenies that he ever received “CD Proceeds”.35. Robertson denies the allegations in Paragraph 35 of the Second Amended Complaint, anddenies that the Receiver is entitled to disgorgement of any funds received by him. Robertsondenies that he ever received “CD Proceeds”.36. Robertson is without knowledge or information sufficient to form a belief as to the truthof the allegations in the first sentence of Paragraph 36 of the Second Amended Complaint.However, Robertson admits that if a creditor seeking an avoidance of a transfer under theUniform Fraudulent Transfer Act meets its burden of persuasion and establishes that the transferwas made with the actual intent to hinder, delay, or defraud any creditor of the debtor, atransferee seeking to establish that the transfer is not voidable because the transferee took ingood faith and for a reasonably equivalent value bears the burden of persuasion on those twoelements. Robertson admits that the quotation in the parenthetical after the citation of the Scholescase in Paragraph 36 of the Second Amended Complaint is accurate, but denies its applicabilityto him in the context in which it is used. Robertson denies that he ever received “CD Proceeds”.37. Robertson denies the allegations in Paragraph 37 of the Second Amended Complaint, anddenies that the Receiver is entitled to disgorgement of any funds received by him. Robertsondenies that he ever received “CD Proceeds”.38. Robertson denies the allegations in Paragraph 38 of the Second Amended Complaint, anddenies that the Receiver is entitled to disgorgement of any funds received by him. Robertsondenies that he ever received “CD Proceeds”.39. Robertson admits the allegation in Paragraph 39 of the Second Amended Complaint thatthe Receiver seeks the described relief, but denies that the Receiver is entitled to such reliefAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 203MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 207 Filed 02/09/2010 Filed 01/15/2010 Page 206 of 444 Page 8 of 17with respect to him or that he is liable to the Receivership Estate in any amount. Robertsondenies that he ever received “CD Proceeds”.40. Robertson admits the allegation in Paragraph 40 of the Second Amended Complaint thatthe Receiver seeks the described relief, but denies that the Receiver is entitled to such reliefwith respect to him or that he is liable to the Receivership Estate in any amount. Robertsondenies that he ever received “CD Proceeds”.41. Robertson admits the allegation in Paragraph 41 of the Second Amended Complaint thatthe Receiver seeks the described relief, but denies that the Receiver is entitled to such reliefwith respect to him or that he is liable to the Receivership Estate in any amount. Robertsondenies that he ever received “CD Proceeds”.42. Robertson admits the allegation in Paragraph 42 of the Second Amended Complaint thatthe Receiver seeks the described relief, but denies that the Receiver is entitled to such reliefwith respect to him or that he is liable to the Receivership Estate in any amount. Robertsondenies that he ever received “CD Proceeds”.43. Robertson admits the allegation in Paragraph 43 of the Second Amended Complaint thatthe Receiver seeks the described relief, but denies that the Receiver is entitled to such reliefwith respect to him or that he is liable to the Receivership Estate in any amount. Robertsondenies that he ever received “CD Proceeds”.44. Robertson admits the allegation in Paragraph 44 of the Second Amended Complaint thatthe Receiver seeks the described relief, but denies that the Receiver is entitled to such reliefwith respect to him or that he is liable to the Receivership Estate in any amount. Robertsondenies that he ever received “CD Proceeds”.45. Robertson admits the allegation in Paragraph 45 of the Second Amended Complaint thatAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 204MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 207 Filed 02/09/2010 Filed 01/15/2010 Page 207 of 444 Page 9 of 17he is a former Stanford employee, but denies that the Receiver is entitled to such relief withrespect to him or that he is liable to the Receivership Estate in any amount. Robertson deniesthat he ever received “CD Proceeds”.46. Robertson is without knowledge or information sufficient to form a belief as to the truthof the allegations in Paragraph 46 of the Second Amended Complaint. Robertson denies that heever received “CD Proceeds”.47. Robertson admits the allegation in Paragraph 47 of the Second Amended Complaint thatthe Receiver seeks the described relief, but denies that the Receiver is entitled to such reliefwith respect to him or that he is liable to the Receivership Estate in any amount. Robertsondenies that he ever received “CD Proceeds”.48. Robertson admits the allegation in Paragraph 48 of the Second Amended Complaint thatthe Receiver seeks the described relief, but denies that the Receiver is entitled to such reliefwith respect to him or that he is liable to the Receivership Estate in any amount. Robertsondenies that he ever received “CD Proceeds”.49. Robertson is without knowledge or information sufficient to form a belief as to the truthof the allegations in Paragraph 49 of the Second Amended Complaint. Robertson denies that heever received “CD Proceeds”.50. Robertson is without knowledge or information sufficient to form a belief as to the truthof the allegations in Paragraph 50 of the Second Amended Complaint.51. Robertson is without knowledge or information sufficient to form a belief as to the truthof the allegations in Paragraph 51 of the Second Amended Complaint.52. Robertson is without knowledge or information sufficient to form a belief as to the truthof the allegations in Paragraph 52 of the Second Amended Complaint.APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 205MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 207 Filed 01/15/2010 Filed 02/09/2010 Page 10 ofof 444 Page 208 1753. Robertson is without knowledge or information sufficient to form a belief as to the truthof the allegations in Paragraph 53 of the Second Amended Complaint.54. Robertson is without knowledge or information sufficient to form a belief as to the truthof the allegations in Paragraph 54 of the Second Amended Complaint. AFFIRMATIVE DEFENSES AND COUNTERCLAIMSFactual Background:55. Robertson is a securities broker who had a thriving practice and client base before heever had any relationship with Stanford Group Company (hereinafter “SGC”). On December11, 2008, Robertson agreed to become employed by SGC. As part of the contemplatedemployment, Robertson was required to attempt to transfer his pre-existing customer base toSGC. These were legitimate, pre-existing clients of Robertson, for whom he had performedlegitimate security brokerage services in the past, with whom he had a legitimate, pre-existingand continuing relationship, and for whom he intended to continue to perform the very samelegitimate brokerage services after they became clients of SGC.56. Robertson started his employment with SGC on January 7, 2009, and was escorted outof the office twenty-eight (28) days later when the SEC investigation began. Robertson had noknowledge, nor any reason to know, at the time he entered the contract or at any time thereafteruntil the SEC instituted open proceedings against SGC, that SGC was anything other than alegitimate security brokerage company. Neither SGC nor anyone acting on SGC’s behalf everdisclosed any fact that reasonably would have placed Robertson on notice of any untoward orillegal activity being committed by SGC or any related person or company. To the contrary,SGC affirmatively represented to Robertson, prior to the execution of the contract, that SGCwas a legitimate, reputable, prudent company carrying on a legitimate, legal and prudentAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 206MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 207 Filed 01/15/2010 Filed 02/09/2010 Page 11 ofof 444 Page 209 17securities business.57. Specifically, SGC represented that there were tight controls in place for all phases of thebusiness, the company balance sheet was strong, the liquidity of the company was exceptional,the opportunity to grow the business had never been better, the year 2009 would be the bestyear ever to grow SGC’s business, it had sustained positive performance, it had a large cashposition in its investments, and that the company was run with Christian values in mind.58. Robertson did not enter into the contract with SGC with any intention to delay, hinder ordefraud any creditors of SGC or any other company, nor with any intention to bring customersinto any Ponzi scheme or any other illegal scheme.59. Robertson never sold any CD’s to anyone in furtherance of the contract, because beforehe could even begin performing such services pursuant to the contract, the SEC instituted actionagainst SGC and others. At the time the SEC action was instituted, Robertson was still in theprocess of transitioning to his new position at SGC and had not even received any formaltraining on company policies and procedures. However, Robertson had contacted pre-existingclients, had taken steps to transfer their accounts to SGC and had transferred some of thoseclients to SGC.60. Robertson did make some legitimate non-CD investments for some of his clients, butwas never paid any of the commissions earned on such investments. Robertson never receivedany commissions or other compensation from SGC in furtherance of the contract except a“signing bonus.” This signing bonus was made the subject of a Stanford Group CompanyPromissory Note Forgivable Loan Agreement (hereinafter “the Promissory Note”), withpayments due annually for eight years. However, each such annual payment would be forgivenif Robertson was still employed as a full time employee of SGC on the date each annualAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 207MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 207 Filed 01/15/2010 Filed 02/09/2010 Page 12 ofof 444 Page 210 17payment was due.61. Robertson was ready, willing and able to perform legitimate services as a securitiesbroker for SGC according to the terms of the contract, but was prevented from doing so by theSEC’s action in this matter.62. As a result of Robertson’s preliminary actions taken toward transferring his pre-existing,legitimate clients to SGC, he suffered actual damages to his professional reputation and earningcapacity and lost income. Specifically, Robertson’s pre-existing clients, with whom he hadalways had an amicable and profitable business relationship, erroneously perceived that he hadattempted to induce them into a relationship with SGC and R. Allen Stanford. These clientsperceived SGC and R. Allen Stanford with distrust due to the publicity regarding the SEC’saction in this matter. Put simply, Robertson has been tainted with the stigma of association withSGC and R. Allen Stanford as a result of his preliminary efforts to transfer his pre-existing,legitimate clients to SGC. This has proximately caused some of Robertson’s clients todisassociate with him, and has proximately caused a diminution of his earning capacity and lossof income, as well as harmed his professional reputation.Affirmative Defenses:63. The Receiver is not entitled, under the Uniform Fraudulent Transfer Act, to avoid thetransaction by which SGC provided Robertson the signing bonus in exchange for his promise towork for SGC as a securities broker, transfer his pre-existing, legitimate clients to SGC, andcomply with the terms of the Promissory Note because Robertson took the signing bonus ingood faith and gave reasonably equivalent value in exchange for it. TEX. BUS. & COM. CODEANN. § 24.009(a). This value included Robertson’s promise to work for SGC as a legitimatesecurities broker, to repay the signing bonus according to the terms and conditions of theAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 208MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 207 Filed 01/15/2010 Filed 02/09/2010 Page 13 ofof 444 Page 211 17Promissory Note, and to work to transfer his pre-existing clients to SGC. Robertson wasprevented from performing most of these services by the SEC’s actions in this matter, but wasready, willing and able to do so. Indeed, Robertson began taking steps to transfer his pre-existing clients to SGC, but those efforts were terminated as a result of the SEC’s action in thismatter.64. SGC committed fraud against Robertson. SGC made the following materialrepresentations that were false, which SGC either knew to be false when they were made or thatSGC made without knowledge of whether they were true or not: there were tight controls inplace for all phases of the business, the company balance sheet was strong, the liquidity of thecompany was exceptional, the opportunity to grow the business had never been better, the year2009 would be the best year ever to grow SGC’s business, it had sustained positiveperformance, it had a large cash position in its investments, and that the company was run withChristian values in mind. These misrepresentations were intended to be and were relied upon byRobertson in entering into the contract and the Promissory Note and in taking the preliminarysteps to transfer his pre-existing clients to SGC. That is, Robertson would not have entered intothe contract and the Promissory Note in the absence of these misrepresentations, and would nothave taken action to transfer his clients to SGC. Robertson’s actions taken in reliance on SGC’smisrepresentations proximately caused him to suffer damages, including damage to hisprofessional reputation, loss of earning capacity, and loss of income. As an affirmative defenseto the Receiver’s claims, Robertson asserts that he is entitled to an offset in the amount of hisactual damages proximately resulting from SGC’s fraud against any funds he may have todisgorge or otherwise pay to the Receiver from the money he received as a signing bonus.65. Robertson pleads SGC’s fraud and unclean hands, as described above, as affirmativeAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 209MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 207 Filed 01/15/2010 Filed 02/09/2010 Page 14 ofof 444 Page 212 17defenses to the Receiver’s claim for equitable relief, disgorgement and a constructive trust.66. In the event the Receiver successfully establishes that it is entitled, under the UniformFraudulent Transfer Act, to avoid the transaction by which SGC provided Robertson the signingbonus in exchange for his promise to work for SGC as a securities broker, transfer his pre-existing, legitimate clients to SGC, and comply with the terms of the Promissory Note,Robertson asserts that the amount of any recovery awarded to the Receiver and against himshould be equitably adjusted downward as a result of SGC’s unclean hands and fraud, and theinjuries he has suffered as a result thereof, pursuant to TEX. BUS. & COM. CODE ANN. §24.009(c)(1).Counterclaims:67. SGC committed fraud against Robertson. SGC made the following materialrepresentations that were false, which SGC either knew to be false when they were made or thatSGC made without knowledge of whether they were true or not: there were tight controls inplace for all phases of the business, the company balance sheet was strong, the liquidity of thecompany was exceptional, the opportunity to grow the business had never been better, the year2009 would be the best year ever to grow SGC’s business, it had sustained positiveperformance, it had a large cash position in its investments, and that the company was run withChristian values in mind. These misrepresentations were intended to be and were relied upon byRobertson in entering into the contract and the Promissory Note and in taking the preliminarysteps to transfer his pre-existing clients to SGC. That is, Robertson would not have entered intothe contract and the Promissory Note in the absence of these misrepresentations, and would nothave taken action to transfer his clients to SGC. Robertson’s actions taken in reliance on SGC’smisrepresentations proximately caused him to suffer damages, including damage to hisAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 210MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 207 Filed 01/15/2010 Filed 02/09/2010 Page 15 ofof 444 Page 213 17professional reputation, loss of earning capacity, and loss of income.68. Robertson counterclaims against the Receiver to recover his actual damages incurred asa proximate result of SGC’s fraud, including damage to his professional reputation, loss ofearning capacity, loss of income and all other actual damages to which he may be justlyentitled.69. Robertson traded legitimate non-CD investments on behalf of his pre-existing clientsduring his employment for SGC. Pursuant to the terms of his contract, Robertson was entitledto a commission on these sales. SGC never paid Robertson these commissions, which are dueand owing, thereby breaching the contract. Robertson counterclaims for breach of contract torecover the commissions due and owing under the contract, as well as his attorney fees incurredto recover same. Alternatively, Robertson prays for an offset in the amount of his actualdamages proximately resulting from SGC’s breach of contract against any funds he may have todisgorge or otherwise pay to the Receiver from the money he received as a signing bonus.70. To the extent Robertson is forced to disgorge or otherwise pay over to the Receiver themoney he received as a signing bonus, Robertson prays that the Promissory Note be voided andrescinded on the basis of failure of consideration, fraudulent inducement and unjust enrichment.It would be unjust to permit the Receiver to recover the consideration paid by SGC in exchangefor Robertson’s promise to make the payments under the terms of the Promissory Note, and yetretain the contractual right to enforce the Promissory Note.Arbitration:71. The Promissory Note provided, “Borrower hereby agrees that any controversy arisingout of or relating to this Note . . . shall be submitted to and settled by arbitration pursuant to theconstitution, by-laws, rules and regulations pg the Financial Industry Regulatory AuthorityAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 211MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 207 Filed 01/15/2010 Filed 02/09/2010 Page 16 ofof 444 Page 214 17(FINRA) in the local area of the principal office. Defendant reserves the right to invoke thisarbitration provision should an amicable resolution of this dispute with the Receiver not beachieved. Defendant does not intend, by the filing of this answer, to waive any right toarbitration arising out of the Promissory Note or any other agreement. WHEREFORE, Defendant, E. RANDOLPH ROBERTSON, JR prays Plaintiff, RALPHS. JANVEY, COURT-APPOINTED RECEIVER FOR STANFORD INTERNATIONALBANK, LTD., ET AL., take nothing by way of this suit, that Defendant be discharged fromliability and for such other and further relief as the Court deems just and proper. Respectfully Submitted, CHANDLER, MATHIS & ZIVLEY, P.C. _s/ W. Perry Zivley, Jr._________ W. PERRY ZIVLEY, JR. TSB# 22280050 909 Fannin, Suite 3750 Houston, Texas 77010 (713) 739-7722 Office (713) 739-0922 Fax ATTORNEYS FOR RELIEF DEFENDANT E. RANDOLPH ROBERTSON, JR.APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 212MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 207 Filed 01/15/2010 Filed 02/09/2010 Page 17 ofof 444 Page 215 17 CERTIFICATE OF SERVICE I, W. Perry Zivley, Jr. hereby certify that on this the 15th day of January, 2010, a trueand correct copy of the foregoing Defendant E. Randolph Robertson, Jr.’s Original Answer toReceiver’s Second Amended Complaint Against Former Stanford Employees AffirmativeDefenses and Counterclaims has been electronically filed with the Clerk of the Court who willforward same to all counsel of record including:BAKER BOTTS, L.L.P.Kevin M. SadlerRobert I. HowellDavid T. Arlington1500 San Jacinto Center98 San Jacinto Blvd.Austin, Texas 78701-4039andTimothy S. Durst2001 Ross AvenueDallas, Texas 75201 _s/ W. Perry Zivley, Jr._________ W. PERRY ZIVLEY, JR.APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 213MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 216 of 444 IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION JOAN GALE FRANK, JON A. BELL, SAMUEL § BUKRINSKY, JAIME ALEXIS ARROYO § BORNSTEIN, PEGGY ROIF ROTSTAIN, JUAN C. § OLANO, and JOHN WADE in his capacity as trustee of § the Microchip ID Systems, Inc. Retirement Plan, on § Civil Action No. behalf of themselves and all others similarly situated, § § Plaintiffs, § v. § § THE COMMONWEALTH OF ANTIGUA AND § BARBUDA, § § JURY TRIAL Defendant. § DEMANDED § CLASS ACTION COMPLAINT Plaintiffs Joan Gale Frank, Jon A. Bell, Samuel Bukrinsky, Jaime Alexis Arroyo Bornstein, Peggy Roif Rotstain, Juan C. Olano, and John Wade in his capacity as trustee of the Microchip ID Systems, Inc. Retirement Plan (“Plaintiffs”) on behalf of themselves and all others similarly situated, by and through their undersigned attorneys, as and for their class action complaint against the Defendant, the Commonwealth of Antigua and Barbuda (“Antigua”), allege as follows: NATURE OF THE ACTION 1. This is an action to recover billions of dollars of losses suffered by innocent and unsuspecting customers from around the world who entrusted their money to R. Allen Stanford’s Stanford International Bank, Ltd. (“SIBL”), part of the StanfordAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 214MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 217 of 444 Financial Group (“SFG”), which has now been exposed as one of the most notorious, fraudulent, corrupt, and criminal enterprises in history. 2. R. Allen Stanford (“Allen Stanford”), the various commercial entities that he controlled (the “Stanford Entities,” and, together with Allen Stanford, “Stanford”), and certain of his employees engaged in a multi-year, multi-billion dollar “Ponzi” scheme of international scope. 3. Antigua is sovereign, but not above the law. It became a full partner in Stanford’s fraud, and reaped enormous financial benefits from the scheme. Stanford stuffed Antigua’s coffers – and its officials’ pockets – with money stolen from unsuspecting customers throughout the United States, Canada, Central America, South America, and elsewhere. Antigua worked tirelessly to protect and nurture Stanford’s criminal enterprise and, in return, eagerly accepted its share of criminally-procured funds. 4. As described more fully below, Stanford’s massive fraud would not have been possible without the active, knowing, and essential assistance of Antigua. Antigua: (i) provided a safe haven for Stanford to operate; (ii) provided essential assistance in Stanford’s efforts to portray itself to Plaintiffs and other members of the Class as a legitimate provider of financial services; (iii) participated with Stanford in a variety of commercial activities in Antigua that provided a pretext for the transfer of criminal proceeds from Stanford to Antigua; (iv) provided false and fraudulent information to the Securities and Exchange Commission (“SEC”) and other regulators in order to thwart the SEC’s investigations into Stanford; and (v) shared in the criminal proceeds of theAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 215MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 218 of 444 conspiracy, all or substantially all of which were stolen from the Plaintiffs and other members of the Class. 5. Stanford’s customers are devastated as a result of Stanford’s and Antigua’s fraudulent conduct, and those customers, including Plaintiffs and other members of the Class, are likely to recover only a fraction of the full amount owed to them through the pending court-ordered liquidation of the Stanford Entities. The victims’ losses are staggering, and the Plaintiffs and other members of the Class have a right to recoup their losses from Antigua, which was Stanford’s full partner in crime. PARTIES 6. At all relevant times, Plaintiff Joan Gale Frank is and was a citizen of the United States residing in Oregon. 7. At all relevant times, Plaintiff Jon A. Bell is and was a citizen of the United States residing in Oregon. 8. At all relevant times, Plaintiff Samuel Bukrinsky is and was a citizen of Mexico residing in Mexico. 9. At all relevant times, Plaintiff Jaime Alexis Arroyo Bornstein is and was a citizen of Mexico residing in Mexico. 10. At all relevant times, Plaintiff Peggy Roif Rotstain is and was a citizen of Peru residing in Peru. 11. At all relevant times, Plaintiff Juan C. Olano was a citizen of Colombia and the United States residing in Florida.APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 216MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 219 of 444 12. At all relevant times, Plaintiff John Wade was a trustee of the Microchip ID Systems, Inc. Retirement Plan. 13. As of February 16, 2009, Plaintiffs were customers of SIBL, had money on deposit at SIBL, and held CDs issued by SIBL. Plaintiffs are each members of the Class, as defined below. 14. Antigua is an independent state within the British Commonwealth of Nations. On November 15, 2000, the United Nations Convention against Transnational Organized Crime (the “Convention”) was adopted by resolution A/RES/55/25 at the fifty- fifth session of the General Assembly of the United Nations. The United States signed the Convention on December 12, 2000, and ratified the Convention on December 13, 2000. Antigua signed the Convention on September 26, 2001, and ratified the Convention on July 24, 2002. RELEVANT NON-PARTIES 15. At all relevant times, SFG was the parent company of SIBL and a web of other affiliated financial services entities. SFG maintained its headquarters in Houston, Texas, and maintained offices in several other locations including Memphis, Tennessee, and Miami, Florida. Upon information and belief, the activities of SFG and all of the Stanford Entities were directed from SFG’s Houston, Texas, headquarters. 16. At all relevant times, SIBL was a private, offshore bank with offices on the island of Antigua and elsewhere. SIBL was organized in Montserrat, originally under the name of Guardian International Bank. In or about 1989, SIBL’s principal banking location was moved to Antigua.APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 217MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 220 of 444 17. From 2001 to 2008, SIBL marketed its primary investment product, Certificates of Deposit (“CDs”), and promised higher rates of return on those CDs than were generally offered at banks in the United States. In its 2007 Annual Report, SIBL stated that it had approximately $6.7 billion worth of CD deposits, and more than $7 billion in total assets. In its December, 2008, Monthly Report, SIBL purported to have more than 30,000 clients from 131 countries, representing $8.5 billion in assets. 