1003 . 3_appendix_-_supp_brief_mtn_re_772_relief_from_rcvrship_order_bukrinsky (1)

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 DIVISION

SECURITIES 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


TABLE OF CONTENTS

Declaration of Angela Shaw .............................................................................................................. 1

Joint Motion of the SEC and Receiver for Entry of Second Amended Order Appointing
Receiver and Appendix in Support of Joint Motion of the SEC and Receiver for Entry of
Second Amended Order Appointing Receiver [Dkt. No. 958].......................................................... 7

Receiver Ralph S. Janvey’s Motion to Amend Order Appointing Receiver [Dkt. No. 146]........... 43

Transcript of Oral Argument in Janvey v. Alguire, et al., Civil Action No. 09-10761
(5th Cir. Nov. 2, 2009)..................................................................................................................... 57

Receiver’s Second Amended Complaint Against Former Stanford Employees, filed in
Janvey v. Alguire, et al., Case no. 3:09-cv-0724-N, N.D. Tex. [Dkt No. 156].............................. 171

Defendant E. Randolph Robertson, Jr.’s Original Answer to Receiver’s Second Amended
Complaint 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] ................ 197

Complaint in Frank, et al., v. The Commonwealth of Antigua and Barbuda,
(Case No. 3:09-cv-02165-N).......................................................................................................... 214

First Amended Complaint Against Certain Stanford Investors and Appendix in Support of
Receiver’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],................................ 288

Answer to Receiver’s First Amended Complaint (Investor Defendants), filed by
investors 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]...................................................................... 314

Transcript of Proceedings in Janvey v. Alguire, et al., July 31, 2009............................................ 331

Order of the Honorable David C. Godbey cancelling the January 21, 2010 hearing in In re
Stanford International Bank, Ltd., Case no. 3:09-cv-0721-N, N.D. Tex. [Dkt No. 66] ................ 382

Letter from Ralph S. Janvey to Sen. Christopher J. Dodd, dated August 12, 2009....................... 383

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

DALLAS DIVISION

§
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

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

Filed 01/14/2010 Page 10of 9444
Page 2 of

Receivership 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); Order

Reappointing 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 his

duties as receiver, it is not necessary for him to have the authority to file bankruptcy petitions on

behalf of any of the individual defendants. Accordingly, the proposed Second Amended Order

Appointing Receiver clarifies that the Receiver’s exclusive authority to file bankruptcy petitions

applies only to the corporate, and not the individual, defendants.

Finally, despite the litigation injunction contained in the Amended Order

Appointing Receiver, a number of lawsuits have been filed in state and federal courts against the

Receiver, Estate entities, and defendants. Many of these have been stayed or referred to the

MDL panel. However, a second wave of related litigation is now demanding significant

resources from the Receiver, his professionals, and the Estate. Plaintiffs have filed lawsuits

against former Stanford financial advisors and are taking the position that the litigation

injunction does not apply to terminated employees. Because the Estate is in possession of

documents relating to Stanford client accounts, the plaintiffs and defendants in these suits seek

discovery from the Receiver. Responding to these requests will consume more and more Estate

resources as additional cases are filed and proceed to trial.

There have now been more than 50 cases filed in state and federal courts that

somehow relate to the sale of Stanford CDs or the Receivership. Six cases have named Pershing

LLC (which was the clearing bank for Stanford Group Company) and four have named SEI

Investments Co. (which provided trust services to Stanford Trust Co.) as defendants in five


Filed 01/14/2010 Page 11of 9444
Page 3 of

different jurisdictions. A number of arbitrations have also been initiated against Pershing at

FINRA. The contracts between Pershing and SGC and SEI and STC require the Estate to

indemnify Pershing and SEI in these lawsuits and arbitrations. Despite the Estate’s pecuniary

interest in these cases, none of the them have been stayed pursuant to this Court’s litigation

injunction, either by agreement or court order. The Estate has already incurred some defense

costs pursuant to the indemnity provisions and if these cases continue, or multiply, they will

further deplete Estate resources. For example, after being referred to the MDL panel, one group

of plaintiffs simply filed a second, almost identical lawsuit against Pershing in another

jurisdiction; they refuse to stay the case and maintain that it is not appropriate for referral to the

MDL panel.

Argument and Authority

The Fifth Circuit, and other Circuit Courts, have upheld repeatedly a district

court’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 exclusive

jurisdiction:

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).


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Because “[t]he receivership court has a valid interest in both the value of the

claims 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 entities

under 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 with

notice, far exceeding normal limits on the scope of injunctions. See S.E.C. v. Wencke, 622 F.2d

1363, 1369 (9th Cir. 1980). Furthermore, the power to enjoin “extends to the institution of any

suit.” Liberte Capital, 462 F.3d at 551.

If the injunction so provides, leave of the receivership court must be obtained

before 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 of

subject 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, but

carved out a very narrow exception for litigation against the Receiver for cases challenging the

validity 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 the

narrow exception to the injunction, and the district court held them in contempt. The Sixth

Circuit affirmed, emphasizing the district court’s exclusive jurisdiction over the receivership. Id.

at 552.

Justice Anthony Kennedy, writing for the Ninth Circuit, has explained the

practical reasons that such an injunction can be necessary and reasonable. It protects the


Filed 01/14/2010 Page 13of 9444
Page 5 of

interests of the very persons enjoined from filing suit, and prevents the estate from becoming

overwhelmed 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 was

filed, the Fifth Circuit has vacated a two-year-old judgment and ordered that funds disbursed to

the parties be paid back into the registry of the court. Schauss v. Metals Depository Corp., 757

F.2d 649, 655 (5th Cir. 1985). A customer filed suit against MDC in the Northern District of

Texas and MDC’s bank was joined as garnishee. Id. at 651. Soon thereafter, a fraud suit was

filed in the Southern District of New York. The New York court entered judgment against

MDC, appointed a receiver, and enjoined the commencement of new suits and continuation of

pending suits. Id. A second Texas suit was filed and the two Texas suits consolidated. Pursuant

to 28 U.S.C. § 754 the New York receiver filed the New York order appointing him, but did not

otherwise answer or enter an appearance in the Texas consolidated case. Id. at 652.


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Page 6 of

The Texas case then proceeded to bench trial and the court entered judgment

disposing of the funds interpleaded by the bank as garnishee. Id. Two years later, the receiver

moved to set aside the Texas judgment. The Fifth Circuit granted the motion in the interests of

justice and comity between federal courts, to discourage duplicative litigation, and in furtherance

of 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 proposed

Second Amended Order Appointing Receiver. For the Court’s convenience a red-line comparing

the proposed Second Amended Order Appointing Receiver and Amended Order Appointing

Receiver (Doc. 157) has been filed at Appendix 10-21.


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 of

Dated: 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
robert.howell@bakerbotts.com
David T. Arlington
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
tim.durst@bakerbotts.com
2001 Ross Avenue
Dallas, Texas 75201
(214) 953-6500
(214) 953-6503 (Facsimile)

ATTORNEYS FOR RECEIVER
RALPH S. JANVEY


Filed 01/14/2010 Page 16of 9444
Page 8 of

CERTIFICATE OF CONFERENCE

Counsel for the Receiver conferred with attorneys who have made appearances on
behalf 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 for
Laura Pendergest-Holt, who stated that Ms. Holt opposes the filing of this motion and relief
sought herein.

Counsel for the Receiver conferred with Ruth Schuster, counsel for R. Allen
Stanford, 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 James
Davis, but has not received a response to requests to confer on this motion and relief sought
herein.

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 sought
herein.

/s/ Kevin M. Sadler
Kevin M. Sadler


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Page 9 of

CERTIFICATE OF SERVICE

On January 14, 2010 I electronically submitted the foregoing motion and the
proposed 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 counsel
and/or pro se parties of record electronically or by another manner authorized by Federal Rule of
Civil Procedure 5(b)(2).

/s/ Kevin M. Sadler
Kevin M. Sadler


Filed 02/09/2010 Page 1 ofof 444
Page 18 27

DALLAS DIVISION

§
Plaintiff, §
§
v. § Case No.: 3-09-CV-0298-N
§
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


Page 19 27

Dated: January 14, 2010 Respectfully submitted,

BAKER BOTTS L.L.P.

Kevin M. Sadler
Robert I. Howell
David T. Arlington
(512) 322-2500
(512) 322-2501 (Facsimile)

Timothy S. Durst
2001 Ross Avenue
Dallas, Texas 75201
(214) 953-6500
(214) 953-6503 (Facsimile)

ATTORNEYS FOR RECEIVER
RALPH S. JANVEY


On January 14, 2010 I electronically submitted the foregoing motion and the
proposed 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 counsel
and/or pro se parties of record electronically or by another manner authorized by Federal Rule of
Civil Procedure 5(b)(2).

/s/ Kevin M. Sadler
Kevin M. Sadler


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FOR THE NORTHERN DISTRICT 0F TEXAS
DALLAS DIVISION

§
SECURITIES AND EXCHANGE COMMISSION
§
Plaintiff, §
§
v. § Case No.: 3-09CV0298-N
§
ET AL. §
§
Defendants. §
§
§
§

SECOND AMENDED ORDER APPOINTING RECEIVER

This matter came before me, the undersigned United States District Judge, on the motion

of Plaintiff Securities and Exchange Commission (“Commission”) for the appointment of a

Receiver 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”). It

appears that, and Individual Defendants Robert Allen Stanford, James M. Davis, and Laura

Pendergest-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 Order

Appointing Receiver. (Doc. 157). The Receiver has informed the Court that after the

expiration of 10 days from the dates of these Orders, the Receiver identified Receivership

Assets and Receivership Records in districts in which copies of the Complaint and Order

Appointing Receiver have not been filed of record pursuant to 28 U.S.C. § 754. In order to

APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF 10
Appx. Page 27

Filed 02/09/2010 Page 30 of 444

allow the Court to obtain jurisdiction in these districts, the Court hereby enters this Second

Amended Order Appointing Receiver. The Court finds the entry of this Second Amended

Order Appointing Receiver to be both necessary and appropriate in order to prevent waste and

dissipation 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 and

description, 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 and

records, client lists, account statements, financial and accounting documents, computers,

computer hard drives, computer disks, internet exchange servers telephones, personal digital

devices and other informational resources of or in possession of the Defendants, or issued by

Defendants and in possession of any agent or employee of the Defendants (“Receivership

Records”).

2. Ralph S. Janvey of Dallas, Texas, is hereby appointed Receiver for the

Receivership Assets and Receivership Records (collectively, “Receivership Estate”), with the

full power of an equity receiver under common law as well as such powers as are enumerated

herein as of the date of this Order. The Receiver shall not be required to post a bond unless

directed 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 willful

malfeasance or gross negligence, the Receiver shall not be liable for any loss or damage incurred

by the Receivership Estate, or any of Defendants, the Defendants’ clients or associates, or their

subsidiaries or affiliates, their officers, directors, agents, and employees, or by any of

2
Appx. Page 28

Filed 02/09/2010 Page 31 of 444

Defendants’ creditors or equity holders because of any’ act performed or not performed by him

or his agents or assigns in connection with the discharge of his duties and responsibilities

hereunder.

3. The duties of the Receiver shall be specifically limited to matters relating to the

Receivership Estate and unsettled claims thereof remaining in the possession of the Receiver as

of the date of this Order. Nothing in this Order shall be construed to require further investigation

of Receivership Estate assets heretofore liquidated and/or distributed or claims of the

Receivership Estate settled prior to issuance of this Order. However, this paragraph shall not be

construed to limit the powers of the Receiver in any regard with respect to transactions that may

have occurred prior to the date of this Order.

4. Until the expiration date of this Order or further Order of this Court, Receiver is

authorized to immediately take and have complete and exclusive control, possession, and

custody of the Receivership Estate and to any assets traceable to assets owned by the

Receivership Estate.

5. As of the date of entry of this Order, the Receiver is specifically directed and

authorized 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

3
Appx. Page 29

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;

4
Appx. Page 30

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(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;

5
Appx. Page 31

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(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 manage

and direct the business and financial affairs of the Defendants, including without limitation, the

sole and exclusive power and authority to petition for relief under the United States Bankruptcy

Code, 11 U.S.C. §§ 101 et seq. (the “Bankruptcy Code”), for any or all of the corporate

Defendants. The Receiver is not authorized, without further Court order, to petition for

relief under the Bankruptcy Code for any of the Individual Defendants. Solely with respect

to 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; and

irrespective 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 position

of and possess the authority of any party with power to authorize and execute the filing of a

petition for relief under the Bankruptcy Code, including without limitation corporate directors,

general and limited partners, and members of limited liability companies.

6
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7. Before taking action under paragraph 6 of this Order, the Receiver must provide

the Commission and the Defendants with at least two business days’ written notice (unless

shortened or lengthened by court order) that the Receiver is contemplating action under the

Bankruptcy Code; provided that the Receiver may apply for an order under seal or a hearing in

camera, as circumstances require. To facilitate an efficient coordination in one district of all

bankruptcies of the Defendants, the Northern District of Texas shall be the Receiver’s principal

place of business for making decisions in respect of operating and disposing of each of the

Defendants and their respective assets.

8. Upon the request of the Receiver, the United States Marshal’s Office is hereby

ordered 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 the

following 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 equitable

jurisdiction in this matter, orders that such actions may be conducted in another forum or

jurisdiction:

(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

7
Appx. Page 33

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 prior

approval 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 seeking

relief from the injunction contained in paragraph 10(e) of this Order for a period of 180 days

from the date of entry of this Order with respect to any Defendant.

11. 12. Defendants, their respective officers, agents, and employees and all persons in

active concert or participation with them who receive notice of this Order by personal service or

8
Appx. Page 34

Filed 02/09/2010 Page 37 of 444

otherwise, including, but not limited to, any financial institution, broker-dealer, investment

adviser, 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 any

Receivership Estate assets that are owned by Defendants or in the actual or constructive

possession of any entity directly or indirectly owned or controlled or under common control with

the Receivership Estate, or effecting any sale, gift, hypothecation, assignment, transfer,

conveyance, encumbrance, disbursement, dissipation, or concealment of such assets. A copy of

this Order may be served on any bank, savings and loan, broker-dealer, or any other financial or

depository institution to restrain and enjoin any such institution from disbursing any of the

Receivership Estate assets. Upon presentment of this Order, all persons, including financial

institutions, shall provide account balance information, transaction histories, all account records

and any other Receivership Records to the Receiver or his agents, in the same manner as they

would be provided were the Receiver the signatory on the account.

12. 13. Defendants, and their respective agents, officers, and employees and all

persons in active concert or participation with them are hereby enjoined from doing any act or

thing whatsoever to interfere with the Receiver’s taking control, possession, or management of

the Receivership Estate or to in any way interfere with the Receiver or to harass or interfere with

the duties of the Receiver or to interfere in any manner with the. exclusive jurisdiction of this

Court over the Receivership Estate, including the filing or prosecuting any actions or

proceedings which involve the Receiver or which affect the Receivership Assets or Receivership

Records, specifically including any proceeding initiated pursuant to the United States

Bankruptcy Code, except with the permission of this Court. Any actions so authorized to

9
Appx. Page 35

Filed 02/09/2010 Page 38 of 444

determine disputes relating to Receivership Assets and Receivership Records shall be filed in

this Court.

13. 14. Defendants, their respective officers, agents, and employees and all persons in

active concert or participation with them who receive actual notice of this Order by personal

service 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;

10
Appx. Page 36

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 equity

fund or investment banking firm or person that holds, controls, or maintains accounts or assets of

or on behalf of any Defendant, or has held, controlled, or maintained any account or asset of or

on 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,

11
Appx. Page 37

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 active

concert or participation with them and other persons who have notice of this Order by personal

service or otherwise, are hereby restrained and enjoined from destroying, mutilating, concealing,

altering, transferring, or otherwise disposing of, in any manner, directly or indirectly, any

contracts, accounting data, correspondence, advertisements, computer tapes, disks or other

computerized records, books, written or printed records, handwritten notes, telephone logs,

telephone scripts, receipt books, ledgers, personal and business canceled checks and check

registers, bank statements, appointment books, copies of federal, state, or local business or

personal income or property tax returns, and other documents or records of any kind that relate in

any way to the Receivership Estate or are relevant to this action.

16. 17. The Receiver is hereby authorized to make appropriate notification to the

United States Postal Service to forward delivery of any mail addressed to the Defendants, or any

company or entity under the direction and control of the Defendants, to himself. Further, the

Receiver is hereby authorized to open and inspect all such mail to determine the location or

identity of assets or the existence and amount of claims.

17. 18. Nothing in this Order shall prohibit any federal or state law enforcement or

regulatory authority from commencing or prosecuting an action against the Defendants, their

agents, officers, or employees.

So Ordered and signed, this ____ day of March 2009.______________, 2010.

12
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_______________________________________
UNITED STATES DISTRICT JUDGE

13
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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
file:////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


21

22

23

24

25


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



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 Reporter's Certification - - - - - - - - - - - - - 57


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 we're


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


4

1 really brings us to why we're 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 we've 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


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


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 Court's 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,


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 --

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6

1 JUDGE GARWOOD: What is the

2 legal basis for the difference? If it's stolen

3 funds -- it's really not stolen funds, actually.

4 It's not -- it's 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 we're asking you to

16 follow and to adopt, and it's discussed extensively

17 in our briefs. These two cases, George and

18 Kimberlynn Creek Ranch, we're asking you to follow,

19 we're asking you to adopt their holdings; and if you

20 do, almost all of the issues in this appeal are not


21 only resolved, but resolved in the receiver's 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


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 that's --

8 JUDGE GARWOOD: You are willing,

9 then, to be judged by bankruptcy preference

10 standards?

11 MR. SADLER: Yes, sir.

12 Bankruptcy -- I'm drawing an analogy here.

13 Bankruptcy has a --

14 JUDGE GARWOOD: You don't want

15 to follow that analogy?

16 MR. SADLER: I'm 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


21 the bankruptcy preference analogy works, and

22 here's why: Because what a bankruptcy trustee does

23 is no different than what we're doing in this

24 respect. The bankruptcy trustee is appointed over

25 an insolvent debtor -- we have an insolvent debtor


8

1 here -- and when he identifies payments made

2 by that insolvent debtor within the preference

3 period defined by the statute -- and that's 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 weren't 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


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


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 that's not what the Sixth

12 Circuit based its decision on, and it's 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


21 Cavanaugh, if you look at Colello -- all of those

22 people are ordered to return funds they received

23 without a finding that they've committed any

24 wrongdoing. And the fundamental principle it is, is

25 I understand the distinction between stolen as in a


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 what's being

5 followed in all these cases, which is, among equally

6 innocent investors -- and they're 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 that's --

11 JUDGE GARWOOD: Let me ask you

12 about --

13 MR. SADLER: Yes, sir?

14 JUDGE GARWOOD: -- I still don't

15 get your answer to the bankruptcy preference. I

16 thought you didn't 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 we've covered this in our


21 briefs -- we're not bringing a fraudulent transfer

22 case. We don't think we're subject to the

23 restrictions of --

24 JUDGE GARWOOD: But you said --

25 MR. SADLER: -- the fraudulent


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. There's also a

11 one-year preference period for insiders. The point

12 about the analogy to the preference action is not

13 that we're 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 don't, I

20 still don't understand why those people are any


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


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: That's 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 haven't been paid. Some who sold the, sold the car

10 for cash have been paid. I mean, there's 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: You're asking us


21 to follow that case, and I'm 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.


13

1 MR. SADLER: They do proceed on

2 a different basis because they were designed for

3 different purposes, and I'm 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.


21 And here's 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


14

1 like it was held in the Forex and in the Durham

2 case, when we have a Ponzi scheme there's never

3 enough money to pay everyone off.

4 JUDGE GARWOOD: Why is -- you

5 say that's 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.


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


21 get in line. What we're 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


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 you're

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 don't have any money in that

11 account. You going to get that back from that car

12 dealer if they're bankrupt?

13 MR. SADLER: And Your Honor, you

14 are, you're raising proper questions about equitable

15 considerations which are not in front of you. The

16 district court --

17 JUDGE GARWOOD: They're

18 practical considerations.

19 MR. SADLER: Yes, sir. They are

20 practical considerations, and the practical


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


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 I'm 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 they've spent it and they've put it into a house or

16 they've put it into a car or they've paid for their

17 children's college education, under those

18 circumstances would we pursue that person? That's

19 based on equitable considerations that are not in

20 front of you right now.


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


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 don't want to do what you want to do here.

9 They're not, they're not seeking to recover from

10 these people. What --

11 MR. SADLER: I'd be happy to

12 respond to that.


14 MR. SADLER: And that is an

15 issue raised by all the appellees.


17 MR. SADLER: And I'm 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


21 compelling reason to do it and compelling reason

22 against it, and let me tell you why.

23 The case that's given to you is the

24 Chevron case, which talks about deference to formal

25 agency action. We don't have any formal agency


18

1 action here. There is no formal policy rule that's

2 ever been adopted by the SEC to deal with Ponzi

3 schemes. Secondly, Your Honor, the position that's

4 being offered by the SEC is fractured, and here

5 what's I mean by that. In their amicus brief they

6 say, We're not taking a position about whether the

7 receiver should even pursue false profits or false

8 interests. They simply back off and say, We're not

9 taking a position. So there's 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 Circuit's 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, it's

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


21 grant equitable relief. That's 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 can't go out

25 and gather evidence.


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 doesn't support that, if I'm understanding

17 your answer correctly, because it's the SEC who

18 sought to get the money from those so-called

19 investors.

20 MR. SADLER: That is absolutely


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;


20

1 which I can't remember what it is, but you don't

2 have any section such and such.


4 what I'm saying is under these cases that we have

5 cited to you is it the equitable power, not

6 anybody's statutory power, but it is the equitable

7 power of the Court to recover proceeds of the fraud

8 that we're 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 that's what we're doing in this

13 case.

14 JUDGE GARWOOD: The SEC is a

15 proper plaintiff. They're not, they're 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 don't have -- I mean, frankly, in a sense you're

19 nobody. I mean, the plaintiff is the SEC, there's

20 some defendants; you're not either one.


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


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 I'm an intervenor. In the

20 district court I was one of the parties, together


21 with the SEC, that opposed the SEC's --

22 JUDGE GARWOOD: Speak up a

23 little bit, Counselor.

24 MR. LITTLE: Oh, I'm sorry.

25 Certainly. In the district court I was one of two


22

1 parties with the SEC to oppose the receiver's

2 account freeze and to oppose these clawback claims.

3 I'm here today with 11 groups of appellees, and they

4 have permitted me to make the opening presentation

5 for the appellees. I'm going to take 15 minutes, as

6 you know, and then pass to Mr. Quilling. We have a

7 plan on how we're 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. They're not lucky. They're 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


21 CD principal, it includes some folks who had

22 multiple CDs, redeemed some, didn't redeem others.

23 JUDGE PRADO: Does it include

24 any people who were part of the fraud?

25 MR. LITTLE: No.


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, they're 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 don't know how

20 many of those folks there are. There are thousands


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 receiver's own expert has found,

25 forensic expert, has found that $2 billion was taken


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. That's what

9 they lived on. That's what they're 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, there's,

17 there's -- 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


21 investment is; the amounts above that are viewed as

22 false profits and can be disgorged.

23 JUDGE DENNIS: We're acquainted

24 with that, but we aren't acquainted with the George

25 case and these cases that your client is relying on


25

1 that get away from all of those mainstream law

2 you're talking about right now.

3 MR. LITTLE: Well, and --

4 JUDGE DENNIS: Can you tell us

5 why we shouldn't follow the George case --

6 MR. LITTLE: Yes. I am --

7 JUDGE DENNIS: -- and the

8 Kimberlynn Ranch case?

9 MR. LITTLE: Yeah. I'd 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 who's 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. That's a classic

17 relief defendant, someone who is holding funds for

18 the bad guys.

19 JUDGE DENNIS: Who doesn't claim

20 an interest in it?


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,


26

1 is the one case that they hang their hat on

2 consistently, and George involves four relief

3 defendants. One really doesn't play into this.

4 She's the girlfriend/fiancee/wife of the bad guy,

5 and she's 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 she's 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 didn't.

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


21 her account. She hasn't done anything wrong, but

22 she has money that the husband took out of the

23 fraud. He's involved, she's a relief defendant.

24 She has no legitimate claim on that money. She

25 didn't even know it was in the account.


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. We've 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


21 accounts and will have a claim against the estate

22 for anything that they're ordered to disgorge, then

23 they have an ownership interest and cannot be relief

24 defendants.

25 And the relief defendant cases are


28

1 very clear. I think it's 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?


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


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] --


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


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 they're

4 all things that are -- these are all relief

5 defendants tied in. They're holding assets --

6 Kimberlynn, the Kimberlynn Creek case

7 says holding assets on behalf of the defendants, the

8 bad guys. These relief defendants aren't holding

9 assets on behalf of any of the Stanford folks.

10 These are their assets. They own them. They're not

11 relief defendants for that reason.

12 I wanted to also talk a minute about

13 the notion of timing. In the receiver's plead -- in

14 the receiver's 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 they're reaching.

17 They've 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.


21 JUDGE GARWOOD: Is what?

22 MR. LITTLE: It goes back one,

23 two, five, eight, many, many years back. There

24 doesn't appear to be any limitations period to this

25 clawback claim that's being pursued. Essentially,


31

1 the receiver's 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 it's 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 money's 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 doesn't 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 it's called interest or what, whatnot?

20 MR. LITTLE: The case law, the


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 they're not entitled to any more?

25 MR. LITTLE: Under the


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, they're entitled to retain any

4 proceeds they've received. In the case --

5 JUDGE GARWOOD: It doesn't

6 matter what they --

7 MR. LITTLE: It doesn't 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 what's --

11 JUDGE DENNIS: But Mr. Sadler

12 says he's not proceeding under that -- under those

13 statutes.

14 MR. LITTLE: I understand that,

15 and that's one of the things that's very troubling

16 about what he is proceeding under, because there

17 don't appear to be any rules that Mr. Sadler is

18 following. It's all just equity. The Court in

19 equity can do anything it wants. The Court can

20 ignore limitations, the Court could ignore the


21 ownership interest.

22 JUDGE DENNIS: It's 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,


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 that's the Fraudulent Transfer Act. It's been

7 adopted in all 50 states. It's -- 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


21 receiver, and that's 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


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. They're 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 SEC's 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 he's gotten, and he can't coattail

15 the SEC's asset freeze.

16 JUDGE GARWOOD: Which does seem

17 to me odd, somehow, that the receiver isn't

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 he's acting


21 under the authority of the Court's appointment, it

22 seems to me we can't or shouldn't be expanding that

23 appointment to make the receiver in effect a trustee

24 in bankruptcy, because we've got a bunch of statutes

25 that say how you do that. And it's all right to


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: I'll give Judge

9 Garwood --

10 JUDGE GARWOOD: [Indiscernible.]

11 MR. LITTLE: I'll give Judge

12 Garwood a quick answer, and then Mr. Quilling will

13 come up and say his piece. I think you're 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. He's not seeking -- he's

17 not going after Stanford's assets. He's going after

18 these relief defendants' assets.

19 JUDGE DENNIS: Thank you,

20 Mr. Little. That was a [indiscernible] of the


21 question, so you don't need to belabor it.

22 Mr. Quilling?

23 ORAL ARGUMENT

24 MR. QUILLING: May it please the

25 Court, I'm Mike Quilling. I speak on behalf of all


36

1 of the appellees; the investors is the way I'll

2 refer to them. Judge Garwood, you've asked the

3 question directly of the appellants, which they

4 either did not answer or would not answer, and

5 that's because they don't want to -- they don't want

6 to give you that answer, I believe.

7 I urge the Court to look at In Re:

8 Independent Clearinghouse. It's 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 I'm

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


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 trustee's


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 they're acting under, it doesn't 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


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


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 I've

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 -- where's the money now?

7 Well, it's in his IRA account. Well, do you know

8 how much he owes you? No. But I've got an

9 estimate, so I want to go down and get a freeze of

10 his account. And oh, by the way I don't want to

11 offer any evidence. I don't want to have a hearing.

12 I don't 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 That's exactly what is occurring

16 here. This is the duck. This is a prejudgment

17 attachment. You can't get around it. It is a

18 prejudgment attachment. In some instances -- and

19 this receiver can't tell you how much interest these

20 folks got, they can't tell you how much principal


21 they have. All they can say is, They have accounts

22 and we know some money went there, and we don't care

23 what time frame it was, and it doesn't even matter

24 if it's not the same amount.

25 Let's say you had an account at Chase


39

1 Bank and went into Comerica and the bad guy sent the

2 money to Comerica, and you've got an account at

3 Chase and he happens to have the account frozen at

4 Chase. He say's that's all his money. That is an

5 attachment. I don't care how you phrase it -- as a

6 freeze, an injunction -- it's an attachment. That

7 is a duck.

8 And they say under the equity field

9 they get to do anything they want. You don't get

10 counsel, you're 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 everybody's mind. These are net losers. Many of

20 these people are net losers. The retirees that have


21 been sitting here for eight years getting their

22 interest check, they still have their principal tied

23 up there. They're going to lose that money.

24 One of my clients, the Mississippi

25 Polymers Pension Fund that gives benefits to 300


40

1 retirees in Mississippi, steelworkers, they have

2 $3 million of the pension fund's 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. That's going to hurt the pension. But they

10 shouldn't have to go give -- find a way to get

11 $300,000 to put back into this receiver's pocket.

12 No. That's 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 There's 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. That's the end of the

20 discussion. You don't even get to the second point.


21 And he says, Well, this is stolen money. It's not

22 stolen. It was a fraud. They didn't steal it from

23 anybody. They miss -- they diverted money.

24 JUDGE DENNIS: Mr. Quilling,

25 what judgment do you and Mr. Little seek --


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 aren't -- 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. There's several ways to get there. If

19 you're not a relief defendant, this is dissolved.

20 If you want to also say, We believe that in this


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, that's the

25 law in this circuit, and frankly, that is the law


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, it's 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 you're 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 can't freeze anybody

15 who hasn't got his money -- you can't freeze anybody

16 who's a net loser, in other words?

17 MR. QUILLING: We wouldn't be

18 here today, Your Honor, if that --

19 JUDGE GARWOOD: I understand

20 that, but how's anybody going to know who's a net


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 I'm saying.


43

1 MR. QUILLING: Right. Each of

2 the victims know whether they're a net loser, and

3 we've been offering since day one to provide that

4 information to the receiver. He simply says, I've

5 got the cards, you're not getting to look at them

6 and I don't 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 don't quite understand what you --

13 MR. QUILLING: Yes, Your Honor.

14 Let me go to court on behalf of my clients and say,

15 Here's the evidence, this is how much we got, this

16 is the time frame; we're a net loser, all your money

17 gets released. That could happen.

18 I know my time's 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


21 this duck and let this money go. It's been nine

22 months. Thank you.

23 JUDGE DENNIS: Thank you,

24 Mr. Quilling. Mr. Post?

25


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 receiver's 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: I'm 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 he's attempting here, a

20 claim by a receiver for -- against an innocent


21 investor named as a relief defendant. And it's

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


45

1 law is that of Fraudulent Transfer Acts, and that's

2 the law under which receivers and trustees and

3 bankruptcy have proceeded in these factual

4 scenarios. It's 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 Court's generic equity

11 powers. He hasn't 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 wouldn't 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.


21 The cases the receiver cites,

22 including from this circuit, sanctioning a pro rata

23 distribution, are off point. What we're talking

24 about here is a plaintiff seeking a judgment,

25 disgorgement of monies from the investors that the


46

1 receiver has acknowledged the investors own. The

2 pro rata distribution cases are simply approving a

3 principle that once you've already amassed monies

4 into the receivership estate, that it's equitable to

5 distribute it on a pro rata basis, and it's within

6 the district court's 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 they're

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


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 -- don't really have any actual substantive

25 claim at all to the assets in question. But why


47

1 shouldn't 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 SEC's 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 Honor's 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.


21 JUDGE DENNIS: Mr. Post, your

22 time is expired.

23 MR. POST: Thank you, Your

24 Honor.

25 JUDGE DENNIS: Thank you.


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 Court's ruling to

8 pursue only statutory fraudulent transfer claims.

9 Let's 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 it'd be dead on arrival is dead wrong.

19 Now, why did we not bring fraudulent

20 transfer claims? And if that's where this Court is


21 headed, an opinion that says we are restricted to

22 state law fraudulent transfer claims, here's 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


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, we're 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 we're nobody, and I have to differ with

20 you. We are a federally appointed statutory


21 receiver under 28 USC, Section 754. We're 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 Court's order and under

25 the statute.


50

1 And why does that matter? Because

2 the SEC has admitted, and we heard other arguments,

3 the SEC's core job is enforcement of the securities

4 laws; and they've come in for a substantial amount

5 of scrutiny on how they've 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 what's 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 you're saying. It's appointed by the Court. It's

18 not appointed by any party to the case.

19 MR. SADLER: Well, that's

20 absolutely right, but we have standing to sue for


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. That's exactly what

24 they say. The receiver steps in once the people

25 running the fraud are removed, and he files lawsuits


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 what's getting missed here.

5 JUDGE GARWOOD: But what I still

6 don't 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 who's to collect all this stuff and they've

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 we're 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 isn't the first time an equity receiver has been

20 appointed after a Ponzi scheme failed.


