Net Winners in Stanford|Ponzi Scam Lose Appeal

(CN) - Profits seen by some investors in R. Allen Stanford's Ponzi scheme may face seizure by the court-appointed receiver trying to make victims whole, the 5th Circuit ruled.

Ralph Janvey, with Krage Janvey in Dallas, has filed more than 70 federal fraudulent-transfer suits in Dallas since his appointment. He has targeted former Stanford entities and employees, individual investors and third-party recipients of Ponzi scheme proceeds - included the Republican National Committee, the Democratic Congressional Campaign Committee, Miami Heat basketball team, the Tiger Woods Foundation, Texas A&M University, the University of Miami, the PGA Tour and the ATP Tour.

In a partial summary judgment for Janvey early last year, U.S. District Judge David Godbey said the hundreds of "net winners" who received interest on top of their principal would still be "in far better shape" after paying back the interest than most other Stanford victims "who lost everything."

A three-judge panel with the 5th Circuit affirmed Godbey's ruling on Thursday, concluding the net winners have no valid claim to the interest on their phony certificates of deposit (CDs).

"Here, we conclude that there is no valid claim for interest," the 22-page opinion states. "The CDs issued by [the Stanford International Bank] are void and unenforceable. This is because '[t]o allow and [investor] to enforce his contract to recover promised returns in excess of his undertaking would be to further the debtors' fraudulent scheme at the expense of other [investors].'"

Any recovery would be paid out of money "rightfully belonging" to the other victims of the Ponzi scheme, not from the Stanford entities' own assets "because they had no assets they could legitimately call their own," Judge Patrick Higginbotham wrote for a three-member panel in New Orleans.

The appeals court also affirmed that principal payments made to the net winners are off-limits to Janvey and not subject to fraudulent-transfer claims.

"Unlike interest payments, it is undisputed that the principal payments were payments of an antecedent debt, namely fraud claims at the investor-defendants have as victims of the Stanford Ponzi scheme," Higginbotham wrote.

Net winners who tried to shelter their profit in individual retirement accounts that are exempted by the Texas Property Code are also not entitled to an exemption, the court found.

"As we recently explained, to claim this exemption, a defendant 'must establish that she has a legal right to the funds in the IRA,'" the opinion states. "The investor-defendants have offered no evidence to the district court that they have a legal right to the funds despite those funds being the product of a fraudulent transfer. The district court did not err in denying this exemption."

Janvey could not be reached for comment Thursday evening.

Follow @davejourno

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