18. At all relevant times, Stanford Group Company (“SGC”), a Houston-based company, was founded in or about 1995. SGC was registered with the SEC as a broker- dealer and investment advisor. SGC also was a member of the Securities Investor Protection Corporation, and the Financial Industry Regulatory Agency (formerly, the National Association of Securities Dealers). SGC, and the financial advisers employed by SGC, promoted the sale of SIBL’s CDs through SGC’s 25 offices located throughout the United States. According to the Court-appointed receiver 1 for the Stanford Entities, “the principal purpose and focus of most of [Stanford’s] combined operations was to attract and funnel outside investor funds into the Stanford companies through the sale of [CDs] issued by Stanford’s offshore entity SIBL.” Report Of The Receiver Dated April 23, 2009 (the “Report”), at p. 6. 19. Allen Stanford founded and owned SFG and its affiliated companies, including, through a holding company, SIBL. Allen Stanford was the chairman of SIBL’s Board of Directors and a member of SIBL’s Investment Committee. 1 On February 16, 2009, the SEC filed a complaint in the United States District Court for the Northern District of Texas (the “SEC Action”) against Allen Stanford and various Stanford entities and employees, alleging a “massive, on-going fraud.” By order dated February 16, 2009 (as amended March 12, 2009), the court in the SEC Action appointed Ralph Janvey, Esq., to be the receiver in that action (hereinafter, the “Receiver”).APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 218MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 221 of 444 20. James M. Davis (“Davis”) was the Chief Financial Officer of SFG and SIBL, and served as a member of SIBL’s Investment Committee. 21. Laura Pendergest-Holt (“Pendergest-Holt”) was the Chief Investment Officer of SFG. In or about December 2005, Pendergest-Holt was appointed by SIBL’s Board of Directors to be a member of SIBL’s Investment Committee. Gilberto Lopez (“Lopez”), a U.S. citizen and resident of Spring, Texas, worked in SFG’s Houston, Texas, office, as the chief accounting officer of SFG and its affiliate, Stanford Financial Group Global Management, LLC (“SFGGM”). In this capacity, he provided accounting services to many entities under Stanfords control, including SIBL, SFG, and SFGGM. 22. Mark Kuhrt (“Kuhrt”), a U.S. citizen and resident of Christiansted, St. Croix, U.S. Virgin Islands, was the global controller for SFGGM. In this capacity, he provided accounting services to many entities under Stanfords control, including SIBL, SFG, and SFGGM. Kuhrt reported at various times to Lopez and Davis, but also directly to Stanford. Kuhrt is not a Certified Public Accountant. (Allen Stanford, Davis, Pendergest-Holt, Lopez, and Kuhrt are referred to collectively herein as the “Stanford Co-Conspirators.”) 23. The Financial Services Regulatory Commission of Antigua (“FSRC”) was created by and, at all relevant times, existed under the authority of, Antigua’s International Business Corporations Act (the “IBC Act”). FSRC is an agency and/or instrumentality of Antigua. 24. During certain relevant times described below, Leroy King (“King”) was the Administrator and Chief Executive Officer for the FSRC. King, among other things,APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 219MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 222 of 444 was supposedly responsible for FSRC’s (and, thus, Antigua’s) oversight of SIBL’s investment portfolio, including the review of SIBL’s financial reports, and the response to requests by foreign regulators, including the SEC, for information and documents regarding SIBL’s operations. As the SEC alleged in its Second Amended Complaint in the SEC Action, however, King “facilitated the Ponzi scheme by ensuring that the FSRC ‘looked the other way’ and conducted sham audits and examinations of [SIBL’s] books and records. In exchange for bribes paid to him over a period of several years, King made sure that the FSRC did not examine [SIBL’s] investment portfolio. King also provided Stanford with access to the FSRC’s confidential regulatory files.” [SEC Second Amended Complaint at p. 3] The RICO Enterprises 25. The “SFG Enterprise” consists of Stanford Financial Group and its subsidiaries and formal affiliates, including but not limited to SIBL and SGC. At all relevant times, the SFG Enterprise was an “enterprise” within the meaning of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961(4). 26. At all relevant times, the SFG Enterprise was “a global network of privately held, wholly owned affiliated financial service companies. Although independent, the affiliated companies together provide[d] coordinated wealth management through international private banking, asset management, investment advisory services, trust administration, commercial banking and insurance for clients worldwide.” [SIBL 2006 Annual Report] Upon information and belief, SFG had moreAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 220MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 223 of 444 than 50,000 clients from more than 100 countries on six continents. [SIBL 2007 Annual Report] 27. At all relevant times, the SFG Enterprise had an ascertainable structure separate and apart from the pattern of racketeering activity alleged herein. 28. The “SIBL Enterprise” consists of SIBL. At all relevant times the SIBL Enterprise was an “enterprise” within the meaning of RICO, 18 U.S.C. § 1961(4). 29. At all relevant times, SIBL was a banking institution chartered by Antigua. 30. At all relevant times, the SIBL Enterprise had an ascertainable structure separate and apart from the pattern of racketeering activity alleged herein. 31. The SFG Enterprise and the SIBL Enterprise are referred to collectively herein as the “Stanford Enterprises.” JURISDICTION AND VENUE 32. This Court has jurisdiction pursuant to 28 U.S.C. §§ 1330, 1605(a)(1), 1605(a)(2), and 1605(a)(3) in that this is an action against a foreign state; 28 U.S.C. § 1331 in that this case presents federal questions; and supplemental jurisdiction under 28 U.S.C. § 1367. 33. Venue is proper in this District pursuant to 28 U.S.C. § 1391(b)(2) on the ground that jurisdiction is not based solely upon diversity of citizenship and a substantial part of the events or omissions giving rise to the claim occurred in this District. 34. Venue also is proper in this District pursuant to 28 U.S.C. § 1391(f)(1) on the ground that it is an action against a foreign state as defined in 28 U.S.C. § 1603(a),APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 221MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 224 of 444 and that a substantial part of the events or omissions giving rise to the claim occurred in this District. CLASS ALLEGATIONS 35. The class of persons that Plaintiffs seek to represent (the “Class”) is comprised of all individuals who, and entities that, as of February 16, 2009, were customers of SIBL, with monies on deposit at SIBL and/or holding CDs issued by SIBL. 36. Numerosity. A class action is appropriate in this case because the Class is so numerous that joinder of all members is impracticable. While the precise number of Class members and their addresses are unknown to the Plaintiffs, their identities can be determined from SIBL’s records. Upon information and belief, Class members number in the tens of thousands. 37. Commonality. A class action is appropriate in this case because there are questions of law and fact common to the Class, including but not limited to: (a) whether Antigua received funds from the criminal proceeds of the Stanford Enterprises; (b) whether Antigua deceived the SEC for the purpose of perpetuating the Stanford Enterprises and enriching itself; (c) whether Antigua knew, or should have known, that the Stanford Co- Conspirators were using the Stanford Enterprises to perpetrate a massive “Ponzi” scheme; (d) whether Antigua committed wire fraud and mail fraud as part of the scheme;APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 222MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 225 of 444 (e) whether Antigua’s alleged acts of wire fraud and mail fraud had an effect upon interstate or foreign commerce; (f) whether Antigua conducted or participated, directly or indirectly, in the conduct of the Stanford Enterprises’ affairs through a “pattern of racketeering activity” within the meaning of RICO; (g) whether Antigua conspired with the Stanford Co-Conspirators to perpetrate the fraud; (h) whether Antigua aided and abetted the fraud committed by the Stanford Co- Conspirators; (i) whether Antigua is liable to SIBL’s depositors for their participation in the scheme; (j) the existence and the amount of damages suffered by members of the Class; and (k) whether Antigua misappropriated assets belonging to the Stanford Entities and, in so doing, deprived the Class of assets that should be available to satisfy their claims against the Stanford Entities. 38. The questions of law and fact common to the Class predominate over any questions affecting only individual members. 39. Typicality. The claims of the representative Plaintiffs are typical of the claims of the Class. 40. Adequacy. The representative Plaintiffs will fairly and adequately protect the interests of the Class.APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 223MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 226 of 444 41. In the absence of class certification, there is a risk that adjudications in thousands of separate cases with respect to individual Class members would, as a practical matter, be dispositive of the interests of the other members not parties to the individual adjudications, or would substantially impair or impede their ability to protect their interests. 42. A class action is superior to other available methods for fairly and efficiently adjudicating this controversy. FACTUAL ALLEGATIONS The Fraud 2 43. Stanford’s business was a massive fraud in which the Stanford Co- Conspirators, through the Stanford Enterprises and with the knowing provision of substantial assistance by Antigua, misappropriated billions of dollars, falsified SIBL’s financial statements, and concealed their fraudulent conduct from customers, prospective customers, and regulators in the United States and elsewhere. 44. SIBL represented to the Plaintiffs and the Class that: (i) their assets were safe and secure because the bank invested in a “globally diversified portfolio” of “marketable securities;” (ii) SIBL had averaged double-digits returns on its investments for over 15 years; (iii) Allen Stanford had solidified SIBL’s capital position in late 2008 by infusing $541 million in capital into the bank; (iv) SIBL’s multi-billion dollar portfolio was managed by a “global network of portfolio managers” and “monitored” by 2 The allegations in this sub-section are made upon information and belief, based upon the allegations made by the SEC in its civil enforcement action SEC v. Stanford International Bank, Ltd., et al., Case No. 09-cv- 0298-N (N.D. Tex) (Second Amended Complaint), the indictment in United States v. Stanford, et al., Case No. 09-cr-342 (S.D. Tex), the public materials cited therein, and other public materials and media reports.APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 224MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 227 of 444 a team of SFG analysts in Memphis, Tennessee; (v) SIBL, in early 2009, was stronger than at any time in its history; and (vi) SIBL did not have exposure to losses from investments in the fraudulent “Ponzi” scheme that had been operated by Bernard L. Madoff (the “Madoff Scheme”). More fundamentally, Stanford and Antigua represented that SIBC was a legitimate banking institution, which made money by investing assets and generating investment returns. These representations were false. 45. Plaintiffs and other members of the Class reasonably relied upon these representations when making their decisions to invest in and with the Stanford Entities. 46. Upon information and belief, Antigua, through the FSRC: (a) had actual knowledge that SIBL’s representations were false; (b) intentionally and substantially assisted Stanford by concealing SIBL’s false statements from customers (including Plaintiffs and other members of the Class) and other nations’ regulators; and (c) affirmatively represented to Plaintiffs and the Class that the FSRC undertook audits that it did not actually perform. 47. Contrary to SIBL’s public statements, by February 2009, the Stanford Co- Conspirators, together with Antigua, had misappropriated billions of dollars from Plaintiffs and the Class, and “invested” an undetermined amount of those funds in speculative, unprofitable private businesses controlled by Allen Stanford. Contrary to SIBL’s representations regarding the liquidity and safety of its portfolio, the Plaintiffs’ and the Class’s funds were not invested in a “well-diversified portfolio of highly marketable securities.” Instead, SIBL internal records reflect that more than half of the bank’s investment portfolio was comprised of undisclosed “Private Equity Real Estate.”APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 225MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 228 of 444 48. Upon information and belief, Antigua, through the FSRC: (a) had actual knowledge that Stanford had misappropriated a significant portion of SIBL’s investment portfolio; and (b) intentionally and substantially assisted Stanford’s scheme for the purpose of sharing in the proceeds that Stanford had misappropriated from Plaintiffs and other members of the Class. 49. According to the SEC, the Stanford Co-Conspirators fabricated SIBL’s financial statements. Using a predetermined return on investment number, the Stanford Co-Conspirators reverse-engineered SIBL’s financial statements to report investment income that SIBL had not actually earned. As a result, information in SIBL’s financial statements and annual reports bore no relationship to the actual performance of SIBL’s investments. 50. Plaintiffs and other members of the Class reasonably relied upon SIBL’s fabricated financial statements when making their decisions to entrust their money to the Stanford Entities. 51. Upon information and belief, Antigua, through the FSRC: (a) had actual knowledge that the Stanford Co-Conspirators had fabricated SIBL’s financial statements; and (b) intentionally and substantially assisted Stanford’s scheme by falsely representing to Plaintiffs and other members of the Class that SIBL’s financial statements were subject to, and approved only after, substantive review and scrutiny by the FSRC. 52. In selling the CDs, SIBL touted, among other things, the CDs’ safety, security, and liquidity. SIBL told Plaintiffs and the Class that SIBL aggregated customer deposits, and then reinvested those funds in a “globally diversified portfolio” of assets.APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 226MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 229 of 444 SIBL also represented to the Plaintiffs and the Class that Stanford employed a sizeable team of analysts to monitor SIBL’s portfolio. These representations were false. 53. Plaintiffs and other members of the Class reasonably relied upon SIBL’s representations regarding the safety, security, liquidity, composition, and monitoring of SIBL’s investment portfolio. 54. Upon information and belief, Antigua, through the FSRC: (a) had actual knowledge that SIBL’s representations regarding the safety, security, liquidity, composition, and monitoring of SIBL’s investment portfolio were false; and (b) intentionally and substantially assisted Stanford’s scheme for the purpose of sharing in the proceeds that Stanford had misappropriated from Plaintiffs and other members of the Class. 55. SIBL’s annual reports also represented that “SIBL does not expose its clients to the risks associated with commercial loans...the Bank’s only lending is on a cash secured basis.” Contrary to SIBL’s representations, however, SIBL exposed Plaintiffs and the Class to the risks associated with more than $1.6 billion in undisclosed and unsecured personal “loans” to Allen Stanford. To conceal the theft, some of these “loans” were evidenced by promissory notes from Allen Stanford. 56. These promissory notes were typically created after Davis had, at Allen Stanford’s direction, fraudulently wired out billions dollars of SIBL investor funds to Allen Stanford or his designees. Allen Stanford made few, if any, payments required by the terms of the promissory notes, and the outstanding loan balances and interest owed by him to SIBL were rolled into new, larger, promissory notes.APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 227MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 230 of 444 57. The personal “loans” to Allen Stanford were inconsistent with representations that had been made to Plaintiffs and members of the Class: despite the fact that SIBL’s annual reports included a section entitled “Related-Party Transactions” that purported to disclose all related-party transactions entered into by SIBL, SIBL’s “loans” to Allen Stanford were not disclosed in the “Related-Party Transactions” section of SIBL’s annual reports from 2004 through 2008. 58. Allen Stanford used the money that he “borrowed” from SIBL to, among other things, fund his personal ventures and private pursuits, including more than $400 million to fund personal real estate deals and more than $36 million to subsidize “Stanford 20/20”, an annual cricket tournament that boasted a $20 million purse. 59. Plaintiffs and other members of the Class reasonably relied upon SIBL’s misrepresentations regarding SIBL’s bogus “loans” to Allen Stanford. 60. Upon information and belief, Antigua, through the FSRC: (a) had actual knowledge regarding SIBL’s bogus “loans” to Allen Stanford, and the omission and/or mischaracterization of those “loans” in SIBL’s Annual Reports; and (b) intentionally and substantially assisted Stanford in concealing SIBL’s false statements regarding those bogus “loans” from Plaintiffs, other members of the Class, and other regulators. 61. Allen Stanford’s misappropriation of the Plaintiffs’ and the Class’s assets (and the poor performance of SIBL’s investment portfolio) created a giant hole in SIBL’s balance sheet. To conceal their fraudulent conduct and thereby ensure that Plaintiffs and the Class continued to entrust their money to SIBL, the Stanford Co-ConspiratorsAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 228MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 231 of 444 fabricated the growth, composition, and performance of SIBL’s investment portfolio to give the appearance that SIBL’s investments were highly profitable. 62. In its training materials for the SGC advisers, SIBL represented that it had earned consistent double-digit annual returns on its investment of deposits (ranging from 11.5% in 2005 to 16.5% in 1993) for almost fifteen years. SIBL marketed the CDs using these purported returns on investment. Likewise, SIBL’s Annual Reports stated that the bank earned from its “diversified” investments approximately $642 million in 2007 (11 %), and $479 million in 2006 (12%). 63. SIBL claimed that its high returns on investment allowed it to offer higher rates on the CD than those offered by U.S. banks. For example, SIBL offered 7.45% as of June 1, 2005, and 7.878% as of March 20, 2006, for a fixed-rate CD based upon an investment of $100,000. On November 28, 2008, SIBL quoted 5.375% on a 3-year flex CD, while comparable U.S. bank CDs paid less than 3.2%. 64. None of the information that SIBL disseminated regarding the growth, composition, and performance of its investment portfolio was true. Instead, through their actions, the Stanford Co-Conspirators caused SIBL to report investment income that the bank did not actually earn and, thereby, greatly inflate the value of its investment portfolio. Specifically, the Stanford Co-Conspirators prepared and reviewed SIBL’s financial statements, including the annual reports that were provided to customers and posted on the bank’s website.APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 229MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 232 of 444 65. Plaintiffs and other members of the Class reasonably relied upon the information that SIBL disseminated regarding the growth, composition, and performance of its investment portfolio. 66. Upon information and belief, Antigua, through the FSRC: (a) had actual knowledge regarding the false and fraudulent nature of the information that SIBL disseminated regarding the growth, composition, and performance of its investment portfolio; and (b) intentionally and substantially assisted Stanford’s scheme by falsely representing to Plaintiffs and other members of the Class that SIBL’s financial statements were subject to, and approved only after, substantive FSRC review and scrutiny. 67. As world financial markets experienced substantial declines in 2008, it became apparent to Allen Stanford and Davis that SIBL could not credibly report investment profits in the 11 % to 15% range (as it had done in previous years). Allen Stanford and Davis thus agreed that SIBL would for the first time show a “modest” loss to avoid raising too many “red flags” to customers and other nations’ regulators. In other words, they opted to tell a “more believable lie” in order to conceal their many previous years of fraudulent conduct. 68. SIBL touted a purported $541 million capital infusion from Allen Stanford in a December 2008 report: Although our earnings will not meet expectations in 2008, Stanford International Bank Ltd. is strong, safe and fiscally sound. We have always believed that depositor safety was our number one priority. To further support the Bank’s growth and provide a strong cushion for any further market volatility, the Bank’ s Board of Directors made a decision to increase the Bank’s capital by $541 million on November 28, 2008. This contribution brings total shareholder equity to $1,020,029,802 with a capital to assets ratio of 11.87% and a capital to deposits ratio of 13.48%.APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 230MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 233 of 444 69. The purported capital infusions by Allen Stanford were backdated, fictitious, and engineered to give the appearance that SIBL had achieved “desired” levels of capital. 70. In December 2008, well after Allen Stanford had purportedly infused the $541 million in additional capital into SIBL, Allen Stanford, Davis, Kuhrt, and Lopez approved and implemented a scheme wherein they “papered” a series of fraudulent round-trip real estate transactions utilizing undeveloped Antiguan real estate acquired by SIBL in 2008 for approximate1y $63.5 million (or roughly $40,000 per acre). 71. To give the appearance that the above-referenced capital infusions actually occurred, Allen Stanford, Davis, Kuhrt, and Lopez falsified accounting records by recording bogus transactions: • SIBL sold the Antiguan real estate to several newly-created Stanford- controlled entities at the original cost of $63.5 million (although there is no evidence that Stanford paid SIBL the $63.5 million); • the Stanford-controlled entities, at Allen Stanford’s and Davis’s instruction, immediately wrote-up the value of the real estate to approximately $3.2 billion dollars (or $2 million per acre), thereby exponentially increasing the value of the entities’ stock; • in an effort to satisfy a portion of Allen Stanford’s personal debt to SIBL, Allen Stanford contributed to SIBL $1.7 billion of the fraudulently- inflated stock (using the inflated $2 million per acre valuation); and • Allen Stanford then contributed to SIBL additional stock in the real estate holding companies valued at $200 million and $541 million (again using the inflated $2 million per acre valuation) to fund the backdated capital contributions. 72. These transactions did not infuse real capital into SIBL. In fact, the entire process was fabricated after the reported capital contributions allegedly occurred.APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 231MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 234 of 444 Moreover, the purported inflation in value of the real estate from $40,000 to $2 million per acre was not justifiable under applicable U.S. or international accounting principles. SIBL did not secure an appraisal and had no other reasonable support for such a drastic increase in value. The transactions among Stanford-controlled entities simply were not the kind of arm’s-length transactions required to justify a 5000% increase in value. Nevertheless, on a mere promise from Allen Stanford that the land would appraise for over $3 billion, Stanford, Davis, Kuhrt, and Lopez used $63.5 million of Antiguan real estate to simultaneously plug a multi-billion dollar hole in SIBL’s balance sheet and eliminate a significant portion of Allen Stanford’s personal debt to SIBL. 73. Following the fraudulent capital infusions, the largest segment of the bank’s investment portfolio would have been $3.2 billion in over-valued real estate. Yet, SIBL did not disclose the transactions in its December 2008 newsletter, which touted Allen Stanford’s purported capital infusion. Moreover, Stanford’s real estate investments were wholly inconsistent with SIBL’s representations to customers that SIBL’s investment portfolio was composed of marketable securities, and not real estate. 74. Plaintiffs and other members of the Class reasonably relied upon the information regarding Allen Stanford’s purported capital infusion to SIBL. 75. Upon information and belief, Antigua, through the FSRC: (a) had actual knowledge regarding the fraudulent nature of both Allen Stanford’s purported capital infusion to SIBL and the Stanford Co-Conspirators’ inflated appraisal of Antiguan real estate; and (b) intentionally and substantially assisted Stanford in concealing SIBL’sAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 232MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 235 of 444 fraudulent real estate machinations from Plaintiffs, other members of the Class, and other nations’ regulators. Misrepresentations Regarding Management of SIBL’s Investment Portfolio 76. Prior to making decisions to entrust their money to SIBL, prospective customers routinely asked how SIBL safeguarded and monitored its assets. They also frequently inquired whether Stanford could “run off with the money.” 