Leslie Turk

Fifth Circuit rejects Stanford clawbacks

by Leslie Turk

Stanford Group Co. investors like Troy Lillie of Maurice, who moved their money out of the controversial CDs and into another Stanford account before the SEC shut down the company in February, got some very good news from the U.S. Fifth Circuit Court of Appeals in New Orleans Friday. The court-appointed receiver's attempt to claw back principal and interest on innocent investors was shot down by a three-judge panel. As part of its ruling, the court lifted the freeze on assets of investors like Lillie, an ExxonMobil retiree who at age 59 had returned to oilfield work.

Unfortunately, the ruling does nothing to help victims who still had all of their money in the CDs when federal regulators stepped in and accused Stanford International Bank and related entities of running an $8 billion Ponzi scheme. But it does appear to help investors who withdrew interest over the years but left their principal in the CDs, money they will not likely recover. At least for now, the receiver will not be able to take interest payments from local investors like Bruce McLeod, a move that would have further exacerbated their financial devastation. The Advocate reported in August:

In Breaux Bridge, 61-year-old Bruce McLeod said he invested $2.7 million with Stanford over a period of years as he wound down his career as a pharmacist in Lafayette.

But, over that same period, McLeod also withdrew $780,000 in interest and other profits from his accounts at the Caribbean-based Stanford International Bank.

"He (Janvey) wants all of that back," McLeod said. "I put $2.7 million in. We lost that. There is no justice in this."

[Baton Rouge attorney Ed] Gonzales added that McLeod now works as a pharmacist seven days a week in an effort to shore up the savings that Janvey wants to reclaim. McLeod said, "This just doesn't make sense. I'll be working for a very long time."

But while the panel upheld the district court ruling that blocks the receiver from recovering principal and interest returned to some investors, it may not prevent the receiver from going after the investors individually for interest they received that exceeded the amount invested.

The receiver, attorney Ralph Janvey, was attempting to recover almost $1 billion in funds from about 600 investors, "a very small percentage of the more than $20,000 investors who have thus far received little or nothing from their investment in SIB CDs," Janvey wrote, in order to distribute them equally to all investors. Janvey argued that the money should be evenly distributed because the redemptions, interest and other payments were made with money stolen by the Stanford entities from other CD holders. But the appellate judges ruled that he could not, at this time, sue the investors who moved funds out of the CDs or cashed out early because they received the funds legally.

Lafayette businessman Mike Moreno is among the 49 investors Janvey listed who cashed out a total of $494 million after Jan. 1, 2008, or or moved their money into non-Stanford accounts. It's unclear what prompted Moreno to move his $27 million out of the Stanford CDs; Lillie's financial adviser, Michael Word of Zachary, suggested transferring his money, about $920,000, into another account. Lillie redeemed his so-called CDs in January and put them in a money market account, taking an $18,000 penalty.

Word, however, did not issue that same advice to all of his clients.

Read more on Janvey's position here and the Fifth Circuit's ruling here.