Thursday, June 8, 2023 | Back issues
Courthouse News Service Courthouse News Service

Stanford Receiver Wins Fight Over Bank Funds

(CN) - The 5th Circuit refused to let a bank withhold $1.98 million from the court-appointed receiver for convicted Ponzi schemer R. Allen Stanford.

Before Stanford was convicted in Houston, Texas, over his $7 billion Ponzi scheme that involved phony certificates of deposit, Trustmark National Bank issued letters of credit to several businesses that did business with him.

HP Financial Services Venezuela, for example, received a $1.98 million loan in 2007 in connection to computer equipment it leased to Stanford.

Trustmark secured liability on the letter by issuing a certificate of deposit to Stanford, who then placed cash collateral in a Trustmark deposit account.

The 63-year-old is serving 110 years in federal prison.

A federal judge in Dallas allowed HPFS to present its letter of credit to Trustmark for payment, but refused to let the bank offset that with Stanford's cash collateral. Later, the court ordered Trustmark to turn over the cash collateral.

On appeal, Trustmark argued that the turnover order violated due process because it "destroyed" its perfected secured creditor status without sufficient procedural safeguards.

The bank argued that its eventual participation in the receivership claims process as a creditor is not an "adequate substitute" for the immediate seizure of the cash collateral at least until the receiver proposes and the trial court approves a claims-distribution plan.

A three-judge panel of the 5th Circuit disagreed Wednesday, reminding Trustmark that it has already affirmed the cash collateral was Stanford property and part of the receivership estate.

"Accordingly, the turnover order did not effect any deprivation from Trustmark as to those funds, and Trustmark does not argue otherwise," the unsigned opinion states. "Instead, Trustmark contends that its security interest in the deposit funds constitutes a due process property interest, distinct from the underlying Stanford funds, that has been 'destroy[ed]' by the turnover order. Trustmark acknowledges that this court has not previously addressed the question of whether a bank's security interest in cash collateral on deposit constitutes a property interest for procedural due process purposes, and we need not decide that question in this appeal. Rather, assuming that Trustmark's security interest is property within the meaning of the due process clause of the Fifth Amendment, we conclude that Trustmark has failed to 'demonstrate that the '[District Court] has deprived [it]' of that interest.'"

The New Orleans-based panel agreed with receiver Ralph Janvey that whatever money collected from Trustmark is subject to pre-existing security interests Trustmark may have had.

"Indeed, Trustmark acknowledges that [t]he receiver took all of Stanford's claims, including its Certificate of Deposit here, subject to all liens, priorities, or privileges existing ... under state laws," the opinion states. "In short, the very authorities that Trustmark cites in support of its argument that the turnover order 'destroy[ed]' its security interest are directly contrary to that proposition."

Trustmark also argued that the turnover order violated a federal law that bans state courts from issuing "attachment, injunction or execution" against a national bank "before final judgment." It said the U.S. Supreme Court has held the law applies on federal courts, as well.

The panel deems this reliance as "misplaced," however, noting that the high court has since clarified the "anti-injunction" provision as having a limited scope.

Congress intended only to prevent state judicial action that would have seized bank property before final judgment, according to the ruling.

Since his appointment, Janvey has launched several dozen federal lawsuits for disgorgement and fraudulent transfer against former Stanford entities and employees, individual investors, and recipients of Ponzi scheme proceeds.

The attorney with Krage Janvey in Dallas recently sued hundreds of investors who earned interest and profited on their investments in the scheme. Earlier, he sued the Libyan government for over $54 million in payments it allegedly received. Janvey has also sued attorneys formerly with Greenberg Traurig and Hunton & Williams, alleging they helped Stanford get away with his scheme. He also sued several Republican and Democratic political committees for more than $1.6 million in contributions paid by Stanford.


Read the Top 8

Sign up for the Top 8, a roundup of the day's top stories delivered directly to your inbox Monday through Friday.