77. In response to these questions, at least during 2006 and much of 2007, Pendergest-Holt trained SIBL’s senior investment officer (“SIO”) to tell customers and prospective customers that the bank’s multi-billion dollar portfolio was managed by a “global network of portfolio managers” and “monitored” by a team of SFG analysts in Memphis, Tennessee. The SIO followed Pendergest-Holt’s instructions, telling customers and prospective customers that SIBL’s entire investment portfolio was managed by a global network of money managers and monitored by a team of more than twenty analysts. 78. Neither Pendergest-Holt nor the SIO disclosed to customers that SIBL segregated its investment portfolio into three tiers: (i) cash and cash equivalents (“Tier 1”); (ii) investments with “outside portfolio managers (25+)” that were monitored by the SFG analysts (“Tier 2”); and (iii) undisclosed assets managed by Stanford and Davis (“Tier 3”). As of December 2008, Tier 1 represented merely approximately 9% ($800 million) of SIBL’s purported portfolio. Tier 2, prior to the bank’s decision to liquidate $250 million of investments in late 2008, represented approximate1y 10% ofAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 233MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 236 of 444 SIBL’s portfolio. Tier 3, the undisclosed assets managed by Allen Stanford and Davis, thus represented approximately 80% of SIBL’s investment portfolio in December, 2008. 79. Neither Pendergest-Holt nor SIBL’s SIO disclosed that the bank’s Tier 3 assets were managed and/or monitored exclusively by Allen Stanford and Davis. Likewise, they did not disclose that Allen Stanford and Davis surrounded themselves with a close-knit circle of family, friends and confidants, thereby eliminating any independent oversight of SIBL’s assets. 80. Neither Pendergest-Holt nor the SIO disclosed to the Plaintiffs or the Class that the “global network” of money managers and the team of analysts did not manage any of SIBL’s Tier 3 investments and, in reality, only monitored approximate1y 10% of SIBL’s portfolio. In fact, Pendergest-Holt trained the SIO “not to divulge too much” about the oversight of SIBL’s portfolio because that information “wouldn’t leave an investor with a lot of confidence.” Likewise, Davis instructed the SIO to “steer” potential customers away from information about SIBL’s portfolio. 81. Plaintiffs and other members of the Class reasonably relied upon the information disseminated by SIBL’s SIO when making their decisions to invest in and with the Stanford Entities. 82. Upon information and belief, Antigua, through the FSRC: (a) had actual knowledge regarding the fact that, as of December, 2008, undisclosed Tier 3 investments represented approximately 80% of SIBL’s portfolio; and (b) intentionally and substantially assisted Stanford in concealing SIBL’s method of segregating its investmentAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 234MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 237 of 444 portfolio into three “tiers” from Plaintiffs, other members of the Class, and other nations’ regulators. Misrepresentation That SIBL Was “Stronger” Than Ever Before 83. On January 10, 2009, Allen Stanford, Davis and Pendergest-Holt spoke to SGC’s Top Performers Club (a collection of high performing Stanford financial advisers) in Miami, Florida. 84. During that meeting, Davis stated that SIBL was “stronger” than at any time in its history. Allen Stanford, Davis, and Pendergest-Holt represented that SIBL was secure and built upon a strong foundation, and that its financial condition was shored up by Allen Stanford’s capital infusions. Davis, however, failed to disclose that he had been informed only days earlier by the head of SIBL’s treasury that, despite SIBL’s best efforts to liquidate Tier 2 assets, SIBL’s cash position had fallen from the June 30, 2008, reported balance of $779 million to less than $28 million. 85. Allen Stanford and Davis also failed to disclose to the SGC sales force that: (i) Allen Stanford had misappropriated more than $1.6 billion of investor funds; (ii) SIBL’s annual reports, financial statements and quarterly reports to the FSRC were false; (iii) hundreds of millions of dollars of SIBL customers’ funds had been invested in a manner inconsistent with SIBL’s representations to customers that SIBL’s investment portfolio was composed of marketable securities, and not real estate and/or private equity; and (iv) the purported 2008 capital infusions by Allen Stanford were a fiction. 86. During her speech, Pendergest-Holt, after being introduced as SFG’s chief investment officer and a “member of the investment committee of the bank,” answeredAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 235MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 238 of 444 questions about SIBL’s investment portfolio. In so doing, she failed to disclose to attendees that she and her team of analysts did not manage SIBL’s entire investment portfolio and, instead, only monitored approximately 10% of the bank’s investments. She also failed to disclose that SIBL had invested SIBL’s funds in a manner inconsistent with SIBL’s representations to customers that SIBL’s investment portfolio was composed of marketable securities, and not real estate and/or private equity. 87. Allen Stanford, Davis and Pendergest-Holt also failed to disclose that, on or about December 12, 2008, Pershing, LLC (SGC’s clearing broker-dealer) had informed SGC that it would no longer process wire transfers from SGC to SIBL for the purchase of the CDs, citing suspicions about SIBL’ s investment returns and its inability to get from the bank “a reasonable leve1 of transparency” into its investment portfolio. 88. Allen Stanford, Davis and Pendergest-Holt knew that SGC advisers would rely upon the information provided to them during the Top Performers Club meeting to sell CDs. Plaintiffs and other members of the Class reasonably relied upon that information. 89. Upon information and belief, Antigua, through the FSRC had actual knowledge regarding the facts that: (i) in the second half of 2008, SIBL’s cash position had fallen from the June 30, 2008, reported balance of $779 million to less than $28 million; and (ii) Pershing, LLC, had discontinued its role as SGC’s clearing broker-dealer due to its suspicions regarding SIBL.APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 236MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 239 of 444 Exposure to Losses From Madoff-related Investments 90. In the December 2008 Monthly Report, SIBL told its customers that it “had no direct or indirect exposure to any of [Bemard] Madoff s investments.” 91. Contrary to this statement, Allen Stanford, Davis and Pendergest-Holt knew, prior to the release of the December 2008 Monthly Report, that SIBL had exposure to losses from the Madoff Scheme. 92. On December 12, 2008, and again on December 18, 2008, Pendergest- Holt received e-mails from Meridian Capital Partners, a hedge fund with which SIBL had invested, detailing SIBL’s exposure to losses from the Madoff Scheme. 93. On December 15, 2008, an SFG-affiliated employee notified Pendergest- Holt and Davis that SIBL had exposure to losses from the Madoff Scheme in two additional funds through which SIBL had invested. That same day, Davis, Pendergest- Holt, and others consulted with Allen Stanford regarding the bank’s exposure to losses from the Madoff Scheme. 94. Allen Stanford, Davis and Pendergest-Holt never corrected this misrepresentation in the December 2008 monthly report. 95. Plaintiffs and other members of the Class reasonably relied upon the information regarding SIBL’s purported lack of exposure to losses from the Madoff Scheme. 96. Upon information and belief, Antigua, through the FSRC: (a) had actual knowledge regarding SIBL’s exposure to losses from the Madoff Scheme; and (b) intentionally and substantially assisted Stanford in concealing SIBL’s exposure to lossesAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 237MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 240 of 444 from the Madoff Scheme from SIBL’s customers (including Plaintiffs and other members of the Class) and other nations’ regulators. Antigua’s Participation in the Fraud 97. Tourism accounts for more than half of Antigua’s gross domestic product. After a series of violent hurricanes devastated Antigua’s tourism infrastructure in 1995, Antigua experienced a sharp decline in tourist arrivals and revenue; this decline was exacerbated by the recent global economic downturn. As a result of this decline in its primary source of income, Antigua experienced severe fiscal difficulties. 98. Partly as a result of the decline in tourist revenues, Antigua has, for many years, had difficulties in engaging in routine commercial activities such as securing loans from legitimate sources. At the time, “most [banks] balk[ed] at lending to a bloated and revenue-strapped government with a record of mismanagement and corruption.” [P. Fritsch, Antigua, Island of Sun, Is Also in the Shadow of R. Allen Stanford, WALL ST. JOURNAL, Mar. 5, 2002, pg A1 (the “2002 WSJ Article”)] 99. Antigua therefore entered into a corrupt and illegal commercial partnership with the Stanford Co-Conspirators, in which Antigua became an integral part of, and beneficiary of, Stanford’s multi-billion dollar international fraudulent conspiracy. Antigua’s Commercial Lending Relationship With Stanford 100. Despite Antigua’s lack of creditworthiness with legitimate lending institutions, Stanford provided Antigua with vast sums of money from the Stanford Enterprises – funds stolen from Plaintiffs and other members of the Class – and enteredAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 238MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 241 of 444 into a series of commercial business transactions with Antigua, all with the purpose and effect of prolonging, and making Antigua a full partner in, Stanford’s criminal enterprise. 101. According to a March 11, 2009, report on Bloomberg News’s website [Stanford’s Island Empire Implodes As Antigua Grabs Properties, by Alison Fitzgerald and Thomas Black (the “2009 Bloomberg Article”)] Stanford has “loaned” at least $85 million to Antigua. It now is apparent that the money that Stanford “loaned” to Antigua was stolen from members of the Class, including Plaintiffs. 102. For example, in May, 1995, Stanford “loaned” roughly $11 million to Antigua, which Antigua used to pay salaries of public employees and contributions to those employees’ pension fund. Upon information and belief, the “loan” was a transfer from the Stanford Entities to Antigua using proceeds from the Stanford Enterprises, including funds fraudulently stolen from the Plaintiffs and other members of the Class. 103. Upon information and belief, all or substantially all of Stanford’s loans to Antigua have not been repaid. Antigua’s Commercial Partnership with Stanford in the Development and Operation of V.C. Bird International Airport 104. In May, 1993, on the same day that Stanford made its first significant loan (approximately $3.7 million) to Antigua, Stanford and Antigua entered into a “trust” agreement that gave Stanford near-total control over the V.C. Bird International Airport in Antigua. 105. Stanford and Antigua worked together on many improvements to the airport between 1993 and 2009. Indeed, according to the Judicial Committee of the United Kingdom’s Privy Council (the final Court of Appeal for Commonwealth countriesAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 239MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 242 of 444 who have chosen to retain it), by 2002, Stanford “was in the process of preparing a plan, on the instructions of the government, of the expansion and redevelopment of the airport and its surroundings” (emphasis added). This plan for the commercial development of the airport by Stanford, under the instructions of Antigua, was known as the “Master Plan.” 106. The Master Plan resulted in a commercial partnership between Antigua and Stanford in the development and operation of the airport and its surrounding facilities. 107. At Antigua’s direction, and with its express approval, Stanford developed the area around the airport to include SIBL’s (and the Bank of Antigua’s) offices, a cricket stadium, and two restaurants. Antigua’s Commercial Partnership with Stanford in Real Estate Sales and Development 108. Antigua has, on several occasions, sold land to Stanford at what former Prime Minister Lester Bird called “cut-rate prices.” [2009 Bloomberg Article] 109. Upon information and belief, Stanford facilitated at least some of these sales by making payments to public officials. For example, in 2003, when Allen Stanford was seeking to swap land owned by his Bank of Antigua for other land that he wished to develop, Allen Stanford gave separate $74,000 checks to Antigua’s Tourism Minister and Planning Minister. Upon information and belief, each of those payments was made with proceeds from the Stanford Enterprises, including funds fraudulently stolen from the Plaintiffs and the Class.APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 240MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 243 of 444 110. In 2003, Antigua sold Maiden Island, a 23-acre property, to Stanford. Upon information and belief, that purchase was made using proceeds from the Stanford Enterprises, including funds fraudulently stolen from the Plaintiffs and the Class. 111. In 1997, Antigua, acting in furtherance of Stanford’s commercial interests, pressured the American owner of the 110-acre Half Moon Bay beach resort to sell that property to Allen Stanford. When the American hotel owner refused to accede to Antigua’s demand to sell, Antigua moved to expropriate the property by eminent domain. The hotel owner litigated the matter for more than a decade until, in late 2007, the Privy Council ruled that Antigua had the right to nationalize the land. Prior to Allen Stanford’s arrest, Antigua had convened an “Assessment Board” to set the value that the new owner to be selected by Antigua – presumably, Allen Stanford – would need to pay the former owner for the confiscated property Caribbean Star Airlines 112. In January, 2000, Stanford incorporated “Caribbean Star Airlines”, a for- profit airline company. 113. From its inception, Caribbean Star Airlines was an integral part of the Stanford Enterprises. 114. Upon information and belief, Caribbean Star Airlines was established, funded, and maintained using proceeds from the Stanford Enterprises, including funds fraudulently stolen from the Plaintiffs and the Class.APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 241MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 244 of 444 115. In 2007, Leeward Islands Air Transport Services (“LIAT”), an airline owned in large part by Antigua, purchased Caribbean Star Airlines, and several airplanes belonging to Caribbean Star, from Stanford, on favorable terms. 116. Upon information and belief, Antigua, through LIAT, would not have had the financial ability to purchase Caribbean Star Airlines but for the fact that funding was made available to it by the Stanford Enterprises. Antigua’s Commercial Partnership with Stanford In the Development of Mount St. John Medical Centre 117. In the late 1990s and early 2000s, Antigua partnered with Stanford and others in the construction of Antigua’s new Mount St. John Medical Centre. 118. As part of the partnership, Antigua sought, and received, a $30 million loan from Stanford for the hospital’s construction costs. Upon information and belief, the funds that Stanford made available to Antigua for construction of the hospital were proceeds from the Stanford Enterprises, including funds fraudulently stolen from the Plaintiffs and the Class. 119. Stanford was appointed as the Chairman of the Board of the hospital. Subsequently, an independent commission tasked with investigating allegations of corruption in the building of the hospital determined that Antigua had promised to repay the $30 million loan to Stanford with funds that were taken directly from Antigua’s social security system. 120. Thus, the purported “loan” agreement was actually a fraudulent scheme between Antigua and Stanford designed to use $30 million of proceeds from the Stanford Enterprises to enable Antigua to loot its own social security system.APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 242MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 245 of 444 121. As a result of the commission’s report, Allen Stanford resigned from the hospital’s Board of Directors. Stanford’s Transfer Of Additional Crime Proceeds to Antigua 122. At roughly the same time, Stanford also underwrote the construction of new executive offices for the government of Antigua. 123. Upon information and belief, the funds that Stanford made available to Antigua for construction of the executive offices were proceeds from the Stanford Enterprises, including funds fraudulently stolen from the Plaintiffs and the Class. 124. In 2001, Allen Stanford announced that he would forgive a $5 million loan that he personally had made to Antigua, and provide an additional loan to pay Antigua’s back salaries and meet other obligations. Upon information and belief, the funds loaned to Antigua were stolen from Plaintiffs and other members of the Class, then transferred to Antigua. 125. A U.S. official responded to Allen Stanford’s decision to forgive the loan by stating that “[w]e’ve made clear to the [Antiguan] government that this does not at all look good” when juxtaposed with Antigua’s then-pending (and eventually-successful) effort to confiscate the Half Moon Bay hotel. [2002 WSJ Article] 126. Upon information and belief, the funds that Stanford made available to Antigua through both the loan forgiveness and the additional loan were proceeds from the Stanford Enterprises, including funds fraudulently stolen from the Plaintiffs and the Class.APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 243MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 246 of 444 127. In 2004, Antigua’s Finance Minister disclosed that Stanford had: (a) agreed to write off roughly $18 million of Antigua’s debt; (b) “donated” money needed to build a national library; and (c) “donated” $9 million for a higher education complex for Antigua. Upon information and belief, the funds that Stanford made available to Antigua for loan forgiveness, to pay for the national library, and to pay for the higher education complex were proceeds from the Stanford Enterprises, including funds fraudulently stolen from the Plaintiffs and the Class. 128. In return for the transfer of funds from the Stanford Enterprises to Antigua, Antigua allowed Allen Stanford to acquire yet another island, Guiana Island. Upon information and belief, the funds that Stanford used to purchase that island were proceeds from the Stanford Enterprises, including funds fraudulently stolen from the Plaintiffs and the Class. 129. Antigua also partnered with Stanford to create the “Empowerment for Ownership Initiative.” According to Antigua’s Minister of Finance and Economy, this initiative represented a “far-reaching and historic alliance between the Stanford Group and the Government of Antigua.” [2005 Budget Statement, Hon. L. Errol Cort, MP, Nov. 30, 2004, “2005 Budget Statement”] According to a 2007 Antigua and Barbuda Budget Presentation, the “initiative represent[ed] a collaborative undertaking of the Government, the Stanford Group of Companies and the [Antigua Barbuda Development] Bank.” Upon announcing the initiative, the Minister of Finance and Economy stated that “[t]he Government of Antigua and Barbuda looks forward to an enduring and productive partnership with the Stanford Group.” [2005 Budget Statement]APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 244MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 247 of 444 130. The “collaborative undertaking” between Antigua and Stanford was created with “a $10 million fund endowed by the Stanford Group of Companies.” Id. Upon information and belief, the funds that Stanford used to fund the endowment were proceeds from the Stanford Enterprises, including funds fraudulently stolen from the Plaintiffs and the Class. 131. Antigua also has entered into a commercial venture with Stanford in the promotion of the sport of cricket. At relevant times, Stanford bankrolled Antigua’s national professional cricket team, and built the large “Stanford Cricket Ground” near the V.C. Bird International Airport. Upon information and belief, the funds used to support these joint Antigua-Stanford commercial ventures were proceeds from the Stanford Enterprises, including funds fraudulently stolen from the Plaintiffs and the Class. 132. Stanford and Antigua also collaborated on the funding, construction, and improvement of Antigua’s infrastructure prior to Antigua’s hosting in 2006 of the initial “Stanford 20/20” cricket tournament at the St. John’s “ground.” The “20/20” tournament was also held in St. John’s in 2007 and 2008, and was a substantial source of revenue for Antigua’s suffering tourist industry. Upon information and belief, the funds used to support this joint Antigua-Stanford commercial venture were proceeds from the Stanford Enterprises, including funds fraudulently stolen from the Plaintiffs and the Class. Antigua’s Actions to Protect the Stanford Enterprises 133. In light of the many lucrative commercial activities undertaken by the Antigua-Stanford collaboration, Antigua had an extremely strong financial incentive toAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 245MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 248 of 444 ensure the continuity of the Stanford Enterprises, from which Antigua had profited so handsomely. 134. Upon information and belief, Antigua and the FSRC undertook a comprehensive effort to ensure the continuous flow of money and commercial activity between itself and the Stanford Enterprises by insulating the Stanford Enterprises from scrutiny by customers and other nations’ regulators. 135. In the late 1990s and early 2000s, Antigua took several self-serving steps to protect the Stanford Enterprises from any such scrutiny, and to perpetuate the scheme. 136. In or about 1996, the Prime Minister of Antigua appointed Allen Stanford to spearhead a revision of Antigua’s offshore banking regulations. Allen Stanford successfully urged the Prime Minister to also name Allen Stanford’s attorney (and two other members of that attorney’s firm) to the “special advisory board.” At Antigua’s request, Bank of Antigua – an entity that was part of the SFG Enterprise – loaned Antigua the money to pay for the “special advisory board” project. 137. In November, 1998, Antigua’s Parliament passed several laws that were recommended by the “special advisory board” led by Allen Stanford. Among the new laws passed was one that criminalized the release, by any bank employee or Antiguan regulator, of information about any Antiguan bank customer without a court order. This statute provided the Stanford Enterprises with a significant shield against any investigation into their fraudulent financial schemes. 138. Another part of the 1998 reforms created the International Financial Sector Authority (“IFSA”), an Antiguan entity meant to regulate offshore banks. AllenAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 246MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 249 of 444 Stanford, owner of SIBL, the largest offshore bank located in Antigua, was named to be the Chairman of the Board of Directors of the IFSA, whose mandate purportedly was to regulate banks such SIBL. 139. As a result of Antigua’s decision to allow Allen Stanford to regulate (or, more accurately, fail to regulate) his own bank via the IFSA, in 1999, the United States Department of State sent a cable from the U.S. Embassy in Antigua that stated that “the Antiguan government has effectively ceded oversight of its offshore sector to an offshore banker and his minions.” According to the 2009 Bloomberg Article, Jonathan Winer, a deputy assistant secretary of state during the relevant period, acknowledged that the “offshore banker” referenced in the State Department cable was, in fact, Allen Stanford. In that same article, Mr. Winer is quoted as saying that Allen Stanford’s role as a regulator of his own assets was “unprecedented, bizarre, inappropriate, [and an] obvious conflict of interest.” 140. At roughly the same time, the U.S. Treasury Department listed Antigua as a money laundering risk, only the second time that it had issued such a warning against an entire nation. 141. Shortly thereafter, the IFSA, of which Allen Stanford was still a board member, sought to obtain Antigua’s records related to its offshore banks. An Antiguan governmental official, Althea Crick, refused to turn the documents over to Allen Stanford and the IFSA, apparently because she feared that the IFSA would conceal any wrongdoing found in the documents. After a two-day standoff, the IFSA seized the documents from Ms. Crick. In a letter written by James Johnson, then the U.S. TreasuryAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 247MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 250 of 444 Department’s undersecretary of enforcement, to Antigua’s Prime Minister, Mr. Johnson wrote that the IFSA’s seizure of the bank documents “raises substantial questions as to Antigua and Barbuda’s commitment to provide effective supervision of its offshore sector.” In that same letter, Mr. Johnson complained that Antigua had softened its laws against money laundering and had created an obvious conflict of interest by allowing Allen Stanford to sit on the IFSA board. Allen Stanford eventually stepped down from the IFSA board. Antigua Was an Integral Part of the Scheme 142. Upon information and belief, the Stanford Enterprises repeatedly paid bribes to Antigua and Antiguan officials. The purpose and effect of those bribes was to integrate Antigua into the scheme, and to give it a stake in the Stanford Enterprises. 143. The 2002 WSJ Article quoted Baldwin Spencer, then the leader of the government opposition party, as saying that Allen Stanford “has a lien on our whole country.” According to the 2009 Bloomberg Article, in 2003, Mr. Spencer also criticized the Antigua-Stanford land swap and Antigua’s sale of Maiden Island to Allen Stanford as “surrendering the people’s patrimony.” 