Stanford Must Pay SEC $6.76 Billion for Fraud

DALLAS (CN) - Convicted Ponzi schemer R. Allen Stanford owes $6.76 billion to the Securities and Exchange Commission, a federal judge ruled, finding the criminal trial had been fair.

In granting the SEC partial summary judgment Thursday, U.S. District Judge David Godbey awarded the agency $5.9 billion in disgorgement and civil penalties, plus more than $861 million in interest.

Godbey also ordered a permanent injunction against Stanford, Antigua-based Stanford International Bank, SIB CFO James Davis, and Houston-based broker-dealer/investment adviser Stanford Group Co., prohibiting them from committing future violations of federal securities laws.

The agency sued Stanford in 2009, accusing him of running an $8 billion Ponzi scheme through the sale of certificates of deposit. Stanford later faced a criminal trial for the scheme, and a Houston federal jury convicted him in 2012 on 13 of 14 counts of conspiracy, wire fraud and mail fraud. He was sentenced in June to 110 years in federal prison.

Godbey agreed with the SEC that Stanford is collaterally estopped from re-litigating facts established in his criminal trial.

"In Stanford's criminal trial, the jury found that : (1) Stanford knowingly created a scheme to defraud or obtain money and property by means of materially false or fraudulent pretenses, representations, or promises; (2) Stanford acted with specific intent to defraud; (3) Stanford used interstate or foreign wire communications or caused another person to use interstate or foreign wire communications for the purpose of carrying out the scheme; (4) Stanford mailed something through the United States Postal Service or a private or commercial interstate carrier for the purpose of carrying out the scheme; and that (5) Stanford's scheme to defraud employed false material representations," the 17-page order states. "These factual findings of the Stanford criminal court, necessary to the judgment in that proceeding, conclusively establish that the SEC is entitled to summary judgment."

Stanford cannot argue that his trial was unfair and suffered from several "constitutionally deficient procedures," according to the ruling.

"Even if Stanford's criminal proceeding was constitutionally infirm - a matter on which the court expresses no opinion - such arguments are questions for the appellate court in the criminal procedure," Godbey wrote. "And although appeal stays execution of the criminal trial judgment, the judgment is still final and may be utilized to collaterally estop Stanford from re-litigating facts already litigated in that criminal trial."

The $5.9 billion in disgorgement is a reasonable approximation of ill-gotten proceeds of the scheme, the court found.

"Although Stanford could have introduced evidence to show that the criminal forfeiture figure is unreasonable, he failed to do so," Godbey wrote. "Accordingly, the court finds Stanford is liable to disgorge the $5.9 billion that he obtained as a result of his fraudulent scheme."

Godbey also imposed a $5 million civil penalty on Davis, finding it impossible to determine exactly what he gained from the fraud or how many violations he committed for penalty purposes.

"The SEC makes no attempt to segregate Davis' conduct from Stanford's conduct," the opinion states. "The SEC further fails to consider that Davis cooperated with authorities and that Davis' guilty plea has been utilized heavily in this proceeding as well as in Stanford's criminal proceeding. Further, there is simply no indication that because Stanford profited from the fraud to the tune of $5.9 billion, Davis did as well."

Godbey refused to levy civil penalties against SIB or SGC, finding their gains from the fraud are "likely reflected" in the $5.9 billion levied against Stanford.

The SEC had scoffed at Stanford's request for more time to respond to the SEC's motion for partial summary judgment, which he claimed was necessary to secure sealed exhibits from his criminal trial.

"These pleadings cannot add any substantive information relevant to the commission's motion for summary judgment because they relate to arguments that have already been rejected in Stanford's criminal case," the SEC said in a six-page response on April 8. "In fact, the materials were attachments to a motion for new trial that was denied. The only reason for the Court to examine these pleadings would be to re-examine the fully litigated decisions made in the criminal case. The pleadings cannot give any basis to ignore the well-established precepts of collateral estoppel that demonstrate Stanford's civil liability in this parallel proceeding."

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