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


52

1 literally have one piece of paper that is a phony

2 CD -- they don't have any frozen assets, they don't

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, it's got to be eventually for sure.

20 Because, I mean, the whole premise of this thing is


21 that this defendant or these defendants, other than

22 the innocent transferees, but that these defendants

23 don't have enough money. That's the whole principle

24 of this thing.

25 MR. SADLER: Absolutely it's the


53

1 whole principle, and --

2 JUDGE GARWOOD: And therefore,

3 they're bankrupt.


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 you're 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


21 in SEC versus George.

22 And that affidavit shows that all of

23 these investors were paid with other people's money.

24 There was no real return, there was no interest,

25 there was no return of principal. That's what


54

1 happens in a Ponzi scheme. Their money was spent

2 years ago. What they received is someone else's

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 we're 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 you're 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


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.


55

1 MR. SADLER: I differ with you,

2 and here's 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: They're 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 you're

12 not doing that --

13 MR. SADLER: We're 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 don't even

19 have an opinion about whether false profits should

20 be recovered.


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, it's different in SEC versus


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 it's 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 we're 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.]


21

22

23

24

25


57

1 REPORTER'S 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

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


Filed 12/18/2009 Page 173 of 444
Page 1 of 26

DALLAS DIVISION

RALPH S. JANVEY, IN HIS CAPACITY AS §
COURT-APPOINTED RECEIVER FOR THE §
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 Second

Amended 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 disbursement

to claimants.” This requires the Receiver to maximize the pool of assets that will be available for

distribution. To accomplish this, the Receiver must take control of all assets of the Estate and

traceable to the Estate, “wherever located,” including money stolen from investors through fraud.

2. The Receiver’s investigation to date reveals that CD sales generated substantially

all 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 Stanford

AGAINST FORMER STANFORD EMPLOYEES 1

Filed 12/18/2009 Page 174 of 444
Page 2 of 26

network; lavish offices and appointments; extravagant lifestyles for the individual defendants

and their families; employees’ salaries; Loans, SIBL CD commissions, SIBL Quarterly Bonuses,

Performance Appreciation Rights Plan (“PARS”) Payments, Branch Managing Director

Quarterly Compensation, and Severance Payments (collectively, “CD Proceeds”) to the financial

advisors, managing directors, and other Stanford employees named herein (collectively, the

“Former Stanford Employees”); and purported CD payments in the form of interest and

redemptions to unwitting investors. This fraud endured, in part, by incentivizing a sales force

and 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 no

more than take money out of investors’ pockets and put it into the hands of the Former Stanford

Employees. For the more than 20,000 investors who have thus far received little or nothing from

their investment in Stanford CDs, money recovered from wherever it resides today is likely the

only money they will ever receive in restitution. CD Proceeds — comprising Loans, SIBL CD

Commissions, SIBL Quarterly Bonuses, PARS Payments, Branch Managing Director Quarterly

Compensation, and Severance Payments paid to the Former Stanford Employees — are little

more than stolen money and do not belong to the Former Stanford Employees who received such

funds but belong, instead, to the Receivership Estate.

4. The Stanford Defendants kept their fraudulent scheme going by employing the

Former Stanford Employees to lure new investors and then divert the investors’ funds for the

Stanford Defendants’ own illicit purposes. The CD Proceeds paid to the Former Stanford

Employees came not from revenue generated by legitimate business activities, but from monies

contributed by defrauded investors. The Former Stanford Employees received assets traceable to


Filed 12/18/2009 Page 175 of 444
Page 3 of 26

the Stanford Defendants’ fraudulent scheme, and they necessarily hold the assets in trust for the

Receivership Estate for the benefit of defrauded investors.

5. At this stage of the Receivership, the Receiver has identified substantial sums of

CD Proceeds paid to the Former Stanford Employees and, through this Second Amended

Complaint, seeks the return of those funds to the Receivership Estate in order to make an

equitable distribution to claimants.

6. At a minimum, the CD Proceeds received by the Former Stanford Employees total

over $215 million. A substantial portion of the fraudulent proceeds were received into accounts

in 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 Stanford

Employees who have frozen accounts at Pershing, JP Morgan, and SEI; and (2) Former Stanford

Employees who do not presently have any frozen accounts.

7. The Receiver seeks an order that: (a) CD Proceeds received directly or indirectly

by the Former Stanford Employees from fraudulent CDs were fraudulent transfers or, in the

alternative, unjustly enriched the Former Stanford Employees; (b) CD Proceeds received directly

or indirectly by the Former Stanford Employees from fraudulent CDs are property of the

Receivership Estate held pursuant to a constructive trust for the benefit of the Receivership

Estate; (c) 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; (d) the

Receiver may withdraw the assets contained in 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 fraudulent CD Proceeds received by the Former Stanford Employees, to the assets of

1
In some instances, the CD Proceeds were received into accounts in the name of or controlled by the Former
Stanford Employees in the custody of JP Morgan or SEI Private Trust Company (“SEI”).


Filed 12/18/2009 Page 176 of 444
Page 4 of 26

the Receivership Estate; (e) the Former Stanford Employees must pay to the Receiver the

difference, if any, between the amounts contained in their Pershing, JP Morgan, and SEI

accounts, if any, and the total amount of fraudulent CD Proceeds received; and (f) awards

attorney’s fees and costs to the Receiver.

PARTIES

8. The parties to this complaint are the Receiver and the Former Stanford Employees

named below and in the Appendix filed concurrently herewith.

9. The named Former Stanford Employees either have already been served or will be

served pursuant to the Federal Rules of Civil Procedure, through their attorneys of record, or by

other means approved by order of this Court.

PROCEDURAL HISTORY

10. On April 21, 2009, the Receiver filed a Complaint Naming Stanford Financial

Group Advisors as Relief Defendants (Doc. 2). On July 28, 2009, the Receiver filed an

Amended Complaint Naming Relief Defendants (Doc. 14) and an Appendix in support thereof

(Doc. 15). The July 28th Amended Complaint named investors, certain former Stanford

financial advisors, Pershing, and SEI as relief defendants. On August 26, 2009, the Receiver

filed a Supplemental Complaint against Stanford Financial Group Advisors (Doc. 52) and an

Appendix in support thereof (Doc. 53). On September 29, 2009, the Receiver filed a Second

Supplemental Complaint against Stanford Managing Directors and Additional Stanford Financial

Group 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 claims

and, in the alternative, fraudulent-transfer and unjust-enrichment claims against the Former


Filed 12/18/2009 Page 177 of 444
Page 5 of 26

Stanford Employees. The Receiver now respectfully files this Second Amended Complaint

Against Former Stanford Employees and an Appendix in support, amending herein his claims

against the Former Stanford Employees to dismiss the relief-defendant claims against them in

light 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 Receiver

continues to assert fraudulent-transfer claims and, in the alternative, unjust-enrichment claims

against the Former Stanford Employees.

11. This complaint does not amend nor is it intended to impact the claims asserted by

the Receiver in this lawsuit against any category of defendants other than the Former Stanford

Employees. This Second Amended Complaint Against Former Stanford Employees does not

alter or amend the claims the Receiver asserted against certain Stanford investors in his First

Amended Complaint Against Certain Stanford Investors (Doc. 128) and the Appendix thereto

(Doc. 129). Moreover, this Second Amended Complaint Against Former Stanford Employees

does not alter or amend the claims the Receiver asserted against Pershing and SEI in his

Amended 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 Section

22(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 over

any claim brought by the Receiver to execute his Receivership duties.


Filed 12/18/2009 Page 178 of 444
Page 6 of 26

14. Further, within 10 days of his appointment, the Receiver filed the original

Complaint and Order Appointing the Receiver in 29 United States district courts pursuant to 28

U.S.C. § 754, giving this Court in rem and in personam jurisdiction in each district where the

Complaint and Order have been filed.

15. Further, each of the Former Stanford Employees who submitted an Application

for Review and Potential Release of Stanford Group Company (“SGC”) Brokerage Accounts

made the following declaration: “By filing this application, I submit to the exclusive jurisdiction

of the United States District Court for the Northern District of Texas, Dallas Division and

irrevocably waive any right I or any entity I control may otherwise have to object to any action

being brought in the Court or to claim that the Court does not have jurisdiction over the matters

relating to my account.”

16. Further, a number of the Former Stanford Employees have filed motions to

intervene in SEC v. Stanford International Bank, Ltd., et al., Case No. 3:09-cv-298-N. By filing

motions 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 a

lawsuit in this Court against R. Allen Stanford, two associates, James M. Davis and Laura

Pendergest-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


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 entities

they own or control.

I. Stanford Defendants Operated a Fraudulent Ponzi Scheme

18. As alleged by the SEC, the Stanford Defendants marketed fraudulent SIBL CDs

to investors exclusively through SGC financial advisors pursuant to a Regulation D private

placement. SEC’s First Amended Complaint (Doc. 48), ¶ 23.2 The CDs were sold by Stanford

International 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 the

beginning. Doc. 771 (Davis Plea Agreement) at ¶ 17(n) (Stanford, Davis, and other conspirators

created 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 Defendants

repeatedly touted the CDs’ safety and security and SIBL’s consistent, double-digit returns on its

investment portfolio. Id. ¶ 31.

21. In its brochure, SIBL told investors, under the heading “Depositor Security,” that

its investment philosophy is “anchored in time-proven conservative criteria, promoting stability

in [the Bank’s] certificate of deposit.” SIBL also emphasized that its “prudent approach and

methodology translate into deposit security for our customers.” Id. ¶ 32. Further, SIBL stressed

the importance of investing in “marketable” securities, saying that “maintaining the highest

degree 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’l
Bank, Ltd., et al., Civil Action No. 3-09-CV-0298-N.


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 assets

were invested in a “well-balanced global portfolio of marketable financial instruments, namely

U.S. and international securities and fiduciary placements.” Id. ¶ 44. More specifically, SIBL

represented 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 financial

advisors, in February 2008, that “liquidity/marketability of SIB’s invested assets” was the “most

important factor to provide security to SIB clients.” Id. ¶ 46. In training materials, the Stanford

Defendants also claimed that SIBL had earned consistently high returns on its investment of

deposits (ranging from 11.5% in 2005 to 16.5% in 1993). Id. ¶ 24.

24. Contrary to the Stanford Defendants’ representations regarding the liquidity of its

portfolio, 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 Allen

Stanford and were either placed in speculative investments (many of them illiquid, such as

private equity deals), diverted to other Stanford Entities “on behalf of shareholder” - i.e., for the

benefit of Allen Stanford, or used to finance Allen Stanford’s lavish lifestyle (e.g., jet planes, a

yacht, other pleasure craft, luxury cars, homes, travel, company credit card, etc.). In fact, at

year-end 2008, the largest segments of the Bank’s portfolio were: (i) at least $1.6 billion in

undocumented “loans” to Defendant Allen Stanford; (ii) private equity; and (iii) over-valued real

estate. Id. ¶¶ 24, 48.

25. In an effort to conceal their fraud and ensure that investors continued to purchase

the CD, the Stanford Defendants fabricated the performance of SIBL’s investment portfolio. Id.

¶ 5.


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 provided

to 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’s

financial 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 using

funds from current sales of SIBL CDs to make purported interest and redemption payments on

pre-existing CDs. See id. ¶ 1. However, in late 2008 and early 2009, CD redemptions increased

to the point that new CD sales were inadequate to cover redemptions and normal operating

expenses. As the depletion of liquid assets accelerated, this fraudulent Ponzi scheme collapsed.

II. The Stanford Defendants Transferred CD Proceeds from the Fraudulent Ponzi
Scheme to the Former Stanford Employees

28. The Stanford Defendants used an elaborate and sophisticated incentive program to

keep 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 Quarterly

Bonuses, PARS Payments, Branch Managing Director Quarterly Compensation, and Severance

Payments 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, up

from $211 million in 2006. Id. ¶ 29. As a result of SGC’s aggressive sales tactics, a significant

percentage of SGC customers bought CDs from SIBL. Id. ¶ 22.

29. In addition to the other categories of CD Proceeds, Former Stanford Employees

who were managing directors received Branch Managing Director Quarterly Compensation

payments for their respective branches’ sales of SIBL CDs. These Branch Managing Director


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Quarterly Compensation payments were based upon each branch’s gross CD revenue and upon

any profits from the sales of CDs.

30. CD Proceeds from the fraudulent Ponzi scheme described above were transferred

by the Stanford Defendants to the Former Stanford Employees solely for the purpose of

concealing and perpetuating the fraudulent scheme. Such CD Proceeds were paid to the Former

Stanford Employees from funds supplied by investors who bought the fraudulent CDs. The

Former Stanford Employees either performed no services in exchange for the CD Proceeds or

performed only services that were in furtherance of the Ponzi scheme in exchange for the CD

Proceeds. See Warfield v. Byron, 436 F.3d 551, 558-60 (5th Cir. 2006) (transfers made from

Ponzi scheme are made with intent to defraud; broker who worked for Ponzi scheme did not

provide 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, broker

services provided in furtherance of a Ponzi scheme do not provide reasonably equivalent value).

The CD Proceeds the Former Stanford Employees received are, therefore, properly considered

assets of the Receivership Estate and must be returned to the Receivership Estate to compensate

victims 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 and


of the Defendants and all entities they own or control,” including those of the Stanford Group

Company brokerage firm. Order Appointing Receiver (Doc. 10) at ¶¶ 1-2; Amended Order


Filed 12/18/2009 Page 11 ofof 444
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Appointing Receiver (Doc. 157) at ¶¶ 1-2. The Receiver seeks the relief described below in this

capacity.

32. Paragraph 4 of the Order Appointing Receiver, entered by the Court on February

16, 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 by

the Receivership Estate.” Order Appointing Receiver (Doc. 10) at ¶ 4; Amended Order

Appointing Receiver (Doc. 157) at ¶ 4. Paragraph 5(c) of the Order specifically authorizes the

Receiver 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 received

assets 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 defrauded

investors 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 in

furtherance of maximum and timely disbursement thereof to claimants”); Scholes v. Lehmann, 56

F.3d 750, 755 (7th Cir. 1995) (receiver’s “only object is to maximize the value of the [estate

assets] for the benefit of their investors and any creditors”); SEC v. TLC Invs. & Trade Co., 147

F. 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 locate

and take exclusive control and possession of assets of the Estate or assets traceable to the Estate.

Doc. 157 ¶ 5(b).


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I. The Receiver is Entitled to Disgorgement of CD Proceeds Fraudulently Transferred to
the Former Stanford Employees

34. The Receiver is entitled to disgorgement of all CD Proceeds paid to the Former

Stanford Employees because such payments constitute fraudulent transfers under applicable law.

The Stanford Defendants transferred the CD Proceeds to the Former Stanford Employees with

actual intent to hinder, delay, or defraud their creditors; as a result, the Receiver is entitled to the

disgorgement of those CD Proceeds from the Former Stanford Employees.

35. The Receiver may avoid transfers made with the actual intent to hinder, delay, or

defraud creditors. “[T]ransfers made from a Ponzi scheme are presumptively made with intent to

defraud, 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 a

Ponzi scheme and, to keep the scheme going, paid the Former Stanford Employees with CD

Proceeds taken from unwitting SIBL CD investors. The Receiver is, therefore, entitled to

disgorgement of the fraudulently transferred CD Proceeds that the Former Stanford Employees

received.

36. Consequently, the burden is on the Former Stanford Employees to establish an

affirmative defense, 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 the defendant to show that the fraud was harmless because the debtor’s assets were not

depleted even slightly.”). The Receiver is, therefore, entitled to recover the full amount of CD

Proceeds that the Former Stanford Employees received, unless the Former Stanford Employees

prove both objective good faith and reasonably equivalent value.


Filed 02/09/2010 Page 13 ofof 444
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37. The good-faith element of this affirmative defense requires that the Former

Stanford Employees prove objective — not subjective — good faith. Warfield, 436 F.3d at

559-560 (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 be

analyzed under an objective, rather than a subjective, standard. The relevant inquiry is what the

transferee objectively knew or should have known instead of examining the transferee’s actual

knowledge from a subjective standpoint.”) (internal citations and quotation marks omitted).

38. In addition, the Fifth Circuit has held that providing brokerage services in

furtherance of a Ponzi scheme does not confer reasonably equivalent value and that a receiver

can recover from brokers the commissions they received for recruiting other investors into the

scheme. Warfield, 436 F.3d at 555, 560. The Warfield court eloquently observed that “[i]t takes

cheek to contend that in exchange for payments he received, the . . . Ponzi scheme benefited

from [the broker’s] efforts to extend the fraud by securing new investments.” Id. at 560 (citing

Randy, 189 B.R. at 438-39, for the proposition that “as illegal services premised on illegal

contracts, broker services provided in furtherance of a Ponzi scheme do not provide reasonably

equivalent value”). The Former Stanford Employees cannot now claim that, in return for

furthering 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 Director

Quarterly Compensation, and Severance Payments taken from the defrauded victims who

invested in SIBL CDs. Because the Former Stanford Employees cannot meet their burden to


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establish that they provided reasonably equivalent value for the CD Proceeds, the Receiver is

entitled to the disgorgement of those funds.

39. Moreover, under applicable fraudulent transfer law, the Receiver is entitled to

attorney’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 reasonable

attorney’s fees as are equitable and just.”). As a result, the Receiver requests reasonable

attorney’s fees and costs for prosecuting his fraudulent-transfer claims against the Former

Stanford Employees.

40. In order to carry out the duties delegated to him by this Court, the Receiver seeks

complete and exclusive control, possession, and custody of the CD Proceeds received by the

Former Stanford Employees.

41. The Stanford Defendants, who orchestrated the Ponzi scheme, transferred the CD

Proceeds to the Former Stanford Employees with actual intent to hinder, delay, or defraud their

creditors. The Receiver is, therefore, entitled to disgorgement of all CD Proceeds fraudulently

transferred to the Former Stanford Employees. Pursuant to the equity powers of this Court, the

Receiver therefore seeks an order (a) establishing that the CD Proceeds received directly or

indirectly by the Former Stanford Employees from fraudulent CDs were fraudulent transfers; (b)

ordering that CD Proceeds received directly or indirectly by the Former Stanford Employees

from fraudulent CDs are property of the Receivership Estate held pursuant to a constructive trust

for the benefit of the Receivership Estate; (c) ordering 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; (d) allowing the Receiver to withdraw the assets contained in

Pershing, JP Morgan, and SEI accounts in the names of or controlled by the Former Stanford


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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; (e) ordering the Former Stanford

Employees to pay to the Receiver the difference, if any, 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; 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 the
Former Stanford Employees under the Doctrine of Unjust Enrichment

42. In the alternative, the Receiver is entitled to disgorgement of the CD Proceeds

paid to the Former Stanford Employees pursuant to the doctrine of unjust enrichment under

applicable law. The Former Stanford Employees hold CD Proceeds that in equity and good

conscience belong to the Receivership for ultimate distribution to the defrauded investors. The

Former Stanford Employees have been unjustly enriched by the CD Proceeds, and it would be

unconscionable for them to retain the CD Proceeds.


complete and exclusive control, possession, and custody of all CD Proceeds received by the

Former Stanford Employees.

44. The Former Stanford Employees have been unjustly enriched by their receipt of

the CD Proceeds. Pursuant to the equity powers of this Court, the Receiver therefore seeks an

order (a) establishing that each of the Former Stanford Employees were unjustly enriched by CD

Proceeds received directly or indirectly from fraudulent CDs; (b) ordering that CD Proceeds

received directly or indirectly by the Former Stanford Employees from fraudulent CDs are

property of the Receivership Estate held pursuant to a constructive trust for the benefit of the

Receivership Estate; (c) ordering 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; (d)


Filed 02/09/2010 Page 16 ofof 444
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allowing the Receiver to withdraw the assets contained in 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; (e) ordering the Former Stanford Employees to pay to the Receiver the

difference, if any, 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; 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 were

employed as financial advisors, as managing directors, or in other positions with the Stanford

Defendants.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 Employees

received, at a minimum, the CD Proceeds amounts associated with his or her name in the

Appendix. 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, Branch

Managing Director Quarterly Compensation, and Severance Payments — are named below.

47. The Receiver is entitled to disgorgement of all of these CD Proceeds fraudulently

transferred to the Former Stanford Employees, since the Stanford Defendants transferred the CD

3
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 not
amending 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 Complaint
Against Former Stanford Employees. But because Haggard has since filed for bankruptcy, the Receiver is not
amending his claims as to Haggard at this time.


Filed 12/18/2009 Page 17 ofof 444
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Proceeds 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 CD

Proceeds from the Former Stanford Employees because they have been unjustly enriched by

such funds.

I. Former Stanford Employees Who Received Loans

49. The following Former Stanford Employees received CD Proceeds in the form of

Loans: 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; Robert

Bryan Cannon; Frank Carpin; James C. Chandley; Naveen Chaudhary; Susana Cisneros; Ron

Clayton; Neal Clement; Christopher Collier; Jay Comeaux; Michael Conrad; James Cox; John

Cravens; 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; John

Fry; Roger Fuller; Attlee Gaal; David Braxton Gay; Mark Gensch; Gregory C. Gibson; Michael

D. Gifford; Steven Glasgow; John Glennon; Susan Glynn; Larry Goldsmith; Russell Warden

Good; John Grear; Stephen Greenhaw; Billy Ray Gross; Donna Guerrero; John Gutfranski;

Rodney Hadfield; Gary Haindel; Charles Hazlett; Robert Hogue; John Holliday; Charles

Hughes; Wiley Hutchins, Jr.; David Innes; Allen Johnson; David Wayne Krumrey; Bruce Lang;

Grady Layfield; James LeBaron; William Leighton; Robert Lenoir; Gary Lieberman; Jason

Likens; Trevor Ling; Robert Long, Jr.; Christopher Long; Humberto Lopez; David Lundquist;

Michael MacDonald; Anthony Makransky; Michael Mansur; Bert Deems May, Jr.; Carol


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McCann; Douglas McDaniel; Matthew McDaniel; Lawrence Messina; Nolan N. Metzger;

William J. Metzinger; Donald Miller; Trenton Miller; Brent B. Milner; Peter Montalbano; David

Morgan; Shawn Morgan; Jonathan Mote; Carroll Mullis; Spencer Murchison; Jon Nee; Aaron

Nelson; Scott Notowich; Monica Novitsky; Kale Olson; John D. Orcutt; Zack Parrish; Tim

Parsons; William Peerman; Lou Perry; Brandon R. Phillips; Randall Pickett; Christopher Prindle;

A. Steven Pritsios; Michael Ralby; David Rappaport; Charles Rawl; Steven Restifo; Walter

Ricardo; 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; James

Weller; Bill Whitaker; Donald Whitley; Charles Widener; John Whitfield Wilks; Thomas

Woolsey; Michael Word; Ryan Wrobleske; and Bernerd E. Young. Each of these Former

Stanford Employees received, at a minimum, the Loan amount associated with his or her name in

the Appendix.

II. Former Stanford Employees Who Received SIBL CD Commissions


SIBL CD Commissions: Paul Adkins; Jeannette Aguilar; James R. Alguire; Peggy Allen;

Orlando Amaya; Victoria Anctil; Tiffany Angelle; Susana Anguiano; Sylvia Aquino; George

Arnold; John Michael Arthur; Donald Bahrenburg; Brown Baine; Timothy Bambauer; Elias

Barbar; Jonathan Barrack; Robert Barrett; Marie Bautista; Teral Bennett; Andrea Berger;

Norman Blake; Michael Bober; Nigel Bowman; Brad Bradham; Alexandre Braune; Charles


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Brickey; Nancy Brownlee; Fausto Callava; Scott Chaisson; Susana Cisneros; Ron Clayton; Neal

Clement; Christopher Collier; Jay Comeaux; Michael Conrad; Don Cooper; Jose Cordero; James

Cox; 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 Warden

Good; 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; Christopher

Long; Humberto Lopez; Michael MacDonald; Anthony Makransky; Manuel Malvaez; Maria

Manerba; Michael Mansur; Janie Martinez; Claudia Martinez; Aymeric Martinoia; Douglas

McDaniel; Matthew McDaniel; Pam McGowan; Gerardo Meave-Flores; Lawrence Messina;

Donald Miller; Trenton Miller; Hank Mills; Peter Montalbano; Rolando H. Mora; David

Morgan; 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; Tony

Perez; Lou Perry; Randall Pickett; Edward Prieto; Christopher Prindle; A. Steven Pritsios; Judith

Quinones; Sumeet Rai; Michael Ralby; Leonor Ramirez; Nelson Ramirez; Charles Rawl; Steven

Restifo; 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; Sanford

Steinberg; Heath Stephens; William O. Stone Jr.; Christopher Thomas; Mark Tidwell; Jose


Filed 12/18/2009 Page 20 ofof 444
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Torres; Al Trullenque; Audrey Truman; Roberto Ulloa; Eric Urena; Miguel Valdez; Tim

Vanderver; Jaime Vargas; Pete Vargas; Ettore Ventrice; Maria Villanueva; Charles Vollmer; Bill

Whitaker; David Whittemore; Charles Widener; Thomas Woolsey; Michael Word; and Ryan

Wrobleske. Each of these Former Stanford Employees received, at a minimum, the SIBL CD

Commissions associated with his or her name in the Appendix.

III. Former Stanford Employees Who Received SIBL Quarterly Bonuses


SIBL Quarterly Bonuses: Jeannette Aguilar; James R. Alguire; Peggy Allen; Orlando Amaya;

Susana Anguiano; Sylvia Aquino; Juan Araujo; Monica Ardesi; George Arnold; John Michael

Arthur; Mauricio Aviles; Timothy Bambauer; Isaac Bar; Elias Barbar; Jonathan Barrack; Robert

Barrett; Oswaldo Bencomo; Teral Bennett; Andrea Berger; Norman Blake; Michael Bober;

Nigel Bowman; Fabio Bramanti; Fernando Braojos; Charles Brickey; Fausto Callava; Rafael

Carriles; Jane Chernovetzky; Susana Cisneros; Ron Clayton; Neal Clement; Christopher Collier;

Jay Comeaux; Michael Conrad; Don Cooper; Jose Cordero; Oscar Correa; James Cox; John

Cravens; James Cross; Patrick Cruickshank; Andres Delgado; Pedro Delgado; Ray Deragon;

Arturo R. Diaz; Ana Dongilio; Matthew Drews; Abraham Dubrovsky; Torben Garde Due; Neil

Emery; Thomas Espy; Jason Fair; Marina Feldman; Ignacio Felice; Freddy Fiorillo; Rosalia

Fontanals; 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; Faran

Kassam; Grady Layfield; James LeBaron; Jason LeBlanc; William Leighton; Robert Lenoir;

Humberto Lepage; Francois Lessard; Trevor Ling; Humberto Lopez; Luis Felipe Lozano; Maria

Manerba; Michael Mansur; Iris Marcovich; Janie Martinez; Claudia Martinez; Douglas


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McDaniel; Matthew McDaniel; Gerardo Meave-Flores; Lawrence Messina; Donald Miller;

Trenton Miller; Hank Mills; Peter Montalbano; Alberto Montero; David Morgan; Spencer

Murchison; David Nanes; Jon Nee; Lupe Northam; Scott Notowich; Monica Novitsky; Walter

Orejuela; 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; John

Schwab; Morris Serrero; Doug Shaw; Rochelle Sidney; Peter Siragna; Steve Slewitzke; Nancy

Soto; Sanford Steinberg; Heath Stephens; William O. Stone Jr.; Ana Tanur; Juan Carlos

Terrazas; 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; Frans

Vingerhoedt; Daniel Vitrian; Charles Vollmer; Bill Whitaker; David Whittemore; Charles

Widener; Michael Word; Ryan Wrobleske; Ihab Yassine; and Leon Zaidner. Each of these

Former Stanford Employees received, at a minimum, the SIBL Quarterly Bonuses associated

with his or her name in the Appendix.

IV. Former Stanford Employees Who Received PARS Payments


PARS Payments: Virgil Harris; Zack Parrish; Louis Schaufele; and Mark V. Stys. Each of these

Former Stanford Employees received, at a minimum, the PARS Payments associated with his or

her name in the Appendix.


Filed 12/18/2009 Page 22 ofof 444
Page 194 26

V. Former Stanford Employees Who Received Branch Managing Director Quarterly
Compensation


Branch Managing Director Quarterly Compensation: Lori Bensing; Brad Bradham; Scott

Chaisson; Jay Comeaux; John Glennon; Jason Green; Marty Karvelis; Grady Layfield; Carol

McCann; Scott Notowich; and Al Trullenque. Each of these Former Stanford Employees

received, at a minimum, the Branch Managing Director Quarterly Compensation associated with

his or her name in the Appendix.

VI. Former Stanford Employees Who Received Severance Payments


Severance Payments: Jeffrey E. Adams; James F. Anthony; Patricio Atkinson; Jane E. Bates;

Timothy W. Baughman; Marc H. Bettinger; Michael Contorno; Bernard Cools-Lartigue; Carter

W. 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; Marty

Karvelis; Joseph L. Klingen; Robert A. Kramer; Mayra C. Leon De Carrero; James C. Li; Megan

R. 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 transfers


Filed 12/18/2009 Page 23 ofof 444
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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;


Filed 02/09/2010 Page 24 ofof 444
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(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.


Filed 02/09/2010 Page 25 ofof 444
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Dated: December 18, 2009 Respectfully submitted,
BAKER BOTTS L.L.P.
Kevin M. Sadler
Robert I. Howell
David T. Arlington
(512) 322-2500
(512) 322-2501 (Facsimile)

Timothy S. Durst
2001 Ross Avenue
Dallas, Texas 75201
(214) 953-6500
(214) 953-6503 (Facsimile)
ATTORNEYS FOR RECEIVER RALPH S. JANVEY


Filed 02/09/2010 Page 26 ofof 444
Page 198 26


On December 18, 2009, I electronically submitted the foregoing document with the clerk
of the court of the U.S. District Court, Northern District of Texas, using the electronic case filing
system of the Court. I hereby certify that I will serve the Former Stanford Employees
individually or through their counsel of record, electronically, or by other means authorized by
the Court or the Federal Rules of Civil Procedure.

/s/ Kevin M. Sadler
Kevin M. Sadler


Filed 01/15/2010 Page 199 of 444
Page 1 of 17

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION

RALPH 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
§
§
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 files

his Original Answer to Receiver’s Second Amended Complaint Against Former Stanford

Employees, Affirmative Defenses and Counterclaims filed by Plaintiff, RALPH S. JANVEY,

COURT-APPOINTED RECEIVER FOR STANFORD INTERNATIONAL BANK, LTD., ET

AL. (“Receiver”), and would show the following:

1. Robertson is without knowledge or information sufficient to form a belief as to the truth

of the allegations contained in paragraph 1 of Receiver’s Second Amended Complaint.


of the allegations contained in paragraph 2 of Receiver’s Second Amended Complaint.

Robertson denies that he ever received “CD Proceeds”. Answering further, Robertson denies any

involvement or complicity in the alleged conduct.



Filed 01/15/2010 Page 200 of 444
Page 2 of 17

of the allegations in Paragraph 2 of the Second Amended Complaint, except to the extent that

he admits that he was provided a contract to work as a financial advisor for Stanford Group

Company just before the SEC action giving rise to this lawsuit was made public, and that had

he ever sold any CD’s on behalf of Stanford pursuant to that contract (which he did not), the

contract terms would have entitled him to a commission on such sale. However, because of the

SEC action giving rise to this case, Robertson did not ever sell any CD’s on behalf of Stanford

pursuant to the contract. Robertson did provide routine brokerage services and sold non-CD

investments, 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 any

involvement or complicity in the alleged conduct. Robertson is without knowledge or

information sufficient to form a belief as to the truth of the remaining allegations contained in

paragraph 4 of the Second Amended Complaint.

5. Robertson denies that he ever received “CD proceeds”. Robertson is without knowledge

or information sufficient to form a belief as to the truth of the remaining allegations in

Paragraph 5 of the Second Amended Complaint.

6. Robertson denies that he ever received “CD proceeds”. Robertson is without knowledge

or information sufficient to form a belief as to the truth of the remaining allegations in

Paragraph 6 of the Second Amended Complaint.

7. Robertson denies that he ever received “CD proceeds”. Robertson admits the allegation

in Paragraph 7 of the Second Amended Complaint that the Receiver seeks the described

order(s), but denies that the Receiver is entitled to any such order(s) with respect to him or that

he is liable to the Receivership Estate in any amount. Robertson is without knowledge or


Filed 01/15/2010 Page 201 of 444
Page 3 of 17

information sufficient to form a belief as to the truth of the remaining allegations in Paragraph 7

of the Second Amended Complaint.

8. Paragraph 8 contains only legal conclusions, and not allegations of fact which Robertson

must admit or deny.

9. Paragraph 9 contains only legal conclusions, and not allegations of fact which Robertson

must admit or deny.

10. Paragraph 10 contains only legal conclusions, and not allegations of fact which

Robertson must admit or deny.









15. Robertson denies the allegations contained in paragraph 15 of the Second Amended

Complaint to the extent it suggest he submitted such an application.

16. Robertson denies that he has filed any motion to intervene in SEC v. Stanford

International Bank, Ltd., et al., Case No. 3:09-cv-298-N. Robertson is without knowledge or

information sufficient to form a belief as to the truth of the remaining legal allegations in the

second sentence of Paragraph 16 of the Second Amended Complaint.