144. As The Observer (a United Kingdom newspaper) reported on March 2, 2008 (in We Have Lift-off, by Andy Bull), “[t]he power that [Allen Stanford’s] wealth provides when exercised in a country as small as Antigua is difficult to comprehend. He owns the national bank, runs the airline, paid for the hospital, and built the hotels. The island is, to a degree, his fiefdom; the government awarded him a knighthood, presented by Prince Edward, in 2006.”APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 248MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 251 of 444 145. According to a 2009 article in GQ Magazine (Did This Man Pull Off The Most Brazen Swindle Of All?, by Aram Roston), money-laundering expert Jack Blum has bluntly stated that Allen Stanford “bought the [Antiguan] Prime Minister.” 146. Upon information and belief, sums that the Stanford Enterprises paid as bribes to Antiguan officials, and the monies that the Stanford Enterprises invested in (and loaned to Antigua in connection with) the various commercial ventures upon which Stanford and Antigua worked together, were taken directly from the billions of dollars that the Stanford Enterprises stole from their customers, including Plaintiffs and other members of the Class, by means of the massive “Ponzi” scheme for which Allen Stanford and others have now been indicted. 147. In the course of the commercial activities in which they participated with the Stanford Enterprises, Antigua corruptly traded, or promised to trade, to Allen Stanford and/or the Stanford Enterprises items of value such as commercial real estate, at least two islands (Maiden and Guiana Islands), the Half Moon Bay luxury resort hotel, positions on the boards of corporations and agencies, a variety of development rights, and the rights to conduct various services (and impose or collect certain fees and/or taxes) at the V.C. Bird International Airport. In return for using these, and other, items of value as consideration in connection with the various commercial activities in which Antigua engaged with the Stanford Enterprises, Antigua received millions of dollars in investments and loans (many of which subsequently were forgiven by the Stanford Enterprises, thus transforming those purported “loans” into direct cash payments) fromAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 249MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 252 of 444 the Stanford Enterprises, all of which were funded by money that the Stanford Enterprises stole from depositors, including Plaintiffs and other members of the Class. 148. As part of its efforts to maintain and facilitate the corrupt commercial activities from which they were profiting at Plaintiffs’ and the Class’s expense, Antigua shielded the Stanford Enterprises’ “Ponzi” scheme from any person or entity (including, specifically, other nations’ regulatory bodies) that might have endangered the vitality of the Stanford Enterprises’ scheme, and the ability of the Stanford Enterprises to continue to funnel proceeds of that scheme to Antigua. 149. For many years, Antigua’s corrupt efforts to shield the Stanford Enterprises from regulatory and private scrutiny were successful, thus allowing the Stanford Enterprises to continue to steal money from depositors and pay part of the stolen amounts to Antigua in return for Antigua’s continued protection of the Stanford Enterprises. 150. In or about 2005, however, the SEC commenced an investigation into Stanford, and began to make official inquiries to the FSRC regarding the substance and worth of the investments that SIBL claimed that it had made on behalf of its customers, including Plaintiffs. 151. The FSRC was established by a 2002 amendment to the IBC Act, which was initially passed in 1982 by Antigua’s Parliament. Pursuant to the IBC Act, the FSRC was, at all relevant times, managed by a Board of Directors comprised of four members appointed by Antigua’s Minster of Finance and approved by Antigua’s Cabinet. One of the four FSRC members, as appointed by Antigua’s Minister of Finance and confirmedAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 250MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 253 of 444 by Antigua’s Cabinet, held the title of Administrator and Chief Executive Officer of the FSRC. 152. Pursuant to the IBC Act, the FSRC is, and at all relevant times was, tasked with conducting annual on-site investigations of Antigua’s offshore banks, including SIBL. The statutory purpose of the FSRC’s mandatory annual investigations is to ascertain the banks’ compliance with applicable laws, regulations, and international standards. 153. Antigua, through the FSRC, falsely represented that its annual investigations of its regulated entities including, at relevant times, SIBL, to included at least nine components: (a) A determination of the entity’s solvency, including the quality of its investments and loan portfolio; (b) A review of the policies and procedures that govern the entity’s operations; (c) A review of the entity’s internal control systems, including its money- laundering prevention control systems; (d) The verification of the entity’s compliance with proper customer account management guidelines; (e) The verification of the entity’s compliance with internationally-recognized prudential standards; (f) An assessment of the quality of the entity’s management;APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 251MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 254 of 444 (g) The verification of the accuracy of the returns that the entity submitted to the FSRC; (h) The enforcement of Antigua’s due diligence requirements; and (i) A determination of whether the entity maintains detailed records of transactions and customer files. 154. In addition to the annual investigations, the FSRC represented to customers and prospective customers of Antigua-based financial institutions, including SIBL, that the FSRC undertook continuous off-site supervision of those entities, in the form of analyses of quarterly returns and annual audited financial statements. Antigua, through the FSRC, Shielded Stanford 155. It was essential to the conspiracy that Stanford in general, and SIBL in particular, be able to represent to their clients, prospective clients, and foreign regulators that SIBL was closely supervised by Antigua, through the FSRC. 156. SIBL’s marketing materials regularly highlighted Antigua and FSRC’s purported regulation and inspection of SIBL’s financial condition and operation. 157. For example, in its 2003 Annual Report, SIBL stated that: In 2003, Antigua assumed the chairmanship of the Caribbean Financial Action Task Force (CFATF). This is another testament to the high level of compliance in the country. Moreover, Antigua enhanced its already stringent regulations in due diligence and compliance through the yearly on-site examination conducted by the Financial Sector Regulatory Commission. 158. In its 2005, 2006, and 2007 Annual Reports, SIBL stated that: The Bank is registered under the International Business Corporation Act No. 28 of 1982 as amended (“the Act”).APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 252MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 255 of 444 The Bank’s activities are governed by the Act and by every other act currently in force concerning international business corporations and affecting the corporation in Antigua and Barbuda. The Bank is also regulated by the Financial Services Regulatory Commission (FSRC). International banks are subject to annual audits, regulatory inspections and licensing requirements by this body. The supervisory authority for money laundering and other financial crimes is the Office of the National Drug Control and Money Laundering Policy (ONDCP). The FSRC and ONDCP, although independent, work closely together. 159. In its 2007 Annual Report, SIBL also stated that: The Bank is registered under the International Business Corporation Act No. 28 of 1982 as amended (“the Act”). The Bank’s activities are governed by the Act and by every other act currently in force concerning international business corporations and affecting the corporation in Antigua and Barbuda. The Bank is also regulated by the Financial Services Regulatory Commission (FSRC). International banks are subject to annual audits, regulatory inspections and licensing requirements by this body. The supervisory authority for money laundering and other financial crimes is the Office of the National Drug Control and Money Laundering Policy (ONDCP). The FSRC and ONDCP, although independent, work closely together…. Capital adequacy and the use of regulatory capital are monitored routinely by the Bank’s management, employing techniques based on the guidelines developed by the Basel Committee, as implemented by the FSRC for supervisory purposes. The required information is filed with the Regulatory Authority on a quarterly basis. The Authority requires each bank to: (1) hold all the minimum level of the regulatory capital, and (2) maintain a capital ratio to assets at or above the minimum of 5 percent. 160. It was a part of the conspiracy that Stanford would make regular secret payments of thousands of dollars in cash to King, the Administrator and CEO of the FSRC, to ensure that, among other things:APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 253MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 256 of 444 (a) The FSRC would not exercise its true regulatory functions in verifying the existence and value of SIBL’s investments; (b) King corruptly would provide to Stanford, Davis, and others information about official inquiries that the FSRC had received from United States regulators who had requested information from the FSRC regarding “possible fraud perpetrated upon investors” by SIBL; and (c) King would make false representations in response to official inquiries of regulators, including U.S. regulators, and would seek and receive the assistance of Stanford, Davis, and others, in preparing false responses to such inquiries. 161. The FSRC actively touted and vouched for the safety and security of SIBL. 162. The FSRC also is the Antiguan entity that is responsible for receiving and responding to requests by foreign regulators, including the SEC, for information regarding the entities regulated by the FSRC. 163. FSRC and King made false and misleading representations to the SEC and others regarding the nature and extent of FSRC’s oversight of SIBL, and the FSRC’s knowledge of SIBL’s financial condition and operation including, but not limited to, representations that SIBL’s operations and financial state were being scrutinized by FSRC, and that SIBL was subject to annual audits and regulatory inspections by FSRC. In fact, however, due to Antigua’s desire to maintain the cash flow that it was receiving from the Stanford Enterprises, FSRC failed to accurately audit SIBL, verify the existenceAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 254MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 257 of 444 or value of SIBL’s assets, or take any of the other regulatory measures that the FSRC was required under the IBC Act to take with respect to SIBL. 164. Moreover, according to documents obtained by the Receiver, in 2006 Antigua, through the FSRC, gave Stanford and/or certain of his employees advance notice of – and, in at least one case, the opportunity to significantly redraft – the FSRC’s replies to inquiries from the Eastern Caribbean Central Bank (“ECCB”) regarding SIBL. 165. Due to Antigua’s desire to maintain the cash flow from the commercial activities that were part of the Stanford Enterprises’ fraudulent scheme, including Antigua’s receipt of proceeds from the Stanford Enterprises, and King’s receipt of cash bribes, Antigua aided and abetted the Stanford Enterprises by providing the Stanford Enterprises with information about the SEC’s and the ECCB’s inquiries regarding SIBL and SIBL’s fraudulent activities. 166. Due to Antigua’s desire to maintain the cash flow from the commercial activities that were part of the scheme, including Antigua’s receipt of proceeds from the Stanford Enterprises, and King’s receipt of cash bribes, Antigua, through FSRC and King, also unlawfully made false and misleading representations to the SEC regarding the solvency of SIBL, and sought and received the assistance of Stanford in preparing the false and misleading responses to such inquiries. 167. Due to Antigua’s desire to maintain the cash flow from the commercial activities that were part of the Stanford Enterprises’ fraudulent scheme, including Antigua’s receipt of proceeds from the Stanford Enterprises, and King’s receipt of cash bribes, Antigua, through FSRC and King, took additional steps to protect the StanfordAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 255MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 258 of 444 Enterprises. Specifically, in or about May, 2003, King removed from an examination of a SIBL affiliate a FSRC employee who, according to the SEC’s Second Amended Complaint in the SEC Action, “got too close to the fire.” Bribes Paid by the Stanford Enterprises to King 168. During the relevant period, Stanford provided to King, in addition to the specific corrupt payments set forth below, use of the Stanford Enterprises’ corporate airplanes, and use of a corporate car. 169. King, as head of FSRC, received direct cash payments and other items of value from the Stanford Enterprises in exchange for his aid and assistance to, and participation in, the Stanford Enterprises. Each of those cash payments and items of value were proceeds, or were paid for with the proceeds, from the Stanford Enterprises, including funds fraudulently stolen from the Plaintiffs and the Class. 170. On or about February 1, 2004, Allen Stanford provided two tickets to King to the 2004 Super Bowl, which, upon information and belief, were purchased by the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and other members of the Class. 171. On or about February 7, 2005, King deposited in a U.S. financial institution approximately $15,000 that was, upon information and belief, paid to him by the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and other members of the Class. 172. On or about February 25, 2005, King deposited in a U.S. financial institution approximately $9,000 that was, upon information and belief, paid to him byAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 256MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 259 of 444 the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and other members of the Class. 173. On or about March 24, 2005, King deposited in a U.S. financial institution approximately $9,700 that was, upon information and belief, paid to him by the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and other members of the Class. 174. In June, 2005, the SEC requested the assistance of Antigua, through FSRC and King, in determining whether SIBL and SFG were defrauding their customers. 175. On or about June 21, 2005, Antigua, through FSRC and King, falsely represented in a letter to the SEC that FSRC’s examination of SIBL had not detected any evidence of SIBL’s operation of a “Ponzi” scheme. In that letter, Antigua, through FSRC and King, wrote that “any further investigation of ‘possible’ fraudulent activities of [SIBL] was unwarranted,” and that “it is the opinion of the FSRC that [SIBL] has conducted its banking business to date in a manner the FSRC considers to be fully compliant.” 176. In fact, however, due to Antigua’s desire to maintain the cash flow from the commercial activities that were part of Stanford’s fraudulent scheme, FSRC had failed to accurately audit SIBL, verify the existence or value of SIBL’s assets, or take any of the other measures that the FSRC was required under the IBC Act to take with respect to SIBL. 177. On or about December 30, 2005, King deposited in a U.S. financial institution approximately $6,000 that was, upon information and belief, paid to him byAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 257MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 260 of 444 the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and other members of the Class. 178. On or about March 10, 2006, King deposited in a U.S. financial institution approximately $9,800 that was, upon information and belief, paid to him by the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and other members of the Class. 179. On or about March 14, 2006, King deposited in a U.S. financial institution approximately $7,000 that was, upon information and belief, paid to him by the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and other members of the Class. 180. On or about March 20, 2006, King deposited in a U.S. financial institution approximately $8,000 that was, upon information and belief, paid to him by the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and other members of the Class. 181. On or about March 27, 2006, King deposited in a U.S. financial institution approximately $5,000 that was, upon information and belief, paid to him by the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and other members of the Class. 182. On or about August 31, 2006, King deposited in a U.S. financial institution approximately $2,000 that was, upon information and belief, paid to him by the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and other members of the Class.APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 258MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 261 of 444 183. In September, 2006, the SEC requested from Antigua, through FSRC and King, copies of FSRC’s investigative reports regarding SIBL. 184. On or about September 18, 2006, King deposited in a U.S. financial institution approximately $5,000 that was, upon information and belief, paid to him by the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and other members of the Class. 185. On or about September 21, 2006, King deposited in a U.S. financial institution approximately $6,000 that was, upon information and belief, paid to him by the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and other members of the Class. 186. Due to Antigua’s desire to maintain the cash flow from the commercial activities that were part of Stanford’s fraudulent scheme, on or about September 25, 2006, Antigua, through FSRC and King, unlawfully provided to Stanford the SEC’s September, 2006, request to FSRC and King for copies of FSRC’s investigative reports regarding SIBL. Antigua, through FSRC and King, also discussed with Stanford how Antigua, through FSRC and King, should and would respond to the SEC’s request. 187. On or about September 28, 2006, King deposited in a U.S. financial institution approximately $6,000 that was, upon information and belief, paid to him by the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and other members of the Class. 188. Due to Antigua’s desire to maintain the cash flow from the commercial activities that were part of Stanford’s fraudulent scheme, on or about October 10, 2006,APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 259MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 262 of 444 Antigua, through FSRC and King, provided to the SEC an official, false, and misleading response to the SEC’s September, 2006, information request. The false and misleading letter written by Antigua, through FSRC and King, contained text that was not written by Antigua, FSRC, or King; but, instead, was written by Stanford and others. In that letter, Antigua, through FSRC and King (and using text unlawfully written by Stanford and others) , falsely and misleadingly represented that “the FSRC’s most recent onsite examination just five months ago confirmed [SIBL’s] compliance with all areas of depositor safety and solvency, as well as all other applicable laws and regulations. The FSRC has further confirmed through its continuous visits and supervision of [SIBL] that there are no other issues or matters of concern with [SIBL].” 189. On or about October 23, 2006, King deposited in a U.S. financial institution approximately $8,000 that was, upon information and belief, paid to him by the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and other members of the Class. 190. On or about January 31, 2007, King deposited in a U.S. financial institution approximately $4,000 that was, upon information and belief, paid to him by the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and other members of the Class. 191. On or about March 19, 2007, King deposited in a U.S. financial institution approximately $6,000 that was, upon information and belief, paid to him by the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and other members of the Class.APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 260MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 263 of 444 192. On or about April 16, 2007, King deposited in a U.S. financial institution approximately $9,000 that was, upon information and belief, paid to him by the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and other members of the Class. 193. On or about September 14, 2007, King deposited in a U.S. financial institution approximately $5,500 that was, upon information and belief, paid to him by the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and other members of the Class. 194. On or about December 24, 2007, King deposited in a U.S. financial institution approximately $4,470 that was, upon information and belief, paid to him by the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and other members of the Class. 195. On or about January 23, 2008, King withdrew approximately $15,000 from a U.S. bank account and deposited the money into a U.S. investment account. Upon information and belief, those funds previously had been paid to King by the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and other members of the Class. 196. On or about January 30, 2008, King deposited in a U.S. financial institution approximately $9,500 that was, upon information and belief, paid to him by the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and other members of the Class.APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 261MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 264 of 444 197. On or about April 23, 2008, King deposited in a U.S. financial institution approximately $9,600 that was, upon information and belief, paid to him by the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and other members of the Class. 198. On or about June 30, 2008, King deposited in a U.S. financial institution approximately $7,000 that was, upon information and belief, paid to him by the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and other members of the Class. 199. Due to Antigua’s desire to maintain the cash flow from the commercial activities that were part of Stanford’s fraudulent scheme, in or about the fall of 2008, Antigua, through FSRC and King, caused false and misleading reports to be issued to Stanford’s customers, including Plaintiffs, that misrepresented the value of SIBL’s investments, and that set forth wildly inflated values for real estate that SIBL purportedly owned. 200. On or about December 8, 2008, King deposited in a U.S. financial institution approximately $6,800 that was, upon information and belief, paid to him by the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and other members of the Class. 201. On or about December 24, 2008, King deposited in a U.S. financial institution approximately $4,200 that was, upon information and belief, paid to him by the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and other members of the Class.APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 262MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 265 of 444 202. On or about February 23, 2009, King transferred approximately $150,000 from a U.S. investment account to an Antiguan bank account. Upon information and belief, those funds previously had been paid to King by the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and other members of the Class. 203. On or about February 26, 2009, the SEC sent a letter to Antigua, through FSRC and King, in which the SEC sought to determine the amount of investor funds (including Plaintiffs’ funds) that remained in SIBL accounts, and to identify persons who had committed fraud in connection with, or been victimized by, the Stanford Enterprises. 204. On or about March 2, 2009, King transferred approximately $410,000 from a U.S. investment account to an Antiguan bank account. Upon information and belief, those funds previously had been paid to King by the Stanford Enterprises using funds that the Stanford Enterprises had stolen from the Plaintiffs and other members of the Class. 205. Due to Antigua’s desire to maintain the cash flow from the commercial activities that were part of Stanford’s fraudulent scheme, on or about March 3, 2009, Antigua, through FSRC and King, sent a letter to the SEC that denied the SEC’s February 26, 2009, information request. In their March 3, 2009, letter, Antigua, through FSRC and King, stated that the FSRC had “no authority to act in the manner requested and would itself be in breach of law if it were to accede to [the SEC’s] request.” The “law” to which Antigua, through FSRC and King, referred was, naturally, the 1998 law that criminalized the release, by any Antiguan regulator, of information about a bank customer without aAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 263MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 266 of 444 court order, which had been passed by Antigua’s Parliament upon the recommendation of the “special advisory board” that Allen Stanford had led, and for which Stanford’s Bank of Antigua had loaned the money to Antigua to operate. 206. On June 18, 2009, the United States Department of Justice (“DOJ”) filed a twenty-one count criminal indictment in the United States District Court for the Southern District of Texas (the “DOJ Action”) against King, Allen Stanford, and various Stanford Entities and employees, alleging mail fraud; wire fraud; obstruction of a SEC investigation; conspiracy to commit mail, wire, and securities fraud; conspiracy to obstruct a SEC investigation; and conspiracy to commit money laundering. 