Open Letter to the Judge David Godbey and Stanford’s Receiver - When the dust settles...


Open Letter to the Judge David Godbey and Stanford’s Receiver

When the dust settles, Stanford’s Receivership and its professionals will not even leave behind tumble weeds for the innocent Stanford victims.

The saga drags on for the victims of Stanford’s fraud as litigation continues to generate fees for the receivership’s attorneys and professionals - the only beneficiaries so far, charging millions of dollars in fees and expenses. One wonders why the Receivership professionals receive compensation from our stolen money without showing any meaningful recovery. Is this an ethical outcome?

During these tragic five and half years, we, Stanford’s victims, have watched with sadness while the possibility of receiving an economic relief that could mitigate our losses has all but vanished. Meanwhile, attorneys and their professional comrades are getting all the money. Mr. Janvey has “recovered” approximately $240.9 million as of December 31, 2013, and spent $127.5 million in fees and expenses. These figures do not include the professional fees “held back” - totaling $17 million, plus $50 million for “winding down” costs.   

One gets the impression that the money available from our stolen savings is simply petty cash for the attorneys and professionals managing the receivership and the liquidation. They are getting rich quick, while the victims are unable to pay for their living expenses and medical bills and many are living in poverty.
Because of its implications, the Stanford Case is an example of how the United Stated handles issues of ethics and morality in the financial arena, set on a world stage that has already been witness to so much political and financial corruption. Therefore, we are convinced that if this monstrous fraud, which operated with impunity for more than a decade in and from the United States, is not resolved satisfactorily for all the victims, the worldwide discredit of the United States in regards to securities fraud will deepen, further increasing the distrust that currently exists in its financial sector.

As far as the undeniable responsibility of the regulatory entities, COVISAL asks, "Why did the regulatory entities of the United States connive to deny protection to thousands of innocent depositors, clients of Stanford, violating the mandate from the U.S. Congress to “protect the investment public”? Why were the “red flags” that appeared in Stanford’s examinations conducted since 1997 disallowed? Why were the complaints from clients and former Stanford employees, which year after year warned of the vertiginous growth of a pyramidal fraud, not investigated?

Furthermore, the Receivership’s accomplishments in the recollection of assets for the victims’ distribution fund have been lacking. According to Examiner John Little, “The Receiver and his professionals have not identified any significant Stanford assets or accounts that were not identified in the earliest days of the Receivership.” For this reason, the class actions are the only venue of recovery for the modest small investors who do not have any money to hire attorneys to defend them individually.

The signing of a Cross-Border Insolvency Cooperation Protocol between the U.S. Receiver and the Joint Liquidators, seems only to benefit their attorneys and professionals. They have divided the pie and are eating it too. Why do the Courts and responsible government authorities allow the US Receiver and the Joint Liquidators to continue depleting the Stanford victims’ patrimony with an agreement that allows the continual enrichment of attorneys without showing any significant recovery results and reasonable compensation to the victims of the moneys recovered? In a response to the Receiver’s motion for approval to release of portion of the holdback, Examiner John Little states, “What has actually been distributed to Stanford’s investors – approximately $30 million – is less than half what has already been paid to the Receiver’s professionals. It is fair to say that Stanford’s investors will not view this Receivership as any sort of a ‘success’ as long as the Receiver and his professionals have received more from the Receivership than Stanford’s investors.”
What honest and transparent legal entity is providing oversight of the receivership’s affairs?  Where are the check and balances?

The U.S. Department of Justice, Asset Forfeiture and Money Laundering Section expressed its commitment to participating in the oversight of the claim's process and the Distribution Plan, in the U.S. and Antigua. They have pledged to have a voice in the determination of the reasonableness of total asset recovery charges in order to make sure that the costs of this process are sensible and to preserve the greatest amount of assets for the victims - specifically, the $330 million of our savings, confiscated in the UK, Switzerland and Canada. However, we cannot understand its silence and inaction. The Joint Liquidators have so far received $100 million that were frozen in the UK, and spent over $60 million in fees and expenses, while the victims are required to jump through hoops to have any hope of receiving a penny of a recent announced distribution by the Joint Liquidators.

In SEC v. Byers, 590 F. Supp. 2d 637, 645, the court explained, “In considering applications for compensation by receivers and their attorneys, the courts have long applied a rule of moderation, recognizing that ‘receivers and their attorneys engaged in the administration of estates in the courts of the United States … should be awarded only moderate compensation.’” In other words, the goal is not to make the receivership rich and even an appearance of a windfall should be avoided. Unfortunately, that does not seem to be the prevailing sentiment amongst the Receivership in this case.

Not only has the Receivership grossly overpaid themselves and their attorneys, they now have the audacity to ask for a portion of the holdback created in 2009 when it was already clear their fees were becoming exorbitant. The SEC and Examiner determined even then that, “the professional headcount was excessive, and the expenses incurred by certain professionals were wholly unsupported.” Case law supports the fact that the fees of the receivership should be in direct correlation to the availability of assets. In a similar case, (Specialty Products Co. v. Universal Industrial Corp., 21 F. Supp. 92, 94) the court commented, “I do not think that I am required to fix fees in total disregard of the fact that this receivership produced a very lean harvest, that all interests involved suffered heavily, and that the whole enterprise was definitely not a success.” It is clear from the Receivership’s actions that they do not have the investors’ best interest at heart and are simply viewing this as an opportunity to line their own pockets.

In addition, the statutory interpretation and large amount of interpretative chaos due to disparate jurisprudence in similar securities frauds has obscured the truth of the law. It would be lethal for the Stanford victims to be victimized again. No more impunity for the third parties that have hurt us!

It is unacceptable that the Courts in the United States, to the detriment of the Stanford victims, have allowed the Receivership, who were named to prevent the waste and squandering of the creditors' patrimony, to continue duplicating costs and efforts among their professionals and hindering the possibilities of a pro rata distribution of the victims’ patrimony.

The dust has not yet settled, and the Receivership’s attorneys and professionals have been very well compensated during the last five and a half years for the work they have performed. Unfortunately, they have not shown real accomplishments to deserve additional payments from the fees that were withheld. They have received more money than the victims - many of them pocketing millions of dollars - and the victims barely receiving a penny on the dollar. The Courts in the U.S. should consider all the facts and deny such a request.

We greatly value justice and the rule of law, and ask the Court’s commitment to these values to ensure that justice is imparted to all innocent depositors who feel defrauded yet again.

Jaime R. Escalona
On behalf of COViSAL
Coalición Víctimas de Stanford América Latina (COViSAL)
Twitter: @COViSAL

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