Filed 01/15/2010 Page 202 of 444
Page 4 of 17

of the allegations in Paragraph 17 of the Second Amended Complaint.


of the allegations in Paragraph 18 of the Second Amended Complaint. Answering further,

Robertson denies any involvement or complicity in the alleged conduct.





















Filed 01/15/2010 Page 203 of 444
Page 5 of 17










of the allegations in the Paragraph 28 of the Second Amended Complaint, except to the extent

that 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 without

knowledge or information sufficient to form a belief as to the truth of the allegations in

Paragraph 29 of the Second Amended Complaint. Answering further, Robertson denies any

involvement or complicity in the alleged conduct.


of the allegations in Paragraph 30 of the Second Amended Complaint, except to the extent that

he admits that he received a sum of money from Stanford Group Company in connection with

his contract, and denies that he “did not perform services (or performed only services that were

in furtherance of the Ponzi scheme).” Although Robertson admits that he never sold any CD’s

pursuant to his contract with Stanford Group Company, he did perform services in the form of

transferring his pre-existing, legitimate clients to Stanford Group Company, for the purpose of


Filed 01/15/2010 Page 204 of 444
Page 6 of 17

continuing to service those clients legitimately in the future on behalf of Stanford Group

Company. 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 earned

commissions in furtherance of his contract with Stanford Group Company. Robertson denies the

legal allegation in the fourth sentence (and subsequent case citations) of Paragraph 30 of the

Second Amended Complaint, to the extent that those legal allegations are directed at him. To the

extent those allegations are directed at other parties, Robertson is without knowledge or

information sufficient to form a belief as to their truth. Answering further, Robertson denies any

involvement or complicity in the alleged conduct. Robertson denies he ever received payments

that belong to the Receivership Estate and is without knowledge or information sufficient to form

a belief as to the truth of the remaining allegations in Paragraph 30 of the Second Amended

Complaint.

31. Robertson admits the allegation in Paragraph 31 of the Second Amended Complaint that

the Receiver seeks the described relief, but denies that the Receiver is entitled to such relief with

respect to him or that he is liable to the Receivership Estate in any amount. Robertson denies that

he ever received “CD Proceeds”.


of the allegations in Paragraph 32 of the Second Amended Complaint, but denies that Receiver is

entitled to any “relief” from him. Robertson denies that he ever received “CD Proceeds”.


of the allegations in Paragraph 33 of the Second Amended Complaint, but denies that Receiver is

entitled 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, and


Filed 01/15/2010 Page 205 of 444
Page 7 of 17

denies that the Receiver is entitled to disgorgement of any funds received by him. Robertson

denies that he ever received “CD Proceeds”.





of 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 the

Uniform Fraudulent Transfer Act meets its burden of persuasion and establishes that the transfer

was made with the actual intent to hinder, delay, or defraud any creditor of the debtor, a

transferee seeking to establish that the transfer is not voidable because the transferee took in

good faith and for a reasonably equivalent value bears the burden of persuasion on those two

elements. Robertson admits that the quotation in the parenthetical after the citation of the Scholes

case in Paragraph 36 of the Second Amended Complaint is accurate, but denies its applicability

to him in the context in which it is used. Robertson denies that he ever received “CD Proceeds”.








the Receiver seeks the described relief, but denies that the Receiver is entitled to such relief


Filed 01/15/2010 Page 206 of 444
Page 8 of 17

with respect to him or that he is liable to the Receivership Estate in any amount. Robertson
























Filed 01/15/2010 Page 207 of 444
Page 9 of 17

he is a former Stanford employee, but denies that the Receiver is entitled to such relief with

respect to him or that he is liable to the Receivership Estate in any amount. Robertson denies

that he ever received “CD Proceeds”.


of the allegations in Paragraph 46 of the Second Amended Complaint. Robertson denies that he

ever received “CD Proceeds”.










of the allegations in Paragraph 49 of the Second Amended Complaint. Robertson denies that he

ever received “CD Proceeds”.








Filed 02/09/2010 Page 10 ofof 444
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AFFIRMATIVE DEFENSES AND COUNTERCLAIMS

Factual Background:

55. Robertson is a securities broker who had a thriving practice and client base before he

ever had any relationship with Stanford Group Company (hereinafter “SGC”). On December

11, 2008, Robertson agreed to become employed by SGC. As part of the contemplated

employment, Robertson was required to attempt to transfer his pre-existing customer base to

SGC. These were legitimate, pre-existing clients of Robertson, for whom he had performed

legitimate security brokerage services in the past, with whom he had a legitimate, pre-existing

and continuing relationship, and for whom he intended to continue to perform the very same

legitimate brokerage services after they became clients of SGC.

56. Robertson started his employment with SGC on January 7, 2009, and was escorted out

of the office twenty-eight (28) days later when the SEC investigation began. Robertson had no

knowledge, nor any reason to know, at the time he entered the contract or at any time thereafter

until the SEC instituted open proceedings against SGC, that SGC was anything other than a

legitimate security brokerage company. Neither SGC nor anyone acting on SGC’s behalf ever

disclosed any fact that reasonably would have placed Robertson on notice of any untoward or

illegal 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 SGC

was a legitimate, reputable, prudent company carrying on a legitimate, legal and prudent


Filed 02/09/2010 Page 11 ofof 444
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securities business.

57. Specifically, SGC represented that there were tight controls in place for all phases of the

business, 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 best

year ever to grow SGC’s business, it had sustained positive performance, it had a large cash

position 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 or

defraud any creditors of SGC or any other company, nor with any intention to bring customers

into any Ponzi scheme or any other illegal scheme.

59. Robertson never sold any CD’s to anyone in furtherance of the contract, because before

he could even begin performing such services pursuant to the contract, the SEC instituted action

against SGC and others. At the time the SEC action was instituted, Robertson was still in the

process of transitioning to his new position at SGC and had not even received any formal

training on company policies and procedures. However, Robertson had contacted pre-existing

clients, had taken steps to transfer their accounts to SGC and had transferred some of those

clients to SGC.

60. Robertson did make some legitimate non-CD investments for some of his clients, but

was never paid any of the commissions earned on such investments. Robertson never received

any 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 Company

Promissory Note Forgivable Loan Agreement (hereinafter “the Promissory Note”), with

payments due annually for eight years. However, each such annual payment would be forgiven

if Robertson was still employed as a full time employee of SGC on the date each annual


Filed 02/09/2010 Page 12 ofof 444
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payment was due.

61. Robertson was ready, willing and able to perform legitimate services as a securities

broker for SGC according to the terms of the contract, but was prevented from doing so by the

SEC’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 earning

capacity and lost income. Specifically, Robertson’s pre-existing clients, with whom he had

always had an amicable and profitable business relationship, erroneously perceived that he had

attempted to induce them into a relationship with SGC and R. Allen Stanford. These clients

perceived SGC and R. Allen Stanford with distrust due to the publicity regarding the SEC’s

action in this matter. Put simply, Robertson has been tainted with the stigma of association with

SGC 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 to

disassociate with him, and has proximately caused a diminution of his earning capacity and loss

of income, as well as harmed his professional reputation.

Affirmative Defenses:

63. The Receiver is not entitled, under the Uniform Fraudulent Transfer Act, to avoid the

transaction by which SGC provided Robertson the signing bonus 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 because Robertson took the signing bonus in

good faith and gave reasonably equivalent value in exchange for it. TEX. BUS. & COM. CODE

ANN. § 24.009(a). This value included Robertson’s promise to work for SGC as a legitimate

securities broker, to repay the signing bonus according to the terms and conditions of the


Filed 02/09/2010 Page 13 ofof 444
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Promissory Note, and to work to transfer his pre-existing clients to SGC. Robertson was

prevented from performing most of these services by the SEC’s actions in this matter, but was

ready, 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 this

matter.

64. SGC committed fraud against Robertson. SGC made the following material

representations that were false, which SGC either knew to be false when they were made or that

SGC made without knowledge of whether they were true or not: there were tight controls in

place for all phases of the business, 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 best year ever to grow SGC’s business, it had sustained positive

performance, it had a large cash position in its investments, and that the company was run with

Christian values in mind. These misrepresentations were intended to be and were relied upon by

Robertson in entering into the contract and the Promissory Note and in taking the preliminary

steps to transfer his pre-existing clients to SGC. That is, Robertson would not have entered into

the contract and the Promissory Note in the absence of these misrepresentations, and would not

have taken action to transfer his clients to SGC. Robertson’s actions taken in reliance on SGC’s

misrepresentations proximately caused him to suffer damages, including damage to his

professional reputation, loss of earning capacity, and loss of income. As an affirmative defense

to the Receiver’s claims, Robertson asserts that he is entitled to an offset in the amount of his

actual damages proximately resulting from SGC’s fraud against any funds he may have to

disgorge 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 affirmative


Filed 02/09/2010 Page 14 ofof 444
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defenses 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 Uniform

Fraudulent Transfer Act, to avoid the transaction by which SGC provided Robertson the signing

bonus 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 him

should be equitably adjusted downward as a result of SGC’s unclean hands and fraud, and the

injuries 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 material

representations that were false, which SGC either knew to be false when they were made or that

SGC made without knowledge of whether they were true or not: there were tight controls in

place for all phases of the business, 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 best year ever to grow SGC’s business, it had sustained positive

performance, it had a large cash position in its investments, and that the company was run with

Christian values in mind. These misrepresentations were intended to be and were relied upon by

Robertson in entering into the contract and the Promissory Note and in taking the preliminary

steps to transfer his pre-existing clients to SGC. That is, Robertson would not have entered into

the contract and the Promissory Note in the absence of these misrepresentations, and would not

have taken action to transfer his clients to SGC. Robertson’s actions taken in reliance on SGC’s

misrepresentations proximately caused him to suffer damages, including damage to his


Filed 02/09/2010 Page 15 ofof 444
Page 213 17

professional reputation, loss of earning capacity, and loss of income.

68. Robertson counterclaims against the Receiver to recover his actual damages incurred as

a proximate result of SGC’s fraud, including damage to his professional reputation, loss of

earning capacity, loss of income and all other actual damages to which he may be justly

entitled.

69. Robertson traded legitimate non-CD investments on behalf of his pre-existing clients

during his employment for SGC. Pursuant to the terms of his contract, Robertson was entitled

to a commission on these sales. SGC never paid Robertson these commissions, which are due

and owing, thereby breaching the contract. Robertson counterclaims for breach of contract to

recover the commissions due and owing under the contract, as well as his attorney fees incurred

to recover same. Alternatively, Robertson prays for an offset in the amount of his actual

damages proximately resulting from SGC’s breach of contract against any funds he may have to

disgorge 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 the

money he received as a signing bonus, Robertson prays that the Promissory Note be voided and

rescinded 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 exchange

for Robertson’s promise to make the payments under the terms of the Promissory Note, and yet

retain the contractual right to enforce the Promissory Note.

Arbitration:

71. The Promissory Note provided, “Borrower hereby agrees that any controversy arising

out of or relating to this Note . . . shall be submitted to and settled by arbitration pursuant to the

constitution, by-laws, rules and regulations pg the Financial Industry Regulatory Authority


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 this

arbitration provision should an amicable resolution of this dispute with the Receiver not be

achieved. Defendant does not intend, by the filing of this answer, to waive any right to

arbitration arising out of the Promissory Note or any other agreement.

WHEREFORE, Defendant, E. RANDOLPH ROBERTSON, JR prays Plaintiff, RALPH

S. JANVEY, COURT-APPOINTED RECEIVER FOR STANFORD INTERNATIONAL

BANK, LTD., ET AL., take nothing by way of this suit, that Defendant be discharged from

liability 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.


Filed 02/09/2010 Page 17 ofof 444
Page 215 17


I, W. Perry Zivley, Jr. hereby certify that on this the 15th day of January, 2010, a true
and correct copy of the foregoing Defendant E. Randolph Robertson, Jr.’s Original Answer to
Receiver’s Second Amended Complaint Against Former Stanford Employees Affirmative
Defenses and Counterclaims has been electronically filed with the Clerk of the Court who will
forward same to all counsel of record including:

BAKER BOTTS, L.L.P.

Kevin M. Sadler
Robert I. Howell
David T. Arlington

and

Timothy S. Durst
2001 Ross Avenue
Dallas, Texas 75201

_s/ W. Perry Zivley, Jr._________
W. PERRY ZIVLEY, JR.



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 Stanford



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 the



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.



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.



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”).



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 Stanford's 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 Stanford's 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,



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 more



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),



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;



(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.



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.



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.”




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.


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.



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.


representations regarding the safety, security, liquidity, composition, and monitoring of

SIBL’s investment portfolio.


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.



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.


misrepresentations regarding SIBL’s bogus “loans” to Allen Stanford.


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-Conspirators



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.



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.


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%.



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.



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.


information regarding Allen Stanford’s purported capital infusion to SIBL.


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’s



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% of



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.


information disseminated by SIBL’s SIO when making their decisions to invest in and

with the Stanford Entities.


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 investment



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,” answered



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.



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.


information regarding SIBL’s purported lack of exposure to losses from the Madoff

Scheme.


knowledge regarding SIBL’s exposure to losses from the Madoff Scheme; and (b)

intentionally and substantially assisted Stanford in concealing SIBL’s exposure to losses



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 entered



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 countries



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.



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.



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



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.



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


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.



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



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]



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



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


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


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 to



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. Allen



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. Treasury



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.”



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) from



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 confirmed



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;



(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”).



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:



(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 existence



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.


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.


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 Stanford



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


172. On or about February 25, 2005, King deposited in a U.S. financial






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


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






















182. On or about August 31, 2006, King deposited in a U.S. financial






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









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.






activities that were part of Stanford’s fraudulent scheme, on or about October 10, 2006,



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




190. On or about January 31, 2007, King deposited in a U.S. financial










192. On or about April 16, 2007, King deposited in a U.S. financial institution












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



196. On or about January 30, 2008, King deposited in a U.S. financial






197. On or about April 23, 2008, King deposited in a U.S. financial institution




198. On or about June 30, 2008, King deposited in a U.S. financial institution





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.











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.


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 a



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


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.



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 to



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;



(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.



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 of



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 an



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 and



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;



(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.



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


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 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.

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).



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;



(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;



(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/or



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 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.

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




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.




U.S.C. § 1962(c). As a result of Antigua’s and the Stanford Co-conspirators’ violations





THIRD CLAIM FOR RELIEF:
VIOLATION OF RICO – 18 U.S.C. §1962(a)

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.



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.



252. As set forth above, the Antigua-Stanford Enterprise affected interstate and

foreign commerce.




U.S.C. § 1962(c). As a result of Antigua’s and the Stanford Co-Conspirators’ violations





FOURTH CLAIM FOR RELIEF:
VIOLATION OF RICO – 18 U.S.C. §1962(d)

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.



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





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 in



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-



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.



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.



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 74

Filed 12/07/2009 Page 290 of 444
Page 1 of 17

DALLAS DIVISION

ET AL. §
§ Case No. 03:09-CV-0724-N
Plaintiff, §
§
v. §
§
§
________________________________________________________________________

RECEIVER’S FIRST AMENDED COMPLAINT
AGAINST CERTAIN STANFORD INVESTORS
________________________________________________________________________

The Receiver, Ralph S. Janvey, (the “Receiver”) hereby files his First Amended

Complaint Against Certain Stanford Investors (the “First Amended Complaint”), stating as

follows:

SUMMARY

1. The ultimate purpose of this Receivership is to make the “maximum disbursement

to claimants.” This requires the Receiver to maximize the pool of assets that will be available for

distribution. To accomplish this, the Receiver must take control of all assets of the Estate and

traceable to the Estate, “wherever located,” including money stolen from investors through fraud.

2. The Receiver’s investigation to date reveals that CD sales generated substantially

all 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 Stanford

AGAINST CERTAIN STANFORD INVESTORS 1

Filed 12/07/2009 Page 291 of 444
Page 2 of 17

network; lavish offices and appointments; extravagant lifestyles for the individual defendants

and their families; employees’ salaries; Loans, SIBL CD commissions, SIBL Quarterly Bonuses,

Performance Appreciation Rights Plan (“PARS”) Payments, Branch Managing Director

Quarterly Compensation, and Severance Payments to financial advisors, managing directors, and

other Stanford employees; and CD proceeds in the form of purported CD interest payments and

redemptions (“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 their

investments in SIBL CDs, but they also received payments in excess of their respective

investments.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 to

make those payments came directly from the sale of SIBL CDs to other investors.

4. When Stanford made purported CD principal and interest payments to the

Stanford Investors, he did no more than take money out of other investors’ pockets and put it into

the hands of the Stanford Investors. For the more than 20,000 investors who have thus far

received little or nothing from their investment in Stanford CDs, money recovered from

wherever it resides today is likely the largest portion of the money they will ever receive in

restitution. CD Proceeds — comprising purported CD principal and interest payments to the

Stanford Investors — are little more than stolen money and do not belong to the Stanford

Investors 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 named
herein for whom he had contact information and offered to settle the claims against them in exchange for payment of
the amounts they received in excess of their investments in SIBL CDs. The Receiver made similar offers to other
investors, who accepted the Receiver’s proposal prior to the filing of this First Amended Complaint. The Receiver
believes that continued discussions with many of the Stanford Investors named herein will result in additional such
settlements and dismissal of claims against those investors.


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 of

CD Proceeds paid to the Stanford Investors and, through this First Amended Complaint, seeks

the return of those funds to the Receivership Estate in order to make an equitable distribution to

claimants. 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 indirectly

by the Stanford Investors from fraudulent CDs were fraudulent conveyances or, in the

alternative, unjustly enriched the Stanford Investors; (b) CD Proceeds received directly or

indirectly by the Stanford Investors from fraudulent CDs are property of the Receivership Estate

held pursuant to a constructive trust for the benefit of the Receivership Estate; (c) each of the

Stanford Investors is liable to the Receivership Estate for an amount equaling the CD Proceeds

he, 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 in

the Appendix filed concurrently herewith.

8. The named Stanford Investors either have already been served or will be served

pursuant to the Federal Rules of Civil Procedure, through their attorneys of record, or by other

means approved by order of this Court.

PROCEDURAL HISTORY

9. On July 28, 2009, the Receiver filed an Amended Complaint Naming Relief

Defendants (Doc. 14) and an Appendix in support thereof (Doc. 15). The July 28th Amended

Complaint named both investors and certain former Stanford financial advisors as relief

defendants. The Receiver now respectfully files this First Amended Complaint Against Certain


Filed 12/07/2009 Page 293 of 444
Page 4 of 17

Stanford Investors, amending herein his claims against certain Stanford investors and naming

additional investors as defendants. The Receiver files this First Amended Complaint as a result

of the Fifth Circuit’s recent ruling regarding the Receiver’s relief-defendant claims,2 and he

amends 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 intended

to impact the claims asserted by the Receiver in this lawsuit against any category of defendants

other than Stanford investors. This First Amended Complaint Against Certain Stanford Investors

does not alter or amend the claims the Receiver asserted against former Stanford employees in

his First Amended Complaint Against Former Stanford Employees (Doc. 118) and the Appendix

thereto (Doc. 119).

JURISDICTION & VENUE

10. This Court has jurisdiction over this action, and venue is proper, under Section

22(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 over

any claim brought by the Receiver to execute his Receivership duties.

12. Further, within 10 days of his appointment, the Receiver filed the original

Complaint and Order Appointing the Receiver in 29 United States district courts pursuant to 28

U.S.C. § 754, giving this Court in rem and in personam jurisdiction in each district where the

Complaint and Order have been filed.

13. Further, each of the Stanford Investors who submitted an Application for Review

and Potential Release of Stanford Group Company (“SGC”) Brokerage Accounts made the

2
Per Rule 41, the Receiver intends to file a notice of dismissal of his relief-defendant claims against the
Stanford investors who were named in the Amended Complaint Naming Relief Defendants (Doc. 14) and the
supporting Appendix (Doc. 15).


Filed 12/07/2009 Page 294 of 444
Page 5 of 17

following declaration: “By filing this application, I submit to the exclusive jurisdiction of the

United States District Court for the Northern District of Texas, Dallas Division and irrevocably

waive any right I or any entity I control may otherwise have to object to any action being brought

in the Court or to claim that the Court does not have jurisdiction over the matters relating to my

account.”

14. Further, a number of the Stanford Investors have filed motions to intervene in

SEC v. Stanford International Bank, Ltd., et al., Case No. 3:09-cv-298-N. By filing motions 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

15. On February 16, 2009, the Securities and Exchange Commission commenced a

lawsuit in this Court against R. Allen Stanford, two associates, James M. Davis and Laura

Pendergest-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 entities

they own or control.

16. As alleged by the SEC, the Stanford Defendants marketed fraudulent SIBL CDs

to investors exclusively through SGC financial advisors pursuant to a Regulation D private


Filed 12/07/2009 Page 295 of 444
Page 6 of 17

placement. SEC’s First Amended Complaint (Doc. 48), ¶ 23.3 The CDs were sold by Stanford

International 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 the

beginning. Doc. 771 (Davis Plea Agreement) at ¶ 17(n) (Stanford, Davis, and other conspirators

created 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 Defendants

repeatedly touted the CDs’ safety and security and SIBL’s consistent, double-digit returns on its

investment portfolio. Id. ¶ 31.

19. In its brochure, SIBL told investors, under the heading “Depositor Security,” that

its investment philosophy is “anchored in time-proven conservative criteria, promoting stability

in [the Bank’s] certificate of deposit.” SIBL also emphasized that its “prudent approach and

methodology translate into deposit security for our customers.” Id. ¶ 32. Further, SIBL stressed

the importance of investing in “marketable” securities, saying that “maintaining the highest

degree 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 assets

were invested in a “well-balanced global portfolio of marketable financial instruments, namely

U.S. and international securities and fiduciary placements.” Id. ¶ 44. More specifically, SIBL

represented 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’l
Bank, Ltd., et al., Civil Action No. 3-09-CV-0298-N.


Filed 12/07/2009 Page 296 of 444
Page 7 of 17

21. Consistent with its Annual Reports and brochures, SIBL trained SGC financial

advisors, in February 2008, that “liquidity/marketability of SIB’s invested assets” was the “most

important factor to provide security to SIB clients.” Id. ¶ 46. In training materials, the Stanford

Defendants also claimed that SIBL had earned consistently high returns on its investment of

deposits (ranging from 11.5% in 2005 to 16.5% in 1993). Id. ¶ 24.

22. Contrary to the Stanford Defendants’ representations regarding the liquidity of its

portfolio, 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 Allen

Stanford and were either placed in speculative investments (many of them illiquid, such as

private equity deals), diverted to other Stanford Entities “on behalf of shareholder” - i.e., for the

benefit of Allen Stanford, or used to finance Allen Stanford’s lavish lifestyle (e.g., jet planes, a

yacht, other pleasure craft, luxury cars, homes, travel, company credit card, etc.). In fact, at

year-end 2008, the largest segments of the Bank’s portfolio were: (i) at least $1.6 billion in

undocumented “loans” to Defendant Allen Stanford; (ii) private equity; and (iii) over-valued real

estate. Id. ¶¶ 24, 48.

23. In an effort to conceal their fraud and ensure that investors continued to purchase

the 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 provided

to 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’s

financial statements to reflect investment income that SIBL did not actually earn. Id.


Filed 12/07/2009 Page 297 of 444
Page 8 of 17

25. CD Proceeds from the Ponzi scheme were transferred by the Stanford Defendants

to the Stanford Investors solely for the purpose of concealing and perpetuating the fraudulent

scheme. Such CD Proceeds were paid to the Stanford Investors from funds supplied by other

investors who bought the fraudulent CDs.

26. For a time, the Stanford Defendants were able to keep the fraud going by using

funds from current sales of SIBL CDs to make purported interest and redemption payments on

pre-existing CDs. See id. ¶ 1. However, in late 2008 and early 2009, CD redemptions increased

to the point that new CD sales were inadequate to cover redemptions and normal operating

expenses. 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 and


of the Defendants and all entities they own or control,” including those of the Stanford Group

Company brokerage firm. Order Appointing Receiver (Doc. 10) at ¶¶ 1-2; Amended Order

Appointing Receiver (Doc. 157) at ¶¶ 1-2. The Receiver seeks the relief described below in this

capacity.

28. Paragraph 4 of the Order Appointing Receiver, entered by the Court on February

16, 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 by

the Receivership Estate.” Order Appointing Receiver (Doc. 10) at ¶ 4; Amended Order

Appointing Receiver (Doc. 157) at ¶ 4. Paragraph 5(c) of the Order specifically authorizes the

Receiver to “[i]nstitute such actions or proceedings [in this Court] to impose a constructive trust,


Filed 12/07/2009 Page 298 of 444
Page 9 of 17

obtain possession, and/or recover judgment with respect to persons or entities who received

assets 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 defrauded

investors 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 in

furtherance of maximum and timely disbursement thereof to claimants”); Scholes v. Lehmann, 56

F.3d 750, 755 (7th Cir. 1995) (receiver’s “only object is to maximize the value of the [estate

assets] for the benefit of their investors and any creditors”); SEC v. TLC Invs. & Trade Co., 147

F. 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 locate

and 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 may

have believed was a return on an investment placed with what they thought was a legitimate

bank. In reality, the money the Stanford Investors received was not their money, was not a

return 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 who

were deceived into purchasing CDs and who by chance, or as the result of sales tactics by

Stanford financial advisors and other employees, had not withdrawn funds from SIBL as of the

date the Receivership was put in place. The Stanford Investors’ CD Proceeds must be returned

to the Receivership Estate to compensate victims of the Stanford fraud according to principles of

law and equity.


Filed 02/09/2010 Page 10 ofof 444
Page 299 17

31. The Stanford Investors received CD Proceeds ranging in amounts from

approximately $119,000 to over $90 million. See App. at “Total CD Proceeds” column. These

Stanford Investors received, at a minimum, the “Total CD Proceeds” amounts associated with

their 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 Investors

received more in CD Proceeds than they invested in SIBL CDs. See id. at “CD Proceeds

Received in Excess of Investments” column. All combined, these Stanford Investors received

approximately $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 to
the Stanford Investors

32. The Receiver is entitled to disgorgement of all CD Proceeds paid to the Stanford

Investors because such payments constitute fraudulent transfers under applicable law. The

Stanford Defendants transferred the CD Proceeds to the Stanford Investors with actual intent to

hinder, delay, or defraud their creditors; as a result, the Receiver is entitled to the disgorgement

of those CD Proceeds from the Stanford Investors.

33. The Receiver may avoid transfers made with the actual intent to hinder, delay, or

defraud creditors. “[T]ransfers made from a Ponzi scheme are presumptively made with intent to

defraud, 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 Stanford

Defendants were running a Ponzi scheme and, to keep the scheme going, paid the Stanford

Investors 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 Investors

received.


Filed 02/09/2010 Page 11 ofof 444
Page 300 17

34. Consequently, the burden is on the Stanford Investors to establish an affirmative

defense, 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 the

defendant to show that the fraud was harmless because the debtor’s assets were not depleted

even slightly.”). The Receiver is, therefore, entitled to recover the full amount of CD Proceeds

that the Stanford Investors received, unless the Stanford Investors prove both objective good

faith and reasonably equivalent value.

35. The good-faith element of this affirmative defense requires that the Stanford

Investors 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 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 be analyzed under an objective, rather than a subjective, standard. The relevant inquiry is

what the transferee objectively knew or should have known instead of examining the transferee’s

actual knowledge from a subjective standpoint.”) (internal citations and quotation marks

omitted). In addition, the case law is uniformly clear that reasonably equivalent value can never

be 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 innocent

investor such as Kowell is informed that he must disgorge profits he earned innocently, often

years after the money has been received and spent. Nevertheless, courts have long held that is

more equitable to attempt to distribute all recoverable assets among the defrauded investors who

did not recover their initial investments rather than to allow the losses to rest where they fell.”);


Filed 12/07/2009 Page 12 ofof 444
Page 301 17

see also Scholes v. Lehmann, 56 F.3d 750, 757-58 (7th Cir. 1995) (“He should not be permitted

to benefit from a fraud at their expense merely because he was not himself to blame for the

fraud. All he is being asked to do is to return the net profits of his investment-the difference

between 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 to

attorney’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 reasonable

attorney’s fees as are equitable and just.”). As a result, the Receiver requests reasonable

attorney’s fees and costs for prosecuting his fraudulent-transfer claims against the Stanford

Investors.



Stanford Investors.

38. The Stanford Defendants, who orchestrated the Ponzi scheme, transferred the CD

Proceeds 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 transferred

to the Stanford Investors. Pursuant to the equity powers of this Court, the Receiver therefore

seeks an order (a) establishing that the CD Proceeds received directly or indirectly by the

Stanford Investors from fraudulent CDs were fraudulent conveyances; (b) ordering that CD

Proceeds received directly or indirectly by the Stanford Investors from fraudulent CDs are

property of the Receivership Estate held pursuant to a constructive trust for the benefit of the

Receivership Estate; (c) ordering that each of the Stanford Investors is liable to the Receivership


Filed 02/09/2010 Page 13 ofof 444
Page 302 17

Estate 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 the
Stanford Investors under the Doctrine of Unjust Enrichment

39. In the alternative, the Receiver is entitled to disgorgement of the CD Proceeds

paid 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 ultimate

distribution to the defrauded investors.

40. The Stanford Investors listed in the Appendix not only received a full return on

their CD investments, but they also received CD Proceeds in excess of those investments. The

Stanford Investors received a 100% return on their investments in an economy where — if they

had 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 in

the Stanford Ponzi scheme have come at the expense of the thousands of other investors whose

own CD investments subsidized both the Stanford Investors’ return of invested funds and money

received in excess of those investments.



Stanford Investors.

42. The Stanford Investors have been unjustly enriched by their receipt of CD

Proceeds. 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 received

4
Between January 2008 and January 2009, the S&P 500 and the Dow Jones Industrial Average fell 39.3%
and 33.6%, respectively.


Filed 12/07/2009 Page 14 ofof 444
Page 303 17

directly or indirectly from fraudulent CDs; (b) ordering that CD Proceeds received directly or

indirectly by the Stanford Investors from fraudulent CDs are property of the Receivership Estate

held pursuant to a constructive trust for the benefit of the Receivership Estate; and (c) ordering

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; and (d) awarding attorney’s fees and costs to the

Receiver.

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;


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.


Filed 02/09/2010 Page 16 ofof 444
Page 305 17

BAKER BOTTS L.L.P.
Kevin M. Sadler
Robert I. Howell
David T. Arlington
(512) 322-2500
(512) 322-2501 (Facsimile)

Timothy S. Durst
2001 Ross Avenue
Dallas, Texas 75201
(214) 953-6500
(214) 953-6503 (Facsimile)


Filed 02/09/2010 Page 17 ofof 444
Page 306 17


On December 7, 2009, I electronically submitted the foregoing document with the clerk
of the court of the U.S. District Court, Northern District of Texas, using the electronic case filing
system of the Court. I hereby certify that I will serve the Stanford Investors individually or
through their counsel of record, electronically, or by other means authorized by the Court or the
Federal Rules of Civil Procedure.

/s/ Kevin M. Sadler
Kevin M. Sadler


Filed 12/07/2009 Page 307 of 444
Page 1 of 9

DALLAS DIVISION

ET AL. §
§ Case No. 03:09-CV-0724-N
Plaintiff, §
§
v. §
§
§
__________________________________________________________________________

APPENDIX IN SUPPORT OF
__________________________________________________________________________


Filed 12/07/2009 Page 308 of 444
Page 2 of 9

BAKER BOTTS L.L.P.
Kevin M. Sadler
Robert I. Howell
David T. Arlington
(512) 322-2500
(512) 322-2501 (Facsimile)

Timothy S. Durst
2001 Ross Avenue
Dallas, Texas 75201
(214) 953-6500
(214) 953-6503 (Facsimile)


Filed 12/07/2009 Page 309 of 444
Page 3 of 9


On December 7, 2009, I electronically submitted the foregoing document with the
clerk of the court of the U.S. District Court, Northern District of Texas, using the electronic case
filing system of the Court. I hereby certify that I will serve the Stanford Investors individually or
through their counsel of record, electronically, or by other means authorized by the Court or the
Federal Rules of Civil Procedure.

/s/ Kevin M. Sadler
Kevin M. Sadler


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 O'NEAL 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
25

APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 308 1

Filed 12/07/2009 Page 311 of 444
Page 5 of 9
ID in Excess of
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 MCMORRIS

Filed 12/07/2009 Page 312 of 444
Page 6 of 9
ID in Excess of
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 $ 641,527.19

Filed 12/07/2009 Page 313 of 444
Page 7 of 9
ID in Excess of
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 $ 1,065,959.17

Filed 12/07/2009 Page 314 of 444
Page 8 of 9
ID in Excess of
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 $ 119,446.22

Filed 12/07/2009 Page 315 of 444
Page 9 of 9
ID in Excess of
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 $ 545,712,937.03


Filed 01/21/2010 Page 316 of 444
Page 1 of 17

DALLAS DIVISION

RALPH 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, MICHAEL

A. SPEEG, PEGGY PAYNE MORAGNE, JUDITH P. SIMMONS (“Investor Defendants”) file

this Answer and Affirmative Defenses in response to the Receiver’s First Amended Complaint.