207. On or about June 24, 2009, King was arrested by Antigua, in an apparent effort to shift the blame for Antigua’s participation in Stanford’s fraudulent scheme from Antigua – where that blame truly belongs – to King. Commercial Activity Having a Direct Effect in the United States 208. As set forth in the pleadings in the SEC Action and DOJ Action, and in various news reports, the Stanford Enterprises’ “Ponzi” scheme is responsible for the theft of at least $8 billion dollars from Stanford’s customers, including Plaintiffs and other members of the Class. 209. Antigua’s actions described above, taken in furtherance of the Stanford Enterprises’ fraudulent scheme, were performed: (1) outside of the United States; and (2) in connection with the desire to maintain the cash flow from the commercial activities in Antigua that were integral parts of Stanford’s fraudulent scheme.APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 264MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 267 of 444 210. Antigua’s actions described above, taken in furtherance of the Stanford Enterprises’ fraudulent scheme, had many direct effects in the United States, in large part because the Stanford Enterprises were based in the United States, and inextricably linked to the financial system of the United States. For example, according to a June 9, 2009, Declaration of Karyl Van Tassel (“Van Tassel Dec.”), a forensic accountant with FTI Consulting, Inc., which has been retained by the Receiver in the SEC Action, submitted in the SEC Action: (a) SIBL “was controlled and managed…from various places within the U.S. Most core functions such as managing investments, directing fund flows, devising investment strategy, and managing legal and information technology were directed from - and for the most part, performed in - the U.S. It also appears that major cash transfers were directed and controlled from within the U.S. by [Allen] Stanford, Davis and, in some instances, Holt.” Van Tassel Dec. at ¶ 9. (b) “SIB[L]’s two principal business activities - selling CDs and investing (or otherwise directing) the proceeds of sale - were both controlled from the United States, with no meaningful management input from Antigua.” Id. at ¶ 12. (c) “CDs were sold to people from all over the world, although in terms of dollar amount, there were more sales to U.S. citizens (37% based on most recent statement mailing address) than toAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 265MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 268 of 444 citizens of any other country. Moreover, Stanford brokers located in the U.S. accounted for 42%-44% of al CD sales in 2007 and 48% of sales in 2008.” Id. at ¶ 14. (d) “Misinformation regarding SIB[L]’s financial strength, profitability, capitalization, investment strategy, investment allocation, the value of its investment portfolio, and other matters, was disseminated from…the United States.” Id. at ¶ 15. (e) “SIB[L]’s principal operating accounts were maintained in Houston, Texas, at the Bank of Houston and Trustmark National Bank. Only a small amount of SIB[L] funds were kept on deposit in Antigua, and these funds were kept at the Bank of Antigua, another Stanford Entity.” Id. at ¶ 15. 211. Moreover, the actions described above had a direct effect in the United States, in that: (a) As a result of the conduct alleged herein, and related conduct, SFG, SIBL, Allen Stanford, Pendergest-Holt, Davis, and others are now the subject of the SEC Action, which is pending in the Northern District of Texas; (b) As a result of the conduct alleged herein, and related conduct, criminal proceedings have been instituted, in the form of the DOJ Action, against Allen Stanford, Pendergest-Holt, King, and others in the Southern District of Texas;APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 266MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 269 of 444 (c) The United States Internal Revenue Service has a multi-million dollar claim for taxes and penalties owed to the United States in whole or in part due to the commercial activities described herein; (d) A substantial number of Stanford’s customers, including the Plaintiffs and members of the Class, were based in the United States, and the economic effects of those persons’ tragic and substantial losses are being felt in the United States; and (e) Antigua’s unlawful actions led to the collapse of SFG, which was based in Houston, Texas. 212. Likewise, in connection with each allegation set forth above in which Plaintiffs allege that money was paid (or otherwise provided) to Antigua using funds that the Stanford Enterprises had stolen from the Plaintiffs and other members of the Class, each such act had a direct effect in the United States because the money at issue was being funneled to Antigua from defrauded customers in the United States, and elsewhere, through SFG’s operations in the United States, at the direction of the Stanford Enterprises in the United States. FIRST CLAIM FOR RELIEF: VIOLATION OF RICO – 18 U.S.C. §1962(c) (STANFORD ENTERPRISES) 213. Plaintiffs repeat, reiterate, and reallege each of the allegations set forth above.APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 267MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 270 of 444 214. Plaintiffs and the Class are “persons injured in [their] business or property” within the meaning of 18 U.S.C. §1964(c). 215. At all relevant times, the Stanford Enterprises were engaged in, and its activities affected, interstate and foreign commerce, within the meaning of RICO, 18 U.S.C. § 1962(c). 216. Antigua is a “person” within the meaning of 18 U.S.C. §§1961(3). 217. At all relevant times, Antigua conducted or participated, directly or indirectly, in the conduct of the Stanford Enterprises’ affairs through a “pattern of racketeering activity” within the meaning of RICO, 18 U.S.C. § 1961(5), in violation of RICO, 18 U.S.C. § 1962(c). 218. Specifically, at all relevant times, Antigua repeatedly committed the above criminal acts for the purpose of enriching itself, both financially and politically, and to otherwise further the ends of the Stanford Enterprises. 219. Antigua conducted and participated in the affairs of the Stanford Enterprises in at least the following ways: (a) Directing and/or otherwise causing the Stanford Enterprises to make commercial loans to Antigua, using the proceeds of the fraud; (b) Directing, approving, and/or otherwise participating in the Stanford Enterprises’ commercial development of the V.C. Bird International Airport, using the proceeds of the fraud; (c) Directing, approving, and/or otherwise participating in the Stanford Enterprises’ commercial development of SIBL’s and the Bank ofAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 268MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 271 of 444 Antigua’s offices, cricket stadium, and restaurants, using the proceeds of the fraud; (d) Directing, approving, and/or otherwise participating in the sale of real estate to the Stanford Enterprises for the purpose of transferring a portion of the proceeds of the fraud from the Stanford Enterprises to Antigua; (e) Directing, approving, and/or otherwise causing the Stanford Enterprises to pay bribes to King and others, using proceeds of the fraud; (f) Directing, approving, and/or otherwise causing the Stanford Enterprises to sell Caribbean Star Airlines (which the Stanford Enterprises had established using the proceeds of the fraud) to LIAT, which was the financial beneficiary of Antigua’s participation in the fraud; (g) Directing, approving, causing, and/or otherwise participating in the Stanford Enterprises’ development of the Mount St. John Medical Centre, using the proceeds of the fraud; (h) Directing, approving, causing, and/or otherwise participating in the Stanford Enterprises’ funding of the construction of new executive offices for the government of Antigua, using the proceeds of the fraud; (i) Directing, approving, and/or otherwise causing Allen Stanford to forgive a $5 million personal loan to Antigua, and provide anAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 269MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 272 of 444 additional loan to pay Antigua’s back salaries and meet other obligations, using proceeds of the fraud; (j) Directing, approving, causing, and or otherwise participating in the Stanford Enterprises’ write off of roughly $18 million of Antigua’s debt, using proceeds of the fraud; (k) Directing, approving, causing, and or otherwise participating in the Stanford Enterprises’ “donation” to Antigua of money needed to build a national library, using proceeds of the fraud; (l) Directing, approving, causing, and or otherwise participating in the Stanford Enterprises’ “donation” of $9 million to construct a higher education complex for Antigua, using proceeds of the fraud; (m) Directing, approving, causing, and or otherwise participating in the Stanford Enterprises’ funding of the “Empowerment Ownership Initiative,” using proceeds of the fraud; (n) Directing, approving, causing, and/or otherwise participating in the Stanford Enterprises’ massive funding of the sport of cricket, using proceeds of the fraud; (o) Directing, approving, causing, and/or otherwise participating in the Stanford Enterprises’ efforts to deceive depositors and prospective depositors in SIBL, including Plaintiffs and members of the Class, by intentionally disseminating misleading information concerning: Antigua’s purported oversight of SIBL and the legitimacy andAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 270MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 273 of 444 solvency of SIBL, upon which Plaintiffs and members of the Class reasonably relied; and (p) Directing, approving, causing, and/or otherwise participating in the Stanford Enterprises’ efforts to deceive the SEC concerning the solvency and legitimacy of SIBL’s banking operations. 220. The acts described above were related to one another as part of a common scheme or plan, namely a scheme to defraud the Plaintiffs and the Class, and to ensure that the Stanford Enterprises would continue to be able to defraud the Plaintiffs and the Class, for the financial benefit of the Stanford Enterprises, the Stanford Co-Conspirators, and Antigua. 221. The acts set forth above constitute violations of 18 U.S.C. § 1341 (mail fraud) and 18 U.S.C. § 1343 (wire fraud) because Antigua, the Stanford Co-Conspirators, and the Stanford Enterprises each knowingly and intentionally used interstate and/or international wires and mails for the purpose of obtaining money and/or property by means of false and fraudulent pretenses, including, among other things: (a) disseminating false and fraudulent information to Plaintiffs and the Class, upon which Plaintiffs and the Class reasonably relied, using interstate and/or international telephone, the Internet, and interstate or international mails; (b) deceiving the SEC concerning the legitimacy and solvency of SIBL, using wire and/or mail communications between Antigua and the United States;APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 271MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 274 of 444 (c) effectuating the receipt of deposits from Plaintiffs and the Class, located throughout the United States and around the world, using electronic funds transfers and interstate and/or international mail; (d) transferring such deposits to SIBL in Antigua, using electronic funds transfers and interstate and/or international mail; and (e) disbursing the proceeds of the fraud to the participants, including Antigua, King, and the Stanford Co-Conspirators, using electronic funds transfers and interstate and/or international mail. 222. Antigua committed and/or aided and abetted the commission of two or more of these acts of racketeering activity. 223. Such unlawful conduct constituted a continuous pattern of racketeering activity spanning many years, more than 100 countries, tens of thousands of victims, and innumerable acts of wire and mail fraud. 224. The acts of racketeering activity constituted a “pattern of racketeering activity” within the meaning of 18 U.S.C. § 1961(5). 225. The acts alleged were related to each other by virtue of common participants, common victims (Plaintiffs and other members of the Class), a common method of commission, and the common purpose and common result of defrauding the Plaintiffs and the other members of the class out of, collectively, billions of dollars. 226. At all relevant times, Antigua engaged in “racketeering activity” within the meaning of 18 U.S.C. § 1961(1) by engaging in the acts set forth above.APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 272MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 275 of 444 227. As a direct and proximate cause of the described racketeering activities and violations of 18 U.S.C. § 1962(c), the Plaintiffs and the Class have been injured in their business and property. Among other things: (a) Plaintiffs and the Class were damaged by each of the predicate acts that effectuated the transfer of proceeds of the fraud from the Stanford Enterprises to Antigua, thereby depriving the Plaintiffs and the Class of their property; (b) Plaintiffs and the Class also were damaged by each of the predicate acts in which false and fraudulent information concerning SIBL and/or SFG was transmitted by use of the wires and/or mails in interstate or foreign commerce for the purpose of executing the fraudulent scheme alleged herein, upon which information Plaintiffs and the Class reasonably relied, and which had the purpose and effect of inducing the Plaintiffs and the Class to deposit funds at SIBL, thereby depriving the Plaintiffs and the Class of their property; and (c) Plaintiffs and the Class were also damaged by each of the predicate acts in which false and fraudulent information concerning SIBL and/or SFG was transmitted by use of the wires and/or mails in interstate or foreign commerce with the purpose and effect of deceiving the SEC and/or other regulators concerning the legitimacy and solvency of SIBL, thereby prolonging the scheme, and depriving the Plaintiffs and the Class of their property. 228. Antigua’s racketeering activities were the proximate cause of the Plaintiffs’ and the Class members’ collective loss of more than $8 billion. These injuries were a foreseeable consequence of Antigua’s racketeering activities and violations of 18APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 273MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 276 of 444 U.S.C. § 1962(c). As a result of Antigua’s and the Stanford Co-Conspirators’ violations of RICO, Antigua is liable to Plaintiffs and the Class for the amount of their losses in amount to be determined at trial, but believed to be in excess of $8 billion. 229. Pursuant to RICO, 18 U.S.C. § 1964(c), Plaintiffs and the Class are entitled to recover treble damages plus costs and attorneys’ fees from Antigua. SECOND CLAIM FOR RELIEF: VIOLATION OF RICO – 18 U.S.C. §1962(c) (ASSOCIATION-IN-FACT ENTERPRISE) 230. The Plaintiffs repeat, reiterate, and reallege each of the allegations set forth above. 231. At all relevant times, Antigua and SFG formed, and operated as, an association-in-fact (the “Antigua-Stanford Enterprise”) for the purpose of defrauding the Plaintiffs and the Class. The Antigua-Stanford Enterprise constituted an “enterprise” under RICO, as defined in 18 U.S.C. § 1961(4). 232. At all relevant times, the Antigua-Stanford Enterprise was engaged in, and its activities affected, interstate and foreign commerce, within the meaning of RICO, 18 U.S.C. § 1962(c). 233. At all relevant times, Antigua conducted or participated, directly or indirectly, in the conduct of the Antigua-Stanford Enterprise’s affairs through a “pattern of racketeering activity” within the meaning of RICO, 18 U.S.C. § 1961(5), in violation of RICO, 18 U.S.C. § 1962(c).APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 274MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 277 of 444 234. Specifically, at all relevant times, Antigua repeatedly committed the above criminal acts in furtherance of and for the purpose of enriching itself, both financially and politically, and to otherwise further the ends of the Stanford Enterprises. 235. Antigua conducted and participated in the affairs of the Antigua-Stanford Enterprise in at least the following ways: (a) Directing, approving, and/or otherwise participating in the Antigua- Stanford Enterprise’s commercial development of the V.C. Bird International Airport, using the proceeds of the fraud; (b) Directing, approving, and/or otherwise participating in the Antigua- Stanford Enterprise’s commercial development of SIBL’s and the Bank of Antigua’s offices, cricket stadium, and restaurants, using the proceeds of the fraud; (c) Directing, approving, and/or otherwise participating in the sale of real estate transactions between the members of the Antigua-Stanford Enterprise, for the purpose of transferring a portion of the proceeds of the fraud to Antigua; (d) Directing, approving, and/or otherwise causing the Antigua-Stanford Enterprise to pay bribes to King and others, using proceeds of the fraud; (e) Directing, approving, and/or otherwise causing the sale of Caribbean Star Airlines to LIAT;APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 275MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 278 of 444 (f) Directing, approving, causing, and/or otherwise participating in the Antigua-Stanford Enterprise’s development of the Mount St. John Medical Centre, using the proceeds of the fraud; (g) Directing, approving, causing, and/or otherwise participating in the Antigua-Stanford Enterprise’s funding of the construction of new executive offices for the government of Antigua, using the proceeds of the fraud; (h) Directing, approving, causing, and or otherwise participating in the write off of roughly $18 million of Antigua’s debt, using proceeds of the fraud; (i) Directing, approving, causing, and or otherwise participating in the “donation” to Antigua of money needed to build a national library, using proceeds of the fraud; (j) Directing, approving, causing, and or otherwise participating in the “donation” of $9 million to construct a higher education complex for Antigua, using proceeds of the fraud; (k) Directing, approving, causing, and or otherwise participating in the Antigua-Stanford Enterprise’s funding of the “Empowerment Ownership Initiative,” using proceeds of the fraud; (l) Directing, approving, causing, and/or otherwise participating in the Antigua-Stanford Enterprise’s massive funding of the sport of cricket, using proceeds of the fraud;APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 276MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 279 of 444 (m) Directing, approving, causing, and/or otherwise participating in the Antigua-Stanford Enterprise’s efforts to deceive depositors and prospective depositors in SIBL, including Plaintiffs and members of the Class by intentionally disseminating misleading financial information upon which Plaintiffs and members of the Class reasonably relied; (n) Directing, approving, causing, and/or otherwise participating in the Antigua-Stanford Enterprise’s efforts to deceive Plaintiffs, the class, and potential customers of SIBL into believing that the FSRC was exercising actual oversight over SIBL by intentionally disseminating misleading regulatory information upon which Plaintiffs and members of the Class reasonably relied; and (o) Directing, approving, causing, and/or otherwise participating in the Antigua-Stanford Enterprise’s efforts to deceive the SEC concerning the solvency and legitimacy of SIBL’s banking operations. 236. The acts described above were related to one another as part of a common scheme or plan, namely a scheme to defraud the Plaintiffs and the Class, and to ensure that the Antigua-Stanford Enterprise would continue to be able to defraud the Plaintiffs and the Class, for the financial benefit of the Stanford Enterprises, the Stanford Co- conspirators, and Antigua. 237. The acts set forth above constitute violations of 18 U.S.C. § 1341 (mail fraud) and 18 U.S.C. § 1343 (wire fraud) because Antigua, the Stanford Co-Conspirators, and the Antigua-Stanford Enterprise knowingly and intentionally used interstate and/orAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 277MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 280 of 444 international wires and mails for the purpose of obtaining money and/or property by means of false and fraudulent pretenses in order to, among other things: (a) to disseminate false and fraudulent information to Plaintiffs and the Class, upon which Plaintiffs and the Class reasonably relied, using interstate and/or international telephone, the Internet, and interstate or international mails; (b) to deceive the SEC, using wire and/or mail communications between Antigua and the United States; (c) to effectuate the receipt of deposits from Plaintiffs and the Class, located throughout the United States and around the world, using electronic funds transfers and interstate and/or international mail; (d) to transfer such deposits to SIBL in Antigua, using electronic funds transfers and interstate and/or international mail; and (e) to disburse the proceeds of the fraud to the participants, including Antigua, King, and the Stanford Co-Conspirators, using electronic funds transfers and interstate and/or international mail. 238. Antigua committed and/or aided and abetted the commission of two or more of these acts of racketeering activity. 239. Such unlawful conduct constituted a continuous pattern of racketeering activity spanning many years, more than 100 countries, tens of thousands of victims, and innumerable acts of wire and mail fraud. The acts of racketeering activity constituted a “pattern of racketeering activity” within the meaning of 18 U.S.C. § 1961(5). The actsAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 278MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 281 of 444 alleged were related to each other by virtue of common participants, common victims (Plaintiffs and other members of the Class), a common method of commission, and the common purpose and common result of defrauding the Plaintiffs and the other members of the class out of, collectively, billions of dollars. 240. At all relevant times, Antigua engaged in “racketeering activity” within the meaning of 18 U.S.C. 1961(1) by engaging in the acts set forth above. 241. As a direct and proximate cause of the described racketeering activities and violations of 18 U.S.C. § 1962(c), the Plaintiffs and the Class have been injured in their business and property. Among other things: (a) Plaintiffs and the Class were damaged by each of the predicate acts that effectuated the transfer of proceeds of the fraud to Antigua, thereby depriving the Plaintiffs and the Class of their property; (b) Plaintiffs and the Class also were damaged by each of the predicate acts, in which false and fraudulent information concerning SIBL and/or SFG, upon which Plaintiffs and the Class reasonably relied, was transmitted by use of the wires and/or mails in interstate or foreign commerce for the purpose of executing the fraudulent scheme alleged herein, and with the intent to, and effect of, inducing the Plaintiffs and the Class to deposit funds at SIBL, thereby depriving the Plaintiffs and the Class of their property; and (c) Plaintiffs and the Class were also damaged by each of the predicate acts in which false and fraudulent information concerning SIBL and/or SFG wasAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 279MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 282 of 444 transmitted by use of the wires and/or mails in interstate or foreign commerce with the purpose and effect of deceiving the SEC and/or other regulators concerning the legitimacy and solvency of SIBL, thereby prolonging the scheme, and depriving the Plaintiffs and the Class of their property. 242. Antigua’s racketeering activities were the proximate cause of the Plaintiffs’ and the Class members’ collective loss of more than $8 billion. These injuries were a foreseeable consequence of Antigua’s racketeering activities and violations of 18 U.S.C. § 1962(c). As a result of Antigua’s and the Stanford Co-conspirators’ violations of RICO, Antigua is liable to Plaintiffs and the Class for the amount of their losses in amount to be determined at trial, but believed to be in excess of $8 billion. 243. Pursuant to RICO, 18 U.S.C. § 1964(c), Plaintiffs and the Class are entitled to recover treble damages plus costs and attorneys’ fees from Antigua. THIRD CLAIM FOR RELIEF: VIOLATION OF RICO – 18 U.S.C. §1962(a) 244. Plaintiffs repeat, reiterate, and reallege each of the allegations set forth above. 245. Antigua is a “person” within the meaning of 18 U.S.C. § 1962(a) 246. As set forth above, Antigua received income derived, directly and indirectly, from a pattern of racketeering activity.APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 280MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 283 of 444 247. Antigua invested, directly and indirectly, part of such income, and/or the proceeds from such income, in the acquisition of an interest in, and the establishment and operation of, the Antigua-Stanford Enterprise. 248. In particular, Antigua reinvested part of the proceeds of such income in the purchase of Caribbean Star Airlines, an integral part of the Stanford Enterprises. Plaintiffs and the Class were damaged by that reinvestment of income because: (a) the reinvestment provided additional funds for the Stanford Enterprises to operate their scheme to defraud the Plaintiffs and the Class; and (b) the reinvestment deprived Plaintiffs and the Class of hard assets (the airline and aircraft) that would otherwise be available to satisfy their claims. 249. Antigua also invested part of the proceeds from the Stanford Enterprises in the establishment and operation of FSRC, which became an integral part of the Antigua- Stanford Enterprise, and essential to the scheme to defraud the Plaintiffs and the Class. 250. Plaintiffs and the Class were injured by Antigua’s investment of the proceeds of such income in the establishment and operation of FSRC because Antigua, through FSRC and its head, King, deceived Plaintiffs, the Class, and the SEC concerning the legitimacy and solvency of SIBL. 251. The injuries suffered by the Plaintiffs and the Class from Antigua’s investment of racketeering income in the FSRC are separate and distinct from the injuries suffered by the Plaintiffs and the Class as a result of the predicate acts involving the earlier transfers of money from the Plaintiffs and the Class, to SFG and Antigua.APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 281MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 284 of 444 252. As set forth above, the Antigua-Stanford Enterprise affected interstate and foreign commerce. 