Stanford: “Begun, The Receiver War Has”

(I said I wouldn’t write about Stanford anymore, but there is a lot of misinformation out there, so I couldn’t resist. I will try to ‘splain.)

You’d think that things couldn’t get much worse for those entangled in the Stanford Fraud saga, but it has. A nasty conflict is brewing between Antigua and Houston and in the immortal words of Yoda: “Begun, The Receiver War Has”.

In the RED corner: Vantis, the receiver in Antigua. Appointed by the Antiguan Government, they have been working at Stanford International Bank headquarters in St. Johns since Feb 22. They have control of SIB books (with all the “errors and omissions”) and have the list of depositors, which they have been checking, supposedly with depositors, if, when and where the mail service can find them and give them their statements. Vantis expects to have a web-based system for that soon enough, though.
They already have a preliminary total for the unpaid deposits at SIB: $7.2 billion.

This Monday (April 6, 2009), there is a hearing concerning the winding-up of the bank. “Winding-up” is British for liquidation. There isn’t a lot of information about that court proceeding in Antigua, but receivership isn’t eternal and a decision to wind up is required before anything can be distributed to creditors. (Receivers could also give the company back to its shareholder, but considering that they found a “significant shortfall” that’s not likely).

That doesn’t mean that Vantis (or whoever the liquidator turns out to be) will sell everything immediately, but winding up (or winding down) is the ultimate goal.

Aside from the “significant shortfall”, Vantis has found some money, mainly what is referred to by Stanford employees in the complaints as Tier 1 and Tier II assets. (We’ll get back to the tiers in another post).
BTW those complaints make great reading and are recommended for anyone interested in the case. In particular, those who still are wondering if fraud was committed (geez, get a grip, people). Link1, Link2, Link3.

Vantis, in some regard is the favorite in the receiver war because they control SIB’s books and have found the “easy money”.

Now, In the Blue Corner, Ralph Janvey, the Receiver in Houston. He took control of Stanford Group Company and its subsidiaries. This is the broker/dealer firm based in Houston. This is NOT a bank. What he found were 32,000 accounts there, which contained securities, and yes, some had Antigua CDs in them.

These holders of these accounts did not lose their securities, since these were held “separately” at third party custodians, but their accounts were frozen while Mr. Janvey looked for “clawback” opportunities. Some 4,000 remain frozen today, either because at some point they contained Antigua CDs or because they were related to Stanford employees or officers.

He has also found an assortment of loose assets (Sir Allen’s yacht, houses, golf course, restaurant in Memphis.), a number of listed and unlisted companies in which SIBL had a stake (eLandia, HSSO, Forefront…etc. etc.), nothing of which is really worth a lot. ($50 million at most and after a long, tedious liquidation process),

What he didn’t find was CASH. Fact is he had to get permission to access (not to say raid) Stanford Group’s escrow account at Pershing to get $10 million to fund his receivership. LINK.

And those frozen accounts are a HUGE headache. Basically, what they are trying to do is go back through time to see if some of those holders perceived “fraudulent” money. That’s interest on CDs, commissions in the case of advisors etc. But not few of those accounts also have unpaid Antigua CDs, so they have claims also. He is also probably finding that most depositors didn’t cash out their CDs…they rolled them over and over and over. In those cases, you can “roll back” the interest, but you can’t clawback anything.

In the end, if he manages to sort through all that, what he may recover won’t be much. Maybe, netting out some claims and clawing back $100 million at most with excruciating and extensive litigation (I’d say that’s probably optimistic). In the meantime, he even has a Nascar Driver mad at him. And in the Southern US…you don’t mess with Nascar.

If Janvey is frustrated, I wouldn’t be surprised. He also doesn’t have SIB’s books (any version) or a complete list of SIB’s depositors. He only knows about some of the CDs that went through SGC. The estimate is that only 20% of Antigua CDs were sold in the US.

But he does have Stanford Group’s creditors, employees, ex-employees, contractors, landlords, etc…probably calling him on a regular basis.

So explicitly or tacitly, Janvey is calling on the cavalry. Janvey may not have known where the Tier II money was, but he has the full weight of the US government behind him. Stanford CFO Jim Davis is reportedly singing like a canary and supposedly was aiding in the search for assets in Europe according to Bloomberg.

The first result of this cooperation would appear to be coming as Matt Goldstein at Businessweek reports that the SEC is asking the UK to freeze SIBL assets at HSBC branches in the UK and an investment account at Credit Suisse UK. These would be worth $10 million and $105 million respectively.
The motion is on the docket early Monday April 6 th (not before 11:30 UK) Court 37.

Great! Assets found! More money for Stanford’s victims. Right? WRONG! These are accounts belonging to Stanford International Bank. They weren’t LOST. Vantis knew where they were. Credit Suisse and HSBC are serious banks. There is no such thing as a hidden SIBL account at these banks. They people at HSBC and Credit Suisse read the newspapers (and they read Duck Tales…too!).

What is different is that now BOTH receivers are going after the same assets. And this can easily turn into a messy and costly “international” incident. Let’s not forget that Antigua and Barbuda is a sovereign country, although we may debate if it deserves to be one.
(and frankly Mr. Davis, let’s see some of Sir Allen’ accounts, not SIBL’s).

Why are they quarrelling? Well, it’s kind of like when burglars go though your house. They want the cash first, the jewelry next and they really don’t care about the stuff they have to put up on eBay.
The two receivers apparently held meetings this week in Miami. Hopefully some of the messiness can be avoided. But given Mr. Janvey’s record so far, messy isn’t something he avoids.

Who SHOULD get these assets? They are SIBL’s assets. The Antigua receiver should get them. Are Janvey and the SEC overreaching? Perhaps. But the Antiguans could be a little more forthcoming with information.

If I were a CD holder, whom would I root for? Once again, Antigua. The Antiguan government can’t be trusted, for certain, but…you CAN trust the IRS.
The estimated recovery (the whisper number) is about 5 cents on the dollar, or $360 million. If that money goes to Antigua…CD holders might see it. On the other hand, if it goes to the US, the IRS has a $227 million claim on Mr. Stanford, which comes first.
Five cents isn’t much, but two cents is lot worse.

Darn You, Yoda!
(I'll get back to the Tiers later...it's late).

UPDATE: SEC is granted asset freeze. LINK

UPDATE 2: Janvey's jurisdictional claims challenged (see bottom of article). Bloomberg

Quote Worth Mentioning "If an Antiguan court were to appoint a receiver for Bank of America and thrust it into involuntary receivership, the court would certainly uphold the United States’ own sovereignty and decline to recognize that order in any respect whatsoever,” Quilling said.

Quilling is representing investors looking to UNFREEZE SGC accounts.