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’s

First Amended Complaint. To the extent that the response is required, allegations contained in

paragraph 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 their

investments as alleged in paragraph 2. The allegations contained in paragraph 2 of the Receiver’s

First 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 date

on which the Ponzi scheme commenced.

3. The first sentence in paragraph 3 is denied. The second sentence of paragraph 3 is

denied for lack of sufficient information to justify a belief therein. The third sentence in paragraph

3 is denied. All other allegations are denied.

4. The last sentence of paragraph 4 is denied. Except as otherwise noted, all other

allegations contained in paragraph 4 of the Receiver’s First Amended Complaint are denied for lack

of sufficient information to justify a belief there.

5. The allegations contained in paragraph 5 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 date on which the Ponzi scheme commenced.

6. The allegations contained in paragraph 6 are a statement of law and not fact. To the

extent that a response is required, the allegation in paragraph 6 is denied because it is not a proper

statement of the law. Further, any factual allegations contained in paragraph 6 are denied.

Page 2


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 in

paragraph 7 are admitted.

8. The allegations contained in paragraph 8 are denied for lack of sufficient information

to justify a belief therein.

PROCEDURAL HISTORY

9. The allegations contained in paragraph 9 are a statement of law and not fact. To the

extent that a response is required, the allegation in paragraph 9 is denied because it is not a proper

statement of the law. Any factual allegations contained in paragraph 9 are denied for lack of

sufficient information to justify a belief therein.

JURISDICTION AND VENUE

10. The allegation contained in paragraph 10 is denied for lack of sufficient information


11. The allegation contained in paragraph 11 is denied including the Fifth Affirmative

Defense.



13. The document executed by each Investor Defendant, if executed, as alleged in

paragraph 13, is the best evidence of its terms. Except as otherwise noted, all allegations contained

in paragraph 13 are denied for lack of sufficient information to justify a belief there.


Page 3


Filed 01/21/2010 Page 319 of 444
Page 4 of 17


STATEMENT OF FACTS

15. Investor Defendants deny that they have any personal knowledge of any of the factual

basis for the fraud, misrepresentations, or omissions or failure to comply with the regulatory laws

as 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 allegations

concerning actions of Stanford Defendants contained in paragraphs 15-24 are denied for lack of

sufficient information to justify a belief therein. The allegations contained in Paragraphs 15 - 24 are

admitted except for the date that the Ponzi Scheme started. All allegations regarding the date of the

commencement of the Ponzi Scheme are denied. The exact date for the commencement of the Ponzi

scheme is a contested issue of fact of which Plaintiff must establish in order to contest the transfers

which 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 Fourth

Affirmative Defense.

REQUESTED RELIEF

18. The allegation contained in paragraph 27 is a statement of law and not fact. To the

extent that a response is required, the allegation contained in paragraph 27 is denied because it does

not properly state the law. Further, any factual allegations contained in paragraph 27 are denied.




Page 4


Filed 01/21/2010 Page 320 of 444
Page 5 of 17




21. The allegations contained in Paragraph 30 are denied.

22. The allegations in paragraphs 31 - 36 concerning the amount received by all

investors other than the Investor Defendants are denied of lack of sufficient information to justify

a belief therein. To the extent that the allegation is applicable to Investor Defendants, the allegation

is denied because either the amount is not correct or the Receiver has filed a claim against the

individual beneficiary of an Individual Retirement Accounts plan (the “IRA Plan”) and not the

custodian of the IRA Plan or the IRA Plan which owns the funds. The amount of assets owned by

the IRA Plans are set forth in Paragraph 50. All other allegations set forth in paragraphs 31-36 are

a statement of law and not fact. To the extent that a response is required, the allegations contained

in paragraphs 31-36 are denied because they are an improper statement of the law. Further, any

factual allegations contained in paragraphs 31-36 are denied.



25. The allegations set forth in Paragraph 39 - 42 are statements of law and not fact. To

the extent that a response is required, the allegations set forth in Paragraph 39 - 42 are denied

because 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 the

extent that a response is required, the allegations in paragraph 43 are denied as a proper statement

of the law. Further, any factual allegations in paragraph 43 are denied.

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Page 6 of 17

27. All other allegations not specifically mentioned are hereby denied.

AFFIRMATIVE DEFENSES

I. First Affirmative Defense: Fraudulent Transfer Act

28. The Texas Fraudulent Transfer Act is set out in Tex. Bus. & Com. Ann. § 24.001 et

seq. (“the Act”). Investor Defendants hereby allege that the transfers: (1) were for reasonably

equivalent value based upon an existing antecedent debt; (2) were made in good faith, or (3) that

Investor 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 voidable

under Section 24.005(a)(1) of the Act against a person who took in good faith and for a reasonably

equivalent 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 from

Stanford International Bank (“SIB”) and are not subject to the act.

30. Investor Defendants (1) acted in good faith and (2) gave reasonably equivalent value

in exchange for the transfer because the interest and principal payments were transferred in

satisfaction of an antecedent debt represented by a contractual agreement as previously determined

by 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 custodian

and 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. In

instances where the IRA Custodians made distributions to Investor Defendants, the amount of the

transfers were transfers made to “subsequent transferees” and are not subject to the Act.

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Page 7 of 17

32. The transfers made to the IRA Plans and/or the Investor Defendants were transfers

made for “antecedent debts” within the meaning of Tex. Bus. & Com. Ann. § 24.004(a) because the

funds were CD proceeds pursuant to written certificate of deposit agreements with SIB, which

granted them certain rights and obligations as determined by the United States Fifth Circuit Court

of 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 written

agreements well before the underlying SEC enforcement action against Stanford and the resulting

receivership and restraining order. The Court continued to state,“The Investor Defendants have

legitimate ownership interests in their CD proceeds.” The United States Fifth Circuit Court of

Appeals held, “The opinion does not cast any doubt upon our conclusion that the Investor

Defendants here, against whom no wrongdoing has been alleged, have ownership interests in and

legitimate claims to the proceeds of the CDs that they purchased from the Stanford Bank just as

thousands 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 because

they 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 value

because they represent the payment of an antecedent debt, based upon the previous ruling of Judge

Godbey in the order dated July 31,2009, which has not been reversed as of the date of the filing of

the First Amended Complaint by the Receiver.

35. Section 24.004(a) of the Act specifically provides that “value” includes satisfaction

of an antecedent debt. Tex. Bus. & Com. Ann. § 24.004(a). A debtor may also receive “reasonably

Page 7


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Page 8 of 17

equivalent value” when the debtor's payment of a third-party's debt reduces the debtor's liabilities.1

In re IFS Financial Corp. 417 B.R. 419, 441, 442 (Bkrtcy.S.D.Tex. 2009).

36. The estate's liabilities are reduced in the same amount as the transfer. SIB received

reasonably equivalent value from the disputed transfers in that its liability was reduced in the

amount 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 to

investors 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. Carnie

2007 WL 1112591, 12 (N.D.Tex. 2007). However, false profits and interests are not the same types

of 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 accrued

interest constituted dollar-for-dollar forgiveness of a contractual debt, which is “reasonably

equivalent 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 or
obligation, property is transferred or an antecedent debt is secured or satisfied, but value does not
include an unperformed promise made otherwise than in the ordinary course of the promisor's
business to furnish support to the debtor or another person. Tex. Bus. & Com. Ann. § 24.004(a).

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851 (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 or

interest over multiple years for Investor Defendants to be able to determine on what date Plaintiff

believes that Investor Defendants should have reasonably known of SIB’s insolvency or should have

reasonably put them on notice at the time of each transfer of principal or interest that the transfer

was 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 put

them on notice at the time of each transfer of principal or interest that the transfer was made in order

to 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 Valley

Imports (In re Cohen), 199 B.R. 709, 719 (Bankr.Fed.App.1996); Fisher v. Sellis (In re Lake States

Commodities, 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 receivership

filing by the SEC. Investor Defendants did not know or should not have known that the debtors were

insolvent at the time of each transfer of principal and interest. Investor Defendants did not have

knowledge of facts at the time of the transfer of each payment of principal and interest that should

have reasonably put them on notice that SIB was insolvent or that the transfers were being made to

delay, hinder, or defraud creditors of the debtor.

42. As a matter of law, since the facts and circumstances surrounding the operation of

Stanford International Bank (“SIB”) did not reasonably put the Securities and Exchange

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Commission and FINRA, which were responsible for monitoring the activities of the Stanford

Group, on notice during the relevant time period that transfers were being made to delay hinder or

defraud creditors of the debtor through the implementation of a Ponzi Scheme, then Investor

Defendants, as innocent investors, may not be held to a higher standard of knowledge or inquiry

than the Securities and Exchange Commission and FINRA.

43. Investor Defendants were unsophisticated investors who were innocent retirees who

invested their life savings in the IRA Plans. Investor Defendants knowledge of particular facts was

not 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 and

multiple time periods, each transfer requires a finding that facts existed that provide the basis for a

lack of good faith.

45. The primary purpose of disgorgement is to deprive a “wrongdoer” of unjust

enrichment. In this particular case, as admitted by the Receiver, no “wrongdoer” is the subject of

the plan for disgorgement. S.E.C. v. JT Wallenbrock & Associates, 440 F.3d 1109, 1113 (9th

Cir.2006). See also, Securities and Exchange Commission v. Blatt, 583 F.2d 1325, 1335 (5th

Cir.1978); S.E.C. v. Seghers, 298 Fed.Appx. 319, 336, 2008 WL 4726248, 14 (5th Cir.2008). For

this reason, Plaintiff is not entitled to the relief requested.

46. Even if wrongdoing is involved, the amount of the principal investment is not subject

to 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

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47. As a matter of law, the time period for seeking recovery of the transfers based upon

the actual intent to hinder, delay, or defraud creditors cannot commence until the date of the

commencement of the Ponzi scheme is proven. Plaintiff makes no attempt to allege when the Ponzi

Scheme started. In order to establish that the transfer was made with actual intent to hinder, delay

or defraud any creditor of the debtor, the date of the commencement of the Ponzi Scheme must be

factually pleaded and established. Until the date of the commencement of the Ponzi Scheme is

proven, Investor Defendants reserve the right to assert the defense that the transfers made to them

for 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 multiple

years and months. The transfers from the receivership entities to Investor Defendants were not made

with actual intent to hinder, delay, or defraud creditors of the receivership entities during all periods

for which disgorgement is being sought. The defenses of Investor Defendants for the time periods

for disgorgement cannot be ascertained until Plaintiff sets forth the facts for the time in which the

Ponzi 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 to

enforce any right of SIB against Investor Defendants until it is determined who is the proper receiver

to represent SIB in pursuing its claims.

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VI. 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 matter

of law, Plaintiffs and IRA Plans are not the same legal entity, and the Receiver’s action against the

Investor Defendants for the funds titled in the name of the IRA Plans do not state a legal claim for

the funds held by the IRA.

51. Plaintiff has ignored this requirement and named the wrong party as a Investor

Defendants 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 sixth
affirmative defense does not apply to them. Jennifer Savioc did not have the funds in her IRA
and as such, the sixth affirmative defense does not apply to her either. However, for ease of the
Receiver’s reference, they have been included in the chart.
3
Robert F. Crawford, Jr., Jodie F. Crawford, and Jennifer Savioc did not have their
Stanford CDs in their IRAs. The Sixth Affirmative Defense is not applicable to Investor
Defendants 144 and 163.

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Tex. Prop. Ann. §24.009.

52. It is the burden of the party claiming an exemption under § 42.0021 of the Texas

Property 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 to

Receiver’s First Amended Complaint are IRA Plans established with the Stanford Trust to purchase

SIB 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 person's 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 is

sufficient to establish that it is exempt, unless evidence is presented that the IRA does not qualify

for exempt treatment under the Internal Revenue Code. In re Jarboe 365 B.R. 717, 721,

722 (Bkrtcy.S.D.Tex. 2007). Plaintiff has made no attempt to allege that IRA Plans fail to qualify

as a tax exempt entity or to explain in his complaint why he is able to pursue claims against the

individual beneficiaries for funds owned by the IRA Plans.

56. IRAs are trusts which “exist separate from their owners. . . .” Taproot Administrative

Services v. CIR, 133 T.C. No. 9, 5, 2009 WL 3098090 (U.S.Tax Ct.); 26 USC 408(a). Plaintiff may

Page 13 Appx. Page 326
APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF

Filed 02/09/2010 Page 14 ofof 444
Page 329 17

not circumvent the limitations of Tex. Prop. Ann. § 42.0021 on property owned by the IRA by

naming the beneficiary of the IRA as a Investor Defendants.

VII. Seventh Affirmative Defense: Offset

57. The other unpaid creditors of SIB are the real parties in interest that the Plaintiff is

representing in pursuing the claims against the Investor Defendants. Investor Defendants plead the

right of offset and compensation in an amount equal to the pro-rata share of the amounts due and

owing by all persons that have received payments during the period of the Ponzi Scheme of which

Investor Defendants would be a beneficiary if the claims were pursued by the Receiver.

VIII. Eighth Affirmative Defense: Unjust Enrichment.

58. A cause of action for unjust enrichment only exists under circumstances in which

one person has obtained a benefit from another by fraud, duress, or the taking of an undue

advantage. Further, an element of the cause of action is that Investor Defendants wrongfully secured

a benefit or passively received one which it would be unconscionable to retain. No fraud, duress or

taking of undue advantage has occurred.

59. A certificate of deposit contract exists between the Plaintiff and Investor Defendants

as determined by the United States Fifth Circuit Court of appeal in the case of Janvey v. Adams,

supra. When a valid, express contract covers the subject matter of the parties' dispute, there can be

no recovery under for unjust enrichment. Fortune Production Co. v. Conoco, Inc. 52 S.W.3d 671,

684 (Tex. 2000); Pazarin v. Armes 512 F.Supp.2d 861, 877 (W.D.Tex. 2007); Becker v. National

Educ. Training Group, Inc. 2002 WL 31255021, 4(N.D.Tex. 2002).

60. The amount of compensation due is measured by the extent to which one has been

enriched or the other has been impoverished, whichever is less. Plaintiffs have not been


Filed 02/09/2010 Page 15 ofof 444
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impoverished by the amount of the loss that hypothetically would have been lost in other

investments.

61. As a matter of law, the amount of the enrichment alleged by the Plaintiff has no

support in law or fact, because the enrichment is based upon a novel theory that Investor Defendants

have been enriched by the amount of losses that they did not incur by not investing in some

unknown or unspecified securities. Further, the legal proposition that Plaintiff is entitled to assume

the alternative investment in which Investor Defendants would have invested funds for purposes of

determining the loss/benefit if the funds had been withdrawn from SIB, is pure conjecture, has no

support in fact or law and is designed to create a claim for unjust enrichment where none exists.

62. No enrichment has been properly alleged based upon the unfounded premise that

hypothetical losses would have incurred in the market without specifically alleging what investments

each Investor Defendant would have made if the funds had been available. As a matter of law, the

alleged amount of damages are speculative at best.

IX. Ninth Affirmative Defense: Res Judicata and Collateral Estoppel

63. The issue of whether a claim can be made against innocent investors for the amount

of the principal has been previously decided by this Honorable Court and the United States Fifth

Circuit Court of Appeals and is res judicata. The courts have previously determined that Investor

Defendants are the owners of the funds based upon the contractual agreement between Investor

Defendants and SIB. Further, the Receiver is collaterally estopped from filing a new claim for the

principal amount of the funds invested in the SIB CD’s based upon the prior rulings of the respective

courts.


Filed 02/09/2010 Page 16 ofof 444
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X. Tenth Affirmative Defense- Statute of Limitations

64. All transfers of interest occurring prior to December 7, 2005 are barred because all

claims must be filed within four years of the date of the transfer.

Request for a Trial by Jury

65. Investor Defendants hereby request a jury trial on all issues.

WHEREFORE, having fully answered Receiver’s First Amended Complaint, Investor

Defendants prays for a judgment dismissing the Petition with prejudice and for such further relief

as the Court may deem just.

Respectfully submitted by:

PREIS GORDON, APLC

s/Phillip W. Preis_______________
Phillip W. Preis (La. Bar Roll No. 10706)
Post Office Box 2786 (70821-2786)
450 Laurel Street, Suite 2150(70801-1817)
Baton Rouge, Louisiana
Phone: (225) 387-0707
Fax: (225) 344-0510
Email: phil@preislaw.com


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The undersigned certifies that on the 21st day of January 2010, he filed the foregoing

pleading with the Clerk of Court using the CM/ECF system and the CM/ECF system will send

notification of all such filing to all counsel of record as noted on the CM/ECF system.

__________s/Phillip W. Preis___________
Phillip W. Preis


Filed 08/03/2009 Page 333 of 444
Page 1 of 51
Linda J. Robbins, CSR, RDR, CRR

Page 1
1 IN THE UNITED STATES DISTRICT COURT
2 DALLAS DIVISION
3 SECURITIES AND EXCHANGE ) CIVIL ACTION NO.
COMMISSION, ) 3:09-CV-0298-N
4 Plaintiff, )
)
5 VS. ) DALLAS, TEXAS
)
6 STANFORD INTERNATIONAL BANK, )
LTD., et al., )
7 Defendants. ) JULY 31, 2009
8 _____________________________________________________________
9 RALPH S. JANVEY, IN HIS )
CAPACITY AS COURT-APPOINTED )
10 RECEIVER FOR THE STANFORD )
INTERNATIONAL BANK, LTD., )
11 et al., ) CIVIL ACTION NO.
Plaintiff, ) 3:09-CV-724-N
12 )
VS. )
13 )
JAMES R. ALGUIRE, et al., )
14 Relief Defendants. )
15 _____________________________________________________________
16 RALPH S. JANVEY, IN HIS )
CAPACITY AS COURT-APPOINTED )
17 RECEIVER FOR THE STANFORD )
INTERNATIONAL BANK, LTD., )
18 et al., )
Plaintiff, ) CIVIL ACTION NO.
19 ) 3:09-CV-1329-N
)
20 VS. )
)
21 JIM LETSOS, et al., )
Relief Defendants. )
22
23
24 TRANSCRIPT OF PROCEEDINGS
BEFORE THE HONORABLE DAVID C. GODBEY
25 UNITED STATES DISTRICT JUDGE

U.S. District Court
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Page 2
1 APPEARANCES:
2 For the Plaintiff: UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
3 BY: MS. ROSE ROMERO
MR. J. KEVIN EDMUNDSON
4 MR. STEVE KOROTASH
Burnett Plaza, Suite 1900
5 801 Cherry Street, Unit #18
Fort Worth, Texas 76102-6882
6 (817) 978-6476
7 For the Receiver, MR. KEVIN M. SADLER
Ralph S. Janvey: Baker Botts, LLP
8 1600 San Jacinto Center
98 San Jacinto Boulevard
9 Austin, Texas 78701-4039
(512) 322-2589
10
For the Examiner: MR. JOHN J. LITTLE, Examiner
11 Little Pedersen Fankhauser, LLP
901 Main Street, Suite 4110
(214) 573-22307
13
Also Appearing:
14
MR. STEPHEN F. MALOUF
15 Law Office of Stephen F. Malouf
3811 Turtle Creek, Suite 1600
(214) 969-7373
17
MR. MICHAEL J. QUILLING
18 Quilling, Selander, Cummiskey
& Lownds, P.C.
19 2001 Bryan Street, Suite 1800
Dallas, Texas 75201
20 (214) 871-2100
21 Court Reporter: Linda J. Robbins, CSR #890
U.S. District Court Reporter
22 Chambers of Judge David C. Godbey
1100 Commerce Street, Rm. 1358
(214) 748-8068
24
Proceedings reported by mechanical stenography, transcript
25 produced by computer.

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Page 3
1 P R O C E E D I N G S
2 JULY 31, 2009
3 THE COURT: Be seated. Good afternoon.
4 MR. EDMUNDSON: Good afternoon.
5 MR. SADLER: Good afternoon, Your Honor.
6 THE COURT: Based on what I have read so far, my
7 inclination--and this is not a ruling; this is to let you
8 know my inclination so that you can have that in mind when
9 you're talking to me, to the extent I entertain that--is to
10 deny the SEC's motion to modify the Receivership Order; to
11 deny the Receiver's request for an asset freeze except to
12 the extent it would apply to interest, not to principal;
13 to stay the current Order that evaporates the asset freeze
14 as of noon Monday for one week to give the Receiver time,
15 if he chooses, to get a second opinion from the Circuit on
16 that.
17 So that's kind of where I am, having read what I have
18 read.
19 I think who I would like to hear from would be the
20 SEC first, then the Examiner, then the Receiver. And then
21 if there are other relief defendants who have something new
22 and different that they want to add, I will possibly listen
23 to that for a bit.
24 So having said that, is the SEC ready to talk to me?
25 MR. EDMUNDSON: Kevin Edmundson on behalf of the

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Page 4
1 SEC.

2 Your Honor, I think, in light of your leaning, I might

3 curb my arguments a great deal this evening.

4 We have made our request to modify the Receivership

5 Order simply because we don't believe that there's any

6 legal support to sue innocent investors for clawback claims

7 of principal amount.

8 And with respect to the remaining claims that might

9 be brought in the future against investors, the Commission

10 believes that we are in a position to pursue those claims as

11 plaintiff in this case, it would provide a cost savings to

12 the Receivership, and we believe it's appropriate to do so.

13 I don't know -- you know, we would have to evaluate

14 each claim on a case-by-case basis. If there were

15 preferences to investors, we would pursue them. If an

16 investor received money in bad faith, we would pursue them.

17 And -- and we would like, for the reasons stated in our

18 brief, for the authority to pursue that.

19 There are -- and I will be brief, Your Honor. There

20 are two reasons that we believe that the Receiver and the

21 Commission don't have the authority to pursue principal

22 amounts.

23 Number one, we don't believe that innocent investors

24 can be proper relief defendants in court for the return of

25 principal payments. To be a proper relief defendant, the

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Page 5
1 investor or -- or any person or entity must not have a

2 legitimate claim to hold that property. In this case, cash.

3 We believe in this case that these innocent investors have

4 the right to retain the principal amount of the money that

5 they have received.

6 And we believe that that is supported in the case law,

7 even some of the cases that have been cited by the Receiver

8 in this case, the Donell case and the Scholes case. And I

9 won't -- I won't belabor those cases, but we believe that

10 they stand for the proposition that you cannot -- even

11 though they were not in the context of whether or not it

12 was appropriate to name them as relief defendants, but they

13 stand for the proposition that you cannot seek the return

14 of principal.

15 And on the merits, those cases as well as others, I

16 might point the Court to two cases which are SIPC cases:

17 Universal Clearing House versus Abbott, which is found at

18 77 B.R. 843, and Bayou Superfund, which is at 396 B.R. 810.

19 Those cases also support the -- the idea that the Commission

20 and the Receiver cannot pursue an innocent -- purely

21 innocent investor for the return of payments.

22 If the Court is inclined to not -- to allow claims

23 only against interest, we believe that that -- that is an

24 appropriate ruling because we believe that -- that the

25 Receiver and the Commission could pursue those claims if

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Page 6
1 they wanted to.

2 THE COURT: Have you-all ever asked a court to

3 rein in a receiver before? You know, I certainly haven't

4 read every SEC case, but this was a little bit of a new one

5 for me.

6 MR. EDMUNDSON: I'm not aware of one. Certainly

7 we have asked the Court in -- in many time -- in -- on many

8 occasions, many different occasions to amend a receivership

9 order to conform the order to the facts and circumstances of

10 the case.

11 I am not aware of any time where the receiver has --

12 has -- or where the SEC has come in to try to curb some of

13 the authority of a receiver.

14 We -- we filed this motion after a great deliberation

15 internally and after a lot of discussions with the Examiner

16 and the Receiver.

17 THE COURT: Do you still want a receiver?

18 MR. EDMUNDSON: We still want the Receiver, yes.

19 And this is --

20 THE COURT: Okay.

21 MR. EDMUNDSON: Your Honor, we have our areas of

22 disagreement. But this is a -- this was an area that we

23 thought we had to bring to the Court's attention because we

24 don't believe that these claims -- the claims for principal

25 are supported by law. And we disagreed with the Receiver.

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1 We had a great deal of discussions and tried to work

2 something out. We were unable to. So we had to bring our

3 views to the Court's attention pursuant to this motion.

4 We still want the Receiver. We support the Receiver.

5 We disagree with the clawback claims for principal.

6 THE COURT: Okay.

7 MR. EDMUNDSON: One other thing I -- and I'll --

8 I'll be brief, Your Honor. I -- I would point out that

9 in the Madoff case, the SIPC Trustee there has published

10 guidance with respect to the exercise of his discretion in

11 going after clawback claims against investors.

12 The Madoff Trustee acknowledges that it is within his

13 discretion to pursue those claims, but has issued -- and

14 I'm happy to provide this to the Court, it's on his website,

15 but has issued guidance as to when he would do that.

16 The guidance says that, as to transfers to an investor,

17 the SIPC Trustee will consider whether or not the investor

18 was a net winner or a net loser. If the investor is a net

19 loser, the SIPC Trustee is not likely to pursue that claim.

20 If the claim would create an undue hardship on the

21 customer, the SIPC Trustee in Madoff is not likely to pursue

22 that claim.

23 If the investor -- if there is some evidence of a lack

24 of good faith, which is not alleged in this case, but if

25 there -- but if there is evidence of a lack of good faith,

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1 that would be an occasion when the Receiver might make a

2 claim against an innocent investor.

3 And the Trustee made clear that he would not initiate

4 any action against investors without exhausting discussions

5 with the investors and evaluating all other defenses that

6 they may assert and without an evaluation of the particular

7 facts and circumstances of the case.

8 We think that's -- we think that that's appropriate

9 guidance. We think that's consistent with the traditional

10 practice at the SEC. And -- and we think that the Receiver

11 does have the discretion in this case to consider those

12 factors before filing claims against innocent investors.

13 THE COURT: I certainly agree with you that the

14 Receiver has that discretion. I think here what I'm hearing

15 is he's exercised that discretion and decided, by golly, he

16 better go after those folks.

17 MR. EDMUNDSON: Well, I -- it's clear that that

18 is his determination. I think, in doing so, he's going

19 after a small pool of investors and -- and it does not

20 appear that he is going to go after the lion's share of

21 investors to try to recover for the Estate any types of

22 Ponzi payments. And we don't believe that that's -- that

23 that approach is equality.

24 So he is exercising his discretion, but we think that

25 the discretion ought to be -- he ought to be considering the

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1 fact -- the same types of factors that are considered in --

2 the Madoff Trustee is considering.

3 THE COURT: We'll hear from the Receiver in a

4 moment. What I recall is the Receiver basically said he has

5 not given up on these other folks but it makes more sense

6 to go after the easy stuff first. I've never heard him

7 disclaim any interest in trying to recover proceeds where

8 it's economical from other investors.

9 MR. EDMUNDSON: And that's our understanding as

10 well.

11 THE COURT: Okay.

12 MR. EDMUNDSON: And we think for a going-forward

13 basis it would be appropriate for the Court to consider

14 giving all claims to the Commission.

15 There may be other claims that haven't been filed that

16 are not going to be subject to the -- the asset freeze

17 because the asset freeze is going to go away. But if there

18 are any remaining claims, our motion simply urges the Court

19 to give those claims over, potential claims, to -- to the

20 Commission.

21 THE COURT: Is there anything stopping you-all

22 from asserting those claims?

23 MR. EDMUNDSON: No, I don't think that there would

24 be. But certainly -- and the Receiver feels an obligation

25 to do it, the Receiver has done it, the Receiver presumably

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1 is spending Receivership assets to pursue it. We would

2 like to amend the Order to make it clear who ought to be

3 responsible to do that.

4 THE COURT: I guess what I was trying to clarify

5 is not -- you don't want authority to go after those other

6 claims. You already have that authority. You want to

7 withdraw that authority from the Receiver so that they are

8 not playing as well.

9 MR. EDMUNDSON: That -- that's correct, with

10 respect to investor claims.

11 THE COURT: Okay.

12 MR. EDMUNDSON: Thank you.

13 THE COURT: Thanks.

14 Mr. Little. So here's my question for you, at least

15 one question for you. As sort of a friend of the Court,

16 you're here to speak on behalf of the -- the multitudes of

17 investors who can't all make it into the courtroom and so

18 on. I would guess that most of the people that you've been

19 hearing from are people whose accounts are frozen.

20 The Receiver, as I understand it, is saying there are

21 bunches of other investors whose accounts aren't frozen who

22 are taking a big hit and we're just trying to share the pain

23 a little bit more equitably.

24 So, in part, what I understand the Receiver's pitch to

25 be is, he's trying to get money to give to all the investors

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1 that you probably haven't heard from yet but that in some

2 sense maybe you're supposed to be a voice for here today.

3 And I'm just curious to know what thoughts you've given

4 about the two subclasses of potential investors and their

5 conflicting interests and how that affects your views of

6 this.

7 MR. LITTLE: I'm happy to start there, Judge.

8 I actually do hear from those other folks fairly

9 regularly, the folks who -- the folks who got accounts

10 frozen are certainly folks who contact us a lot. But the

11 folks who are simply the folks who lost money on CDs also

12 contact me on a fairly regular basis, and I get a lot of

13 information from them as well.

14 Part of the problem here is that a vast number of those

15 folks are never going to be subject to those claims. There

16 are some 28,000 investors out there. About 4500 of those

17 are in the United States. There are 650 subject to these

18 claims and only -- subject to these claims with frozen

19 accounts.

20 There are some 20,000 who are beyond this Court's

21 jurisdiction. If they got CD proceeds, which surely a

22 goodly number of them did, the Receiver is never going to

23 be able to go after those folks.

24 The report of the Receiver's expert in his papers

25 says that between January of '08 and the inception of the

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1 Receivership in February 17, '09, $2 billion was redeemed,

2 was paid out in redemptions. He is suing as to the folks

3 who are frozen for some 300 million and change.

4 As to the folks who are not frozen, he's got another

5 500 million. I'd submit to the Court there are grave

6 questions about whether any of those are ever going to be

7 collectable. The Libyan government is probably not going

8 to write the Receiver a check or respond to this Court's

9 jurisdiction.

10 So therein is the problem. We have a very, very small

11 pool of folks who just by happenstance -- the Receiver talks

12 a lot in his papers about luck, chance, he got lucky, he

13 didn't. Well, these 650 folks are unlucky because they

14 happened to have their money where the Receiver could freeze

15 it and it has remained frozen. And they are the ones he's

16 going after.

17 He talks about going after other folks, but he has not

18 done so. He has not provided any information as where the

19 other 2 -- the rest of that 2 billion went out January '08

20 to February '09. And it is inequitable to go after this

21 very small pool to collect 300 million, if in fact you

22 prevail on the claim, as to which I have grave doubts.

23 But even if you could go after that and -- and recover

24 it, to go after 650 to get 300 million, to then spread it

25 out over the 28,000 who are never subject to that same claim

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1 is inequitable. And it is recognized as inequitable by many

2 of the CD investors who would be advantaged by the claim

3 because they are not going to be subject to this Court,

4 they're not going to respond.

5 There are folks in the United States as to whom the

6 Receiver will probably never pursue a claim. All those

7 folks with $250,000 below accounts who were released early

8 on, we don't worry about them or whether they had CD

9 proceeds. We just let them go.

10 That's the problem with these claims. It focuses on --

11 it continues to focus on a very, very narrow band, and the

12 Receiver has provided no information whatsoever about where

13 all these other billions went and what he purports to do

14 about that.

15 There are also folks, frankly, who are not investors

16 as to whom claims could be made. The Stanford entities

17 sponsored sporting events, athletes, gave to charities, did

18 all sorts of things. Those are classic relief defendants.

19 I don't see those claims. They are easy ones. These are

20 investors who took money out of their pocket, bought a CD,

21 got contract rights when they did it, received money back

22 pursuant to those rights, and they are being sued because

23 they're locked up at Pershing. And that's the only reason

24 they're in the crosshairs.

25 And that's why I think these are inequitable claims,

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1 even though they might -- if they were successful, which I

2 do not think they can be, they might advantage some of

3 these other folks.

4 Again, the problem, as the SEC has alluded to, the

5 cases the Receiver cites do not support a recovery of

6 principal from innocent investors who took their money out

7 of their pocket and bought a CD. And if we go down the road

8 and we have 650 or more claims against these folks and at

9 the end of the day what the Court awards is the interest,

10 we are losing money in a major way, because there's not

11 that much interest. It's mostly principal.

12 We don't know what the breakdown is, candidly. The

13 Receiver has not shared that breakdown with me. But just

14 based on what we know about the way these CDs operated, the

15 interest is going to be a very small fraction of the total

16 amount at issue.

17 And so if at the end of this whole pursuit what the

18 Court rules is that they can clawback interest but not

19 principal, I will submit this Estate will have lost a large

20 amount of money which will benefit no investor and will

21 continue to impose hardships on these investors, this

22 little subset that's being sued.

23 I hope that answered the Court's question. I'm not

24 sure it did.

25 I was going to ask the Court to clarify exactly what

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1 you were -- your leaning on the asset freeze. I think I

2 heard the Court say you would deny the motion to extend

3 the freeze but hold off on the August 3 termination of the

4 freeze for a week. And then I heard you say something about

5 continuing the freeze as to interest.