253. Antigua’s racketeering activities were the proximate cause of the Plaintiffs’ and the Class members’ collective loss of more than $8 billion. These injuries were a foreseeable consequence of Antigua’s racketeering activities and violations of 18 U.S.C. § 1962(c). As a result of Antigua’s and the Stanford Co-Conspirators’ violations of RICO, Antigua is liable to Plaintiffs and the Class for the amount of their losses in amount to be determined at trial, but believed to be in excess of $8 billion. 254. Pursuant to RICO, 18 U.S.C. § 1964(c), Plaintiffs and the Class are entitled to recover treble damages plus costs and attorneys’ fees from Antigua. FOURTH CLAIM FOR RELIEF: VIOLATION OF RICO – 18 U.S.C. §1962(d) 255. Plaintiffs repeat, reiterate, and reallege each of the allegations set forth above. 256. As described above, Antigua, in violation of 18 U.S.C. § 1962(d), did agree and conspire with the Stanford Co-Conspirators, and those acting in concert with the Stanford Co-Conspirators, to violate 18 U.S.C. § 1962(c) for the purpose of achieving and profiting from the racketeering activities described above. 257. In furtherance of that agreement, and in violation of RICO, Antigua knowingly and intentionally agreed and conspired to commit at least two of the predicate acts set forth above, with the knowledge and intent that such acts were in furtherance of the foregoing pattern of racketeering activity.APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 282MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 285 of 444 258. As a direct and proximate cause of the above-described conspiracy in violation of 18 U.S.C. § 1962(d), the Plaintiffs and the Class have been injured in their property. Antigua’s racketeering activities were the proximate cause of the Plaintiffs’ and the Class members’ collective loss of more than $8 billion. These injuries were a foreseeable consequence of Antigua’s racketeering activities and violations of 18 U.S.C. § 1962(d). 259. As a result of Antigua’s and the other Stanford Co-conspirators’ violations of RICO, Antigua is liable to Plaintiffs and the Class for the amount of their losses in amount to be determined at trial, but believed to be in excess of $8 billion. 260. Pursuant to RICO, 18 U.S.C. § 1964(c), Plaintiffs and the Class are entitled to recover treble damages plus costs and attorneys’ fees from Antigua. FIFTH CLAIM FOR RELIEF: AIDING AND ABETTING FRAUD 261. Plaintiffs repeat, reiterate, and reallege each of the allegations in the foregoing paragraphs. 262. At all relevant times, Antigua had actual knowledge of the Stanford’s fraudulent activities. 263. By reason of the foregoing, Antigua knowingly provided substantial assistance to SFG, SIBL, and the Stanford Co-Conspirators in their successful efforts to perpetrate a fraud upon Plaintiffs and other members of the Class. As set forth above, Antigua’s substantial assistance variously took the forms of affirmative acts inAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 283MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 286 of 444 furtherance of the fraud, concealment of the fraud, and failures and/or refusals to act against the fraud when Antigua had the duty to do so. 264. Antigua’s active participation in aiding and abetting the fraud was the proximate cause of the Plaintiffs’ and the Class members’ collective loss of more than $8 billion. 265. As a result of Antigua’s active participation in aiding and abetting the fraud, Antigua is liable to Plaintiffs and the Class for the amount of their losses in amount to be determined at trial, but believed to be in excess of $8 billion. SIXTH CLAIM FOR RELIEF: AVOIDANCE OF FRAUDULENT TRANSFERS 266. Plaintiffs repeat, reiterate, and reallege each of the allegations in the foregoing paragraphs. 267. Plaintiffs and the Class are creditors of Allen Stanford, SIBL, and/or SFG, by reason of their tort claims against them, and because they deposited funds at SIBL which have not, and will not, be returned to them in accordance with their rights as depositors. 268. In or about February, 2009, Antigua seized more than 250 acres of land owned by SFG (the “Seized Properties”). 269. Upon information and belief, the Seized Properties were commercial in nature, and the development of those properties, and their seizure by Antigua, had a direct effect in the United States in that it deprived Houston-based SFG, and Houston-APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 284MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 287 of 444 managed SIBL, of substantial value, and thereby deprived American creditors of Allen Stanford, SFG, and SIBL of substantial value to satisfy their claims. 270. Antigua’s seizure of such property effectuated the transfer of assets from Allen Stanford, SIBL, and/or SFG for less than fair value, and with the purpose and intent of defrauding Allen Stanford’s, SIBL’s, and/or SFG’s creditors, including Plaintiffs and the Class. 271. As described above, Stanford made numerous “loans” to Antigua, believed to be in excess of $85 million, some or all of which have never been repaid. In addition, Stanford made numerous outright transfers of funds to Antigua or its designees. 272. The unpaid loans and transfer of such funds effectuated the transfer of assets from Allen Stanford, SIBL, and/or SFG for less than fair value, and with the purpose and intent of defrauding Allen Stanford’s, SIBL’s, and/or SFG’s creditors, including Plaintiffs and the Class. 273. By reason of the foregoing, the transfers described above are ineffective as against Plaintiffs and members of the Class. 274. By reason of the foregoing, pursuant to the Uniform Fraudulent Transfers Act, and common law, Plaintiffs and the Class are entitled to avoidance of the transfers. JURY DEMAND 275. Plaintiffs demand a jury trial.APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 285MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 288 of 444 WHEREFORE, Plaintiffs respectfully request that this Court: (i) certify the Class; (ii) enter judgment in favor of the Class and against Antigua: (a) awarding all damages proven at trial, in an amount not less than $8 billion; (b) awarding treble damages, as permitted by law pursuant to RICO; (c) ordering the avoidance of the fraudulent transfers described herein; (d) awarding attorney fees, and costs as permitted by law; and (e) granting such other and further relief as the Court may deem just and appropriate.APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 286MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 289 of 444 Dated: July 13, 2009 MORGENSTERN & BLUE, LLC Peter D. Morgenstern (pro hac vice pending) Gregory A. Blue (pro hac vice pending) Rachel K. Marcoccia (pro hac vice pending) 885 Third Avenue New York, NY 10022 Telephone: (212) 750-6776 Facsimile: (212) 750-3128 LACKEY HERSHMAN, L.L.P. By: /s/ Paul B. Lackey Paul B. Lackey State Bar Number 00791061 Jamie R. Welton State Bar Number 24013732 3102 Oak Lawn Avenue, Suite 777 Dallas, Texas 75219 Telephone: (214) 560-2201 Facsimile: (214) 560-2203 Attorneys for Plaintiffs CLASS ACTION COMPLAINT PAGE 74APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 287MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 128 Filed 02/09/2010 Filed 12/07/2009 Page 290 of 444 Page 1 of 17 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISIONRALPH S. JANVEY, IN HIS CAPACITY AS §COURT-APPOINTED RECEIVER FOR THE §STANFORD INTERNATIONAL BANK, LTD., §ET AL. § § Case No. 03:09-CV-0724-N Plaintiff, § §v. § §JAMES R. ALGUIRE, ET AL. § § Relief Defendants. § ________________________________________________________________________ RECEIVER’S FIRST AMENDED COMPLAINT AGAINST CERTAIN STANFORD INVESTORS ________________________________________________________________________ The Receiver, Ralph S. Janvey, (the “Receiver”) hereby files his First AmendedComplaint Against Certain Stanford Investors (the “First Amended Complaint”), stating asfollows: SUMMARY 1. The ultimate purpose of this Receivership is to make the “maximum disbursementto claimants.” This requires the Receiver to maximize the pool of assets that will be available fordistribution. To accomplish this, the Receiver must take control of all assets of the Estate andtraceable to the Estate, “wherever located,” including money stolen from investors through fraud. 2. The Receiver’s investigation to date reveals that CD sales generated substantiallyall of the income for the Stanford Defendants and the many related Stanford entities. Revenue,let alone any profit, from all other activities and investments was miniscule in comparison.Money that new investors were deceived into paying to purchase CDs funded the StanfordRECEIVER’S FIRST AMENDED COMPLAINTAGAINST CERTAIN STANFORD INVESTORS 1APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 288MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 128 Filed 02/09/2010 Filed 12/07/2009 Page 291 of 444 Page 2 of 17network; lavish offices and appointments; extravagant lifestyles for the individual defendantsand their families; employees’ salaries; Loans, SIBL CD commissions, SIBL Quarterly Bonuses,Performance Appreciation Rights Plan (“PARS”) Payments, Branch Managing DirectorQuarterly Compensation, and Severance Payments to financial advisors, managing directors, andother Stanford employees; and CD proceeds in the form of purported CD interest payments andredemptions (“CD Proceeds”) to the investors named in the concurrently filed Appendix (the“Stanford Investors”). 3. The Stanford Investors not only received from SIBL sums equal to theirinvestments in SIBL CDs, but they also received payments in excess of their respectiveinvestments.1 The CD Proceeds the Stanford Investors received from SIBL were not, in fact,their actual principal or interest earned on the funds they invested. Instead, the money used tomake those payments came directly from the sale of SIBL CDs to other investors. 4. When Stanford made purported CD principal and interest payments to theStanford Investors, he did no more than take money out of other investors’ pockets and put it intothe hands of the Stanford Investors. For the more than 20,000 investors who have thus farreceived little or nothing from their investment in Stanford CDs, money recovered fromwherever it resides today is likely the largest portion of the money they will ever receive inrestitution. CD Proceeds — comprising purported CD principal and interest payments to theStanford Investors — are little more than stolen money and do not belong to the StanfordInvestors who received such funds but belong, instead, to the Receivership Estate.1 Prior to filing this First Amended Complaint, the Receiver contacted all of the Stanford Investors namedherein for whom he had contact information and offered to settle the claims against them in exchange for payment ofthe amounts they received in excess of their investments in SIBL CDs. The Receiver made similar offers to otherinvestors, who accepted the Receiver’s proposal prior to the filing of this First Amended Complaint. The Receiverbelieves that continued discussions with many of the Stanford Investors named herein will result in additional suchsettlements and dismissal of claims against those investors.RECEIVER’S FIRST AMENDED COMPLAINTAGAINST CERTAIN STANFORD INVESTORS 2APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 289MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 128 Filed 02/09/2010 Filed 12/07/2009 Page 292 of 444 Page 3 of 17 5. At this stage of the Receivership, the Receiver has identified substantial sums ofCD Proceeds paid to the Stanford Investors and, through this First Amended Complaint, seeksthe return of those funds to the Receivership Estate in order to make an equitable distribution toclaimants. At a minimum, the Stanford Investors named in the Appendix received over$545 million in CD Proceeds. 6. The Receiver seeks an order that: (a) CD Proceeds received directly or indirectlyby the Stanford Investors from fraudulent CDs were fraudulent conveyances or, in thealternative, unjustly enriched the Stanford Investors; (b) CD Proceeds received directly orindirectly by the Stanford Investors from fraudulent CDs are property of the Receivership Estateheld pursuant to a constructive trust for the benefit of the Receivership Estate; (c) each of theStanford Investors is liable to the Receivership Estate for an amount equaling the CD Proceedshe, she, or it received; and (d) awards attorney’s fees and costs to the Receiver. PARTIES 7. The parties to this complaint are the Receiver and the Stanford Investors named inthe Appendix filed concurrently herewith. 8. The named Stanford Investors either have already been served or will be servedpursuant to the Federal Rules of Civil Procedure, through their attorneys of record, or by othermeans approved by order of this Court. PROCEDURAL HISTORY 9. On July 28, 2009, the Receiver filed an Amended Complaint Naming ReliefDefendants (Doc. 14) and an Appendix in support thereof (Doc. 15). The July 28th AmendedComplaint named both investors and certain former Stanford financial advisors as reliefdefendants. The Receiver now respectfully files this First Amended Complaint Against CertainRECEIVER’S FIRST AMENDED COMPLAINTAGAINST CERTAIN STANFORD INVESTORS 3APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 290MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 128 Filed 02/09/2010 Filed 12/07/2009 Page 293 of 444 Page 4 of 17Stanford Investors, amending herein his claims against certain Stanford investors and namingadditional investors as defendants. The Receiver files this First Amended Complaint as a resultof the Fifth Circuit’s recent ruling regarding the Receiver’s relief-defendant claims,2 and heamends his claims against the certain Stanford investors named herein to assert fraudulent-transfer claims and, in the alternative, unjust-enrichment claims. This complaint is not intendedto impact the claims asserted by the Receiver in this lawsuit against any category of defendantsother than Stanford investors. This First Amended Complaint Against Certain Stanford Investorsdoes not alter or amend the claims the Receiver asserted against former Stanford employees inhis First Amended Complaint Against Former Stanford Employees (Doc. 118) and the Appendixthereto (Doc. 119). JURISDICTION & VENUE 10. This Court has jurisdiction over this action, and venue is proper, under Section22(a) of the Securities Act (15 U.S.C. § 77v(a)), Section 27 of the Exchange Act (15 U.S.C.§ 78aa), and under Chapter 49 of Title 28, Judiciary and Judicial Procedure (28 U.S.C. § 754). 11. Further, as the Court that appointed the Receiver, this Court has jurisdiction overany claim brought by the Receiver to execute his Receivership duties. 12. Further, within 10 days of his appointment, the Receiver filed the originalComplaint and Order Appointing the Receiver in 29 United States district courts pursuant to 28U.S.C. § 754, giving this Court in rem and in personam jurisdiction in each district where theComplaint and Order have been filed. 13. Further, each of the Stanford Investors who submitted an Application for Reviewand Potential Release of Stanford Group Company (“SGC”) Brokerage Accounts made the2 Per Rule 41, the Receiver intends to file a notice of dismissal of his relief-defendant claims against theStanford investors who were named in the Amended Complaint Naming Relief Defendants (Doc. 14) and thesupporting Appendix (Doc. 15).RECEIVER’S FIRST AMENDED COMPLAINTAGAINST CERTAIN STANFORD INVESTORS 4APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 291MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 128 Filed 02/09/2010 Filed 12/07/2009 Page 294 of 444 Page 5 of 17following declaration: “By filing this application, I submit to the exclusive jurisdiction of theUnited States District Court for the Northern District of Texas, Dallas Division and irrevocablywaive any right I or any entity I control may otherwise have to object to any action being broughtin the Court or to claim that the Court does not have jurisdiction over the matters relating to myaccount.” 14. Further, a number of the Stanford Investors have filed motions to intervene inSEC v. Stanford International Bank, Ltd., et al., Case No. 3:09-cv-298-N. By filing motions tointervene, they have consented as a matter of law to the Court’s personal jurisdiction. See In reBayshore Ford Trucks Sales, Inc., 471 F.3d 1233, 1246 (11th Cir. 2006); County Sec. Agency v.Ohio Dep’t of Commerce, 296 F.3d 477, 483 (6th Cir. 2002); Pharm. Research & Mfrs. v.Thompson, 259 F. Supp. 2d 39, 59 (D.D.C. 2003); City of Santa Clara v. Kleppe, 428 F. Supp.315, 317 (N.D. Ca. 1976). STATEMENT OF FACTS 15. On February 16, 2009, the Securities and Exchange Commission commenced alawsuit in this Court against R. Allen Stanford, two associates, James M. Davis and LauraPendergest-Holt, and three of Mr. Stanford’s companies, Stanford International Bank, Ltd.(“SIB,” “SIBL,” or “the Bank”), SGC, and Stanford Capital Management, LLC (collectively, the“Stanford Defendants”). On the same date, the Court entered an Order appointing a Receiver,Ralph S. Janvey, over all property, assets, and records of the Stanford Defendants, and all entitiesthey own or control. 16. As alleged by the SEC, the Stanford Defendants marketed fraudulent SIBL CDsto investors exclusively through SGC financial advisors pursuant to a Regulation D privateRECEIVER’S FIRST AMENDED COMPLAINTAGAINST CERTAIN STANFORD INVESTORS 5APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 292MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 128 Filed 02/09/2010 Filed 12/07/2009 Page 295 of 444 Page 6 of 17placement. SEC’s First Amended Complaint (Doc. 48), ¶ 23.3 The CDs were sold by StanfordInternational Bank, Ltd. Id. 17. The Stanford Defendants orchestrated and operated a wide-ranging Ponzi scheme.Defendant James M. Davis has admitted that the Stanford fraud was a Ponzi scheme from thebeginning. Doc. 771 (Davis Plea Agreement) at ¶ 17(n) (Stanford, Davis, and other conspiratorscreated a “massive Ponzi scheme”); Doc. 807 (Davis Tr. of Rearraignment) at 16:16-17, 21:6-8,21:15-17 (admitting the Stanford Ponzi fraud was a “massive Ponzi scheme ab initio”). 18. In marketing, selling, and issuing CDs to investors, the Stanford Defendantsrepeatedly touted the CDs’ safety and security and SIBL’s consistent, double-digit returns on itsinvestment portfolio. Id. ¶ 31. 19. In its brochure, SIBL told investors, under the heading “Depositor Security,” thatits investment philosophy is “anchored in time-proven conservative criteria, promoting stabilityin [the Bank’s] certificate of deposit.” SIBL also emphasized that its “prudent approach andmethodology translate into deposit security for our customers.” Id. ¶ 32. Further, SIBL stressedthe importance of investing in “marketable” securities, saying that “maintaining the highestdegree of liquidity” was a “protective factor for our depositors.” Id. ¶ 45. 20. In its 2006 and 2007 Annual Reports, SIBL told investors that the Bank’s assetswere invested in a “well-balanced global portfolio of marketable financial instruments, namelyU.S. and international securities and fiduciary placements.” Id. ¶ 44. More specifically, SIBLrepresented that its 2007 portfolio allocation was 58.6% equity, 18.6% fixed income, 7.2%precious metals, and 15.6% alternative investments. Id.3 Unless otherwise stated, citations to Court records herein are from the case styled SEC v. Stanford Int’lBank, Ltd., et al., Civil Action No. 3-09-CV-0298-N.RECEIVER’S FIRST AMENDED COMPLAINTAGAINST CERTAIN STANFORD INVESTORS 6APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 293MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 128 Filed 02/09/2010 Filed 12/07/2009 Page 296 of 444 Page 7 of 17 21. Consistent with its Annual Reports and brochures, SIBL trained SGC financialadvisors, in February 2008, that “liquidity/marketability of SIB’s invested assets” was the “mostimportant factor to provide security to SIB clients.” Id. ¶ 46. In training materials, the StanfordDefendants also claimed that SIBL had earned consistently high returns on its investment ofdeposits (ranging from 11.5% in 2005 to 16.5% in 1993). Id. ¶ 24. 22. Contrary to the Stanford Defendants’ representations regarding the liquidity of itsportfolio, SIBL did not invest in a “well-diversified portfolio of highly marketable securities.”Instead, significant portions of the Bank’s portfolio were misappropriated by Defendant AllenStanford and were either placed in speculative investments (many of them illiquid, such asprivate equity deals), diverted to other Stanford Entities “on behalf of shareholder” - i.e., for thebenefit of Allen Stanford, or used to finance Allen Stanford’s lavish lifestyle (e.g., jet planes, ayacht, other pleasure craft, luxury cars, homes, travel, company credit card, etc.). In fact, atyear-end 2008, the largest segments of the Bank’s portfolio were: (i) at least $1.6 billion inundocumented “loans” to Defendant Allen Stanford; (ii) private equity; and (iii) over-valued realestate. Id. ¶¶ 24, 48. 23. In an effort to conceal their fraud and ensure that investors continued to purchasethe CD, the Stanford Defendants fabricated the performance of SIBL’s investment portfolio. Id.¶ 5. 24. SIBL’s financial statements, including its investment income, were fictional. Id.¶ 37. In calculating SIBL’s investment income, Defendants Stanford and James Davis providedto SIBL’s internal accountants a pre-determined return on investment for the Bank’s portfolio.Id. Using this pre-determined number, SIBL’s accountants reverse-engineered the Bank’sfinancial statements to reflect investment income that SIBL did not actually earn. Id.RECEIVER’S FIRST AMENDED COMPLAINTAGAINST CERTAIN STANFORD INVESTORS 7APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 294MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 128 Filed 02/09/2010 Filed 12/07/2009 Page 297 of 444 Page 8 of 17 25. CD Proceeds from the Ponzi scheme were transferred by the Stanford Defendantsto the Stanford Investors solely for the purpose of concealing and perpetuating the fraudulentscheme. Such CD Proceeds were paid to the Stanford Investors from funds supplied by otherinvestors who bought the fraudulent CDs. 26. For a time, the Stanford Defendants were able to keep the fraud going by usingfunds from current sales of SIBL CDs to make purported interest and redemption payments onpre-existing CDs. See id. ¶ 1. However, in late 2008 and early 2009, CD redemptions increasedto the point that new CD sales were inadequate to cover redemptions and normal operatingexpenses. As the depletion of liquid assets accelerated, this fraudulent Ponzi scheme collapsed. REQUESTED RELIEF 27. This Court appointed Ralph S. Janvey as Receiver for the “assets, monies,securities, properties, real and personal, tangible and intangible, of whatever kind anddescription, wherever located, and the legally recognized privileges (with regard to the entities),of the Defendants and all entities they own or control,” including those of the Stanford GroupCompany brokerage firm. Order Appointing Receiver (Doc. 10) at ¶¶ 1-2; Amended OrderAppointing Receiver (Doc. 157) at ¶¶ 1-2. The Receiver seeks the relief described below in thiscapacity. 28. Paragraph 4 of the Order Appointing Receiver, entered by the Court on February16, 2009, authorizes the Receiver “to immediately take and have complete and exclusive control,possession, and custody of the Receivership Estate and to any assets traceable to assets owned bythe Receivership Estate.” Order Appointing Receiver (Doc. 10) at ¶ 4; Amended OrderAppointing Receiver (Doc. 157) at ¶ 4. Paragraph 5(c) of the Order specifically authorizes theReceiver to “[i]nstitute such actions or proceedings [in this Court] to impose a constructive trust,RECEIVER’S FIRST AMENDED COMPLAINTAGAINST CERTAIN STANFORD INVESTORS 8APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 295MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 128 Filed 02/09/2010 Filed 12/07/2009 Page 298 of 444 Page 9 of 17obtain possession, and/or recover judgment with respect to persons or entities who receivedassets or records traceable to the Receivership Estate.” Order Appointing Receiver (Doc. 10) at¶ 5(c); Amended Order Appointing Receiver (Doc. 157) at ¶ 5(c). 29. One of the Receiver’s key duties is to maximize distributions to defraudedinvestors and other claimants. See Amended Order Appointing Receiver (Doc. 157) at ¶ 5(g), (j)(ordering the Receiver to “[p]reserve the Receivership Estate and minimize expenses infurtherance of maximum and timely disbursement thereof to claimants”); Scholes v. Lehmann, 56F.3d 750, 755 (7th Cir. 1995) (receiver’s “only object is to maximize the value of the [estateassets] for the benefit of their investors and any creditors”); SEC v. TLC Invs. & Trade Co., 147F. Supp. 2d 1031, 1042 (C.D. Cal. 2001); SEC v. Kings Real Estate Inv. Trust, 222 F.R.D. 660,669 (D. Kan. 2004). But before the Receiver can attempt to make victims whole, he must locateand take exclusive control and possession of assets of the Estate or assets traceable to the Estate.Doc. 157 ¶ 5(b). 30. The Stanford Investors named in the Appendix received money that they mayhave believed was a return on an investment placed with what they thought was a legitimatebank. In reality, the money the Stanford Investors received was not their money, was not areturn on their investments, and was not generated by any of SIBL’s other business ventures.The CD Proceeds were simply money that came from the more than 20,000 CD holders whowere deceived into purchasing CDs and who by chance, or as the result of sales tactics byStanford financial advisors and other employees, had not withdrawn funds from SIBL as of thedate the Receivership was put in place. The Stanford Investors’ CD Proceeds must be returnedto the Receivership Estate to compensate victims of the Stanford fraud according to principles oflaw and equity.RECEIVER’S FIRST AMENDED COMPLAINTAGAINST CERTAIN STANFORD INVESTORS 9APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 296MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 128 Filed 12/07/2009 Filed 02/09/2010 Page 10 ofof 444 Page 299 17 31. The Stanford Investors received CD Proceeds ranging in amounts fromapproximately $119,000 to over $90 million. See App. at “Total CD Proceeds” column. TheseStanford Investors received, at a minimum, the “Total CD Proceeds” amounts associated withtheir names in the Appendix. See id. Collectively, the Stanford Investors received more than$545 million in CD Proceeds, at least. See id. at 6. In addition, each of these Stanford Investorsreceived more in CD Proceeds than they invested in SIBL CDs. See id. at “CD ProceedsReceived in Excess of Investments” column. All combined, these Stanford Investors receivedapproximately $93.8 million more in CD Proceeds than they invested. See id at 6.I. The Receiver is Entitled to Disgorgement of CD Proceeds Fraudulently Transferred tothe Stanford Investors 32. The Receiver is entitled to disgorgement of all CD Proceeds paid to the StanfordInvestors because such payments constitute fraudulent transfers under applicable law. TheStanford Defendants transferred the CD Proceeds to the Stanford Investors with actual intent tohinder, delay, or defraud their creditors; as a result, the Receiver is entitled to the disgorgementof those CD Proceeds from the Stanford Investors. 