DALLAS (CN) - The receiver for Allen Stanford's alleged $7 billion Ponzi scheme claims two Louisiana law firms helped Stanford misappropriate more than $1.8 billion, by giving false opinions to authorities and referring clients to Stanford in exchange for benefits.
Ralph Janvey, the court-appointed receiver, sued New Orleans-based law firm Adams & Reese and Baton Rouge-based Breazeale Sachse & Wilson, in Federal Court. Janvey also sued Adams & Reese attorneys Robert Schmidt and James Austin, Breazeale Sachse & Wilson attorney Claude Reynaud and Stanford Trust Co. directors Cordell Haymon and Thomas Frazier.
In a 84-page federal complaint, Janvey accuses the defendants of negligence, breach of fiduciary duties, aiding and abetting or participating in breaches of fiduciary duty, aiding and abetting or participating in a fraudulent scheme, aiding and abetting or participating in fraudulent transfers, aiding and abetting or participating in conversion, civil conspiracy and negligent retention or supervision.
"From the mid 1980s through February 2009, R. Allen Stanford - a former bankrupt gym owner from Mexia, Texas - built a financial service empire that at its height boasted 30,000 customers in 130 countries managing billions of dollars in investment funds," the complaint states. "The empire was comprised of over 140 companies from across the globe, all of which were ultimately owned by Stanford himself. The companies operated under the brand name 'Stanford Financial 'with their worldwide headquarters located in Houston, Texas."
Stanford's primary product was certificates of deposit issued by Antigua-based Stanford International Bank Ltd., whose CD holdings peaked at $7.2 billion in February 2009.
"The ultimate reality of Stanford Financial is that it was, at all times, a Ponzi scheme based out of Houston, Texas. Stanford Financial, acting through its international network of companies and FAs: (i) lured money from investors; (ii) gave them a virtually worthless 'IOU' piece of paper called a 'Certificate of Deposit' in return; and (iii) then diverted the investors' money to support Allen Stanford's lavish lifestyle, prop up other Stanford Financial entities, and acquire various illiquid and high-risk assets, including unsecured, fictitious personal 'loans' to Allen Stanford and massive amounts of Antiguan real estate," the complaint states.
"None of the investors' money was segregated. Instead, investor money was commingled within Stanford Financial and then spread among all the various companies that comprised Stanford Financial to fund the group's operations."
Janvey says the defendant law firms "embarked on their own campaign to enrich themselves at their other clients' expense," and that while providing legal services to Stanford Financial they referred their own clients to Stanford.
"Many of these clients purchased SIBL CDs," the complaint states. "Through these referrals, the two firms curried favor with their powerful new client, Stanford Financial, while enjoying the lucrative legal work that Stanford Financial sent the firms to reward them for adding to Stanford Financial's bottom line. Of course, the law firms' efforts to help Stanford Financial sell more SIBL CDs did not go unnoticed at Stanford Financial."
Janvey claims that Renaud and Breazeale Sachse & Wilson were brought in to help with Stanford's purchase of Southern Trust Co., a Baton Rouge-based trust company, which established the investment retirement account component of the Ponzi scheme.
He claims that Renaud and BSW delivered a letter, purportedly from Antigua's Minister of Finance, to Louisiana state authorities that attested to the "integrity" and "professional competence" of SIBL's operations.
"In reality, this letter was actually written by Stanford Financial - most likely [Stanford Financial general counsel Yolanda] Suarez or one of her staff - and Reynaud knew this letter was actually written by Stanford Financial because Suarez provided him with a draft copy of the letter when Reynaud met with Suarez on June 4, 1998, before it was purportedly signed by Antigua's Minister of Finance," the complaint states.
Janvey says the fake letter apparently worked, as the state's Office of Financial Institutions conditionally approved the acquisition, which was closed by BSW in July of 1998. The company's name then was changed to Stanford Trust Company.
Two months later, Stanford Trust Co. (STC) opened its doors and Stanford Financial began implementing its fraudulent IRA plan by promoting STC as a trustee and custodian for Stanford Group Company's [SGC's] IRA investor clients, the complaint states.
Janvey says STC and its parent company executed reciprocal referral agreements that gave both companies incentives to "recklessly promote" STC so the parent company's IRA clients could invest their retirement funds in SIBL CDs.
The complaint accuses Renaud of knowing about Stanford's failure to obtain security for its fictitious investments, which is a breach of fiduciary duty to the IRA accountholders.
Janvey claims that Renaud had too many "debilitating" conflicts of interest because he wore "too many hats" in his relationship with Stanford Financial.
"Under one hat, Reynaud was a partial owner of STC who served as a member of STC's Board of Directors from 2000 until Stanford Financial's collapse in 2009," the complaint states. "In that capacity, Reynaud had a personal interest in STC's success, and he also owed fiduciary duties to STC and its accountholders just like every other director of the company. Under another hat, Reynaud was the relationship partner for his firm's attorney-client relationship with Stanford Financial (and STC) from 1999 until Stanford Financial's collapse in 2009. In that capacity, Reynaud leveraged his membership on the Board to generate lucrative legal fees for himself and BSW. Moreover, both Reynaud and BSW suffered conflicts of interest within this attorney-client relationship because they knew that their ultimate 'client' was not really STC, but Stanford Financial and SGC, and their executives in Houston, Texas. And under yet another hat, Reynaud was an attorney at BSW who recommended to his other law firm clients that they invest in SIBL CDs, despite his knowledge of Stanford Financial's improprieties, the breaches of fiduciary duties by STC's and SGC's directors and officers, and STC's and SGC's own breaches of fiduciary duties to the IRA clients. ... Reynaud held his own interests above those of his clients because he recommended the SIBL CDs to his clients' detriment while Stanford Financial rewarded his referrals by sending additional legal work to Reynaud and BSW." (Parentheses in complaint.)
Allen Stanford is being tried in Houston Federal Court.
Janvey and co-plaintiff The Official Stanford Investors Committee are represented by Nicholas Foley, with Neligan Foley, of Dallas.
Follow @davejourno
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