6 THE COURT: Yes.

7 MR. LITTLE: I guess at this point we don't know

8 the difference between those two -- the interest and the

9 principal as to the freeze. But --

10 THE COURT: That would be a problem. My

11 impression was that the Receiver knew that answer to that

12 question.

13 MR. LITTLE: He -- he may. He has not shared that

14 answer with me in any of the data he has ever given me. So

15 he may know the answer to that question. But I will submit

16 to the Court that the numbers that are attached to the

17 Receiver's Complaint are in many respects wrong.

18 So even his numbers are -- are challengeable by many of

19 the investors that I have heard from in the last 48 hours in

20 terms of the Receiver says, I have 500 million -- 500,000 in

21 CD proceeds. I don't. I've got $125,000, or I've got some

22 other number, or I didn't have that account.

23 So there are going to be problems within those numbers

24 as they sit, at least based upon what I've heard to date.

25 THE COURT: Uh-huh. I would assume that that is

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1 a determinable number. Maybe it's not, but I would assume

2 that it is a number that can be determined with access to

3 the records.

4 MR. LITTLE: It may be. I don't know, and I've

5 never seen a breakdown of the two --

6 THE COURT: Uh-huh.

7 MR. LITTLE: -- specifically by defendant or by

8 investor. I have certainly never seen a breakdown on that

9 basis.

10 I'd like to make a couple of other points for the Court

11 if I would. It may be unusual for the SEC to come in and --

12 and ask the Court to modify a receivership order, but the

13 SEC is the plaintiff and the SEC came in and asked for the

14 order in the first place.

15 And it seems to me that it's well within the SEC's

16 authority as the entity of the government charged with the

17 enforcement and regulation of this area to come in and say,

18 okay, Judge, we've asked for these orders in the first place

19 but now we'd like to trim them back because we don't believe

20 that what's happening is really in the best interest of our

21 enforcement activities, of our regulation of this area, and

22 of the public.

23 I think that's what the SEC is asking the Court to do

24 here. It's made the determination that these claims ought

25 not go forward as to principal against innocent investors.

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1 The Receiver disagrees, but I'd suggest that the Chevron

2 doctrine instructs the Court that you ought to defer to the

3 SEC on this issue and not the Receiver. Contrary to the

4 Receiver's papers, he is not the guy best able to make that

5 decision.

6 The other thing I'd like to point out to the Court --

7 by the way, you did not indicate an inclination as to

8 whether you thought I was going to be the lawyer for all

9 650 of these folks. Not my favorite idea. I don't think I

10 can represent individual folks who have their property at

11 risk given the Court's Order appointing me, and I don't want

12 to.

13 But these folks are not one homogeneous blob who are

14 all the same. The SEC alluded to the distinction being

15 drawn in the Madoff proceeding between net losers, net

16 winners. Well, we have that distinction here.

17 Just for fun, I took about a half hour and pulled the

18 first 23 net losers I found out of the stipulations that

19 have been filed with the Court. Those folks are on the --

20 the number 5 exhibit. There are 40 of them, $18 million.

21 Out of that group, there's 23 who are net losers. They lost

22 $26.5 million. They are being sued for 2 million. Okay?

23 If the Receivership can return 7 cents on the dollar

24 to the investors, we can sue those people for 2 million and

25 give it back to them because that's about 7 cents on the

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1 dollar on their loss.

2 That's the kind of problem we have with these claims.

3 We are just creating more victims, we're digging bigger

4 holes for those victims, and at the end of the day I don't

5 think we're going to advantage the Estate as a whole,

6 particularly if, as I believe, they can't make their case

7 for principal.

8 Now, the SEC talked a little bit about the relief

9 defendants. And I won't beat this horse too much, but we

10 have -- I have cited several times in my papers the cases

11 out of Florida from May and June, the Sun Capital case and

12 its companion case, that speak directly to what a relief

13 defendant is.

14 And say someone who gave money and received contract

15 rights and exercised those contract rights, even if they'd

16 received the proceeds of a fraud, you cannot say they don't

17 have an ownership interest. You cannot say they don't have

18 a legitimate claim. If you cannot say those things, they

19 are not relief defendants.

20 That is true of every one of these investors. They

21 are not relief defendants, so these proceedings as relief

22 defendants ought not go forward. I think that's the

23 conclusion the SEC also reached, and I think the Court ought

24 to adopt that conclusion and give deference to the SEC's

25 determination of that.

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1 Anything else for you?

2 THE COURT: No.

3 MR. LITTLE: Thank you, Judge.

4 THE COURT: What says the Receiver?

5 MR. SADLER: Yes, Your Honor. Kevin Sadler, and

6 let me address several issues and --

7 THE COURT: You know everybody in the courtroom is

8 angry with you. That's kind of a weird deal. I wouldn't

9 have expected that when this started.

10 MR. SADLER: Well, I think this case has been a

11 surprise to everyone at a bunch of different levels, and

12 I -- I'm glad you asked that question because it -- it

13 really explains why we're here fighting over this very

14 important issue.

15 THE COURT: And by everyone, I did not mean to

16 include myself.

17 MR. SADLER: I understand.

18 THE COURT: Okay.

19 MR. SADLER: You are the referee. And, of course,

20 the Receiver works not for the SEC but works for the Court,

21 and we're very mindful of that in carrying out our duties.

22 I think it was a surprise to everyone how widespread

23 and how long this fraud had been allowed to go on. I think

24 the discovery that we had tens of thousands of investors,

25 that we had hundreds of entities spread all over creation,

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1 that the money that had been taken in via fraud had been

2 spread over such a wide area, quite frankly, I think that

3 was a surprise to a lot of people. I think it was a

4 surprise to the government.

5 I think it was also a surprise to find that there

6 wasn't some Swiss bank account that had a billion dollars

7 sitting in it just waiting for the proper authority to take

8 control of it and then start making distributions. I think

9 many people thought that's what was going to be found. But

10 that's not what we found.

11 We found a few million here and a few million there.

12 There's a few million overseas that the Receiver is trying

13 to gain control of but has to fight not only with a

14 competing receiver but with foreign governments. So there

15 wasn't the giant billion dollars sitting in a Swiss bank

16 account that would have made this whole process so much

17 easier.

18 And I submit, Your Honor, if we had that, if we

19 had a billion dollars sitting in a bank account, if this

20 Receivership had been instituted, for example, a year

21 earlier than it was, a billion dollars that went out would

22 not have. I don't think we would have this fight that

23 we're having now.

24 We're having this fight because so many people have

25 been harmed and there's so little left to compensate people.

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1 And that is why I want to crystallize for you because I hear

2 loud and clear when you -- when you came out and said, this

3 is what I'm thinking, this is how I'm inclined to go, I --

4 I hear what you're saying. But I want to focus Your Honor

5 on what we are focused on, which is where that will take us

6 if that's the path we move down.

7 I agree with one thing that my colleagues have said

8 before I stood up, which is, if this is an interest only,

9 recapture interest only, I doubt very much it will

10 ultimately be cost effective to pursue or will return very

11 much to anyone. That's not the way this fraud operated.

12 But let me crystallize for Your Honor what this means

13 if we draw a distinction between principal and interest. In

14 my reading of the case law--and to my knowledge only one new

15 case has been brought to your attention since we filed our

16 brief in May on clawbacks, either under an equitable theory

17 which we're pursuing, or statutory fraudulent transfer--the

18 difference between interest and principal is recognized in

19 fraudulent transfer cases. And you've read the cases and

20 I'm sure your law clerks have.

21 But even in fraudulent transfer cases, there's a

22 Ninth Circuit case from a year ago, Donell, which has been

23 cited to you, recognizes that even in statutory fraudulent

24 transfer cases, principal as well as profit can be recovered

25 subject to an affirmative defense. And, of course,

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1 preference actions in bankruptcy can capture both.

2 So the idea that there are legal theories to capture

3 principal is not some concept we invented.

4 And there are cases out of this Circuit. We cited one,

5 Quilling versus 3D Marketing, which was a district court

6 case out of the Northern District where someone who had

7 invested $100,000 in a Ponzi scheme got back $150,000,

8 was ordered to repay $150,000 plus interest.

9 Now, why is that important here? What's important

10 here, Your Honor, is crystallized by two facts that I'm

11 going to give you.

12 On January 23rd, one of the investors, Mr. Maddux that

13 we've asserted a claim against, received $3.6 million paid

14 out of this Ponzi scheme--$3 and a half million in principal

15 and about $169,000 in interest.

16 January 23rd, three weeks before the Receivership was

17 put in place.

18 In that same time frame, 30 days before this

19 Receivership was put in place, the Ponzi scheme took in

20 $70 million of new money. $70 million. All of the people

21 that put in that $70 million in that last 30 days right now

22 have absolutely nothing to show for it except a piece of

23 paper called a Stanford International Bank CD. They have

24 nothing. On the other hand, Mr. Maddux, has $3.6 million.

25 And what is not disputed and what no one has brought a

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1 case to Your Honor's attention to dispute is that if the

2 Receivership had been instituted on January 22nd, the day

3 before that payment was made, Mr. Maddux would be like those

4 others. He would not have his money. Case law is absolutely

5 clear, he would not be able to say, that's my $3.6 million

6 redemption I ordered; I get that; everyone else can share

7 pro rata, but I get that money; that's my money.

8 He would not be able to do that, and no one has brought

9 a case to your attention that that says otherwise. And we

10 have brought the pro rata cases to your attention that show

11 you what the standard is.

12 Why is that important? Because in the Receiver's view,

13 Your Honor, we cannot accomplish at the end of this, and

14 there will be an end to it, a proper equitable pro rata

15 distribution if we have these kinds of preferences that are

16 allowed to stand.

17 And I don't care what you call it, but Mr. Maddux got a

18 preference. He was treated -- if his money is not returned

19 to the Estate, he is being treated preferentially based not

20 on any case that's been brought to Your Honor's attention

21 but based purely on luck and timing.

22 And we brought to Your Honor's attention the cases that

23 come up in pro rata distribution which say, that's not the

24 rule. Investors who put money into a Ponzi scheme cannot

25 later say, yes, that's my money, that's my hundred dollars,

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1 I get it back, it doesn't go in the pro rata pool. Cases

2 from almost every circuit, I know the Fifth Circuit, the

3 Second Circuit, the Ninth Circuit that say, no, that's not

4 the way it works. Why? Because all investors should be

5 treated equally with respect to their recovery as being

6 defrauded by the person who ran the Ponzi scheme. And

7 Mr. Maddux will not be treated that way.

8 And look at the example that's being offered to you.

9 They are saying, all right, let's go ahead and pursue

10 Mr. Maddux. Let him keep his $3 and a half million, and

11 he can give his interest back.

12 What is his pro rata compensation as a victim of fraud?

13 He gets a hundred cents on the dollar for his investment.

14 What do the people that put in the 70 million the last 30

15 days of the -- before the Receivership was instituted, what

16 do they get? I don't know what they get, but it's a far

17 cry from a hundred cents on the dollar. And, Your Honor,

18 it seems to us under the case law, we cannot let that kind

19 of inequity stand.

20 Now, does that present a difficult, challenging,

21 daunting, complex problem to try to return $300 million

22 from one set of investors, $500 million from another set of

23 investors to the Receivership Estate? Well, sure, it does.

24 Sure. It is very daunting and very complex.

25 But, Your Honor, the way we read the case law, there is

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1 a clear set of principles that give this Court the mechanism

2 to accomplish that. And the mechanism is, if you were paid

3 as an investor with stolen money, you have to return it.

4 And the case law doesn't recognize stolen interest

5 versus stolen principal, not in the equitable relief basis

6 that we're pursuing it. Again, we're not pursuing statutory

7 fraudulent transfer claims, and for good reason. And for

8 good reason. Because in the equitable relief cases we have

9 brought to Your Honor, there is not a distinction made

10 between interest and principal and nor could there be

11 because the fundamental precept of this is it's all stolen

12 money.

13 And why should it make a difference that one investor

14 who was just quick enough that he got his money out on

15 Friday gets to keep all of his investment, but the people

16 who tried to get their money out on Monday were just one

17 day too late, I submit, Your Honor, that that's not equity

18 equals equality, that's not pro rata, that's just a

19 preference. And there are legal principles at our disposal

20 to correct that.

21 Now, some of the objections I've heard is, well, what

22 are you going to do about all these foreign investors? Are

23 you really going to chase after the foreign investors?

24 Well, in addition to the group at Pershing, we sued a

25 group of investors whose money did not go through Pershing.

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1 The total amount of CD proceeds is almost $500 million. How

2 much of that will we recover? I don't know. We just filed

3 the claim.

4 Do you know of any plaintiff's lawyer that you could

5 ask the day after he filed a lawsuit, you can say, predict

6 to me with a certainty how much you're going to collect on

7 that? We don't know. We just started. But the idea that

8 we are being inequitable by picking on one group or the

9 other just doesn't bear up.

10 Yes, we are going after the money that's frozen at

11 Pershing. A lot of time, effort, resources has gone into

12 segregating the amount at Pershing into recoverable amounts,

13 and that's what we're down to. And so are we going after

14 that? Absolutely we are. So that's $300 million plus that

15 can be used to compensate a wider group.

16 I'm puzzled -- your -- your question at the beginning

17 reminded me, we have this very strong constituency that

18 argues against clawbacks on behalf of people who got their

19 money out. But, oddly enough, we don't hear the advocacy,

20 either by the government or by the Examiner, saying,

21 well, yes, let's bring that money in so we can help the

22 thousands -- help the people like the poor folks who put

23 that last 70 million in before the music stopped so that we

24 can help them recover something.

25 There is no one advocating for them, Your Honor, except

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1 Mr. Janvey, who is saying, I am trying to bring into this

2 Receivership as much money as the law will allow me to so

3 that I can distribute as much as I can.

4 Now, there was another question raised about, well,

5 what about these -- the Libyans and the -- the foreign

6 people? I mean, you know, you're never going to be able to

7 go after what money they got.

8 Well, that's right if they're in Libya or some place

9 where we don't have access to. But that's a common feature

10 in all kinds of litigation--can you sue someone, can you

11 get jurisdiction, can you collect.

12 But you know what? One thing we do have control over

13 is the distribution process. And if someone thinks they can

14 put $10 million into this scheme, cash out 5 million, and

15 think we're going to forget about that come distribution

16 time when they submit their claim for their additional

17 5 million, I think they're wrong.

18 Because think about that person, Your Honor. And

19 there's examples. I think Mr. Little was alluding to that,

20 someone who put in 10 million and only got out 5. Well,

21 he is labeled, as I hear, a net loser, a concept that I

22 couldn't find a case that identifies that either in the

23 fraudulent transfer or in the equitable relief context.

24 But let's just go ahead with that colloquial concept.

25 If nothing else was done, what does that person recover? He

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1 recovers 50 cents on the dollar. That will be far and away

2 more than anybody else recovers.

3 So would we pursue a claim against such person to try

4 to return that 5 million out of the 10? Yes, we would

5 because if we just let that sit, then he will get a

6 disproportionate recovery. And I'll tell Your Honor all

7 we are trying to avoid is letting stand preferences,

8 preferential recoveries not based on the law but just based

9 on timing.

10 And we feel very strongly about that because, as I

11 said, no one really realized until we got into this how

12 widespread this fraud was, how many people it had harmed,

13 and how little was left. And we all wish now, knowing what

14 we know, that this fraud had been intercepted long before it

15 was. But we can't go back. We can only deal with what we

16 have now.

17 In this context, Your Honor, we would implore you to

18 proceed as we have suggested, which is allow the Receiver

19 to establish his claim against the money paid out, to hold

20 under a new freeze order based on the substantial showing we

21 have made, hold the money that is still at Pershing. There

22 can be a process for litigating the issue that's common to

23 all these claims, and we do believe the case law supports

24 what we're doing.

25 But, Your Honor, once that freeze is lifted and once

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1 those accounts are released, it will be very impractical

2 and I think possibly cost prohibitive in many cases for

3 this Receiver to pursue those claims, especially if we are

4 limited to interest.

5 THE COURT: And my assumption is that you'll want

6 a second opinion if that in fact is my ruling.

7 MR. SADLER: Your Honor, I would like Mr. Janvey --

8 and I was going to ask at the end if you had any questions

9 for me. Mr. Janvey wanted to speak directly to the Court

10 with respect to the SEC's motion. And -- and your question,

11 I think, raises that issue because we work for you, the

12 Court. And so for us to disagree with Your Honor's rulings

13 and appeal those is -- is something that we do not take

14 lightly.

15 THE COURT: Here's the deal. I don't think your

16 arguments are stupid and it's a big pot of money and if

17 you're correct about the law, then Mr. Janvey is absolutely

18 righteous in trying to pull money into the Receivership to

19 be passed out. He's doing just exactly what he was

20 appointed to do.

21 The fact that I may disagree with you about the law

22 doesn't necessarily mean that I'm right. And if Mr. Janvey

23 and you are correct about the law, then by all means you

24 ought to be glomming onto those assets and sweeping them

25 back into the pot to be distributed to everybody else.

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1 It would seem to me the prudent thing for you-all to

2 do, given the amount of money involved, is to appeal that

3 ruling and get at least a semifinal determination of that

4 legal question. It's not going to hurt my feelings if

5 that's what you're saying.

6 MR. SADLER: I -- I totally agree, Your Honor.

7 And let me do this. I've tried to address the various

8 points that were raised. I do want Mr. Janvey to -- to

9 address the Court because he's -- he's asked if he could do

10 that. Have I to your satisfaction answered the questions

11 that you have on -- on the legal points?

12 THE COURT: No. And here's my question. If

13 you-all are going to appeal and, as I say, I think you ought

14 to, I don't want it to become moot because all of the money

15 has wandered off where you can't get it before you have an

16 opportunity to present that argument.

17 So my intention in staying the evaporation of the

18 freeze for one week is to give you time to go to the Circuit

19 and request a stay from them and proceed then however they

20 want you to proceed.

21 Is that enough time for you to get down to New Orleans

22 and ask them for a stay?

23 MR. SADLER: If -- given where we're sitting now,

24 past business hours on a Friday, if -- if I could ask the

25 Court for a little more time, 10 days or 14 days, I think

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1 I would -- I would really appreciate that extra time to --

2 because we're really going to have to put some papers

3 together obviously in a -- in a very big hurry which we

4 will start as soon as we see Your Honor's Order.

5 THE COURT: Yeah.

6 MR. SADLER: But if we could have something on

7 the order of 10 to 14 days, that would be appreciated.

8 THE COURT: Okay.

9 MR. SADLER: Is there anything else I can address

10 in terms of the questions or objections?

11 THE COURT: No. I'm happy to hear from Mr. Janvey

12 now.

13 MR. SADLER: Thank you very much, Your Honor.

14 MR. JANVEY: Thank you, Your Honor. I just want to

15 say a few remarks. I take your lead-in statement seriously,

16 and I think you are heading -- you told us where you are

17 heading so I don't want to waste the Court's time.

18 I think it's important for everyone to know, not just

19 you, Your Honor, but other people in this Receivership, I

20 work for you. I'm a Court-appointed Receiver. I do not

21 work for the SEC. I follow the orders of this Court and I

22 take them seriously.

23 I think it's important to realize why we have gone

24 against the SEC's wishes.

25 Your Honor, I've been a securities lawyer since 1976.

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1 I learned securities law in D.C., not working for the SEC

2 but under the tutelage of the SEC. I was with a bank

3 agency. I worked with the brightest securities lawyers in

4 the country: Stanley Sporkin, Richard Rowe, Alan Levinson,

5 Harvey Pitt.

6 In private practice when I came in 1980, I've worked

7 with the SEC now for 29 years. I have been a defense lawyer.

8 I've also been for the SEC a master -- a special master, a

9 monitor, and a receiver. This is the first time in my

10 career I've ever had a dispute with the SEC about policy.

11 So I want you to understand I take it very seriously.

12 I'm an adjunct professor at the law school. I am a

13 first one to defend the SEC as probably the best agency in

14 the government. On this issue, Your Honor, I just disagree

15 with them.

16 The problem I have, Your Honor, is that -- and I'm glad

17 you're not going to amend the motion or modify it because I

18 think it sends a horrible message to future receivers, which

19 I probably will not be. I'm talking about amending the

20 motion, denying me the right to do clawbacks. I thought

21 that was your ruling. If I'm wrong, tell me.

22 THE COURT: Yes, and I just wanted to amplify on

23 that. One reason that I am not inclined to do that is I

24 think if I did that, it would be difficult for you to get a

25 second opinion from the Circuit, and I want you to have that

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1 alternative available if -- if you choose to take advantage
2 of it.
3 MR. JANVEY: I appreciate that.
4 Also, Your Honor, I think from a policy standpoint it
5 would send a message to future receivers, which I doubt I
6 will ever be, that if you disagree with the SEC, there's a
7 danger they'll modify the order appointing you. I think
8 that's a policy issue which I think is very serious.
9 As a receiver, I answer to you. I follow your
10 instructions, your guidance. If the Court is telling me,
11 you should get a second opinion, I will certainly do that.
12 Your Honor, I'm concerned about spending Receivership
13 assets. This Receivership has a finite amount of assets.
14 We will follow that Order, and I certainly would like
15 the Fifth Circuit's opinion, but I want to be clear that
16 that's what you're instructing me to do because I am the
17 only one in this courtroom except for your reporter and the
18 clerks who work for you. I want to make sure I follow your
19 instructions and your orders.
20 THE COURT: I'm not instructing you to appeal.
21 MR. JANVEY: Uh-huh.
22 THE COURT: I think that that's your decision as
23 the Receiver to make -- and I'm not going to second guess
24 you on that decision.
25 I think it would be helpful to everybody involved in

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1 this process to know sooner rather than later what the
2 Circuit's view of the substantive law is and whether you
3 are legally able to go after principal. And this appears
4 to me to be the earliest opportunity we have to get that
5 second opinion.
6 MR. JANVEY: Okay.
7 THE COURT: So I hope you decide to do it, but I
8 am not instructing you either to appeal or not to appeal.
9 That's what you get the big bucks for.
10 MR. JANVEY: Well, I hope that's true, Your
11 Honor. But I will certainly follow your guidance and your
12 instructions on that. And if that's what the Court's
13 inclinations are, I will certainly follow that. And I
14 appreciate your time, Your Honor. Thank you.
15 THE COURT: Thank you.
16 MS. ROMERO: Your Honor, may I be heard?
17 THE COURT: And you are?
18 MR. ROMERO: Rose Romero with the SEC. I just
19 wanted to clarify something. I think it's important, Your
20 Honor, that the Court have sort of a status report of -- of
21 what's going on with the foreign accounts that Mr. Sadler
22 referred to because I think if you have the whole picture,
23 that maybe --
24 THE COURT: Why don't you go on up to the mike.
25 MS. ROMERO: Okay, thanks.

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1 Your Honor, Mr. Sadler referred to the work the

2 Receiver is doing in foreign jurisdictions with -- there's

3 a lot of money in Switzerland, the UK, and in Canada. But

4 what's going on there is the Department of Justice as a

5 result of their recent indictment have filed criminal MLATs

6 in these various jurisdictions. They now have control over

7 that money. That money is now frozen for their concern, for

8 the criminal case.

9 And what they have advised is they are going to ask

10 those foreign jurisdictions to -- to send that money to

11 the registry of the Court, the criminal court, not to the

12 Receivership.

13 And so this Receivership, as far as I understand what

14 they've reported to me, is they have about $60 million as

15 we speak right now. That's before the bills are paid, their

16 fees and other bills that they have going. So it's really

17 finite. Those monies that are trapped in the foreign

18 jurisdictions are not going to come into the registry of the

19 Court until there's a final conviction, as the Court knows.

20 So what we were trying to do with our motion, Your

21 Honor, is to save the Receivership Estate some money

22 because, as you know, they have been burning quite a bit

23 of that money already. I mean, there's a $20 fee app that's

24 before the Court. There's going to be another one that's a

25 little over 7 million for about seven weeks of work.

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1 So the rate that they are billing or they're burning

2 right now is a little over a million a week. Just to review

3 these accounts at Pershing, Your Honor, they reported to me

4 that they were spending 4000 -- $4500 an hour, each hour of

5 every day, for days and days and weeks and weeks to review

6 those accounts.

7 What we want to do is file the clawbacks where they're

8 appropriate without any cost, any more cost, any additional

9 cost to these investors. Because, you know, they've been

10 screwed by Stanford, they've lost that money. And -- and

11 every day that the Receiver is billing at that high rate to

12 do something that we can do, that as taxpayers they pay us

13 to do for no -- you know, at no cost to them, so then maybe

14 they will get more than that 7 or 8 or 10 cents on the

15 dollar back.

16 And that's kind of what we were trying to avoid is

17 spending -- like Mr. Janvey said, he doesn't want to spend

18 any more of the Receivership assets because those are the

19 investors' assets. And if we can do the clawbacks, which

20 we will do where appropriate, then we can put that money

21 back in the Receivership at no cost to the Receivership.

22 And that's what we were trying to accomplish here is

23 to try to save some of those monies that are dwindling

24 away every day.

25 THE COURT: I don't know this, but I suspect that

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1 they would be happy to let you sue people if you want to

2 and would not sue those same people.

3 MS. ROMERO: Right. And what we're trying to

4 avoid is dual, double effort here. It -- it makes no sense

5 if we do it and they're doing it because they're spending

6 Receivership assets and we're spending taxpayer money. We

7 should -- we should do it at no cost to the investor, to the

8 already harmed investor.

9 THE COURT: And I guess what I'm saying is God

10 bless you, go sue some people if you want to, and I bet

11 that the Receiver won't sue those same people.

12 MS. ROMERO: And we talked -- yes, we talked to

13 them about that, that we would go ahead and do it and they

14 not do it so they don't spend those -- those resources,

15 those precious resources that they have and let us go

16 ahead and go forward.

17 And that's what we thought we were accomplishing with

18 our motion to the Court and that's what we -- I would like

19 you to consider is that, if we go forward, it doesn't cost

20 those investors any money. If the Receiver goes forward, it

21 costs them a whole lot of money. So --

22 THE COURT: I think the Receiver's response is so

23 far you're not suing anybody and don't indicate an interest

24 in suing the people they're suing and they've got the --

25 MS. ROMERO: Well, that's not exactly true, Your

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1 Honor, because if there's 642 people that they've sued, or

2 whatever the number that is, there may be people within that

3 group that aren't innocent investors. In other words, they

4 could have acted in bad faith.

5 The example that Mr. Sadler presented to the Court,

6 certainly if that is a preference, if -- if he was treated

7 preferentially, we would definitely sue him and we are

8 prepared to do that. But -- but I don't think we can just

9 wholesale sue innocent investors. I mean, I think you've

10 already heard that argument, that we don't agree that an

11 innocent investor who's a net investor should, you know,

12 lose more and be added to a victim pot.

13 So that's what we've been trying to work with -- with

14 the Receiver to do. We had to bring it to the attention

15 of the correlate. We knew no other way but to file this

16 motion.

17 So I'd like the Court, I'd urge the Court strongly to

18 consider that fact that if we go forward with those claw-

19 backs that we think of, you know, those investors where we

20 think clawbacks are merited, it doesn't cost the investor any

21 money. If he goes forward, it's going to cost them a -- a

22 lot of money that they don't have.

23 I mean, they're going to be dwindling that $60 million

24 or so, less than that, probably 40 million that they have.

25 It's just going to be eaten away and there's going to be

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1 nothing and then everybody's a net loser and nobody gets

2 any money back until whenever there's a, you know, final

3 judgment in the criminal case. And, you know -- and then

4 that money is -- you know, the DOJ has that money under

5 their forfeiture -- under their forfeiture count in the

6 indictment.

7 So that's kind of where we are. I mean, it's much more

8 complicated than it appears initially.

9 THE COURT: Oh, it appears relatively complicated

10 initially.

11 MS. ROMERO: Well, now it's even more so. And

12 so that's kind of what I was hoping we could get across is

13 that if we do it, it costs the investors no money. If the

14 Receiver continues on this course, which he may not be

15 successful on, it's costing the investors money every day.

16 And there -- as you know, you've probably heard from

17 them as well as we have and everybody else has, there's a

18 lot of hardship stories out there, truly hardship stories

19 out there that, you know, that we want to try to -- to --

20 to limit as much as we can.

21 THE COURT: All right.

22 MR. ROMERO: Thank you, Your Honor.

23 MR. MALOUF: Your Honor, may I address the Court

24 briefly?

25 THE COURT: Yes. Tell me what hat you have on

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1 today.

2 MR. MALOUF: Your Honor, I represent approximately

3 600 CIB -- SIB CD purchasers, domestic, South American, and

4 and European.

5 THE COURT: Okay.

6 MR. MALOUF: Your Honor, my name is Steve Malouf,

7 and I represent approximately 600 CD purchasers.

8 And I have a very simple request or recommendation.

9 And that is that the parties agree that the clawback action

10 or activities in the clawback action will be suspended

11 temporarily during the pendency of an appeal so that the

12 Estate is not spending money, the CD investors and all of

13 us can wait for the Fifth Circuit to give the Court and the

14 rest of us some guidance.

15 Thank you.

16 MR. EDMUNDSON: Your Honor, may I be heard for

17 maybe 20 seconds for the Commission?

18 THE COURT: Not yet.

19 MR. QUILLING: May I be heard, Your Honor? I

20 represent a number of relief defendants in this case. I

21 have filed a motion for appearance. I'll be brief. My

22 concerns are practical. I am not going to reiterate what's

23 been said.

24 THE COURT: Okay.

25 MR. QUILLING: Your Honor, I'm Mike Quilling. As

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1 the Court has probably seen, I've been pretty active in this

2 case from the beginning. I represent a number of the relief

3 defendants.

4 I understand what the Court is saying with respect to

5 the rulings. I am a little bit still unsure as to if Mr.

6 Janvey appeals your ruling, exactly who is going to be on

7 the other side of that.

8 Do relief defendants who are adversely impacted get a

9 chance to respond so that your ruling can be upheld, if

10 indeed it is the proper law, point one, or is that going

11 to be delegated to the Examiner and will he undertake that

12 role?

13 THE COURT: I think -- and one reason that I

14 wanted to do it this way, I think at this point the relief

15 defendants are all named parties in the lawsuit and you

16 would have just as much right to participate in the appeal

17 as any other party would.

18 I don't think the Circuit really wants 600 briefs of

19 appellees. So I would hope that you-all and perhaps with

20 the Examiner can get together to consolidate the paper.

21 But -- and, of course, this is not my decision. It's up to

22 the Circuit to decide who's a proper party.

23 MR. QUILLING: And as the Court is aware, I --

24 and, again, I hope that the Court has the same deference

25 to the fact that you won't be mad at them for appealing. I

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1 obviously filed a petition for writ of mandamus which was
2 denied summarily because I don't think we were really
3 parties. We won't ever know exactly.
4 But the Order that you are changing is in the main
5 case. None of us are parties in the main case. And,
6 therefore, I'm concerned that I have no voice on behalf of
7 my clients in the ancillary proceeding and on the appeal
8 on the appellate level.
9 THE COURT: I'm also contemplating one of those
10 orders being a ruling in the relief case on the Receiver's
11 motion for order freezing in the nature of an order
12 denying injunctive relief essentially, which I believe is
13 immediately appealable and to which I believe you would
14 be a party.
15 MR. QUILLING: Okay. Thank you, Your Honor, for
16 that clarification.
17 The second item is, if indeed the Fifth Circuit says,
18 we will not stay this, and your ruling to release principal
19 is upheld and only interest will be kept, I think it's
20 important for the Court to understand the practical
21 realities of what that would cause.
22 For instance, I have a client who has $3.9 million
23 still trapped. The claim of the Receiver for principal and
24 interest is approximately $1,100,000. He seized over
25 3 million or -- or almost 4 million. So he's holding a

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1 great deal more.

2 He could have taken and kept frozen three accounts that

3 he released that would have equated pretty closely to what

4 his claim was, but he chose not to.

5 These accounts don't hold cash necessarily. Some of

6 them do. They have stocks, bonds, a lot of other

7 investments which will trigger tax issues in a down market

8 if they are liquidated.

9 And by virtue of a ruling from you that -- with respect

10 to this particular client, Mr. Janvey, you're to release

11 everything but the interest which is, let's say, $200,000,

12 the balance of that 3.9 million which is to be released will

13 trigger a sale of the securities in that account, and it

14 will cause additional harm and impact on those investors.

15 So that's just a practical concern.

16 I made the point in my response that I'm not sure the

17 Court has had a chance to review, the people he's going

18 after in the United States are folks like me and

19 you--professionals, prominent business people. There is no

20 evidence that they won't have the ability to write a check

21 when he gets a judgment after due process is given all

22 parties and there's been an intelligent consideration of

23 all the issues.

24 He will still be able to go after Greg Maddux, I

25 submit. Greg's still a pitcher. Greg's a very wealthy man.

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1 Those people will still be available. Certainly my clients

2 are all -- you're talking about doctors, lawyers. They'll

3 be there when he comes a knocking.

4 So release it all and let him do what I've done as a

5 receiver for 25 years: file your lawsuit, prevail on your

6 cause of action, and then go collect. It's all part of the

7 process.

8 Final point. Under the banner of equity is equality,

9 he can't get around that going after a small subset of

10 investors which are low-hanging fruit is equality.