33. The Receiver may avoid transfers made with the actual intent to hinder, delay, ordefraud creditors. “[T]ransfers made from a Ponzi scheme are presumptively made with intent todefraud, because a Ponzi scheme is, as a matter of law, insolvent from inception.” Quilling v.Schonsky, No. 07-10093, 2007 WL 2710703, at *2 (5th Cir. Sept. 18, 2007); see also Warfield v.Byron, 436 F.3d 551, 558 (5th Cir. 2006). The uncontroverted facts establish that the StanfordDefendants were running a Ponzi scheme and, to keep the scheme going, paid the StanfordInvestors with CD Proceeds taken from other SIBL CD investors. The Receiver is, therefore,entitled to disgorgement of the fraudulently transferred CD Proceeds that the Stanford Investorsreceived.RECEIVER’S FIRST AMENDED COMPLAINTAGAINST CERTAIN STANFORD INVESTORS 10APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 297MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 128 Filed 12/07/2009 Filed 02/09/2010 Page 11 ofof 444 Page 300 17 34. Consequently, the burden is on the Stanford Investors to establish an affirmativedefense, if any, of both objective good faith and provision of reasonably equivalent value. See,e.g., Scholes, 56 F.3d at 756-57 (“If the plaintiff proves fraudulent intent, the burden is on thedefendant to show that the fraud was harmless because the debtor’s assets were not depletedeven slightly.”). The Receiver is, therefore, entitled to recover the full amount of CD Proceedsthat the Stanford Investors received, unless the Stanford Investors prove both objective goodfaith and reasonably equivalent value. 35. The good-faith element of this affirmative defense requires that the StanfordInvestors prove objective — not subjective — good faith. Warfield v. Byron, 436 F.3d 551,559-560 (5th Cir. 2006) (good faith is determined under an “objectively knew or should haveknown” standard); In re IFS Fin. Corp., Bankr. No. 02-39553, 2009 WL 2986928, at *15(Bankr. S.D. Tex. Sept. 9, 2009) (objective standard is applied to determine good faith); Quillingv. Stark, No. 3-05-CV-1976-BD, 2007 WL 415351, at *3 (N.D. Tex. Feb. 7, 2007) (good faith“must be analyzed under an objective, rather than a subjective, standard. The relevant inquiry iswhat the transferee objectively knew or should have known instead of examining the transferee’sactual knowledge from a subjective standpoint.”) (internal citations and quotation marksomitted). In addition, the case law is uniformly clear that reasonably equivalent value can neverbe proven as to amounts received in excess of investments. See Donell v. Kowell, 533 F.3d 762,776 (9th Cir. 2008) (“We are aware that it may create a significant hardship when an innocentinvestor such as Kowell is informed that he must disgorge profits he earned innocently, oftenyears after the money has been received and spent. Nevertheless, courts have long held that ismore equitable to attempt to distribute all recoverable assets among the defrauded investors whodid not recover their initial investments rather than to allow the losses to rest where they fell.”);RECEIVER’S FIRST AMENDED COMPLAINTAGAINST CERTAIN STANFORD INVESTORS 11APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 298MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 128 Filed 02/09/2010 Filed 12/07/2009 Page 12 ofof 444 Page 301 17see also Scholes v. Lehmann, 56 F.3d 750, 757-58 (7th Cir. 1995) (“He should not be permittedto benefit from a fraud at their expense merely because he was not himself to blame for thefraud. All he is being asked to do is to return the net profits of his investment-the differencebetween what he put in at the beginning and what he had at the end.”). 36. Moreover, under applicable fraudulent transfer law, the Receiver is entitled toattorney’s fees and costs for his claims against the Stanford Investors. See, e.g., TEX. BUS. &COM. CODE ANN. § 24.013 (Vernon 2009) (“[T]he court may award costs and reasonableattorney’s fees as are equitable and just.”). As a result, the Receiver requests reasonableattorney’s fees and costs for prosecuting his fraudulent-transfer claims against the StanfordInvestors. 37. In order to carry out the duties delegated to him by this Court, the Receiver seekscomplete and exclusive control, possession, and custody of all CD Proceeds received by theStanford Investors. 38. The Stanford Defendants, who orchestrated the Ponzi scheme, transferred the CDProceeds to the Stanford Investors with actual intent to hinder, delay, or defraud their creditors.The Receiver is, therefore, entitled to disgorgement of all CD Proceeds fraudulently transferredto the Stanford Investors. Pursuant to the equity powers of this Court, the Receiver thereforeseeks an order (a) establishing that the CD Proceeds received directly or indirectly by theStanford Investors from fraudulent CDs were fraudulent conveyances; (b) ordering that CDProceeds received directly or indirectly by the Stanford Investors from fraudulent CDs areproperty of the Receivership Estate held pursuant to a constructive trust for the benefit of theReceivership Estate; (c) ordering that each of the Stanford Investors is liable to the ReceivershipRECEIVER’S FIRST AMENDED COMPLAINTAGAINST CERTAIN STANFORD INVESTORS 12APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 299MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 128 Filed 12/07/2009 Filed 02/09/2010 Page 13 ofof 444 Page 302 17Estate for an amount equaling the amount of CD Proceeds he, she, or it received; and (d)awarding attorney’s fees and costs to the Receiver.II. In the Alternative, the Receiver is Entitled to Disgorgement of CD Proceeds from theStanford Investors under the Doctrine of Unjust Enrichment 39. In the alternative, the Receiver is entitled to disgorgement of the CD Proceedspaid to the Stanford Investors pursuant to the doctrine of unjust enrichment under applicable law.The Stanford Investors hold CD Proceeds they obtained as a result of taking undue advantage,and such CD Proceeds in equity and good conscience belong to the Receivership for ultimatedistribution to the defrauded investors. 40. The Stanford Investors listed in the Appendix not only received a full return ontheir CD investments, but they also received CD Proceeds in excess of those investments. TheStanford Investors received a 100% return on their investments in an economy where — if theyhad invested in the market rather than a Ponzi scheme — they would have recovered barely 60%of their market investments.4 The market losses these Stanford Investors avoided by investing inthe Stanford Ponzi scheme have come at the expense of the thousands of other investors whoseown CD investments subsidized both the Stanford Investors’ return of invested funds and moneyreceived in excess of those investments. 41. In order to carry out the duties delegated to him by this Court, the Receiver seekscomplete and exclusive control, possession, and custody of all CD Proceeds received by theStanford Investors. 42. The Stanford Investors have been unjustly enriched by their receipt of CDProceeds. Pursuant to the equity powers of this Court, the Receiver therefore seeks an order (a)establishing that each of the Stanford Investors were unjustly enriched by CD Proceeds received4 Between January 2008 and January 2009, the S&P 500 and the Dow Jones Industrial Average fell 39.3%and 33.6%, respectively.RECEIVER’S FIRST AMENDED COMPLAINTAGAINST CERTAIN STANFORD INVESTORS 13APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 300MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 128 Filed 02/09/2010 Filed 12/07/2009 Page 14 ofof 444 Page 303 17directly or indirectly from fraudulent CDs; (b) ordering that CD Proceeds received directly orindirectly by the Stanford Investors from fraudulent CDs are property of the Receivership Estateheld pursuant to a constructive trust for the benefit of the Receivership Estate; and (c) orderingthat each of the Stanford Investors is liable to the Receivership Estate for an amount equaling theamount of CD Proceeds he, she, or it received; and (d) awarding attorney’s fees and costs to theReceiver. PRAYER 43. The Receiver respectfully requests the following: (a) An Order providing that CD Proceeds received directly or indirectly by the Stanford Investors from fraudulent CDs were fraudulent conveyances under applicable law or, in the alternative, that the Stanford Investors were unjustly enriched by CD Proceeds received directly or indirectly from fraudulent CDs; (b) An Order providing that CD Proceeds received directly or indirectly by the Stanford Investors from fraudulent CDs are property of the Receivership Estate; (c) An Order providing that CD Proceeds received directly or indirectly by the Stanford Investors from fraudulent CDs are subject to a constructive trust for the benefit of the Receivership Estate; (d) An Order establishing the amount of CD Proceeds each of the Stanford Investors received;RECEIVER’S FIRST AMENDED COMPLAINTAGAINST CERTAIN STANFORD INVESTORS 14APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 301MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 128 Filed 02/09/2010 Filed 12/07/2009 Page 15 ofof 444 Page 304 17 (e) An Order providing that each of the Stanford Investors is liable to the Receivership Estate for an amount equaling the amount of CD Proceeds he, she, or it received from fraudulent CDs; (f) An award of costs, attorney’s fees, and prejudgment interest; and (g) Such other and further relief as the Court deems proper under the circumstances.RECEIVER’S FIRST AMENDED COMPLAINTAGAINST CERTAIN STANFORD INVESTORS 15APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 302MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 128 Filed 12/07/2009 Filed 02/09/2010 Page 16 ofof 444 Page 305 17Dated: December 7, 2009 Respectfully submitted, BAKER BOTTS L.L.P. By: /s/ Kevin M. Sadler Kevin M. Sadler Texas Bar No. 17512450 kevin.sadler@bakerbotts.com Robert I. Howell Texas Bar No. 10107300 robert.howell@bakerbotts.com David T. Arlington Texas Bar No. 00790238 david.arlington@bakerbotts.com 1500 San Jacinto Center 98 San Jacinto Blvd. Austin, Texas 78701-4039 (512) 322-2500 (512) 322-2501 (Facsimile) Timothy S. Durst Texas Bar No. 00786924 tim.durst@bakerbotts.com 2001 Ross Avenue Dallas, Texas 75201 (214) 953-6500 (214) 953-6503 (Facsimile) ATTORNEYS FOR RECEIVER RALPH S. JANVEYRECEIVER’S FIRST AMENDED COMPLAINTAGAINST CERTAIN STANFORD INVESTORS 16APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 303MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 128 Filed 12/07/2009 Filed 02/09/2010 Page 17 ofof 444 Page 306 17 CERTIFICATE OF SERVICE On December 7, 2009, I electronically submitted the foregoing document with the clerkof the court of the U.S. District Court, Northern District of Texas, using the electronic case filingsystem of the Court. I hereby certify that I will serve the Stanford Investors individually orthrough their counsel of record, electronically, or by other means authorized by the Court or theFederal Rules of Civil Procedure. /s/ Kevin M. Sadler Kevin M. SadlerRECEIVER’S FIRST AMENDED COMPLAINTAGAINST CERTAIN STANFORD INVESTORS 17APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 304MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 129 Filed 02/09/2010 Filed 12/07/2009 Page 307 of 444 Page 1 of 9 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISIONRALPH S. JANVEY, IN HIS CAPACITY AS §COURT-APPOINTED RECEIVER FOR THE §STANFORD INTERNATIONAL BANK, LTD., §ET AL. § § Case No. 03:09-CV-0724-N Plaintiff, § §v. § §JAMES R. ALGUIRE, ET AL. § § Relief Defendants. § __________________________________________________________________________ APPENDIX IN SUPPORT OF RECEIVER’S FIRST AMENDED COMPLAINT AGAINST CERTAIN STANFORD INVESTORS __________________________________________________________________________APPENDIX IN SUPPORT OFRECEIVER’S FIRST AMENDED COMPLAINTAGAINST CERTAIN STANFORD INVESTORSAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 305MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 129 Filed 02/09/2010 Filed 12/07/2009 Page 308 of 444 Page 2 of 9Dated: December 7, 2009 Respectfully submitted, BAKER BOTTS L.L.P. By: /s/ Kevin M. Sadler Kevin M. Sadler Texas Bar No. 17512450 kevin.sadler@bakerbotts.com Robert I. Howell Texas Bar No. 10107300 robert.howell@bakerbotts.com David T. Arlington Texas Bar No. 00790238 david.arlington@bakerbotts.com 1500 San Jacinto Center 98 San Jacinto Blvd. Austin, Texas 78701-4039 (512) 322-2500 (512) 322-2501 (Facsimile) Timothy S. Durst Texas Bar No. 00786924 tim.durst@bakerbotts.com 2001 Ross Avenue Dallas, Texas 75201 (214) 953-6500 (214) 953-6503 (Facsimile) ATTORNEYS FOR RECEIVER RALPH S. JANVEYAPPENDIX IN SUPPORT OFRECEIVER’S FIRST AMENDED COMPLAINTAGAINST CERTAIN STANFORD INVESTORSAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 306MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 129 Filed 02/09/2010 Filed 12/07/2009 Page 309 of 444 Page 3 of 9 CERTIFICATE OF SERVICE On December 7, 2009, I electronically submitted the foregoing document with theclerk of the court of the U.S. District Court, Northern District of Texas, using the electronic casefiling system of the Court. I hereby certify that I will serve the Stanford Investors individually orthrough their counsel of record, electronically, or by other means authorized by the Court or theFederal Rules of Civil Procedure. /s/ Kevin M. Sadler Kevin M. SadlerAPPENDIX IN SUPPORT OFRECEIVER’S FIRST AMENDED COMPLAINTAGAINST CERTAIN STANFORD INVESTORSAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 307MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 129 Filed 02/09/2010 Filed 12/07/2009 Page 310 of 444 Page 4 of 9 CD Proceeds Received ID in Excess of Number Name Investments Total CD Proceeds GARY D. MAGNESS IRREVOCABLE TRUST, $ 10,650,666.14 $ 90,411,977.14 GARY MAGNESS, GMAG LLC AND MAGNESS 1 SECURITIES LLC JUERGEN KURT WAGENTROTZ AND JURGEN $ 8,589,727.46 $ 44,168,667.09 2 KURT WAGENTROTZ ERNST 3 ROBERTO GALLARDO KURI $ 6,417,324.64 $ 6,417,324.64 ANTONY MANSOUR AND REHAN MANSOUR, $ 5,332,910.14 $ 10,827,566.82 ANTONY MANSOUR, JOSEPHINE MERY, FANCOISE SOLANGE MERY AND JOSEPHINE 4 MERY 5 COMPANIA MINERA CAOPAS SA DE CV $ 5,119,458.09 $ 13,508,505.76 6 ANGLO-ATLANTIC STEAMSHIP CO. LTD. $ 4,276,637.90 $ 16,276,637.90 7 AYSE OYA ERHAN $ 3,282,388.14 $ 3,282,388.14 BORDEAUX INVESTMENTS I C.V.; $ 3,063,621.89 $ 7,424,640.52 PROVENCE MANAGEMENT STICHTING I 8 AND BORDEAUX INVESTMENTS I C.V. 9 LEOPOLDO AROSEMENA CEVASCO $ 2,589,786.69 $ 2,929,286.22 10 KIRKWELL C.V. $ 2,388,114.97 $ 13,791,011.03 11 ALNOOR NATHOO $ 1,745,935.00 $ 1,745,935.00 12 BRETT LANDES $ 1,508,512.83 $ 12,512,705.59 EDWARD HYLTON JONES AND EDWARD $ 1,476,400.18 $ 8,367,336.14 HYLTON JONES AND SHIRLEY GLORIA 13 JONES CLAUDIO ENRIQUE HERNANDEZ $ 1,106,429.75 $ 4,999,383.94 14 VILLALOBOS BRUCE THOMPSON AND MICHELLE $ 1,081,369.51 $ 12,597,948.06 15 THOMPSON AND BRUCE THOMPSON 16 THOMAS J. MORAN $ 987,675.25 $ 5,670,425.25 GEORGE JOSEPH ROLLAR AND GEORGE $ 936,250.10 $ 12,936,230.10 JOSEPH ROLLAR AND DOLORES MAY 17 PAYER ROLLAR 18 AUBREY ONEAL CLEMENT $ 924,408.16 $ 8,524,408.16 THE ANTHONY JOSEPH ANTINORI TRUST $ 880,657.48 $ 5,080,657.48 AND ANTHONY JOSEPH ANTINORI; AND STEVEN JAMES ANTINORI IN HIS CAPACITY AS TRUSTEE OF THE ANTHONY JOSEPH ANTINORI TRUST; THE STEVEN JAMES ANTINORI TRUST AND STEVEN JAMES ANTINORI 19 ARTURO ORTEGA GONZALEZ AND MARIA $ 853,341.46 $ 3,228,141.03 CAROLINA ORTEGA GONZALEZ AND GERMAN LUIS ORTEGA GONZALEZ AND ARTURO ORTEGA GONZALEZ 20 21 TEBEL CORPORATION $ 815,855.77 $ 3,601,507.98 NAIRC B.V., NAIRC-NETHERLANDS $ 803,511.11 $ 5,280,924.84 ANTILLEAN INSURANCE AND NAIRC- NETHERLANDS ANTILLEAN INSURANCE AND REINSURANCE COMPANY 22 23 INTERMEDIA LTD. $ 755,310.82 $ 3,863,952.14 CORPORATION NACIONAL DE INVERSIONES $ 752,611.74 $ 5,752,611.74 24 SA DE CV ALBERTO JAVIER BOTELLO REED; SILVIA $ 733,001.32 $ 5,490,419.98 GUADALUPE TAMEZ DE BOTELLO 25APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 308 1MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 129 Filed 02/09/2010 Filed 12/07/2009 Page 311 of 444 Page 5 of 9 CD Proceeds Received ID in Excess of Number Name Investments Total CD Proceeds BORDEAUX INVESTMENTS III C.V.; $ 687,563.52 $ 4,909,151.23 PROVENCE MANAGEMENT STICHTING III AND BORDEAUX INVESTMENTS III C.V. 26 27 TA TRUST $ 654,778.00 $ 3,200,000.00 28 ALGICA S.A. $ 641,672.49 $ 3,381,672.49 29 JORGE EMILIO GARZA TREVINO $ 610,364.50 $ 2,650,364.50 30 WALDMAN, LTD. $ 603,314.34 $ 2,069,266.11 PINGYI HE ORRUILIAN WU DE HE AND $ 569,163.15 $ 3,237,629.18 31 PINGYI HE DIVO MILAN HADDAD; INFINITUM TRUST $ 520,076.40 $ 9,017,539.51 AND DIVO MILAN HADDAD; MARIA DE LOURDES MARTINEZ DE SIDNEY AND MARIE ROCHELLE SIDNEY MARTINEZ; MARIE ROCHELLE SIDNEY MARTINEZ; MARIE ROCHELLE SIDNEY MARTINEZ AND 32 DIVO MILAN HADDAD BORDEAUX INVESTMENTS IX C.V.; $ 493,331.22 $ 3,120,002.74 PROVENCE MANAGEMENT STICHTING IX AND BORDEAUX INVESTMENTS IX C.V.; FELIX MARIO HERNANDEZ LARROCOECHA 33 34 OSCAR BENEDETTI $ 443,160.28 $ 2,005,522.28 35 PLATEAU TELECOMMUNICATIONS $ 438,074.19 $ 4,188,567.38 36 MARIO BRAUN RUSSEK $ 403,390.26 $ 2,052,175.19 37 PUPIBUBI TRUST $ 390,334.23 $ 2,531,874.20 38 WEST MEADOWS LTD. $ 383,573.60 $ 10,218,256.47 39 FAYHILL INTERNATIONAL $ 382,593.54 $ 9,446,366.78 ISABEL ESTHER BENEDETTI DE IZQUIERDO $ 358,824.32 $ 3,198,796.81 40 41 BENITO DE LUCA TRUST $ 354,013.44 $ 1,700,000.00 GALO ENRIQUE VILLAMAR VILLAFUERTE $ 352,584.93 $ 5,062,584.93 42 43 SALOMON DONDICH ROSENHAUS $ 341,026.01 $ 2,068,347.87 44 RAMON ALVAREZ BORONDO $ 339,386.03 $ 2,546,842.76 INTERNATIONAL PETROCHEMICAL SALES $ 334,933.29 $ 3,463,187.24 45 LIMITED AZALEA REST CEMETARY INC. IRREV $ 315,895.12 $ 1,527,787.35 TRUST, AZALEA REST CEMETARY INC., AND GEORGE B. ANNISON, IN HIS CAPACITY AS TRUSTEE OF AZALEA REST CEMETARY INC. IRREV TRUST; GEORGE BUR ANNISON AND DIANE B. ANNISON 46 INVERSIONES VARMOL TRUST CARE OF DR. $ 307,203.38 $ 5,513,731.85 JORGE MARIO VARGAS P. AND 47 INVERSIONES VARMOL TRUST 48 HERMAN J. MILLIGAN JR. $ 297,900.23 $ 1,259,160.23 49 STEPHEN J. BURNHAM $ 289,882.60 $ 1,436,882.60 50 CRAYFORD HOLDINGS LIMITED $ 280,183.17 $ 2,525,195.09 51 INMOFYBE S.A. $ 277,815.11 $ 1,857,815.11 52 JOHN F. LYNCH $ 272,234.64 $ 3,865,595.78 53 ANGELO VICTOR GONCALVES $ 260,986.76 $ 2,273,986.76 54 INES DE VILLAMAR $ 256,889.49 $ 3,722,889.49 55 JOHN O. LETARD $ 254,452.09 $ 900,452.15 56 GENOVA TRUST $ 253,357.47 $ 2,403,357.47 BILLIE RUTH MCMORRIS; RONALD B. $ 246,164.09 $ 1,149,598.95 MCMORRIS; RONALD MCMORRIS AND VIRGINIA MCMORRIS; VIRGINIA H. 57 MCMORRISAPPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 309 2MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 129 Filed 02/09/2010 Filed 12/07/2009 Page 312 of 444 Page 6 of 9 CD Proceeds Received ID in Excess of Number Name Investments Total CD Proceeds 58 SLEEPING DOG HOLDINGS, LTD. $ 242,247.86 $ 1,578,105.82 59 SHENOOR JADAVJI $ 235,311.12 $ 1,811,706.62 60 PHILLIP E. LANKFORD JR. $ 227,091.90 $ 625,091.90 61 WAYLAND B. ALEXANDER $ 212,211.54 $ 734,912.32 62 THOMAS W. SLAUGHTER $ 211,481.93 $ 634,481.93 63 LUPE MARTINEZ TRUST $ 210,386.63 $ 2,364,903.13 JAMIE COHEN BENREY AND SUSANA PEREZ $ 208,771.30 $ 2,398,317.27 64 DE COHEN 65 WILLIAM C. PROVINE $ 204,125.61 $ 1,949,125.61 66 TROY L. LILLIE JR. $ 203,451.44 $ 954,310.10 67 RONALD W. PARKER $ 202,353.43 $ 693,781.54 MICHAEL WHEATLEY AND BETTY $ 199,508.38 $ 1,699,535.78 68 WHEATLEY 69 HERRERA HOLDINGS LTD $ 192,198.53 $ 3,692,198.53 70 MICHAEL A. SPEEG $ 187,181.18 $ 837,379.64 71 ANTHONY G. PARKER $ 183,692.20 $ 1,003,163.24 72 COFFEY OVERSEAS LIMITED $ 183,494.81 $ 1,493,478.92 73 JAMES D. SIMMONS $ 181,839.52 $ 836,364.81 74 THOMAS H. TURNER $ 181,615.32 $ 2,957,505.32 75 LAURA JEANETTE N. LEE $ 176,724.64 $ 525,006.15 76 DENNIS L. KIRBY $ 175,006.66 $ 580,958.77 77 CLYDE ANDERSON $ 174,856.85 $ 704,866.71 78 GOLD WING PARTNERS $ 174,445.65 $ 1,425,426.79 79 SOCIEDAD GENERAL DE INVERSIONES $ 173,659.10 $ 1,996,089.10 80 DOROTHY T. DUNCAN $ 170,458.52 $ 564,694.24 81 JAMES W. BORING JR. $ 167,087.27 $ 612,235.25 82 MICHAEL J. DRAGO $ 165,483.89 $ 592,193.23 83 FRANZ KONRAD ROSEN $ 164,809.43 $ 1,883,920.47 84 SAXONIA FOUNDATION $ 160,931.01 $ 2,255,430.40 85 SANDRA F. HARRELL $ 154,587.85 $ 404,587.85 86 BETTE JO HEASLIP $ 153,433.03 $ 703,433.03 RONALD E. WELLS; RONALD E. WELLS SR. $ 152,816.01 $ 833,634.76 87 AND LUTHER D WELLS 88 MALTON OVERSEAS LTD. $ 151,285.82 $ 1,802,058.77 89 ARISTIDE TRELOAR $ 150,706.07 $ 649,730.37 90 TIMOTHY A. JOHNSON $ 149,572.57 $ 852,446.20 91 DENNIS CHILDRESS $ 147,426.06 $ 646,426.06 92 NORFE S.A $ 146,164.17 $ 2,551,164.17 93 MUDDY WATER HOLDINGS LIMITED $ 144,719.09 $ 1,585,349.04 94 GARY WOOD $ 141,619.74 $ 641,619.74 95 PEGGY PAYNE MORAGNE $ 141,229.66 $ 401,818.31 96 CHARLIE L. MASSEY $ 140,747.84 $ 390,809.49 RICHARD A. DEVALL; RICHARD DEVALL $ 140,492.62 $ 552,871.02 AND SUE M. DEVALL; SUE M. DEVALL 97 HARDEE M. BRIAN AND BETTY JO BRIAN; $ 139,989.40 $ 615,503.58 YOUNG FAMILY CEMETARY TRUST 98 JOSE LUCIANO MENDEZ ALONSO AND $ 134,411.06 $ 753,391.06 MARIA DEL ROCIO CORONA ODRIOZOLA 99 RICHARD S. FEUCHT; RICHARD S. FEUCHT $ 133,701.68 $ 549,863.28 100 AND JOAN A. FEUCHT KRIMICH LTD.; MARIA TERESA SAN $ 129,663.90 $ 2,834,000.00 SEBASTIAN DE VALLE AND JOSE MARIA 101 VALLE ESCAMEZ 102 TARRAL E. DAIGLE $ 126,361.20 $ 407,361.20 103 DARRELL D. COURVILLE $ 125,960.34 $ 685,960.34 104 GENE CAUSEY $ 123,288.92 $ 613,288.92 105 KENNETH W. DOUGHERTY $ 122,527.19 $ 641,527.19APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 310 3MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 129 Filed 02/09/2010 Filed 12/07/2009 Page 313 of 444 Page 7 of 9 CD Proceeds Received ID in Excess of Number Name Investments Total CD Proceeds 106 YAIR SHAMIR AND ELLA SHAMIR $ 119,765.82 $ 1,119,720.82 107 JOHN D. COOPER $ 119,750.43 $ 619,750.43 108 JOHN R. HOLGUIN $ 118,725.76 $ 660,144.24 109 EMMA LEE LEFEBVRE $ 117,977.06 $ 205,981.88 110 LOUISE D PATTERSON $ 115,637.49 $ 2,115,637.49 111 ARTHUR R. WAXLEY JR. $ 115,268.15 $ 616,268.15 112 RAUL RODRIGUEZ MENDEZ $ 114,580.58 $ 454,581.81 113 JOHN E. TAYLOR $ 113,431.70 $ 639,109.67 THOMAS E. BROWN AND BARBARA BROWN $ 109,254.20 $ 2,109,254.20 114 115 CHARLES L. WHITE $ 108,813.61 $ 558,813.61 116 CLAUDE M. NEEDHAM $ 107,224.36 $ 393,458.36 117 DONNA M. VINES $ 107,059.59 $ 346,142.84 118 HENRY A. MENTZ III $ 106,709.47 $ 706,719.47 119 ROBERT S. GREER AND ALICE D. GREER $ 102,523.66 $ 1,152,523.66 120 GAINES D. ADAMS $ 101,859.44 $ 453,139.44 121 ROBERT L. BUSH $ 100,849.09 $ 826,383.56 122 THE DAVIS REVOCABLE TRUST $ 100,260.79 $ 857,660.79 123 DAVID TOPP AND DORA TOPP $ 98,648.14 $ 1,098,648.14 124 MARY E. GERRY $ 98,380.29 $ 432,442.99 125 JAMES E. RICHARDSON FAMILY TRUST $ 97,757.04 $ 5,097,757.04 126 JEFF P. PURPERA JR. $ 97,693.42 $ 597,693.42 127 EMOLYN L. WATTS $ 95,010.68 $ 364,391.35 128 ROBERT SOULE $ 91,266.03 $ 457,234.31 129 CHARLES E. SMITH $ 90,859.07 $ 486,996.16 130 JAMES E. BROWN SR. $ 90,386.71 $ 590,386.71 131 EDGAR THERON OVERLAND $ 90,361.49 $ 416,269.22 132 TERRY N. TULLIS $ 89,938.39 $ 449,245.41 133 LUSKY INVESTMENT PARTNERSHIP, LP $ 87,889.50 $ 287,889.50 134 DENNIS LANTRIP $ 87,795.71 $ 477,927.39 AUDREY LETARD; JUDY A. VARNADO AND $ 85,769.23 $ 344,189.98 PATRICIA A. ALLISON AND AUDREY A. LETARD; PATRICIA A. ALLISON 135 JOHN G. DENISON AND KATHY R. DENISON $ 85,734.45 $ 585,734.45 136 137 ROBERT J. BRUNO $ 82,262.63 $ 582,263.63 CHARLES R. SANCHEZ AND MAMIE C. $ 82,204.45 $ 517,110.12 SANCHEZ; CHARLES R. SANCHEZ SR.; 138 MAMIE C. SANCHEZ BORDEAUX INVESTMENTS X C.V.; $ 81,941.84 $ 664,151.84 PROVENCE MANAGEMENT STICHTING X AND BORDEAUX INVESTMENTS X C.V. 139 140 TERESA MEMUN DE ALFIE $ 81,578.67 $ 276,090.99 141 EDITH IRMA WATTS $ 79,224.44 $ 539,225.13 142 EARL L. CROSBY $ 75,276.22 $ 175,276.22 143 LARRY N. SMITH $ 73,370.47 $ 485,678.50 ROBERT B. CRAWFORD JR. AND JODIE F. $ 72,197.81 $ 322,197.81 144 CRAWFORD LYDA D. TYMIAK; LYDA D. TYMIAK FAMILY $ 70,535.29 $ 570,546.25 145 TRUST AND LYDA D. TYMIAK 146 DIANE DUNN $ 70,527.65 $ 245,527.65 147 RADIUM COMPANY LTD. $ 69,415.76 $ 2,069,415.76 148 JOSE ALBERTO ROMERO VILORIA $ 68,972.06 $ 8,235,849.49 149 YENZO INVESTMENT, INC. $ 68,495.27 $ 843,541.50 BBRATSS PRODUCTIONS, INC.; TIMOTHY $ 66,459.73 $ 2,416,459.73 RUSSELL RICKETTS AND ROSE S. RICKETTS 150 151 MELVIN S. TAUB AND CAROL TAUB $ 65,959.17 $ 1,065,959.17APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 311 4MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 129 Filed 02/09/2010 Filed 12/07/2009 Page 314 of 444 Page 8 of 9 CD Proceeds Received ID in Excess of Number Name Investments Total CD Proceeds 152 ROSS D. BRUCE AND MARSHA C. BRUCE $ 64,991.83 $ 564,991.83 153 NONNA E TRUST $ 63,529.53 $ 3,079,824.08 154 EUGENE L. CROXTON JR. $ 61,805.39 $ 161,805.39 155 PINOT HOLDINGS LIMITED $ 60,808.26 $ 1,083,208.85 KEVIN A. MCKENZIE AND DENISE T. $ 56,727.82 $ 806,974.43 156 MCKENZIE 157 GWENDOLYN E. FABRE $ 55,453.05 $ 355,934.17 BLUFF CREEK REDI-MIX, INC.; FLEN ROCK $ 55,052.80 $ 643,354.14 COMPANY, LLC.; FLENIKEN SAND & GRAVEL, INC.; LYMAN L. FLENIKEN JR. 158 DOT G. MELDER; JACK W. MELDER; JACK W. $ 51,689.19 $ 506,154.82 159 MELDER AND DOT G. MELDER 160 FRANCIS NEZIANYA $ 51,635.86 $ 301,635.86 161 AMARA TRUST $ 49,948.93 $ 399,948.93 162 ROBERT C. WILLIAMS $ 48,727.92 $ 263,727.92 WILLIAM BRUCE JOHNSON AND JENNIFER $ 45,414.72 $ 245,464.04 163 SAVOIC JOHNSON 164 MICHAEL S. ASMER $ 42,664.50 $ 1,029,844.69 165 OLIVIA S. WARNOCK $ 42,455.46 $ 392,684.49 166 ROBERT YOUNG JR. $ 42,117.20 $ 360,476.58 167 MICHAEL J. TIMMONS $ 40,081.62 $ 540,081.62 168 WILLIAM E. ENSMINGER $ 39,845.96 $ 154,845.96 DANIEL JOSEPH DAIGLE AND JILDA ANN $ 39,820.10 $ 282,664.32 169 DAIGLE; JILDA A. DAIGLE 170 JOHNNIE A. GRIFFITH $ 38,521.26 $ 504,427.86 171 ARCHIE SMITH $ 37,753.36 $ 510,998.65 172 TAHSIN YILMAZ KALKAVAN $ 37,705.31 $ 287,705.31 JANE M. PRIDGEN AND ROBERT GRAY $ 35,771.54 $ 185,771.54 173 MATLOCK 174 ROLAND SAM TORN $ 35,354.86 $ 1,035,354.86 175 ARTHUR TORNO $ 33,945.60 $ 283,945.60 176 JOSEPH A. CHUSTZ $ 33,340.28 $ 598,797.31 CHERAY ZAUDERER HODGES; LUTHER $ 30,575.00 $ 2,480,701.04 HARTWELL HODGES; LUTHER HARTWELL HODGES AND CHERAY ZAUDERER HODGES 177 178 MONTY M. PERKINS $ 29,491.95 $ 129,491.95 179 MURPHY BUELL $ 29,483.22 $ 417,216.30 180 BARBARA ANTHONY $ 29,097.56 $ 345,381.68 181 MICHAEL R. HOLCOMB $ 28,364.18 $ 278,364.18 182 LARRY W. PERKINS $ 27,640.62 $ 427,640.62 183 JIMMY QUEBEDEAUX $ 26,693.16 $ 330,756.21 184 CARL M. WEBB III $ 25,391.64 $ 125,391.64 185 RISIA TOPP WINE $ 23,911.16 $ 223,911.16 186 CAROLYN CRANSTON $ 22,783.85 $ 149,054.72 187 BRIAN U. LONCAR AND SUE A. LONCAR $ 22,517.55 $ 222,517.55 INVERSIONES PATRICK ROGER P AND $ 21,740.61 $ 726,140.84 PATRICK PETIOT; PATRICK LORIS ROGER 188 PETIOT 189 GERALD S. PASTERNAK $ 20,839.38 $ 370,839.38 190 JUDITH P. SIMMONS $ 20,463.87 $ 422,748.77 191 JOHN E. WILSON $ 19,527.19 $ 405,074.46 SAMUEL R. MOORE AND MARTHA W. $ 18,045.11 $ 218,045.11 192 MOORE CARLOS LANDEROS GALLEGOS AND MARIA $ 18,000.00 $ 268,000.00 193 DE JESUS LANDEROS GALLEGOS 194 DIFFICULTY HOLDINGS LIMITED $ 16,855.75 $ 616,734.19 195 DOROTHEA M. YOUNG $ 15,562.29 $ 124,680.29 196 JUANITA QUINEALTY $ 15,446.22 $ 119,446.22APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 312 5MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 129 Filed 02/09/2010 Filed 12/07/2009 Page 315 of 444 Page 9 of 9 CD Proceeds Received ID in Excess of Number Name Investments Total CD Proceeds 197 ANTONIO SANCHEZ RAMOS $ 15,083.89 $ 528,918.97 ELENA TRON DE ZEPEDA CARRANZA; $ 13,529.30 $ 2,590,188.72 198 MAURICIO ZEPEDA CARRANZA 199 ANTHONY J. VENTRELLA $ 13,427.03 $ 483,222.26 JONATHAN LARKIN STOCK TRUST AND $ 12,925.82 $ 262,925.82 200 JONATHAN LARKIN VINETA P. STANSEL AND HOWARD STANSEL $ 11,847.39 $ 256,161.20 201 202 CHARLES A. JAMES $ 10,149.06 $ 360,149.06 TOTAL $ 93,788,316.33 $ 545,712,937.03APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 313 6MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 242 Filed 02/09/2010 Filed 01/21/2010 Page 316 of 444 Page 1 of 17 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISIONRALPH S. JANVEY, IN HIS CAPACITY AS *COURT APPOINTED RECEIVER FOR THE *STANFORD INTERNATIONAL BANK, LTD., *ET AL. * Case No. 03:09-CV-0724-N * Plaintiff, * *v. * *JAMES R. ALGUIRE, ET AL. * * Investor Defendants ******************************************************************************* ANSWER TO RECEIVER’S FIRST AMENDED COMPLAINT (INVESTOR DEFENDANTS) Investor Defendants, ROBERT B. CRAWFORD, JR., JODIE F. CRAWFORD,WILLIAM E. ENSMINGER, JENNIFER SAVOIC, EMMA LEE LEFEDVRE, MICHAELA. SPEEG, PEGGY PAYNE MORAGNE, JUDITH P. SIMMONS (“Investor Defendants”) filethis Answer and Affirmative Defenses in response to the Receiver’s First Amended Complaint.APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 314MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 242 Filed 02/09/2010 Filed 01/21/2010 Page 317 of 444 Page 2 of 17 ANSWER SUMMARY 1. No response is required for the allegations contained in paragraph 1 of the Receiver’sFirst Amended Complaint. To the extent that the response is required, allegations contained inparagraph 1 are denied for lack of sufficient information to justify a belief therein. 