Stanford scheme recovery nears $1B

Baker Botts partner Kevin Sadler walked into the office at 5050 Westheimer in Houston on Feb. 17, 2009, along with dozens of agents from the U.S. Securities and Exchange Commission and the FBI.

They were there to take control of Houston-based Stanford Financial Group and to serve subpoenas on Allen Stanford, who was arrested a few months later. Sadler represents court-appointed receiver Ralph Janvey, who was tasked with recovering as much money as possible to give back to 18,000 investors who suffered $5 billion in hard-dollar losses in the Ponzi scheme run by Stanford, who was convicted of 13 counts of securities fraud in 2012 and is serving a 110year prison term.

This week, Sadler obtained a federal court final judgment ordering Denver billionaire Gary Magness and his securities firm to pay the receiver $125 million — a judgment Magness could appeal.

In addition, Sadler is in the home stretch of collecting $64 million from a settlement agreement reached with Lloyds of London.

“About 72 hours before we walked into the Stanford offices in February 2009, I didn’t know a single thing about Allen Stanford,” Sadler said. “Once we got into the details, we knew it was going to be a huge mess. But I never imagined we would still be pursuing this 12 years later.”

When either of those judgments are paid, the Stanford receiver will have officially recovered more than $1 billion in ill-gotten funds from those who benefited from the Stanford scheme.

This month, those 18,000 victimized investors are receiving their eighth distribution from the receiver in the amount of $216 million, which was collected in 2020 from settlements with insurance brokers Willis of Colorado and Bowen, Miclette & Britt of Houston as well as from money in Stanfordrelated accounts in Swiss banks.

“We’re not through fighting,” Sadler said. “The evidence shows

that Allen Stanford could never have pulled off this fraud by himself. He had lots of help.”

The developments in the Stanford case came this week as federal officials announced Wednesday that infamous New York investor Bernie Madoff, who orchestrated the largest Ponzi scheme in U.S. history, had died in prison at 82.

Those who helped and profited from the Stanford scheme have been the subject of dozens of lawsuits. To date, court records show that the receiver has recovered $935 million. More than $549 million has been distributed to the victims so far.

One more potential huge payday looms: the receiver has accused five banks that worked with Stanford with helping perpetrate the fraud. The receiver seeks $4 billion in damages — money that would go directly to those who lost money because of Stanford.

The lawyers in the case are waiting for U.S. District Judge David Godbey to rule on motions for summary judgment. If he rules in favor of the receiver, the Dallas judge will send the case back to a federal judge in Houston who would set a trial date for either later this year or next year.

The banks involved include Independent Bank, Trustmark National Bank, HSBC Bank, TorontoDominion Bank and Societe Generale Private Bank of France.

That trial would likely take place in federal court in Houston, where it was originally filed.

Godbey’s final judgment order Monday against Magness, instructing him to pay $79.7 million in damages and another $45.2 million in prejudgment interest, is not the end of that part of the case, because lawyers for the defendant can still seek to appeal. But the order does mean that Magness likely will be forced to post either a $124.9 million appeal’s bond or provide guaranteed letters of credit from banks.

“If Mr. Magness had parked the money he took from Stanford in the S&P, the money would have quadrupled,” said Sadler. “Mr. Magness can write us a check tomorrow for every penny of this for the victims and would still be hundreds of millions of dollars ahead.”

Dykema senior counsel David Bryant of Austin, who represents Magness, said they “plan to seek further judicial review in this case.”

He said, “the most important issues that must be raised on review in the interest of justice is the denial of the Magness parties’ right to a jury trial on the critical issues in this case.”

“The Magness parties believe that a fair jury will rule in their favor on these issues, just as the jury ruled in their favor in the 2017 trial in this case,” Bryant said. “A jury trial is required not only as a matter of basic justice, but also by the United States Constitution.”

Sadler said once Magness’ appeals have expired, he plans to ask Godbey to order the defendant to pay an additional $6 million in legal fees and expenses.

Court records show that Sadler and his colleagues at Houstonbased Baker Botts have worked several thousand hours on the Stanford case since 2009.