11 Regardless of how much they think they can collect, when

12 they go down to Colombia, they're not going to collect

13 anything. And those folks are going to get the benefit of

14 my clients who are Americans dumping money back in.

15 And they can deal with it in the claims process, et

16 cetera, but we are never going to get back to level in this

17 case ever. We will never get there. There are going to be

18 some inequities. But we shouldn't make the inequity worse.

19 We have a level of stability right now. It's simply

20 not fair to the Americans. And they're the ones that are

21 being singled out. 113 countries, one country is going to

22 be victimized further.

23 And the final point -- and -- and this hasn't been a

24 focus, but it's been mentioned in the briefs. They say, it

25 doesn't matter what account the money that went into on your

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1 CD redemptions and proceeds. As long as your account is

2 frozen, it doesn't matter, that's the exact same account.

3 Well, the problem is, Your Honor, these accounts in

4 many instances in fact aren't the accounts where the money

5 went back into. They're IRA accounts, SEP accounts. I

6 represent a pension fund out of Mississippi. 300 retirees

7 depend on their pension check, and that account is still

8 being frozen.

9 You can't ignore the fact that these accounts that they

10 have frozen are ineligible for attachment, garnishment, or

11 any other seizure within most of the states, certainly all

12 the ones I have looked at. And that's the inappropriate

13 asset to pursue.

14 But by keeping the freeze in place, you are basically

15 humoring their effort to do that when, even if you gave them

16 a judgment tomorrow, they could not go against that account.

17 They would have to go against one of Mr. Maddux's other

18 accounts or one of my clients' other accounts.

19 Thank you for allowing me to be heard.

20 THE COURT: Any other counsel for relief

21 defendants who think you have something new and different

22 to tell me?

23 (No response.)

24 No? Okay. Then I'm ruling as previously indicated. I

25 would like -- oh, I told you you could say something else,

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1 didn't I?
2 MR. EDMUNDSON: 20 seconds.
3 THE COURT: Go ahead.
4 MR. EDMUNDSON: All right.
5 MR. SADLER: May I have ten seconds after Mr.
6 Edmundson? I just have a question about the procedure
7 related to the appeal, Your Honor.
8 THE COURT: Yeah.
9 MR. SADLER: Thank you.
10 THE COURT: Go ahead.
11 MR. EDMUNDSON: We know who the Receiver works
12 for and reports to and that's the Court, not the SEC.
13 That's why we're here.
14 We take exception to the Receiver's characterization
15 of -- of his own cases in support of the clawback claims
16 against -- for principal, in particular Scholes, Donell,
17 and the Quilling cases. In each of those cases they didn't
18 involve the clawback of principals. And in the Quilling
19 case, Quilling versus 3D Marketing, it didn't even involve
20 an investor.
21 I just wanted to make that clear.
22 THE COURT: Okay.
23 MR. SADLER: Your Honor, I -- I do think we --
24 we share your desire and concern to have the Fifth Circuit,
25 if an appeal is taken, rule squarely on the issue.

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1 I think you're familiar, as am I, that most of the

2 cases that go up on a denial of injunctive relief are

3 reviewed on abuse of discretion where the district court

4 has granted very wide latitude, and even though there may

5 be disagreements, yet the ruling is upheld.

6 And so my question is, if what we're really trying to

7 accomplish is get a -- a very clear legal question to the

8 Fifth Circuit that they can rule on, my concern is that

9 if -- if your ruling that we would appeal is simply a

10 denial of request for injunctive relief, that may not be

11 the vehicle that -- that gets -- gets that done.

12 And so I'm really just asking the Court if -- if you

13 have some thoughts on that because my concern would be

14 that you have a desire, we have a desire to get the issue

15 resolved and --

16 THE COURT: Yeah. Here's my thought. My thought

17 is, to the extent I adequately understand the Fifth Circuit

18 law, if I deny injunctive relief because of a mistaken view

19 of the law, they consider that to be abusing my discretion.

20 It's not an issue of weighing the equities, do I just weigh

21 them differently from you. If I'm wrong on the law, I think

22 they view that as sufficient basis for reversing me.

23 That's their call, of course, and I am not presuming

24 to tell them what to do. But here I think there is a

25 relatively crisp legal question that's presented. You have

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1 one view of the law; the Commission and the Examiner and

2 the relief defendants have a different view of the law.

3 For better or for worse for today, I'm agreeing with

4 them, although I do think your arguments are -- they're not

5 silly. They're certainly not silly arguments. Despite the

6 fact of the numerical mismatch in the courtroom, I think

7 you're making decent, legitimate, colorable arguments. I

8 understand your position about certain people having an

9 effect of preference. I don't think it's a stupid position.

10 I disagree with it ultimately and think that the

11 Commission's view is the better view of the law. But I do

12 think that that's a legal question that's appropriate for

13 disposition by the Circuit.

14 If I'm just making a legal ruling in a vacuum, I think

15 it's simply an interlocutory ruling and very likely is not

16 appealable of right and I don't think it's really postured

17 correctly for 1292(b), but I do think the denial of

18 injunctive relief is something that is appealable as of

19 right.

20 MR. SADLER: And -- and I agree with that and I

21 was really -- and I've taken far longer than my ten seconds

22 but this is so important because, of course, once Your

23 Honor's enters order, that's -- that's what we have to

24 deal with.

25 And -- and there were -- there were two thoughts I had

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1 about that. One is simply it's very clear that whichever

2 way you rule today, there was going to be an appeal. I

3 mean, I think that's -- that's very clear.

4 One way would be, as we thought actually coming in here

5 today, that if there was going to be a ruling against our

6 position, that we would defer to you and not appeal. We

7 have heard your comments. We had a misapprehension coming

8 in here today. We now understand that you are interested

9 in having this issue resolved at the Fifth Circuit and --

10 and so are we.

11 The other way, perhaps, Your Honor, to address it is

12 for you to make some comment in your Order, your written

13 Order, to the effect of this presents an issue that the

14 district court is very much interested in -- in having

15 reviewed.

16 And far be it from me to -- to try to script your

17 Order. I -- I don't mean to be presumptions. But, again,

18 my concern is if all the Fifth Circuit sees is injunctive

19 relief denied, that that may get us in a situation where

20 it doesn't get the attention to focus on the issue that I

21 think we all want. And I -- I just wanted to share those

22 comments with you, Your Honor.

23 THE COURT: I'll just observe that Linda, our

24 court reporter, is here diligently writing down everything

25 that's been said.

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1 MR. SADLER: Absolutely, Your Honor.

2 THE COURT: And perhaps someone might want to

3 acquire a copy of the transcript.

4 MR. SADLER: I'm sure many will make that request.

5 Thank you very much, Your Honor.

6 THE COURT: All right. Then I'm ruling as

7 previously indicated.

8 I would like for the SEC and the Receiver and the

9 Examiner and if any of the relief defendants care to

10 confer about that and see if you're able to submit orders

11 reflecting my oral ruling.

12 I will extend the stay, the oral stay of the unfreezing

13 order for ten days instead of one week. That will give you

14 at least another weekend to work on getting your papers

15 together.

16 MR. SADLER: Thank you, Your Honor.

17 THE COURT: All right. Thank you-all for coming

18 down. The Court will stand in recess.

19 (The proceedings were concluded.)

20

21

22

23

24

25

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1
2 CERTIFICATION
3
4 I certify that the foregoing is a true and correct
5 transcript from the record of proceedings in the above-
6 entitled matter. I further certify that the transcript
7 fees format comply with those prescribed by the Court
8 and the Judicial Conference of the United States.
9
10 s/Linda J. Robbins Date: August 1, 2009
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

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NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION

IN RE: §
STANFORD INTERNATIONAL § Civil Action No. 3:09-CV-0721-N
BANK, LTD, Debtor in a Foreign §
Proceeding, §

ORDER

The hearing scheduled in this case on January 21, 2010 at 9:00 a.m. is cancelled.

Signed January 7, 2010.

_________________________________
David C. Godbey
United States District Judge

ORDER – PAGE 1


Stanford Financial Group Receivership
Ralph S. Janvey, Receiver
2100 Ross Avenue | Suite 2600 | Dallas, TX  75201
August 12, 2009

Chairman Christopher J. Dodd
Committee on Banking, Housing, and Urban Affairs
United States Senate
Washington, DC 20510‐6075

Dear Chairman Dodd:

In my capacity as the Court‐appointed Receiver for the Stanford Financial Group and
associated legal entities and individuals (the “Stanford Receivership”), I have received your
letter dated August 10, 2009,  inviting me to testify before the Committee at a hearing entitled
“Alleged Stanford Financial Group Fraud:  Regulatory and Oversight Concerns and the Need for
Reform.”  I understand that the hearing is scheduled for Monday, August 17, 2009, at 1:30 p.m.
in Baton Rouge, Louisiana.  While I appreciate your providing me an opportunity to participate
in the hearing on this important subject in person, I must respectfully decline at this time, as
explained further below.

First, as you know, the Stanford Receivership is presently involved, to varying degrees, in
ongoing criminal and civil investigations, but just as importantly, in an ongoing asset search and
recovery effort on behalf of more than 20,000 individuals and entities that were adversely
affected by the financial collapse of the various Stanford entities. On behalf of the
Receivership, I have made a number of filings detailing this work, almost all of which are
publicly available on the Receivership website at:  http://stanfordfinancialreceivership.com.

In particular, the Receivership’s April 23, 2009 report describes in detail the progress of
the investigation as of that date. A copy of that report is enclosed for your review. It is my
hope that the public filings will provide the Committee with all the information it now needs
respecting the Receivership. Testifying at this time could compromise the Receivership’s
ongoing efforts to locate and marshal assets, to evaluate claims against assets, entities and
individuals, and ultimately to make distributions to claimants. At present, I believe that
additional public testimony on my part, covering matters not publicly disclosed already, could
jeopardize my ability to carry out my official duties.

Second, and importantly, in addition to my own ongoing asset recovery efforts, there is
an ongoing criminal proceeding pending in the U.S. District Court for the Southern District of
Texas. That criminal matter has already resulted in a number of indictments, and the U.S.
Department of Justice is still in the process of conducting its criminal investigation, with
additional indictments possible before the end of the year. I am concerned that public



testimony regarding my ongoing efforts, which overlap in some respects with that criminal
investigation, may compromise or hinder the Department’s parallel criminal proceedings and
investigation.  I am sure that you will understand and agree with my concerns in that regard.

Third, yesterday the U.S. Fifth Circuit Court of Appeals granted our motions to extend an
asset freeze over certain Stanford  entities' customer accounts. The extension maintains the
asset freeze during our appeal of a July 31 determination in the Dallas federal court
proceeding that "claw backs " of  Stanford CD principal are not allowed under the law. This
appeal will be heard on an expedited basis, with the briefing schedule contemplating a hearing
in the Fall.  While this expedited appeal is pending, I do not believe it would be appropriate for
me to answer questions or comment publicly on the sensitive and important legal issues which
are under consideration by the Court of Appeals.

Finally, as a Court‐appointed Receiver, I am subject to U.S. District Judge David Godbey’s
direct supervision and control, and I believe I am unable to respond affirmatively to your
invitation without first advising him and obtaining his views on the potential impact of my
public testimony on the on‐going civil and criminal investigations.

Although I will be unable to appear in person, I note that you have also invited me to
submit a written statement addressing my work as the Court‐appointed Receiver.  I will submit
the specified number of original and duplicate copies of my statement, in the required format,
no later than 24 hours prior to the hearing, pursuant to the instructions in your letter.

Again, I want to thank you for inviting me to testify in this matter, and although I am
unable to appear at this time, I will be pleased to consider opportunities to do so in the future.

Very truly yours,

Ralph S. Janvey
Receiver for Stanford Financial Group, et al.


Filed 04/23/2009 Page 387 of 444
Page 1 of 58

FOR THE NORTHERN DISTRICT OF TEXAS,
DALLAS DIVISION

§
Plaintiff, §
§
v. § Case No.: 3-09-CV-0298-N
§
STANFORD INTERNATIONAL BANK, LTD., ET AL., §
§
Defendants.
§

REPORT OF THE RECEIVER DATED APRIL 23, 2009

BAKER BOTTS L. L.P. THOMPSON & KNIGHT LLP
One Shell Plaza 1722 Routh Street
910 Louisiana Suite 1500
Houston, Texas 77002-4995 Dallas, Texas 75201
(713) 229-1234 (214) 969-1700
(713) 229-1522 (Facsimile) (214) 969-1751 (Facsimile)



Filed 04/23/2009 Page 388 of 444
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TABLE OF CONTENTS
PAGE
Overview of the Stanford Companies and the Estate................................................................ 5

Initial Conclusions Regarding Viability of Stanford Businesses............................................... 8

Major Groups Principally Affected by What has Happened to the Stanford Companies ......... 11

CD Holders ............................................................................................................... 12

Holders of Brokerage and Similar Accounts .............................................................. 13

Landlords, Vendors, Service Providers and Other Creditors....................................... 16

Employees................................................................................................................. 16

Issues Related to Antigua ...................................................................................................... 17

Stanford International Bank Limited and Stanford Trust Company Limited
(Antigua) .......................................................................................................... 18

Bank of Antigua ........................................................................................................ 22

Action by Antiguan Parliament Authorizing Expropriation of Real Estate ................. 23

Canadian Matters....................................................................................................... 23

Latin America Matters........................................................................................................... 24

Assistance to and Communication with Governmental and Regulatory Agencies................... 25

Asset Recovery...................................................................................................................... 26

Cash and Other Assets............................................................................................... 26

Claims Against Third Parties ..................................................................................... 27

Cash Unaccounted For............................................................................................... 27

Personal Investments of Allen Stanford and James Davis ...................................................... 28

Claims ................................................................................................................................... 29

Major Activities and Priorities for the Near Term .................................................................. 29

Estate Resolution Process ...................................................................................................... 31

Additional Information Regarding Activities and Accomplishments ...................................... 31

REPORT OF THE RECEIVER DATED APRIL 23, 2009 Page 2 of 58

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PAGE

Locating, Securing and Monetizing Assets ............................................................................ 32

Securing the Estate .................................................................................................... 32

Other Efforts to Recover Cash ................................................................................... 34

Corporate Structure Analysis ..................................................................................... 36

Preparation of Financial Statements........................................................................... 37

Real Estate ................................................................................................................ 37

Private Equity............................................................................................................ 39

Aircraft...................................................................................................................... 39

Litigation and Interaction with Governmental and Regulatory Agencies ................................ 40

Litigation and Other Disputed Matters Commenced at or after Appointment ............. 40

Assistance to and Communication with Governmental and Regulatory Agencies....... 41

International Matters ............................................................................................................. 42

Latin American Matters............................................................................................. 42

Switzerland Matters................................................................................................... 43

Customer Related Matters ..................................................................................................... 44

Releases of Stanford Group Company Customer Accounts from Freeze and
Related Broker Matters..................................................................................... 44

Stanford Trust Company Matters............................................................................... 46

Stanford Private Label Funds..................................................................................... 46

Coins and Bullion...................................................................................................... 47

Operational and Administrative ............................................................................................. 48

Operations ................................................................................................................. 48

Employee Matters...................................................................................................... 49

Insurance Matters ...................................................................................................... 51

Tax Matters — Allen Stanford Personal Returns........................................................ 52

Tax Matters — Stanford Entities ............................................................................... 53


Filed 02/09/2010 Page 4 of 58
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PAGE

Claims Identification ................................................................................................. 54

Communications with Customers, Employees and the Public .................................... 54

Team Assembled by the Receiver .......................................................................................... 55


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REPORT OF THE RECEIVER DATED APRIL 23, 2009

By order dated February 16, 2009, as amended March 12, 2009 (as so amended, the

“Receivership Order”), this Court appointed Ralph S. Janvey as Receiver for the assets and

records of the Defendants in the above-referenced case and all entities they own or control. The

Receivership Order directs the Receiver to prepare and submit periodic reports to the Court and

to the parties.

Overview of the Stanford Companies and the Estate

The Stanford companies (“Stanford”) were a complex, sprawling web of more than 100

companies, all of which were controlled and directly or indirectly owned by Allen Stanford.1

The companies were operated in a highly interconnected fashion, with a core objective of selling

certificates of deposit (“CDs”) issued by Stanford International Bank Limited (“SIBL”).

Stanford had operations in more than 100 discrete locations spanning 15 states in the United

States and 13 countries in Europe, the Caribbean, Canada and Latin America. The operations of

all the major companies, including SIBL, were controlled and managed in the United States.

Stanford claimed to have more than 30,000 clients located in 133 countries.

These companies were not arranged in a traditional corporate structure. They did not

have a typical centralized management hierarchy, nor did they have a typical governance

structure for the whole network. In contrast to a conventional multi-tiered corporate structure,

the stock of almost half of these entities was owned directly by Allen Stanford, rather than

through a central holding company. It appears that very few people were privy to sufficient

1
A few non-U.S. entities had a nominal percentage of equity owned by persons other than Allen Stanford,
presumably to meet legal requirements.
To date, the Receiver has identified approximately 140 entities that are or appear to be included in this
network and as to which the Receiver’s team has found appropriate ownership or corporate records. That number
does not include more than 100 other potential Stanford entities the names of which are referenced in various
documents as having a Stanford relationship but as to which the Receiver’s team has not yet found ownership or
corporate records.


Filed 04/23/2009 Page 392 of 444
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information to understand the totality of the operations. The structure was seemingly designed to

obfuscate holdings and transfers of cash and assets.

The principal businesses in the Stanford network all involved providing financial

products and services. The major financial businesses were:

 Banking, principally through Stanford International Bank Ltd., whose operations
were controlled and managed from the United States, though it was domiciled in
Antigua.2

 Broker dealer operations, principally through Stanford Group Company, which is
headquartered in Houston, Texas and had operations in 31 cities in 15 states and
the District of Columbia, as well as through Latin American entities.

 Financial products managed under the auspices of Stanford Capital Management,
LLC, based in Houston.

 Trust companies and similar operations, principally through Stanford Trust
Company, which was based in Louisiana, as well as through Stanford Trust
Company Limited of Antigua.

 Coins and bullion, principally through Stanford Coins & Bullion, Inc., based in
Houston.

 Merchant banking and private equity investments, principally through Stanford
Venture Capital Holdings, Inc. based in Houston.

To the outside world, before commencement of the Receivership, these financial

businesses appeared to be independently viable. The Receiver believes, however, based on his

investigation to date, that the principal purpose and focus of most of the 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. Stanford’s financial statements show that the

low third party revenue and high cost structures of the U.S. broker dealer and related financial

operations were not capable of sustaining freestanding operations without the revenue they

received upon their sale of SIBL CDs, as well as the infusion of investment capital, all or most

2
SIBL was not a bank in the conventional sense. It did not generally make loans to unaffiliated partners, and
its operations were required by Antiguan law to avoid the provision of banking services and products to Antiguans.


Filed 04/23/2009 Page 393 of 444
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substantially all of which was derived from CD sales. The compensation structure highly

incentivized Stanford’s financial advisors to sell CDs and to discourage their customers from

redeeming the CDs. Once CD funds entered the Stanford companies, they were disbursed to

Allen Stanford or to other Stanford-owned entities or used to purchase private equity and other

investments, to pay CD redemptions and interest or to pay other expenses and obligations.

Although all of SIBL’s financial operations, including CD sales, were controlled and

managed from Stanford’s offices in the U.S., it was domiciled in the Caribbean island nation of

Antigua and Barbuda (“Antigua”). It appears that SIBL may have been established in Antigua in

order to take advantage of Antiguan bank secrecy laws and to minimize regulatory inspection.

At the same time, Stanford's financial advisors used the apparent legitimacy offered by U.S.

regulation of Stanford's U.S. brokerage subsidiary in order to generate sales of SIBL CDs

worldwide.

The Stanford companies also include a number of non-financial businesses, though none

of these businesses were material to the operations compared to the financial businesses. The

principal non-financial business was real estate development (including hotels, clubs and golf

courses) which was conducted by Stanford Development Corporation and by Stanford

Development Corporation Limited. Other non-financial businesses included restaurants, a

newspaper and a printing company, all in Antigua, and at one time Caribbean airlines.

As described in further detail below, since his February appointment the Receiver and his

team of professionals have made significant progress in identifying and securing Defendants’

assets for the benefit of the Estate. The Receiver has begun recovering cash and other assets. In

addition, the Receiver has made significant progress in reducing ongoing liabilities.


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It is important to emphasize that the Receiver’s efforts, especially in the first several

weeks of the Receivership, have been hampered by lack of information. Because the Stanford

companies were not publicly held, the available public information was quite limited and not

always accurate. Much of the critical information about Stanford’s operations within its own

systems and records has been difficult to locate and is incomplete or inaccurate. The Stanford

companies appear to have approximately 200 different accounting systems, most of which do not

centrally report. In addition, the Stanford operations appear to have been designed to prevent

any one employee (outside of a small handful) from gaining knowledge of the full scope of

Stanford’s assets and operations and the flow of funds among the Stanford entities.

Initial Conclusions Regarding Viability of Stanford Businesses

One of the first tasks confronting the Receiver was to determine whether any of the

Stanford companies were financially viable – and thus could continue to be operated and perhaps

sold as going businesses. Analysis of Stanford’s financial records and operational data revealed

that all the major Stanford U.S. financial businesses depended upon continued CD sales and/or

other allegedly fraudulent activities. For example, Stanford’s records reflect that from at least

2005 forward, SIBL generally paid Stanford Group Company a commission or fee of

approximately 3% of the face amount of each CD sold by Stanford Group Company. Of this

amount, the financial advisor who made the sale generally received 1% (plus more in bonuses if

certain sales targets were met), 1/2 of 1% was allocated to the branch office where the financial

advisor worked and the remaining 1.5 % was allocated to Stanford Group Company overall. 3 In

2008, these commissions to Stanford Group Company (including the portion it then paid to

financial advisors) totaled approximately $95 million. These commissions were instrumental to

3
In 2008, the 3% was reduced to 2.75%, with the reduction being applied to Stanford Group Company
overall.


Filed 04/23/2009 Page 395 of 444
Page 9 of 58

the maintenance and viability of Stanford Group Company’s operations, constituting 39% of its

total revenues of $246 million in 2008. Even with that infusion of funds, growth of the business

required additional investment capital, which was generally obtained from the sale of CDs by

SIBL.

Therefore, the Receiver determined that almost all U.S. business operations should be

ceased to reduce the ongoing costs of unprofitable operations. This necessitated, among other

things:

 The termination of employment of more than 1,000 U.S. employees on March 6,
2009.

 The permanent closure of 36 offices in leased locations in 33 U.S. cities. Before
physically closing each office, the representatives of the Receiver have:

o allowed local employees to collect personal belongings;

o packed all documentary and electronic evidence and shipped it to a single
warehouse in Houston; and

o liquidated or otherwise disposed of furniture and other fixed assets in a
manner that maximizes value to the Estate.

 Termination or rejection of each such lease. A lease is “terminated” if the
landlord agrees to termination without further liability on the part of the Estate
other than as documented in a termination agreement. The Receiver is unilaterally
“rejecting” the remainder of the leases. The Receiver has sent notice of such
rejections so that the Estate’s ongoing obligation to pay rent for these leases will
cease no later than April 30, 2009.

The lack of financial viability is further explained by what appears to have been

manipulation of financial records of the Stanford companies, in an apparent attempt to hide the

true financial condition of the businesses from regulators and other outsiders.

For example, upon analyzing the financial statements and other financial data for SIBL,

FTI Consulting Inc., the forensic accounting firm retained by the Receiver, discovered a series of

transactions from April 2008 through December 2008 relating to 1,587 acres of undeveloped and


Filed 04/23/2009 Page 10 ofof 444
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partially developed real estate in Antigua that SIBL acquired in April 2008 and September 2008.

The land was purchased at a cost of $63.5 million, yet its value was written up to approximately

$3.2 billion prior to year end 2008. Other than the initial purchases of the land, all the

transactions appear to have taken place entirely between Mr. Stanford, SIBL and other

companies owned by Allen Stanford. Company records indicate that holding companies wholly-

owned by Mr. Stanford purchased the real estate from SIBL at the same cost that SIBL originally

paid to purchase the acreage. The purchasing companies then immediately wrote up the value of

the assets to $3.2 billion. The write-up would suggest that the value of the property increased

fifty-fold in just a few months, during a period that was generally characterized by falling real

estate values. The records do not appear to contain any appropriate basis for this extraordinary

write-up in value, as would be required by applicable U.S. or international accounting principles.

(One sheet has a brief notation that the land should be valued at $2 million per acre, with a

reference to a sale related to Jumby Bay, a highly exclusive resort on a small island off Antigua.

The average cost paid by SIBL to acquire the property was about $40,000 per acre.)

According to Stanford records, in July 2008, Mr. Stanford transferred to SIBL a portion

of the shares of his companies that held the real estate, which appears to have been their only

asset. For purposes of the transfer, the shares were valued at $1.7 billion (reflecting the write-up

in value), and this purported value was used to settle a debt of the same amount that Mr. Stanford

owed to SIBL. In September 2008, he contributed additional shares in the same companies to

SIBL, valuing the transferred shares for purposes of the transaction at $200 million (again

reflecting the same write-up in value). In November 2008, Mr. Stanford contributed to SIBL

additional shares in those same companies, valuing these shares for purposes of the transaction at

$541 million (reflecting the same write-up in value).


Filed 02/09/2010 Page 11 ofof 444
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Based on the write-up in value of the real estate, the September and November

transactions resulted in increases in SIBL’s 2008 shareholder’s equity of $200 million and $541

million, respectively. Notations in the records indicate that the purpose of the write-up and

related transactions was in part to exceed a “desired level” of $1 billion of shareholder’s equity

in SIBL to avoid violating an equity-to-assets ratio required by Antiguan regulators and in part to

use as a basis to replace the $1.7 billion debt owed by Mr. Stanford.4

FTI also discovered similarly structured transactions in 2004 and 2008 relating to private

equity investments. In these transactions, certain private equity investments were transferred to

Mr. Stanford from a Stanford entity owned by him. The investments were valued at cost.

Within a matter of a few months, the value of those investments was written up substantially and

Mr. Stanford contributed them to SIBL to pay off debts he owed to SIBL. The Receiver has not

found any documentation supporting these write-ups in value. In the case of the 2004

transaction, the write-up was almost 200% of the original value and was used as the purported

basis to increase SIBL’s capital by $75 million.

Major Groups Principally Affected by What has Happened to the Stanford Companies

Broadly speaking, there are four major categories of people and entities affected by what

has happened to the Stanford companies:

 Those who purchased and continue to hold CDs.

 Those who own securities and other assets that are held on their behalf in
brokerage, trust and similar accounts at Stanford entities.

4
On at least one occasion, Mr. Stanford used the write-ups to reassure employees that all was well. A
newspaper story reported that at an Arizona gathering of Stanford financial advisors in November 2008, a Stanford
financial advisor who was in attendance said that Mr. Stanford explained “how he’d just replenished his company’s
rainy-day reserves no less [sic] with an extra $540 million, which pushed it past a billion dollars.” “SEC Says Texas
Financier Sir Allen Stanford Swindled Investors Out of Billions,” The Dallas Observer, April 9, 2009. As noted
above, the purported November 2008 equity increase was in the amount of $541 million.


Filed 02/09/2010 Page 12 ofof 444
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 Those who do or have done business with the Stanford companies as landlords,
vendors, service providers or creditors.

 Employees.

Some of these people and entities were and are in more than one category. There may also be

people and entities affected by the Receivership who do not fit in any of these four categories.

Each category has presented issues that have required the Receiver’s attention. The

following sections discuss each of these four groups and what the Receiver has done to date that

affects them.

CD Holders

Based on initial review of the incomplete and inconsistent records of the Stanford

companies that the Receiver has assembled to date, it appears that approximately $7.2 billion of

CDs were outstanding and held by public investors as of February 22, 2009. These CDs are held

by approximately 21,500 holders, located in the U.S. and in scores of other countries around the

world. Holders of CDs have a claim against the Estate for the value of their CDs.

Emails received by the Receiver from some CD holders have indicated that those holders

— and perhaps many others — think that the money they paid to buy a CD is currently held in a

specific account at SIBL for their benefit, and that the reason they cannot access that money is

that the Receiver has frozen the CD account. Some stories in the media have used language to

describe the CDs that may have inadvertently contributed to this misunderstanding.

The assumption that a CD represents identifiable funds held in a separate account for the

benefit of the individual CD investor is not correct. The CD represents an obligation on the part

of SIBL to pay the investor an amount of money. In other words, it is a debt owed by SIBL to

the investor. Unlike a brokerage account, it does not represent identifiable funds that are held by


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SIBL in a specific segregated account for the holder’s benefit. This is true whether the CD is

held directly by the holder, by a Stanford company on the holder’s behalf, or by someone else.

The money the holders paid to buy CDs from SIBL was used by SIBL and other Stanford

companies to buy other assets and/or for other purposes. The Receiver is working to identify

assets purchased with proceeds of CD sales and to determine the value of those assets. He is also

tracing proceeds into other uses and investments. Although the Receiver has made substantial

progress to date, the size and complexity of the task are such that it will likely take considerable

time to complete. Based on what the Receiver has learned so far, as further discussed below, it

appears that the total value of the assets of the Estate is likely to be only a fraction of the total

amount that would be needed to pay all outstanding CDs and other anticipated claims against the

Estate. It appears that during the last year, and probably for longer than that, SIBL assets were

inadequate to cover the amount of SIBL’s liabilities on its issued and outstanding CDs as those

liabilities came due. The SEC has alleged in its lawsuit against the Defendants that the CDs

were sold in a Ponzi scheme, in which money from sales of new CDs was used to make

payments on older CDs instead of invested on the new purchaser’s behalf.

Holders of Brokerage and Similar Accounts

These people own securities and other assets that are held in separately identifiable

accounts in their names or for their benefit that they established with the Stanford companies. In

the U.S., the companies at which these accounts were established include Stanford Group

Company and Stanford Trust Company (a Louisiana trust company). Although the assets in

these accounts belong to the account owners, the accounts were frozen at the outset of the

Receivership pursuant to the Court’s order.

As accounts held under the control of Stanford, the accounts were frozen because of the

possibility that assets might be misappropriated during the time the Receiver was securing


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control and the possibility that the accounts or their owners might be associated with fraudulent

products or activities. For example, some accounts are owned by the Defendants or by board

members, officers or employees who may ultimately be determined to have participated in

fraudulent activities.

In addition, it was clear there would be other customer accounts that were associated with

fraudulent products, such as CDs issued by SIBL, even though their owners did not engage in

fraudulent activities themselves. For example, customer accounts at Stanford Group Company

or Stanford Trust Company may have received amounts from redemption of SIBL CDs or from

interest on SIBL CDs, the accounts may have received other amounts directly or indirectly from

SIBL or in some way related to SIBL CDs, or the owners of these accounts may have received

amounts related to SIBL or SIBL CDs outside of their brokerage accounts, such as in non-

brokerage accounts at other Stanford companies. The Receivership Estate may have a claim

against these amounts related to SIBL or SIBL CDs for the benefit of the Estate, so that they may

be shared equitably with other claimants against the Estate. These other claimants would include

people who purchased SIBL CDs but were not able to redeem them before the Stanford

companies were placed in receivership.

As of February 16, 2009, Stanford Group Company had approximately 50,000 separate

brokerage accounts and the Louisiana-based Stanford Trust Company had an additional 1,438

accounts. Initially, the Receiver could not determine which of these accounts might be

associated with fraudulent activities or products.

An initial priority of the Receiver was to determine which of these accounts could be

released and which should continue to be frozen, to reduce the difficulty of ultimately recovering

amounts the Estate is entitled to recover. Had all the accounts been released, the task of


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recovering this value would be far more difficult, which is why the accounts were frozen by the

Court’s order at the outset.

Working with a multi-disciplinary team of lawyers, broker dealer experts, forensic

accountants, and information technology experts, the Receiver collected and analyzed the

available data to determine which accounts could be released, using electronic search protocols. 5

He then filed motions with the Court seeking approval to make releases. This was done in

stages. First, Stanford Group Company accounts under $250,000 were released, subject to

exceptions for certain types of accounts and certain types of owners. This resulted in the release

of approximately 12,600 accounts, pursuant to transfer procedures posted on the Receiver’s

website. One week later, an additional 16,000 accounts were made eligible for transfer,

constituting all remaining active accounts6 other than approximately 4,000 accounts that either

reflect certain SIBL or CD related activity or are owned by certain Stanford related persons.

Third, the Receiver developed and obtained court approval for an account review process that

permits the owners of the remaining 4,000 accounts to provide information to the Receiver that

may lead to the release of their accounts.

As of April 22, 2009, a total of 20,840 of the approximately 28,600 accounts that are

eligible for transfer have been transferred by their owners to a new firm, and holders of 1,521 of

the remaining approximately 4,000 accounts have initiated the account review process.

The Receiver has also conducted a similar analysis of the customer accounts at the

Louisiana-based Stanford Trust Company and has filed a motion with the Court seeking Court

approval to release accounts in certain categories. Of the remaining Stanford Trust Company

5
The task was complicated by the lack of interconnection among relevant electronic data systems at Stanford
and by difficulties in accessing and using the data.
6
Approximately 18,000 of the initial 50,000 accounts were determined to be inactive.