2. Investor Defendants deny that they had knowledge of the use or whereabouts of theirinvestments as alleged in paragraph 2. The allegations contained in paragraph 2 of the Receiver’sFirst Amended Complaint are denied for lack of sufficient information to justify a belief therein.Investor Defendants deny the amounts set forth on the Appendix are the correct amounts or the dateon which the Ponzi scheme commenced. 3. The first sentence in paragraph 3 is denied. The second sentence of paragraph 3 isdenied for lack of sufficient information to justify a belief therein. The third sentence in paragraph3 is denied. All other allegations are denied. 4. The last sentence of paragraph 4 is denied. Except as otherwise noted, all otherallegations contained in paragraph 4 of the Receiver’s First Amended Complaint are denied for lackof sufficient information to justify a belief there. 5. The allegations contained in paragraph 5 are denied for lack of sufficient informationto justify a belief therein. Investor Defendants deny the amounts set forth on the Appendix are thecorrect amounts or the date on which the Ponzi scheme commenced. 6. The allegations contained in paragraph 6 are a statement of law and not fact. To theextent that a response is required, the allegation in paragraph 6 is denied because it is not a properstatement of the law. Further, any factual allegations contained in paragraph 6 are denied. Page 2APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 315MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 242 Filed 02/09/2010 Filed 01/21/2010 Page 318 of 444 Page 3 of 17 PARTIES 7. Subject to the allegations made in Investor Defendants’s Sixth Affirmative Defense:Investor Defendants Are not the Owners of Transferred Assets, the allegations contained inparagraph 7 are admitted. 8. The allegations contained in paragraph 8 are denied for lack of sufficient informationto justify a belief therein. PROCEDURAL HISTORY 9. The allegations contained in paragraph 9 are a statement of law and not fact. To theextent that a response is required, the allegation in paragraph 9 is denied because it is not a properstatement of the law. Any factual allegations contained in paragraph 9 are denied for lack ofsufficient information to justify a belief therein. JURISDICTION AND VENUE 10. The allegation contained in paragraph 10 is denied for lack of sufficient informationto justify a belief therein. 11. The allegation contained in paragraph 11 is denied including the Fifth AffirmativeDefense. 12. The allegation contained in paragraph 12 is denied for lack of sufficient informationto justify a belief therein. 13. The document executed by each Investor Defendant, if executed, as alleged inparagraph 13, is the best evidence of its terms. Except as otherwise noted, all allegations containedin paragraph 13 are denied for lack of sufficient information to justify a belief there. 14. The allegation contained in paragraph 14 is denied for lack of sufficient information Page 3APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 316MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 242 Filed 02/09/2010 Filed 01/21/2010 Page 319 of 444 Page 4 of 17to justify a belief therein. STATEMENT OF FACTS 15. Investor Defendants deny that they have any personal knowledge of any of the factualbasis for the fraud, misrepresentations, or omissions or failure to comply with the regulatory lawsas of the date of the transfers which are the subject of the First Amended Complaint. However,Investor Defendants now believe that many of the facts alleged are now in fact true. The allegationsconcerning actions of Stanford Defendants contained in paragraphs 15-24 are denied for lack ofsufficient information to justify a belief therein. The allegations contained in Paragraphs 15 - 24 areadmitted except for the date that the Ponzi Scheme started. All allegations regarding the date of thecommencement of the Ponzi Scheme are denied. The exact date for the commencement of the Ponzischeme is a contested issue of fact of which Plaintiff must establish in order to contest the transferswhich are the subject of this suit. 16. The allegations contained in paragraph 25 are denied. 17. The allegations contained in paragraph 26 are admitted subject to the FourthAffirmative Defense. REQUESTED RELIEF 18. The allegation contained in paragraph 27 is a statement of law and not fact. To theextent that a response is required, the allegation contained in paragraph 27 is denied because it doesnot properly state the law. Further, any factual allegations contained in paragraph 27 are denied. 19. The allegation contained in paragraph 28 is a statement of law and not fact. To theextent that a response is required, the allegation contained in paragraph 28 is denied because it doesnot properly state the law. Further, any factual allegations contained in paragraph 28 are denied. Page 4APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 317MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 242 Filed 02/09/2010 Filed 01/21/2010 Page 320 of 444 Page 5 of 17 20. The allegation contained in paragraph 29 is a statement of law and not fact. To theextent that a response is required, the allegation contained in paragraph 29 is denied because it doesnot properly state the law. Further, any factual allegations contained in paragraph 29 are denied. 21. The allegations contained in Paragraph 30 are denied. 22. The allegations in paragraphs 31 - 36 concerning the amount received by allinvestors other than the Investor Defendants are denied of lack of sufficient information to justifya belief therein. To the extent that the allegation is applicable to Investor Defendants, the allegationis denied because either the amount is not correct or the Receiver has filed a claim against theindividual beneficiary of an Individual Retirement Accounts plan (the “IRA Plan”) and not thecustodian of the IRA Plan or the IRA Plan which owns the funds. The amount of assets owned bythe IRA Plans are set forth in Paragraph 50. All other allegations set forth in paragraphs 31-36 area statement of law and not fact. To the extent that a response is required, the allegations containedin paragraphs 31-36 are denied because they are an improper statement of the law. Further, anyfactual allegations contained in paragraphs 31-36 are denied. 23. The allegations contained in Paragraph 37 are denied. 24. The allegations contained in Paragraph 38 are denied. 25. The allegations set forth in Paragraph 39 - 42 are statements of law and not fact. Tothe extent that a response is required, the allegations set forth in Paragraph 39 - 42 are deniedbecause it is an improper statement of the law. Further, any factual allegations are denied. 26. The allegations set forth in paragraph 43 are statements of law and not fact. To theextent that a response is required, the allegations in paragraph 43 are denied as a proper statementof the law. Further, any factual allegations in paragraph 43 are denied. Page 5APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 318MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 242 Filed 02/09/2010 Filed 01/21/2010 Page 321 of 444 Page 6 of 17 27. All other allegations not specifically mentioned are hereby denied. AFFIRMATIVE DEFENSESI. First Affirmative Defense: Fraudulent Transfer Act 28. The Texas Fraudulent Transfer Act is set out in Tex. Bus. & Com. Ann. § 24.001 etseq. (“the Act”). Investor Defendants hereby allege that the transfers: (1) were for reasonablyequivalent value based upon an existing antecedent debt; (2) were made in good faith, or (3) thatInvestor Defendants were a “subsequent transferee” not subject to being voidable under the Act. 29. Section 24.009(a) of the Act provides: “A transfer or obligation is not voidableunder Section 24.005(a)(1) of the Act against a person who took in good faith and for a reasonablyequivalent value or against any “subsequent transferee or obligee.” Tex. Bus. & Com. Ann.§24.009(a) (emphasis added). Many if not all of the Investor Defendants were not transferees fromStanford International Bank (“SIB”) and are not subject to the act. 30. Investor Defendants (1) acted in good faith and (2) gave reasonably equivalent valuein exchange for the transfer because the interest and principal payments were transferred insatisfaction of an antecedent debt represented by a contractual agreement as previously determinedby the United States Fifth Circuit Court of Appeal in Janvey v. Adams 2009 WL 3791623, 2 (5th Cir.2009). 31. All transfers were made to IRA Plans of which the Stanford Trust was the custodianand Investor Defendants were beneficiaries. In many instances, the Custodian of the IRA Plans(“IRA Custodian”) never made any distributions or limited distributions to Investor Defendants. Ininstances where the IRA Custodians made distributions to Investor Defendants, the amount of thetransfers were transfers made to “subsequent transferees” and are not subject to the Act. Page 6APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 319MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 242 Filed 02/09/2010 Filed 01/21/2010 Page 322 of 444 Page 7 of 17 32. The transfers made to the IRA Plans and/or the Investor Defendants were transfersmade for “antecedent debts” within the meaning of Tex. Bus. & Com. Ann. § 24.004(a) because thefunds were CD proceeds pursuant to written certificate of deposit agreements with SIB, whichgranted them certain rights and obligations as determined by the United States Fifth Circuit Courtof Appeals in Janvey v. Adams, supra, where the Court stated the following, “There was a debtor-creditor relationship between the Investor Defendants and the Stanford Bank based on writtenagreements well before the underlying SEC enforcement action against Stanford and the resultingreceivership and restraining order. The Court continued to state,“The Investor Defendants havelegitimate ownership interests in their CD proceeds.” The United States Fifth Circuit Court ofAppeals held, “The opinion does not cast any doubt upon our conclusion that the InvestorDefendants here, against whom no wrongdoing has been alleged, have ownership interests in andlegitimate claims to the proceeds of the CDs that they purchased from the Stanford Bank just asthousands of other innocent investors have done.” Janvey v. Adams 2009 WL 3791623, 2 (5th Cir.2009). 33. As a matter of law, the interest payments are a reasonably equivalent value becausethey are based upon contractual agreements and are antecedent debts within the meaning of the Act. 34. As a matter of law, the principal payments received are a reasonably equivalent valuebecause they represent the payment of an antecedent debt, based upon the previous ruling of JudgeGodbey in the order dated July 31,2009, which has not been reversed as of the date of the filing ofthe First Amended Complaint by the Receiver. 35. Section 24.004(a) of the Act specifically provides that “value” includes satisfactionof an antecedent debt. Tex. Bus. & Com. Ann. § 24.004(a). A debtor may also receive “reasonably Page 7APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 320MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 242 Filed 02/09/2010 Filed 01/21/2010 Page 323 of 444 Page 8 of 17equivalent value” when the debtors payment of a third-partys debt reduces the debtors liabilities.1In re IFS Financial Corp. 417 B.R. 419, 441, 442 (Bkrtcy.S.D.Tex. 2009). 36. The estates liabilities are reduced in the same amount as the transfer. SIB receivedreasonably equivalent value from the disputed transfers in that its liability was reduced in theamount of the transfers. In re IFS Financial Corp. 417 B.R. 419, 442 (Bkrtcy. S.D.Tex. 2009).II. Second Affirmative Defense: Interest Payments are Payments for Antecedent Debt 37. A debtor does not receive reasonably equivalent value for any payments made toinvestors that represent false profits. See In re Hedged-Investors Associates, Inc., 84 F.3d 1286,1290 (10th Cir.1996); Scholes v. Lehmann, 56 F.3d 750, 757-58 (7th Cir.); In re Taubman, 160 B.R.964, 967 (Bankr.S.D.Ohio 1993); Eby v. Ashley, 1 F.2d 971, 973 (4th Cir.1924). Warfield v. Carnie2007 WL 1112591, 12 (N.D.Tex. 2007). However, false profits and interests are not the same typesof compensation. In re Carrozzella & Richardson, 286 B.R. 480, 491 (D.Conn.2002). 38. In exchange for the interest paid to the Investor Defendants, SIB received a dollar-for-dollar forgiveness of a contractual debt. Since the SIB CDs are contractual obligations of SIB,SIB was obligated to pay the interest that accrued on the SIB CDs. SIB’s payment of the accruedinterest constituted dollar-for-dollar forgiveness of a contractual debt, which is “reasonablyequivalent value.” Freeland v. Enodis Corp. 540 F.3d 721, 735 (7th Cir. 2008); In re Carrozzella& Richardson, 286 B.R. 480, 491 (D.Conn.2002); Kipperman v. Onex Corp. 411 B.R. 805, 1 (a) Value is given for a transfer or an obligation if, in exchange for the transfer orobligation, property is transferred or an antecedent debt is secured or satisfied, but value does notinclude an unperformed promise made otherwise than in the ordinary course of the promisorsbusiness to furnish support to the debtor or another person. Tex. Bus. & Com. Ann. § 24.004(a). Page 8APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 321MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 242 Filed 02/09/2010 Filed 01/21/2010 Page 324 of 444 Page 9 of 17851 (N.D.Ga. 2009); In re N & D Properties, Inc. 54 B.R. 590, 605 (D.C.Ga.1985).III. Third Affirmative Defense: Investor Defendants Acted in Good Faith 39. Plaintiff has not alleged sufficient facts relating to each transfer of principal orinterest over multiple years for Investor Defendants to be able to determine on what date Plaintiffbelieves that Investor Defendants should have reasonably known of SIB’s insolvency or should havereasonably put them on notice at the time of each transfer of principal or interest that the transferwas made in order to delay, hinder, or defraud creditors of the debtor. 40. Investor Defendants did not have knowledge of facts that should have reasonably putthem on notice at the time of each transfer of principal or interest that the transfer was made in orderto delay, hinder, or defraud creditors of the debtor. Terry v. June 432 F.Supp.2d 635, 641 (W.D.Va.2006); United States v. Romano, 757 F.Supp. 1331, 1338 (M.D.Fla.1989); Plotkin v. Pomona ValleyImports (In re Cohen), 199 B.R. 709, 719 (Bankr.Fed.App.1996); Fisher v. Sellis (In re Lake StatesCommodities, Inc.), 253 B.R. 866, 878 (Bankr.N.D.Ill.2000); In re Agricultural Research & Tech.Group, Inc., 916 F.2d 528, 536 (9th Cir. 1990). 41. Most of the payments of interest occurred years before the date of the receivershipfiling by the SEC. Investor Defendants did not know or should not have known that the debtors wereinsolvent at the time of each transfer of principal and interest. Investor Defendants did not haveknowledge of facts at the time of the transfer of each payment of principal and interest that shouldhave reasonably put them on notice that SIB was insolvent or that the transfers were being made todelay, hinder, or defraud creditors of the debtor. 42. As a matter of law, since the facts and circumstances surrounding the operation ofStanford International Bank (“SIB”) did not reasonably put the Securities and Exchange Page 9APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 322MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 242 Filed 01/21/2010 Filed 02/09/2010 Page 10 ofof 444 Page 325 17Commission and FINRA, which were responsible for monitoring the activities of the StanfordGroup, on notice during the relevant time period that transfers were being made to delay hinder ordefraud creditors of the debtor through the implementation of a Ponzi Scheme, then InvestorDefendants, as innocent investors, may not be held to a higher standard of knowledge or inquirythan the Securities and Exchange Commission and FINRA. 43. Investor Defendants were unsophisticated investors who were innocent retirees whoinvested their life savings in the IRA Plans. Investor Defendants knowledge of particular facts wasnot such that they should have known of the fraudulent scheme or the insolvency of SIB. 44. In the alternative, because the transfers in question involved multiple transfers andmultiple time periods, each transfer requires a finding that facts existed that provide the basis for alack of good faith. 45. The primary purpose of disgorgement is to deprive a “wrongdoer” of unjustenrichment. In this particular case, as admitted by the Receiver, no “wrongdoer” is the subject ofthe plan for disgorgement. S.E.C. v. JT Wallenbrock & Associates, 440 F.3d 1109, 1113 (9thCir.2006). See also, Securities and Exchange Commission v. Blatt, 583 F.2d 1325, 1335 (5thCir.1978); S.E.C. v. Seghers, 298 Fed.Appx. 319, 336, 2008 WL 4726248, 14 (5th Cir.2008). Forthis reason, Plaintiff is not entitled to the relief requested. 46. Even if wrongdoing is involved, the amount of the principal investment is not subjectto recoupment. Scholes v. Lehmann, 56 F.3d 750 (7th Cir.1995); S.E.C. v. Blatt, 583 F.2d at 1325,1335 (5th Cir. 1978); Ruling of Judge Godbey dated July 31, 2009.IV. Fourth Affirmative Defense: Uncertainty of Commencement Date of Ponzi Scheme Page 10APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 323MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 242 Filed 01/21/2010 Filed 02/09/2010 Page 11 ofof 444 Page 326 17 47. As a matter of law, the time period for seeking recovery of the transfers based uponthe actual intent to hinder, delay, or defraud creditors cannot commence until the date of thecommencement of the Ponzi scheme is proven. Plaintiff makes no attempt to allege when the PonziScheme started. In order to establish that the transfer was made with actual intent to hinder, delayor defraud any creditor of the debtor, the date of the commencement of the Ponzi Scheme must befactually pleaded and established. Until the date of the commencement of the Ponzi Scheme isproven, Investor Defendants reserve the right to assert the defense that the transfers made to themfor certain interest payments were prior to the date of the commencement of the Ponzi Scheme. 48. The transfers of interest and principal to Investor Defendants occurred in multipleyears and months. The transfers from the receivership entities to Investor Defendants were not madewith actual intent to hinder, delay, or defraud creditors of the receivership entities during all periodsfor which disgorgement is being sought. The defenses of Investor Defendants for the time periodsfor disgorgement cannot be ascertained until Plaintiff sets forth the facts for the time in which thePonzi Scheme commenced.V. Fifth Affirmative Defense: Ownership of Claim 49. Plaintiff does not have title to the claim, and as a matter of law, is not entitled toenforce any right of SIB against Investor Defendants until it is determined who is the proper receiverto represent SIB in pursuing its claims. Page 11APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 324MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 242 Filed 01/21/2010 Filed 02/09/2010 Page 12 ofof 444 Page 327 17VI. Sixth Affirmative Defense: Investor Defendants Are not the Owners of Transferred Assets2. 50. The proceeds listed in the following table are held by the IRA Custodian3. Last Name IRA Receiver No Distribution 11/24 Clawback Footnote Crawford 144 $322,197.81 $72,197.81 Ensminger IRA 168 $154,845.96 $39,845.96 Savioc 163 $245,464.00 $45,414.72 (1) Lefedvre IRA 109 $205,981.88 $117,977.06 Speeg IRA 70 $837,379.64 $187,181.18 Simmons IRA 190 $422,748.77 $20,463.87 Moragne IRA 95 $401,818.31 $141,229.66 (2) (1) Jennifer Savioc redeemed her CD in 2006 and is listed jointly as Receiver Investor Defendant 163 with William Bruce Johnson. William Bruce Johnson filed his Answer to the Amended Complaint on December 18, 2009. (2) Ms. Moragne is a paraplegic and Ms. Moragne has depended on these funds for her healthcare and the remaining funds are essential to cover her medical expenses.Plaintiff has filed suit against Investor Defendants for the funds held in the IRA Plans. As a matterof law, Plaintiffs and IRA Plans are not the same legal entity, and the Receiver’s action against theInvestor Defendants for the funds titled in the name of the IRA Plans do not state a legal claim forthe funds held by the IRA. 51. Plaintiff has ignored this requirement and named the wrong party as a InvestorDefendants in order to avoid the exemption provisions of § 42.0021 of the Texas Property Code. 2 Robert F. Crawford, Jr. and Jodie F. Crawford held the CD jointly and as such, the sixthaffirmative defense does not apply to them. Jennifer Savioc did not have the funds in her IRAand as such, the sixth affirmative defense does not apply to her either. However, for ease of theReceiver’s reference, they have been included in the chart. 3 Robert F. Crawford, Jr., Jodie F. Crawford, and Jennifer Savioc did not have theirStanford CDs in their IRAs. The Sixth Affirmative Defense is not applicable to InvestorDefendants 144 and 163. Page 12APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 325MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER
    • Case 3:09-cv-00298-N Document 1003-3 Case 3:09-cv-00724-N Document 242 Filed 01/21/2010 Filed 02/09/2010 Page 13 ofof 444 Page 328 17Tex. Prop. Ann. §24.009. 52. It is the burden of the party claiming an exemption under § 42.0021 of the TexasProperty Code to prove that he is entitled to such exemptions. Lozano v. Lozano 975 S.W.2d 63, 67(Tex. App-Houston [14th Dist.] 1998, pet. denied). 53. All of the accounts listed in Paragraph 50 of Investor Defendants’ Answer toReceiver’s First Amended Complaint are IRA Plans established with the Stanford Trust to purchaseSIB CD’s. Investor Defendants are not the owners of the funds which are the subject of the claims. 54. Texas Property Code § 42.0021 states the following: In addition to the exemption prescribed by Section 42.001, a persons right to the assets held in or to receive payments, whether vested or not, under any stock bonus, pension, profit-sharing, or similar plan, including a retirement plan for self- employed individuals, and under any annuity or similar contract purchased with assets distributed from that type of plan, and under any retirement annuity or account described by Section 403(b) or 408A of the Internal Revenue Code of 1986, and under any individual retirement account or any individual retirement annuity, including a simplified employee pension plan, and under any health savings account described by Section 223 of the Internal Revenue Code of 1986, is exempt from attachment, execution, and seizure for the satisfaction of debts unless the plan, contract, or account does not qualify under the applicable provisions of the Internal Revenue Code of 1986. Tex. Prop. Ann. §42.0021(a). 55. Based upon the liberal rule of construction, evidence that an account is an IRA issufficient to establish that it is exempt, unless evidence