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accounts not covered by the request for release, more than 80% hold virtually no assets other

than SIBL CDs.

The brokerage accounts operated by the Stanford Fondos in Mexico were seized by

government regulators and distributed to investors by the regulators. All other Latin American

brokerage accounts are currently frozen as a result of the actions of the various foreign

government officials and regulators involved in the respective countries.

Landlords, Vendors, Service Providers and Other Creditors

As a large enterprise, the Stanford companies did business with a large number of

landlords, vendors and service providers. Many of these will have claims against the Estate for

compensation for goods or services that they provided to the individual Defendants and the

Stanford companies prior to the commencement of the Receivership. In addition, many of these

will have claims for payment for provision of goods or services or, in the case of landlords, the

continued use by the Estate of leased space after the commencement of the Receivership and

prior to any rejection or termination of their lease by the Estate.

With respect to creditors that loaned money to the individual Defendants or the Stanford

entities prior to the commencement of the Receivership, the records of the Stanford companies

reflect approximately $95 million of debt for money borrowed from unrelated sources that was

outstanding at December 31, 2008.7 About 97% of this debt appears to be secured by land or

other assets.

Employees

At the outset of the Receivership, the Stanford companies had more than 3,000

employees, of whom approximately 1,200 were in the U.S. and the balance in 12 other countries.

While it could be anticipated, and in fact is true, that many of those employees were honest and
7
The records also reflect outstanding loans to Mr. Stanford of at least $1.7 billion.


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were victims of the fraud themselves, the Receiver had no way of knowing initially which were

participants in the fraud and which were not. There was a risk of misappropriation of assets

owned by customers or by the Estate and removal or alteration of documents and records. Thus,

the Receiver was hampered in his ability to take control of the Estate and manage its operations

by uncertainty as to which employees he could rely on. After numerous interviews, the Receiver

determined to retain the services of certain employees, principally at the Houston headquarters,

in departments such as accounting, information technology, treasury, legal, human resources,

brokerage operations and risk management, to assist in winddown of operations. Most

employees, though, were asked to await decisions as to which businesses were viable and could

continue in operation.

After decisions were made that none of the U.S. financial businesses should be continued,

as discussed above, more than 1,000 U.S. employees were laid off. These decisions necessitated

a comprehensive review of Stanford’s compensation and employee benefits structure, policies

and practices and decisions on amendments to employee welfare and benefit plans and other

actions required in connection with the reduction in the workforce, as well as restructuring of the

compensation and benefits for the retained employees.

Adding to the hardship suffered by employees, including both some that continue to have

jobs and some that were laid off, was the fact that many of them were themselves holders of

SIBL CDs and had accounts at Stanford Group Company that were frozen. However, other

employees, such as many financial advisors, received significant compensation from selling

CDs.

Issues Related to Antigua

The Receiver, with the assistance of U.S. and foreign counsel, has been actively

analyzing the applicable laws of each of the jurisdictions outside the U.S. in which significant


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Estate assets are located and has been devising and implementing appropriate strategies for

addressing these assets. In addition, the Receiver has been required to respond to certain legal

proceedings in some of these jurisdictions. The jurisdiction in which the most significant issues

have been raised is Antigua. These issues, together with related issues in Canada, are discussed

below.

Stanford International Bank Limited and Stanford Trust Company Limited (Antigua)

SIBL and Stanford Trust Company Limited (“STCL”) (a different entity from the

separate Stanford Trust Company formed under Louisiana law) were chartered by Antigua,

under that country’s International Business Corporation Act. SIBL was an offshore bank. STC

was a trust company specializing in the administration of trusts established under the trust laws

of the British Virgin Islands. Because both entities were owned by Allen Stanford on February

16, 2009, when the U.S. Receivership was instituted, they are among the assets of the


On February 19, 2009, the Financial Services Regulatory Commission of Antigua and

Barbuda (the “FSRC”) appointed Nigel Hamilton-Smith and Peter Wastell, employees of Vantis

plc, as Receivers-Managers over SIBL and STCL. The FSRC is the Antiguan governmental

agency that licenses and regulates international banks that operate in Antigua. Vantis is an

accounting, tax and business advisory and recovery firm based in the United Kingdom. On

February 26, 2009, the Eastern Caribbean Supreme Court, High Court of Justice, Antigua and

Barbuda, on the application of the FSRC, appointed Messrs. Hamilton-Smith and Wastell as

Receivers-Managers over SIBL and STCL. At the time of both appointments, SIBL and STCL

were already subject to the U.S. Receivership Order.

On March 9, 2009, a purported creditor of SIBL filed an application in the Antiguan

court, seeking to have SIBL placed into an Antiguan liquidation proceeding. The FSRC then


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filed its own application for liquidation, seeking to have Messrs. Hamilton-Smith and Wastell

appointed the liquidators. The Receiver sought to intervene in those proceedings in order to

request either that the applications be struck or, alternatively, should a liquidation be ordered,

that he and an Ernst & Young insolvency practitioner be appointed the liquidators for an

Antiguan liquidation proceeding that would be designated as “non-main” or ancillary to the U.S.

Receivership. On April 7, 2009, the Antiguan court denied the Receiver’s intervention based on

its ruling that the U.S. Receivership Order did not have effect in Antigua and that therefore the

U.S. Receiver lacked standing as an “interested person.” On April 17, 2009, the Antiguan court

entered an order placing SIBL into liquidation and appointing Messrs. Hamilton-Smith and

Wastell as its liquidators. The liquidation order will have effect in Antigua unless and until

stayed or reversed, but does not have effect in any other country unless and until recognized by

the judicial system of such country.

Notwithstanding the Antiguan receivership and liquidation orders, the U.S. Receiver

maintains in the various jurisdictions in which SIBL and STCL assets exist that the U.S.

Receivership should be recognized as the “main” or primary proceeding in relation to SIBL and

STCL. The Receiver bases his position on several factors supporting the conclusion that the U.S.

is the center of main interests for the various Stanford entities, including SIBL and STCL. For

example:

 SIBL’s operations were controlled and managed in the U.S. by U.S. citizens, who
are subject to the jurisdiction of U.S. courts.

 SIBL was just one company in an integrated network of more than 100 companies
based in the U.S. and created for the purpose of attracting and funneling investor
funds into the Stanford companies, principally through the sale of SIBL-issued
CDs.

 Stanford brokers based in the U.S. generated more SIBL CD sales, by dollar
amount, than brokers in any other country.


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 SIBL filed forms with securities regulators in the U.S. relating to its CD sales in
which it consented to jurisdiction in the U.S.

 Brokers used the apparent legitimacy offered by U.S. regulation of Stanford’s
U.S. brokerage subsidiary in order to generate CD sales worldwide.

 A significant percentage of the CDs were sold to U.S. citizens. By contrast, few
CDs were purchased by Antiguans. Indeed, Antigua’s International Business
Corporation Act, under which SIBL and STCL were formed, restricted those
entities from serving Antiguans. Further, the Receiver believes that most of the
CD sales purportedly attributable to Antiguans are related to STCL-administered
trusts that have non-Antiguans as beneficiaries.

 Most SIBL loan receivables, by dollar amount, are owed by U.S. citizens.

 Virtually all activity to invest proceeds from sale of CDs was directed from the
U.S. and involved institutions located in the United States and other countries
outside of Antigua.

 The assets of SIBL are located principally in jurisdictions other than Antigua, and
primarily in the United States, Canada, the United Kingdom, Switzerland,
Panama, Venezuela and Mexico.

 Most, if not all, of the funds received from the sale of SIBL CDs were transmitted
for deposit, not to Antigua, but to Canada and/or England and, from there,
primarily to accounts in the United States, England and Switzerland, where they
were disbursed among other Stanford entities worldwide, pursuant to the
directions of U.S. persons.

 Administrative and other support for the operations of SIBL was located in and
managed from the U.S.

In early March 2009, the Receiver suggested a meeting with the Antiguan receivers. A

meeting did occur on April 1, 2009. While the tone of the meeting was generally positive, no

concrete cooperation agreement resulted. Since the meeting, the Antiguan receivers have sought

and obtained, without prior notice to the Receiver, a registrar’s order in Montreal, Quebec

recognizing them as “foreign representatives” of SIBL and STCL within the meaning of

Canada’s insolvency laws. The Canadian proceedings are further discussed below. In addition,

the Antiguan FSRC moved forward with its application to place SIBL into liquidation and to


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have the Antiguan receivers appointed its liquidators, which application resulted in the

liquidation order discussed above.

On April 20, 2009, the Antiguan receivers-liquidators filed in this Court a petition for

recognition under Chapter 15 of the U.S. Bankruptcy Code with respect to SIBL, as well as a

motion in the present case seeking, in effect, a retroactive lifting of the injunction against the

filing of bankruptcy petitions contained in the Court’s Receivership Order. The objective of the

two motions appears to be to transfer control, away from this Court’s jurisdiction to the Antiguan

court system, of the winding up of SIBL and the distribution of its asset value to claimants. The

Receiver intends to oppose both filings and any impingement on this Court’s jurisdiction over

the totality of the Stanford group of companies. This Court was the first to place SIBL and the

other entities owned by Allen Stanford into receivership. Further, as described above, the

contacts between the Stanford entities and the U.S. are far more extensive than those between the

Stanford entities (including SIBL) and Antigua.

The Antiguan liquidators essentially request that the U.S. Court cede to the Antiguan

court system control over the marshalling, liquidation, claims adjudication and distribution

process. That, in the Receiver’s view, would be unwise and detrimental to claimants, as the

Antiguan court system lacks experience in the administration and winding up of a business of the

size and scope of the Stanford family of companies. Further, the Antiguan liquidators have

liquidation authority over only SIBL, which is just one of the more than 100 Stanford companies

involved in what was an integral – and allegedly fraudulent – operation.

In sum, the Receiver has found it necessary to oppose the Antiguan receivers in court in

multiple jurisdictions. The Receiver will continue, though, to look for opportunities in which


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cooperation with the Antiguan receivers is possible and reasonably likely to benefit the


The issues identified in Antigua have begun to emerge in proceedings and activities in

England. According to statements made by the Antiguan-appointed receivers, these issues also

may come into play in Panama, Israel and Switzerland.

Bank of Antigua

Bank of Antigua is a domestic bank of Antigua. Because it was owned by Allen Stanford

on February 16, 2009, when the U.S. Receivership Order was instituted, it was among the assets

of the Receivership Estate.

Subsequent to entry of the U.S. Receivership Order, there was a “run” on Bank of

Antigua by persons seeking to withdraw deposits. This resulted, on February 20, 2009, in the

Eastern Caribbean Central Bank (“ECCB”), the central banking authority for Antigua and seven

other Caribbean island nations, taking control of the Bank of Antigua.8 The Receiver is of the

view that property of the Bank of Antigua that existed on February 16, 2009, falls within the

scope of the U.S. Receivership Order and is therefore within the Receivership Estate. To avoid

confusion, however, the Receiver has been in contact with the ECCB concerning the amounts in

accounts of Bank of Antigua, and has agreed to release to Bank of Antigua the following:

 securities and funds sent to Bank of Antigua accounts after the ECCB intervention
with the Bank of Antigua;

 securities that were in Bank of Antigua accounts prior to the ECCB intervention,
but that are owned beneficially or of record by someone other than the Bank of
Antigua (or, if relevant, any other Stanford entity); and

 funds that were in accounts maintained in the name of the Bank of Antigua prior
to the ECCB intervention, but that are owned by a person other than the Bank of
Antigua (or, if relevant, any other Stanford entity).

8
The Receiver notes that the description of the ECCB set out above corrects an error in the description of the
ECCB contained in the Receiver’s filing with this Court dated March 2, 2009.


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Action by Antiguan Parliament Authorizing Expropriation of Real Estate

The Antiguan Parliament has authorized the expropriation by the Antiguan government

of most of the real estate owned by Stanford entities in Antigua. The expropriation has not yet

been finalized. If it is completed, the Receiver cannot predict what amount, if any, will be paid

in compensation as required by the Antiguan constitution.

The Receiver has also learned of a lawsuit pending in Antigua challenging the

constitutionality of the proposed government expropriation of real estate. The lawsuit was

purportedly filed by former employees of certain Stanford entities, on the purported authority of

a former director of SIBL. The Receiver is currently monitoring the lawsuit and assessing

appropriate actions with respect to both the suit and the threatened expropriation.

Canadian Matters

As indicated above, the Receiver recently learned that the Antiguan receivers had

obtained an ex parte registrar’s order in Montreal recognizing them as “foreign representatives”

of SIBL and STCL under Canada’s insolvency laws. The Antiguan Receivers did so without

notice to the Receiver and apparently without adequately disclosing to the Quebec registrar

(whose jurisdiction, absent consent of affected parties, extends only to uncontested matters) the

existence of the U.S. Receivership or the U.S. Receiver’s claim to SIBL and other Stanford

assets located in Canada. The Receiver also obtained information suggesting that, before

issuance of the ex parte recognition order, representatives of the Antiguan receivers entered

SIBL’s Montreal offices and purposely “wiped” SIBL’s servers there, after first imaging the

servers and sending the copy images to Antigua, and out of the jurisdiction of Canadian courts.

In response, the Receiver filed a motion in Montreal Superior Court requesting that:

 the previous recognition of the Antiguan receivers be revoked, and the Antiguan
Receivers be found not to be suitable persons to serve as receivers for SIBL under


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Canadian laws, as they did not meet the requirements to be receivers in that
country;

 the Receiver be recognized as the “foreign representative” for all Stanford
entities; and

 a Canadian receivership be instituted for assets located in Canada and that it be
made ancillary to the U.S. Receivership, with Ernst & Young appointed the
Canadian receiver and instructed to cooperate with the U.S. Receiver.

This motion was only recently filed and remains pending.

The Receiver had previously been in contact with Toronto Dominion Bank to assure that

funds it holds for SIBL, STCL and the Bank of Antigua are not transferred to unauthorized

persons.

In addition, on April 17, 2009, several Canadian CD investors filed two suits in Calgary,

Alberta – one against SIBL and other Stanford entities seeking actual and punitive damages and

another against Toronto Dominion Bank seeking, among other forms of relief, imposition of a

constructive trust on SIBL and other Stanford entity funds held by Toronto Dominion Bank. The

Receiver, with the help of Canadian counsel, is assessing how best to respond.

Latin America Matters

The Stanford companies include various and significant operations in Latin America,

including Colombia, Ecuador, Mexico, Panama, Peru and Venezuela. Stanford owned banks in

Panama and Venezuela, and banking and/or brokerage businesses in each of those other Latin

American countries. The Panama bank is now under the control of government regulators, with

whom the Receiver has agreed to work closely. The Panamanian regulators have currently

decided not to liquidate the business in its entirety, and the Receiver is taking steps to enhance

the possibilities for sale of the business units. The Venezuelan bank was also seized and put

under the control of Venezuelan interveners on February 18, 2009. The government-appointed

interveners in Venezuela have thus far refused to work jointly with the Receiver, and the


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Receiver has been told that his interests in the Venezuelan bank will be subordinated to any and

all claims by Venezuelan clients, employees, and the Venezuelan government.

The Receiver is investigating and preparing for sale of the local business units in

Columbia, Ecuador and Peru. At this time, the Colombian entity is essentially under the control

of the Antiguan receiver. Nonetheless, the Receiver is exploring all avenues for recovery related

to the Colombian assets. In Ecuador, the Receiver is investigating the possibilities of sale of the

unit. The Receiver is also working with the Peruvian regulators in order to permit the sale of the

Peruvian business assets.

The anticipated potential recovery from the sale of the above-mentioned Latin American

units is currently estimated to be in the range of $30 million. The various Stanford offices in

Mexico have been closed. Operations and customer accounts in Mexico have been handled in a

manner similar to the process used in the U.S.

The Receiver is reviewing information to determine whether proceeds from CD sales

exist in Latin America that may be recoverable by the Estate, and is taking steps to protect assets

in each Latin American location with attention to the unique scenarios posed by the government

regulators and representatives in each nation.

Assistance to and Communication with Governmental and Regulatory Agencies

The Receivership Order directed the Receiver to promptly provide the SEC and other

governmental agencies with all information and documentation they may seek in connection with

their regulatory or investigatory activities. The Receiver and his team have spent substantial

amounts of time on these activities. The principal such activities have been coordination with

the SEC, the FBI and the Department of Justice in identifying and gathering large amounts of

documents and information relevant to their ongoing investigations and responding to numerous

and extensive requests from the SEC, the FBI and the Department of Justice to analyze and


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provide information and documents. In addition, the Receiver and his team have responded to

numerous information requests and investigations by many other governmental or regulatory

agencies, in both the U.S. and other countries, and many of these matters are ongoing. As further

detailed below, these additional authorities in the U.S. have included at the federal level the

Department of Justice, the Internal Revenue Service, the Drug Enforcement Administration, the

Postal Inspector, the Department of Labor, the Financial Industry Regulatory Authority, the

Department of the Treasury and the Board of Governors of the Federal Reserve System. At the

state level, they have included at least 24 different state securities and banking regulators in at

least 19 states. As noted above, the Receiver has also dealt extensively with regulatory

authorities in foreign jurisdictions.

Asset Recovery

The balance sheets, in the aggregate, of the 62 Stanford companies for which balance

sheets were maintained listed total assets of approximately $10.6 billion as of December 31,

2008. Because of significant doubt about the accuracy of these balance sheets, the Receiver has

directed Ernst & Young to compile balance sheets as of the outset of the Receivership. This

work is ongoing, but the work to date suggests that the value of virtually all non-cash assets

listed on the December 31, 2008 Stanford balance sheets is substantially overstated.

There are three categories of value and potential value that could be used to satisfy claims

against the Estate:

Cash and Other AssetsThe first source is cash and other assets owned by the Estate and

identified to date, as follows:

 Approximately $66.5 million of cash on hand in the Estate’s bank account as of
April 22, 2009 (net of operating expenditures since February 17, 2009 of
approximately $15.8 million for expenses such as employee salaries and benefits,
utilities, insurance and expenses for office closures).


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 More than $300 million of cash held in non-U.S. bank accounts that are also
claimed by the Antiguan receivers.

 Cash in the range of $30 million that may be realized from sale or liquidation of
Stanford Latin American entities.

 Private equity investments; although the value (based on cost) of the private
equity investments shown on Stanford’s balance sheet at December 31, 2008 was
$652.5 million, the realizable value of the portfolio appears to be only a fraction
of that amount.

 Real estate, the value of which is uncertain; the book value, as noted above may
not be indicative of fair market value, and in addition much of the real estate is
mortgaged to secure debt.

 Aircraft estimated to be worth several million dollars (net of associated debt).

 Coin and bullion inventory, estimated to be worth several million dollars.

Claims Against Third PartiesThe Receiver recently filed claims against former Stanford

financial advisors seeking disgorgement of more than $40 million in compensation they received

related to the sale of SIBL CDs. The Receiver is considering filing other claims to recover

substantial amounts of cash, including claims to “claw back” proceeds received by a number of

customer account holders from redemption of SIBL CDs, or interest paid on SIBL CDs. If the

clawbacks were to extend back to monies received within a year prior to the commencement of

the Receivership, current estimates of amounts that could be sought would be in the range of

$300 million, or possibly more, but this analysis is ongoing and the estimate may change. If the

time period were longer than that, the amount would be larger.

Cash Unaccounted ForExtensive but still preliminary analysis of Stanford’s available

financial records indicates that a very substantial amount of cash received upon sale of SIBL

CDs over the last few years (assuming the accuracy of available financial records regarding the

amount of CDs sold and redeemed) cannot be accounted for by the amount of cash that the

records reflect was invested in other assets or spent on operations of the Stanford companies.


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Some of this cash may have been spent in ways that are not reflected in any of the available

financial records and/or that did not result in the acquisition of assets, such as cash that may have

been loaned to Allen Stanford or distributed to him as sole shareholder and then spent on

personal consumption by him. Some of this cash may have been transferred to Mr. Stanford and

then used by him to purchase personal assets or invested in personal bank accounts that are not

reflected in available financial records. This value may be recoverable once identified. This

preliminary analysis suggests that the aggregate amount of such unaccounted for cash may be in

the range of $1 billion. For that reason, the Receiver intends to continue searching for cash

accounts and assets under Mr. Stanford’s direct or indirect control.

Personal Investments of Allen Stanford and James Davis

The SEC has alleged that two of the principal perpetrators of fraudulent activities by the

Stanford companies were Allen Stanford and James Davis. Although neither of them has filed

with the Court the accounting of his own investment accounts and other assets that the Court

ordered them to provide and neither has been available to be interviewed by the Receiver, it does

not appear from available records of the Stanford companies that either of them invested his own

money in SIBL CDs or in Stanford customer accounts. The records of SIBL do not reflect any

ownership of CDs by Mr. Stanford or Mr. Davis, either at the time the Receivership commenced

or at any time during the period January 2003 to the present, the time period for which CD

ownership records are available. The records of Stanford Group Company and Stanford Capital

Management do not reflect any ownership of accounts at either such company by Mr. Stanford or

Mr. Davis, either currently or during the period September 2007 to the present, the time period

for which account ownership records for those companies are available. The available records of

Stanford Trust Company are limited to records regarding ownership when the Receivership


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commenced, and such records do not reflect any ownership of accounts by either Mr. Stanford or

Mr. Davis.

Claims

The Receiver has posted on the Receivership website a procedure that permits persons

who believe they have a claim against the Estate to file a notification of their claim, to provide

the Receiver a source of information about claims in addition to Stanford’s internal records. The

procedure asks claimants to indicate which of the following categories applies to their claim:

 Certificate of deposit claims.

 Secured creditor claims.

 Coin and bullion claims.

 Employee claims.

 Vendor claims.

 Landlord claims.

 Other claims.

This procedure is voluntary, not mandatory, for purposes of establishing a claim. To

identify claims, the Receiver is also reviewing the records of the Stanford companies. Using

data from all available sources, including both internal records and notifications of claims filed

by claimants, the Receiver will propose and file with the Court a list of proposed recognized

claims at a later stage of the case. This list will be subject to comment and objection by affected

parties.

Major Activities and Priorities for the Near Term

The Receiver anticipates that his major activities and priorities for the near term will

include the following:


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 Continuing to search for and secure cash for the Estate from a variety of potential
sources, and determining how CD funds were dispersed.

 Continuing to reduce costs of administering the Estate.

 Continued participation in litigation or appeals in Antigua, Canada and England to
the extent assets in those locations are subject to risk of loss to adverse claims.

 Securing and centralizing hard copy files, documents and electronic records.

 Developing and implementing plans to sell or monetize Estate assets, including
real estate, private equity investments and other assets.

 Recovering Receivership assets from foreign entities, including opposing
competing claims to those assets.

 Releasing additional frozen Stanford Group Company and Stanford Trust
Company customer accounts, where appropriate, through processes approved by
the Court.

 Analyzing and cataloging potential claims against the Estate, including by
collecting and processing claims through the Receiver’s online procedure.

 Developing and implementing plans to initiate litigation to recover value for the
Estate as appropriate.

 Responding to claims and litigation initiated by others.

 Assisting, reporting to and responding to governmental and regulatory agencies as
appropriate. including responses to:

o inquiries from the SEC, Department of Justice and FBI in connection with
their investigations;

o discovery requests from the IRS with respect to tax audits of Mr. Stanford;

o audits and criminal investigations by various divisions of the U.S.
Department of Labor regarding employee benefit plan issues and federal
wage and hour laws compliance; and

o an investigation by the State of Louisiana of Stanford Trust Company
operations.

 Communicating with this Court, customers, current and former employees,
claimants, other constituents of the Estate, and the public.

 Working with the Examiner appointed by this Court on April 20, 2009.


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 Working with receivers and other appointed officers in other jurisdictions.

 Closing operations of Stanford Group Company, Stanford Capital Management,
Stanford Trust Company, and Stanford Coins & Bullion.

 Developing protocols for review and release of customer accounts and assets in
entities in which that has not yet been done.

 Winding-down of Stanford employee benefit plans and arrangements.

In addition, it is likely that the Receiver and his team will be confronted with and have to

respond to emergencies and other matters that cannot be anticipated at this time.

Estate Resolution Process

The goal of the Receivership is to maximize recovery for the Estate and distributions to

defrauded investors and other claimants worldwide. As indicated above, the Receiver expects

that the total value that will ultimately be available for distribution will be far less that the total

amount of claims. Once the Receiver has identified, recovered and monetized the available

assets and identified the claims against those assets, he will develop and file with the Court a

plan for equitable distribution of value to claimants. This plan will be available for comment and

objection by affected parties at that time, pursuant to procedures to be approved by the Court.

After collection of comments and objections, the Court will be asked to issue a decision

regarding the plan, with such modifications, if any, as the Court deems appropriate after hearing

from affected parties. Upon approval of a plan, distributions will be made. Because of the

complexities of the case and the fact that asset recovery efforts are still in an early stage, the

Receiver cannot at this time estimate when he will be able to propose a plan.

Additional Information Regarding Activities and Accomplishments

The following sections contain additional information regarding the major actions taken

by the Receiver and his team to date to implement the Court’s orders and their accomplishments

to date.


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Locating, Securing and Monetizing Assets

Securing the Estate

The Receivership Order directed the Receiver to take control of the Receivership Estate;

to collect, marshal and take custody of the assets and records of the Estate; and to enter and

secure the premises of the Stanford companies. In addition, the TRO/Freeze Order imposed a

freeze on accounts held in the name, on behalf or for the benefit of Defendants at financial

institutions. To accomplish these directives, assure that the Freeze Order was implemented, and

preserve the assets and records of the Estate, the Receiver and his team:

 On February 17, took possession of major U.S. control locations in Houston,
Memphis and Tupelo, Mississippi, using multidisciplinary teams assembled by
the Receiver and with the assistance of SEC representatives and U.S. Marshals.

o These efforts included securing electronic and paper records, making
photographic or video documentation, changing locks and security codes
and posting security personnel as appropriate.

 Over the next several days, closed and ceased operations at 32 additional Stanford
offices in 29 U.S. cities, four offices in Mexico and one office in St. Croix (other
Latin America offices are under the control of government administrators in their
respective countries), pending decisions on whether to continue operations.

 Interviewed numerous key Stanford employees in the U.S., the US Virgin Islands
and Mexico in major operational departments.

o These interviews included employees in treasury, accounting, information
technology, human resources, risk management, real estate, building
operations, aviation, security, private equity investments, broker-dealer
operations, compliance, legal and Latin American operations.

o The interviews covered numerous topics to acquire information related to
existence of data systems, human resource involvement, location of assets,
establishment of timelines, collection of cash, identification of related
entities, and corporate structure.

 Served more than 120 affiliated entities and known control persons in the U.S.
and outside the U.S. with the TRO and the Order Appointing Receiver.

 Communicated with approximately 240 banks and bank branches in and outside
the U.S. holding Stanford cash and investments on deposit to advise them of the


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TRO/Freeze Order and the Order Appointing Receiver and to direct them to cease
electronic transfers.

 Ceased all other known transfers of assets out of the Estate while its holdings
were inventoried.

 Issued directions to cease sales of SIBL CDs and the Stanford Allocation Strategy
mutual fund wrap program.

 Directed that all activity in Stanford customer accounts cease, in order to preclude
potential theft and to permit time to analyze which accounts might be associated
with fraudulent products or activities.

 Coordinated with Pershing LLC and J.P. Morgan Clearing Corp. to accomplish
freeze of customer accounts pursuant to TRO/Freeze Order.

 Identified and gathered strategic electronic and paper files and had them shipped
to a central location.

 Imaged approximately 500 computer hard drives and other devices, collected
approximately 120 fileshares from multiple servers, locked down the email
system and reviewed and took possession of information from approximately 38
file servers from around the world – which resulted in the securing of more than
60 terabytes of information – to preserve information and to avoid potential data
alteration.

 Collected and secured Stanford electronic data systems to provide information for
138 operational and forensic accounting purposes. These systems include
accounting, human resource, and investment systems which are integral to
understanding the flow of funds and human resource issues and for identifying
assets held by the Stanford entities.

 Locked down documents, data and unsecured assets.

 Filed section 754 notices in 30 federal district courts in 16 States, the District of
Columbia, Puerto Rico, American Samoa and the Virgin Islands in order to gain
control of assets in these jurisdictions.

 Secured agreed stays of seven federal lawsuits filed after the Receivership was
instituted; in seven other federal and state cases, filed joint motions to stay that
are pending or otherwise achieved stays of the cases by agreement with plaintiffs’
counsel.

 Established Receivership oversight of numerous litigation matters pending at the
time of the Receivership. This effort involves monitoring and evaluation of
approximately 70 cases pending in the United States, the Caribbean, Latin
America and Europe.


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 Obtained dominion of many deposit accounts and securities accounts of the Estate
including, after extensive discussion and negotiation with certain custodians, both
U.S. and foreign.

 Secured a fleet of 6 aircraft and 2 marine vessels.

 Developed and implemented policies and protocols to deal with lending matters
and lenders.

 Conferred with government officials in Canada, Colombia, Ecuador, Guatemala,
Israel, Mexico, Panama, Peru and Venezuela.

 Collected and analyzed records to determine identity and status of entities subject
to the Order.

 Arranged physical security assistance in U.S. control centers and certain
international locations.

 Developed and implemented document management and control policies and
procedures.

Other Efforts to Recover Cash

The Receivership Order directed the Receiver to collect, marshal and take control of

assets of the Estate. Efforts by the Receiver and his team to recover cash for the benefit of the

Estate have included the following:

 Identifying accounting and financial information to secure and track cash, and
tracing of cash activities through a large number of banks and Stanford’s general
ledger system to determine the ultimate recipients of funds for possible retrieval
by the Estate.

 Identified all known Stanford accounts maintained at financial institutions,
including banks and investment houses (more than 300 accounts).

 Compiled a comprehensive listing of all available information regarding cash,
cash equivalents, marketable securities and private equity investments.

 Determined contact information including name, telephone number, email
address, etc., for each cash account for which assets were believed to be available
for potential recovery, and pursued all available contacts in efforts to recover
cash.


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 Analyzed clearing agreements with Pershing and JP Morgan, and negotiated
stipulation with Pershing to release from its custody $10 million of proprietary
funds belonging to Stanford.

 Negotiated with an investment fund and obtained approximately $10.5 million in
cash related to investments held in the name of a Stanford entity.

 Negotiated with a brokerage firm and obtained an agreement to release
approximately $5.6 million in cash that had been held in the name of Stanford
entities; filed a motion with the Court seeking to obtain an additional $500,000.

 Negotiated with a bank and obtained the return of approximately $17 million in
cash held in the name of Stanford entities.

 Negotiated with escrow agent for pending private equity transaction and obtained
the return of $9.7 million in cash to the Estate.

 Negotiated with a hedge fund to obtain $4 million on an early redemption of an
interest in the fund, without payment of early redemption fee.

 Negotiated with a bank and obtained the return of approximately $1.3 million in
cash collateral related to letters of credit.

 Requested that elected officials and campaign committees to whom Defendants
and their political action committees had made political contributions return those
amounts to the Estate for the benefit of claimants against the Estate; to date, 15
elected officials have returned a total of $72,300 to the Estate and an additional 5
have advised the Estate that they intend to return a total of $16,300.

 Requested law firms that had received legal retainers to return those monies to the
Estate.

 Analyzed broker/financial advisor compensation information for purposes of
recovering for the Estate compensation paid to advisors for sale of fraudulent
CDs.

 Performing extensive funds tracing through available bank account records and
entities, including reviews of significant wire transfers and other disbursements.

 Performing extensive but not complete funds tracing of disbursements through the
companies’ general ledger system to identify the ultimate third-party recipients of
disbursements from the company.

 Conducting review of the companies’ financial records pertaining to certain pre-
paid asset accounts to identify possible sources of asset recoveries.


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 Performed relevant investigative due diligence checks on entities and individuals
identified, as needed, and determined and documented existing relationships with
Allen Stanford, Stanford entities and/or other Stanford employees.

 Aggregated names of current and former employees most likely to provide
relevant information in regards to other assets/accounts and conducted selected
interviews.

 Contacted all foreign locations and inquired as to the existence of all assets that
may be available for potential recovery.

 Performed extensive “hard copy” document reviews for documents obtained in
control centers in Houston, Tupelo and Memphis to identify other possible
accounts containing cash and/or investments that could be recovered for the
Estate.

 Conducted targeted e-mail searches for selected custodians to identify other
possible accounts containing cash and/or investments that could be recovered for
the Estate.

 Conducted other efforts to recover cash and other assets that are listed in other
sections below, including those relating to real estate, private equity and aircraft.

Corporate Structure Analysis

In order to properly identify and categorize assets and claims, the Receiver needs to

identify all Stanford entities and accurately understand the ownership relationships among them.

Upon taking control, the Receiver found numerous inconsistent organizational charts and plans

for internal restructuring. To compile accurate information, the Receiver and his team have

worked to:

 Develop master lists of Stanford entities (this ongoing work has resulted in the
identification of approximately 140 potential Stanford entities so far; that number
does not include more than 100 other potential Stanford entities the names of
which are referenced in various documents as having a Stanford relationship but
as to which the Receiver’s team has not yet found appropriate ownership records
and/or other corporate or financial records).

 Develop an understanding of a complex and often confusing corporate structure
and the business operations of these companies.

 Develop detail regarding parent/subsidiary and other relationships among entities.


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Preparation of Financial Statements

In order to marshal, value and ultimately monetize the assets of the Estate and to

determine the claims against the Estate, the Receiver needs to have reliable financial statements

and data. The Receiver engaged Ernst & Young to summarize combined financial statements,

working with best available Stanford Group data. Much of the necessary data has resided

outside the U.S., presenting logistical challenges in locating it. Ernst & Young has:

 Worked to summarize a combined balance sheet, as of February 19, 2009 and as
of December 31, 2008, for all identified Stanford controlled entities located
throughout the world.

 Gathered supporting documentation to assist with summarizing a combined
balance sheet, as of February 19, 2009.

 Worked to identify available assets for all entities controlled by the Estate along
with associated liabilities.

 Reviewed company books and records, collected and analyzed electronic and
paper-based evidence and engaged in numerous interviews with Stanford
personnel to assemble information.

 Generated lists of assets by category (such as private equity investments, real
estate, financial assets and coin and bullion inventory) under the control of the
Estate, as well as associated liabilities, so that the Receiver can properly preserve
or dispose of the assets and deal with the liabilities, as appropriate.

Real Estate

With a view to maximizing the value of the Estate, the Receiver and his team have taken

the following actions regarding real estate:

 Developed comprehensive listings of 54 owned properties and 58 leased
properties in 17 U.S. states, Canada, St. Croix, St. Kitts and Europe, with
information regarding ownership, encumbrances and value, as well as 49 owned
properties in Antigua.

 Worked to collect information and determine rights with respect to owned and
leased real property in the Estate by reviewing leases, deeds, mortgages, insurance
schedules, financial information and other relevant documentation.


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 Began efforts and engaged brokers to assess values and markets in an attempt to
monetize real estate assets.

 Assessed threats and risks of expropriation of Antiguan lands and related
procedures, determinations and requirements.

 Developed an overall strategy and plan regarding rejection of leased properties, in
order to save costs, and prepared and filed motion with the Court regarding
procedures for rejection of leases and sale of furniture and equipment in leased
space.

 Facilitated the lease rejection process, including removal of files and personal
property, sale of furniture, rejection of leases (subject to execution of termination
agreements with landlords whereby the Receiver agreed to quitclaim the personal
property in exchange for landlord’s full waiver and release of claims) and
negotiations with landlords regarding the amount to be paid as administrative
costs for the period of time of the Receiver’s occupancy of the space, credits for
furniture and limits on unsecured damage claims.

 Researched landlord’s lien law in several jurisdictions as it relates to the
Receiver’s ability to sell the personal property free and clear of liens.

 Worked to determine rights with respect to security deposits and letters of credit
in the Receivership in an attempt to free up cash that is tied up as collateral.

 Worked to implement the relocation of the Receiver’s team, including retained
Stanford Houston employees, from rented to owned space so that the lease on the
larger leased space can be rejected, in order to save costs; negotiated with the
landlord of the Houston headquarters to obtain its cooperation with the relocation
process so as to maintain the Receiver’s operations with minimal disruption.

 Collected and responded to multiple default notices and lien notices from
landlords and contractors.

 Prepared letters to landlords regarding the effects of the receivership on their
ability to exercise remedies.

 Prepared letters to tenants regarding payment of rent.

 Coordinated property tax appraisals, insurance, maintenance and other activities
necessary to preserve value of owned properties.

 Coordinated management and leasing activities of Stanford in its capacity as
landlord of the St. Croix properties related to the continuing occupancy by
building tenants.


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 Implemented required procedures to collect back rent from the General Services
Administration for office space in St. Croix.

 Developed procedures for sale of real property that is owned by the Estate and
prepared and filed motion with the Court for approval of these procedures.

 Established brokerage arrangements with CB Richard Ellis to market and sell
owned properties in a reasonably expeditious manner while attempting to
maximize value.

Private Equity

With a view to maximizing the value of the Estate as directed by the Receivership Order,

the Receiver and his team have taken the following actions regarding the numerous private

equity investments held by the Estate:

 Developed comprehensive listings of private equity holdings, with information
regarding ownership, potential current value and loans outstanding.

 Reviewed information and contracts related to private equity investments and
evaluated rights and responsibilities with respect thereto.

 Communications with portfolio companies and counsel regarding status of
investments and rights to immediate cash withdrawals where available.

 Evaluated various investment holdings for potential sale to third parties; these
efforts have included, with respect to several investments, negotiations with
potential interested purchasers.

 Interviewed potential advisors regarding possible engagement to market
Stanford’s private equity holdings.

Aircraft

With a view to maximizing the value of the Estate as directed by the Receivership Order,

the Receiver and his team took the following actions regarding the six aircraft held by the Estate:

 Supervised security and developed protocol for dealing with aircraft and aircraft
facilities, including maintenance and insurance issues.

 Reviewed information and contracts related to aircraft title and liens.

 Communicated extensively with the lender that holds liens on five of the six
Stanford aircraft to obtain two independent fair market value appraisals of the five


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aircraft, in connection with negotiations concerning orderly sale and/or return of
the aircraft to the lender and release of a portion of the substantial cash collateral
held by the lender to the Receiver.

 Began making arrangements, including retaining aircraft broker, to assist in the
sale of the Stanford aircraft.

Litigation and Interaction with Governmental and Regulatory Agencies

Litigation and Other Disputed Matters Commenced at or after Appointment

The Receiver’s tasks included responding to the proceedings in or related to this case. In

particular, the Receiver or his counsel:

 Appeared and filed papers at two preliminary injunction hearings in this Court,
and prepared for potential Receiver testimony at those hearings.

 Appeared at two TRO hearings in the Southern District of Texas at the request of
the Judge in that Court.

 Briefed and defeated a petition for mandamus to the Fifth Circuit related to this
Court’s jurisdiction to appoint the Receiver.

 Initiated litigation against financial advisors who sold fraudulent CDs, to seek
return of more than $40 million in commissions and other tainted compensation.

 Responded with two consolidated briefs to more than 40 motions by account
holders and brokers seeking intervention or similar relief.

 Considered scores of communications and demands by putative intervenors and
their counsel.

 Litigated matters related to coin and bullion disputes.

 Analyzed and responded to motion to appoint an examiner.

 Analyzed and filed responses to motions to permit filing of litigation in other
forums.

 Filed show cause motion to force the return of $3 million to the Receiver.

 Filed show cause motion to stop litigation against the Receiver in the Southern
District of Texas.

 Communicated with counsel and other courts to obtain abatements in light of this
Court’s stay of litigation against the estate.


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 Addressed issues raised by the individual Defendants regarding Receivership
actions.

 Served subpoenas on several third parties who are in possession of Stanford
records or assets that must be turned over to the Receiver.

 Prepared and filed appropriate papers regarding account release procedures and
approvals.

 Prepared and filed appropriate papers regarding Receiver’s procedures for
rejection of leases.

 Responded to inquiries from numerous claimants regarding the injunction against
proceedings outside the Northern District of Texas.

Assistance to and Communication with Governmental and Regulatory Agencies

The Receivership Order directed the Receiver to promptly provide the SEC and other

governmental agencies with all information and documentation they may seek in connection with

their regulatory or investigatory activities. To accomplish this direction, the Receiver and his

team:

 Conducted numerous telephone conferences and meetings with governmental and
regulatory agency representatives, including meetings with SEC representatives to
advise them of the Receiver’s work plans and progress to date, and to coordinate
regarding numerous issues related to administration of the Receivership.

 Coordinated with the SEC, the FBI, the U.S. Postal Inspector and the U.S.
Department of Labor in identifying and gathering documents and information
relevant to their ongoing investigations and responded to numerous requests from
these authorities to analyze and provide information and documents.

 Presented the results of preliminary investigative work to representatives of the
Department of Justice, FBI, IRS, and U.S. Postal Services, including collection
and provision of supporting corporate documentation.

 Communicated with FINRA regarding broker dealer activities, regulatory
reporting and compliance issues.

 Working with employees in Stanford Capital Management's compliance
department, considered compliance issues related to termination of personnel as
well as updating filings related to the Investment Advisors Act of 1940, the
broker-dealer regulations under the Securities Exchange Act of 1934 and
applicable FINRA regulation.


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 Communicated with the Board of Governors of the Federal Reserve System on
banking and trust matters.

 Established, with the assistance of the SEC and Texas State Securities Board, a
weekly call with various state securities regulatory authorities to respond to their
information requests and to provide such regulators with status reports.

 Communicated with state banking agencies in Texas, Louisiana, North Carolina
and Florida regarding Stanford branches and other offices.

 Communicated with foreign bank and securities regulators, particularly Mexico,
Panama and Canada regarding wind-down of operations, liquidations, investor
questions and arrangements for claims processes.

 Communicated with the Secretary of State and staff of various states to discuss
issues regarding broker dealer activities and Stanford Trust Company.

 Responded to, and gathered documentation for production relating to, subpoenas
and other formal document requests made by various state regulatory agencies.

 Conferred and coordinated with officials in Canada, Colombia, the Eastern
Caribbean, Ecuador, Guatemala, Israel, Mexico, Panama, Peru, and Venezuela
regarding Estate issues in those jurisdictions.

International Matters

For a discussion of matters related to Antigua and Canada, see “Issues Related to

Antigua” in this Report above.

Latin American Matters

The Estate includes several Latin American subsidiaries with numerous offices and assets

located in several countries. In this connection, the Receiver and his team have:

 Coordinated resources and researched locations of Stanford offices and
receivership assets and records in Colombia, Ecuador, Mexico, Panama, Peru and
Venezuela.

 Conferred and coordinated with SEC and Latin American securities and bank
regulators regarding office closures and asset recovery in Latin America.

 Conferred, coordinated and attended numerous meetings with officers of
Comision Nacional Bancaria Y De Valores (CNBV) and Mexican government
officials regarding access to and securing of receivership assets in Mexico and
regarding funds revocation and liquidation process under Mexican law.


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 Prepared authorization letters and necessary powers of attorney, reviewed public
deeds, obtained access to and closed and secured Stanford offices in Mexico City,
Monterrey, and Puebla, Mexico.

 Conferred with Peruvian Embassy representatives regarding concerns of Peruvian
investors and regarding asset recovery efforts.

 Conferred with Panamanian regulators regarding access to Stanford assets in
Panama and extensively coordinated with those regulators regarding Stanford
Bank (Panama).

 Reviewed and analyzed communications regarding leads for disposition and
recovery of assets in office in Ecuador.

 Communicated with regulatory officials in Colombia regarding access to and
securing of Stanford office for the Receiver; prepared Colombian proxies and
prepared for shareholders meeting.

 Investigated, researched and advised Receiver regarding situation of Stanford
Venezuelan bank and assets.

 Researched and began preparation of appropriate corporate resolutions and
documentation to allow the recovery of Receivership assets from the various
foreign entities.

 Worked to assist sales processes for Stanford bank and brokerage accounts in
Panama and brokerage accounts in Columbia, Ecuador and Peru.

 Analyzed specific information regarding Latin American cash and investment
accounts, as well as investments noted in over ten Latin American entities for
asset identification.

See also the discussion under “Latin American Matters” in this Report above.

Switzerland Matters

The Estate includes a Swiss entity, Stanford Group (Suisse) AG, that owns substantial

assets, including cash on deposit and an office building. In this connection, the Receiver and his

team have:

 Placed various Swiss banks holding Stanford accounts of the Swiss entity and
other Stanford entities on notice of the Receivership.

 Participated in efforts with Swiss directors of the Swiss entity regarding orderly
wind-down of that entity to preserve and monetize assets; these efforts include


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wind-down of business activities, managing employee reductions, marketing and
sale of Zurich office tower currently owned by the entity, handling existing
liabilities, addressing leased properties, resolving liquidity issues, and
appointment of liquidator.

 Examined issues of Swiss procedural expectations and venues as related to liquid
assets in Switzerland.

 Evaluated issues raised by Swiss federal prosecutor's investigation into Stanford
activities in Switzerland.

 Retained Swiss counsel to assist in the above efforts.

Customer Related Matters

Releases of Stanford Group Company Customer Accounts from Freeze and Related
Broker Matters

The accounts at financial institutions that were frozen by the TRO/Freeze Order included

Stanford customer accounts. Following efforts to confirm that the freeze had been implemented

as directed by the TRO/Freeze Order, the Receiver collected data to analyze the accounts and the

potential that the accounts or their owners were associated with fraudulent products or activities.

The Receiver engaged in a balancing of the hardship the freeze was causing to owners of the

accounts compared to the benefits of the freeze to the Estate, considering both the likelihood that

the accounts are associated with fraudulent products or activities and the amount potentially

recoverable by the Estate from those accounts if they are tainted. These activities led to the

filing of motions with the Court requesting permission to release certain accounts, in stages, and

the release of those accounts upon Court approval. In addressing these issues, the Receiver,

assisted by a multi-disciplinary team of lawyers, forensic accountants, broker dealer experts and

information technology experts:

 Established protocols to allow liquidating orders and other interim measures to
provide customers flexibility to reduce market exposure.


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 Analyzed certain mutual fund assets of Stanford clients held outside of Stanford’s
custodial arrangements and determined that they should be released from the
freeze.

 Developed criteria by which Stanford Group Company customer brokerage
accounts could be evaluated and released:

o Approximately 50,000 accounts at Pershing and JP Morgan were initially
identified.

o The number was reduced to approximately 32,000 accounts after
identifying and eliminating dormant accounts.

 Identified, gathered, analyzed and applied information for purposes of potential
release of accounts, including available databases regarding potential for accounts
having a probability of being associated with fraudulent products or activities, as
well as lists of directors, senior management and employees.

 Coordinated with Pershing to develop procedures for transferring eligible account
assets using ACATS process.

 Prepared motions and orders for release of two rounds of customer accounts
totaling 28,452 accounts; as of April 22, 2009, transfers of 20,840 accounts had
been completed.

 Developed an account review process to enable owners of the remaining
approximately 4,000 Stanford Group Company accounts to provide information to
the Receiver that may be relevant to whether their accounts should be released;
filed motion with the Court seeking approval of the process; and upon receiving
such court approval, implemented the process with both online and mail-in
versions and began processing applications; as of April 22, 2009, this process had
been initiated by holders of 1,521 accounts.

 Filed motions to approve compromises concerning releases of certain frozen
accounts in which the Receiver will retain certain funds in the accounts pending
final adjudication of Receiver’s claims.

 Reviewed Stanford Group Company's form client agreements, analyzed the legal
requirements and obligations of the parties and developed a strategy to unwind
such relationships.

 Reviewed and analyzed Clearing Agreement between Stanford Group Company
and Pershing LLC and other relevant documentation regarding rights and
obligations of Pershing LLC and Stanford and applicable expense and fee
arrangements.


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Stanford Trust Company Matters

 Communicated and met with the Commissioner and staff of the Louisiana Office
of Financial Institutions to discuss regulatory matters related to Stanford Trust
Company.

 Conducted the same analysis of Stanford Trust Company accounts that was
performed for Stanford Group Company accounts, including gathering and
reviewing similar types of information, in order to make the same type of
decisions, with respect to the approximately 1,480 accounts at Stanford Trust
Company.

 Prepared and filed a motion with the Court seeking approval of a process to
release Stanford Trust Company accounts in certain categories; this motion is
pending.

 Gathered trust documents from Stanford Trust Company locations and began to
review those documents to determine the legal requirements applicable to having
a successor trustee appointed under each trust instrument.

Stanford Private Label Funds

During Stanford's operations, it had, to varying degrees, formed, promoted and managed

several private-label investment funds, including SCM Alternative Income I, L.P. and SCM Beta

Partnership I, L.P. Stanford also promoted and sometimes invested in other investment funds.

The establishment of the Receivership and implementation of the TRO/Freeze Order affected the

day-to-day operations of some of these funds and the oversight and information reporting

functions of some others. In addition, the existence of the Receivership has created concerns of

various customers, vendors and other contractual counter-parties related to the continued

viability of these funds as well as the effect of the TRO/Freeze Order on them. To provide

information to these persons and to begin to resolve the issues related to these funds, the

Receiver and his team:

 Reviewed and analyzed the agreements and private placement memorandums
related to these funds regarding the legal rights and obligations of investors,
Stanford and third-parties.


Filed 04/23/2009 Page 47 ofof 444
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 Began developing strategies to facilitate the appointment of a successor general
partner for the fund, terminate Stanford’s involvement in the fund and/or recover
funds for Stanford’s investments in the fund to the extent possible.

 In some cases, began a dialogue with some of the largest investors in the fund
regarding resolution of these issues.

 Responded to numerous requests for information from investors related to
Stanford's private-label investment funds.

 Analyzed various issues under partnership agreements and applicable law related
to investors’ rights for information regarding the private-label investment funds.

 Reviewed and analyzed Financial Services Agreement by and between
MadisonGrey Fund Services, LLC and Stanford and other supporting
documentation regarding administrative services provided to the private-label
investments funds regarding relative rights and obligations of MadisonGrey and
Stanford.

 Interfaced with MadisonGrey, the administrator of the Stanford private-label
funds to attempt to maintain the level of administrative services being provided to
investors as well as respond to investors' information requests.

Coins and Bullion

One of the Stanford entities is Stanford Coins and Bullion, which engages in trading and

customer investments in coins and gold bullion. In connection with this operation, the Receiver

and his team have:

 Analyzed coin and bullion company operations.

 Moved coin and bullion inventory from Stanford facilities to large commercial
bank safety deposit boxes to assure safety.

 Conducted physical inventory of coin and bullion inventory.

 Retained a numismatic consultant to assist in valuation and wind down of coin
and bullion operations.

 Begun an analysis of customer claims to coins and bullion held by Stanford Coins
and Bullion.

 Begun a review process to enable customers, vendors and other persons to
provide information to the Receiver that may be relevant to determine the status
of their claims.


Filed 02/09/2010 Page 48 ofof 444
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 Reached agreements with two coin and bullion companies involving settling of
disputed accounts between Stanford Coins and Bullion and these companies.

Operational and Administrative

Operations

The Order directed the Receiver to conserve, hold, manage and preserve the value of the

Estate. The Receiver and his team:

 Analyzed available financial and other information to determine whether the
Stanford companies included businesses that could continue as viable businesses.

 Soon after taking control, upon concluding that most of the businesses of the
Stanford companies were not financially viable, issued directions and began
implementing plans to cease those business activities.

 Developed and implemented protocol, consistent with regulatory and other
requirements, for the receipt and delivery of mail at Stanford’s headquarters in
Houston, as well as implemented plan to coordinate the collection of mail at all
domestic and St. Croix offices for forwarding to a central location.

 Reviewed existing operational roles and identified critical personnel to retain for
continued administration of corporate functions.

 Developed and implemented procedures for payment of payroll, including the
administration and resolution of pre-receivership payroll obligations.

 Coordinated with company personnel to ascertain ongoing operational obligations
of the Stanford entities.

 Developed and implemented protocol for the identification and payment of other
expenses and obligations of the Estate, as well as pre-receivership obligations of
Stanford to certain critical vendors necessary to ensure ongoing operations and
liquidation of the Estate.

 Developed and implemented treasury functions, including the establishment of
new and secure bank accounts.

 Developed operational protocols for obtaining and moving cash to the new bank
accounts.

 Developed operational protocols for the creation, approval and submission of wire
transfer and other payment types for the payment of vendors.


Filed 04/23/2009 Page 49 ofof 444
Page 435 58

 Completed permanent physical closure of 24 U.S. branch offices of Stanford
entities through April 20, 2009 so that applicable office leases can be rejected in
order to reduce ongoing expenses of the Estate; closure of an additional 12 U.S.
offices is scheduled; each such shutdown required sending personnel to the
branch office to oversee the closing process, including removal and safeguarding
of records and documents.

Employee Matters

At the outset of the Receivership, the Stanford Companies had more than 3,000

employees, of whom approximately 1,200 were in the U.S. and the balance in numerous other

countries. The Receivership Order directed the Receiver to take control of and preserve the

assets of the Estate, necessitating management of the business. The Order also directed the

Receiver to minimize expenses in furtherance of maximum and timely disbursement thereof to

claimants. To accomplish these directives, and to do so consistently with the Receiver’s

determination (see above) that most of the businesses of the Stanford companies were not

financially viable, the Receiver and his team:

 Assessed workforce in U.S. and Latin America and determined which employees
should be retained to assist in managing and liquidating the Estate.

 After careful review and with a view to reducing costs to the Estate, issued
notices of termination of employment to more than 1,000 U.S. employees, which
necessitated, among other things:

o Assessing and complying with federal and numerous state notification
requirements and pay/payroll requirements.

o Communicating with affected employees.

o Responding to state and local governmental inquiries regarding layoffs.

 Responded to three separate inquiries/investigations from the U.S. Department of
Labor (“DOL”) from three separate groups within the DOL with respect to:

o An audit of the Stanford employee benefit plans subject to the Employee
Retirement Income Security Act (“ERISA”).

o An investigation of potential violations of federal wage and hour laws in
connection with Stanford payroll issues.


Filed 02/09/2010 Page 50 ofof 444
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o A criminal investigation with respect to non-Stanford ERISA plans that
may have invested in certificates of deposit issued by Stanford
International Bank Ltd.

 The DOL audit and investigatory activities have required numerous on-site
meetings with the various DOL agents; due diligence review of documents and
other information requested by the DOL agents and analysis of the legal
authorities, obligations and constraints on the Receiver with respect to the audit
and investigatory actions and disclosure of documents and information requests
by the various DOL agents.

 Reviewed numerous employee benefit plans, programs and arrangements and
practices (both in the U.S. and outside the U.S.) and individual employment-
related agreements established and/or entered into by the various Stanford
companies.

 Analyzed Estate’s obligations to employees, employee benefit plans and
government agencies under Stanford employee benefit plans, programs and
practices, including those identified below, and determined to cease some plans,
where appropriate.

 Took action, via resolutions and amendments, as appropriate, to reconstitute the
administrative committees of the Stanford ERISA and non-qualified U.S.
employee benefit plans, programs and arrangements.

 Modified and/or discontinued operations of benefit plans in light of the reduced
employee population and in order to preserve assets and reduce expenses of the
Estate, which included:

o Addressing the mandatory matching contributions and partial termination
issues of the Stanford 401(k) plan.

o Securing welfare benefit plan benefits, including employee medical
coverage, until April 30, 2009 and terminating thereafter.

o Securing administration of these benefits through April 30, 2009 and the
defined “run-out” period thereafter.

o Preparing and distributing to plan participants ERISA-required summaries
of material modifications as required for such changes.

 Prepared and updated website and other communications to address changes to
employee benefits coverages for former employees and retained employees.

 Reviewed benefit plan compliance with applicable law and initiated corrective
action, where appropriate, including analyzing impact of recent federal legislation


Filed 02/09/2010 Page 51 ofof 444
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enacted by Congress regarding continuing health coverage under group health
plans and the required notice requirements related to the same.

 Reviewed and assessed employee obligations to Estate under a broker loan
program pursuant to numerous loan agreements with varying terms.

 Handled regulatory filings necessitated by termination of employment of
registered representatives and financial advisors.

 Developed and administered protocol for controlled access and removal by
employees of personal items from various office locations.

 Prepared and updated a statement regarding employee benefits that addressed
health care, COBRA, flexible spending accounts, disability insurance, AD&D
insurance, 401(k) plans, personal belongings and severance or bonus contracts.

Insurance Matters

The Receiver and his team have taken the following actions relating to insurance matters

affecting the Estate and its assets:

 Performed a comprehensive review of the insurance program that was maintained
by the Stanford entities before the receivership, and communicated with brokers
and other parties to cancel coverage that is no longer needed in view of the
Receiver’s appointment.

 Provided initial and supplemental notices of claims to insurance carriers under
policies providing primary and excess directors and officers liability coverage,
excess Securities Investor Protection Corporation coverage, Financial Institutions
Crime and Professional Indemnity coverage, and Foreign Political Risk coverage.

 Evaluated numerous claims and demands made by various parties relating to the
Estate’s insurance policies.

 Taken steps to recover letters of credit that were posted before the Receiver’s
appointment to secure customs bonds that are no longer necessary.

 Taken steps to obtain replacement insurance coverage for domestic and
international Estate assets where coverage has expired by its terms or the Receiver
has been informed by the carrier of policy cancellation.

 Discussed ongoing litigation matters and insurance matters with in-house counsel
and employees.


Filed 02/09/2010 Page 52 ofof 444
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Tax Matters -- Allen Stanford Personal Returns

The IRS has advised the Receiver that it has proposed or asserted against Allen Stanford

a total of approximately $226.6 million in federal taxes (including interest and penalties) for tax

years 1999-2003. Because Mr. Stanford personally is a named party to the Receivership and was

the owner of the assets of the Estate, the Receiver must become familiar with potential tax

liability of Mr. Stanford which could lead to possible tax claims being filed by the IRS in the

Receivership. To that end, the Receiver has collected and is analyzing available files and records

pertaining to these proposed and assessed tax liabilities. The Receiver has also been negotiating

with the Department of Justice Tax Division (“DOJ Tax”) with respect to the pending IRS

motion to intervene in this receivership. A description follows of each of Mr. Stanford’s tax

years for which the IRS has proposed or asserted possible tax liability and of the IRS motion to

intervene in the proceeding before this Court.

 1999 Tax Litigation. The IRS has advised the Receiver that it has proposed a
deficiency of approximately $7.2 million (inclusive of interest and penalties) with
respect to Mr. Stanford’s 1999 joint tax return.

deficiency of approximately $30 million (inclusive of interest and penalties) with
respect to Mr. Stanford’s 2000 joint tax return.

deficiency of approximately $72.8 million (inclusive of interest and penalties)
with respect to Mr. Stanford’s 2001 joint tax return.

 2002 Tax Litigation. The IRS has advised the Receiver that it assessed tax of
approximately $32.1 million (inclusive of interest and penalties) against Mr.
Stanford with respect to his 2002 tax year, and that Mr. Stanford initiated a
Collection Due Process or Equivalent Hearing before the IRS Office of Appeals.

 2003 Tax Litigation. The IRS has advised the Receiver that it assessed tax of
approximately $84.5 million (inclusive of interest and penalties) against Mr.
Stanford with respect to his 2003 tax year, and that Mr. Stanford initiated a
Collection Due Process or Equivalent Hearing before the IRS Office of Appeals.


Filed 02/09/2010 Page 53 ofof 444
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 IRS Motion for Intervention. On March 13, 2009, DOJ Tax, on behalf of the IRS,
filed a motion asking this Court to permit the IRS to be an intervening party and
to lift its injunction to (i) allow the IRS to proceed with the pending Tax Court
case for Mr. Stanford related to his 1999, 2000, and 2001 tax years; (ii) allow the
IRS to proceed with the pending IRS Office of Appeals matter related to Mr.
Stanford’s 2002-03 tax years, (iii) recognize that the IRS may issue additional
assessments against Mr. Stanford at any time because of the receivership, and (iv)
compel Mr. Stanford to file his personal income tax return for 2007. On April 16,
2009, DOJ Tax, the SEC and the Receiver agreed to the terms of a proposed order
in response to the IRS Motion and on April 17, 2009, this Court granted such
order. Under the terms of the proposed order:

o The IRS is allowed to intervene in this case before this Court.

o The pending Tax Court cases involving Mr. Stanford’s 1999, 2000, and
2001 tax years is transferred to this Court, and this Court will adjudicate
the merits of the proposed tax deficiencies, including an adjudication of
the underlying merits and amounts of the proposed tax deficiency.

o It is recognized that the IRS has the right to issue an assessment against
Mr. Stanford for his tax years 1999-2008 and to conduct audits and issue
notices of deficiencies with respect to Mr. Stanford’s tax liability.

o The pending IRS Office of Appeals Collection Due Process or Equivalent
Hearing involving Mr. Stanford may be resumed, but the IRS Office of
Appeals retains the discretion as to when to issue its notice of
determination with respect to such hearing. Mr. Stanford retains his right
to appeal any such determination to the U.S. Tax Court. Any such appeal
would be immediately stayed until this Court takes further action.

o Any IRS claim made before this Court will be adjudicated by this Court,
including an adjudication of the underlying merits and amount of any
proposed, determined or assessed tax liability and assets available to
satisfy any proposed, determined or assessed tax liability.

o Mr. Stanford is directed to file his 2007 tax return on or before May 15,
2009.

Tax Matters -- Stanford Entities

Similarly, the IRS or other taxing authorities may assert tax claims against the Stanford

entities. In assessing these issues, the Receiver and his team have:

 Determined that there is in excess of 250 jurisdictions (Federal, State, Local and
Foreign) requiring tax support for the Estate.


Filed 04/23/2009 Page 54 ofof 444
Page 440 58

 Identified approximately 100 returns currently required or in arrears and prepared
extensions.

 Initiated a review of all foreign tax filings.

Claims Identification

The Receivership Order requires the Receiver to identify claims against the Estate. To

begin this work, the Receiver and his team have:

 Begun compiling and categorizing known claims based on Stanford’s internal
records.

 Established a formal claims filing process, which is posted on the Receivership’s
website.

 Claim categories include certificate of deposit claims, vendor claims, secured
creditor claims, coin and bullion claims, employee claims, landlord claims and
other claims.

Communications with Customers, Employees and the Public

The establishment of the Receivership and implementation of the TRO/Freeze Order

significantly affected the lives and financial affairs of many people and businesses, including

customers, employees, vendors, creditors, landlords and others. To provide information to these

persons, the Receiver and his team:

 Established a website for the Receivership,
www.stanfordfinancialreceivership.com, that was available on the day the
Receivership was announced.

 Used the website to provide regular updates with time sensitive information for
investors, employees, media, other interested parties and the public.

 Provided an email address for persons to contact the Receiver, monitored and
sorted into categories the more than 11,000 emails that have been received, and
directed certain emails to team members for individual response if appropriate.

 Issued numerous public statements that were posted on the website and sent to
media.

 Posted and updated numerous sets of Frequently Asked Questions (“FAQs”)
regarding a variety of subjects.


Filed 04/23/2009 Page 55 ofof 444
Page 441 58

o Subjects include account status, account transfer procedures for unfrozen
accounts, account review procedures to seek release of frozen accounts,
employee issues, coin and bullion issues, CD issues, brokerage account
issues in non-U.S. entities, political contributions, mutual funds, and
general receivership information.

o FAQs are detailed and written in plain English.

 Posted Court orders and filings of greatest likely interest to users of the website,
in addition to other material information.

 Translated major website materials into Spanish.

 Established a media alert system with major national and Houston media to
facilitate the flow of information to investors and consumers.

 Established an email outbox to be used for replying to investors with questions on
the account review process and claim notification process; began corresponding
with investors where appropriate.

 Held an interview with the Houston Chronicle, which subsequently ran on
international newswires, to increase information flow to constituents of the Estate
and the public.

 Addressed status of and need for 17 separate websites that had originally been
maintained by various Stanford entities.

Team Assembled by the Receiver

The Receivership Order authorizes the Receiver to employ such managers, agents,

custodians, consultants, investigators, attorneys and accountants as he judges necessary to

perform his duties. The following experts have been retained to assist him:

 Krage & Janvey, L.L.P., the Receiver’s law firm.

 Baker Botts L.L.P, an international law firm headquartered in Texas.

 CB Richard Ellis, a real estate consulting firm.

 Ernst & Young, an international accounting and professional services firm.

 Financial Industry Technical Services, Inc., a brokerage operations specialist firm.

 Frizzell Group International, LLC, a security consultant.

 FTI Consulting, Inc., a forensic accounting and information technology firm.


Filed 02/09/2010 Page 56 ofof 444
Page 442 58

 Pierpont Communications, Inc., a communications firm.

 Paul Montgomery, a numismatic expert.

 Strategic Capital Corporation, a business restructuring advisor with substantial
broker dealer experience.

 Thompson & Knight L.L.P, an international law firm based in Texas with offices
in Latin America.

 Local counsel and experts as needed in certain U.S. States, Canada, the United
Kingdom, Switzerland and Antigua.


Filed 02/09/2010 Page 57 ofof 444
Page 443 58

Dated: April 23, 2009 Respectfully submitted,

BAKER BOTTS L. L.P.

By: / s/ Kevin M. Sadler
Kevin M. Sadler
Richard B. Roper, III kevin.sadler@bakerbotts.com
TEXAS BAR NO. 17233700 One Shell Plaza
THOMPSON & KNIGHT LLP 910 Louisiana
1722 ROUTH STREET Houston, Texas 77002-4995
SUITE 1500 (713) 229-1234
DALLAS, TEXAS 75201 (713) 229-1522 (Facsimile)
(214) 969-1700
(214) 969-1751 (FACSIMILE)
(512) 322-2500
(512) 322-2501 (Facsimile)

Timothy S. Durst
BAKER BOTTS L. L.P.
2001 Ross Avenue
Dallas, Texas 75201
(214) 953-6500
(214) 953-6503 (Facsimile)



Filed 02/09/2010 Page 58 ofof 444
Page 444 58


On April 23, 2009, I electronically submitted the foregoing Report 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 provided copies to the Examiner in this case and to all

counsel of record electronically or by another manner authorized by Federal Rule of Civil

Procedure 5(b)(2).

/s/ Kevin M. Sadler
Kevin M. Sadler


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