My relentless quest for Junk takes me to the far corners of the earth. Figuratively, that is. Today’s subject of interest is Kazakhstan. A country I’ve had to learn about from wikipedia, since it didn’t exist when I was a lad. (and Borat).
Born (or reborn) in the breakup of the Soviet Union, It’s not hard to find on a map, since it is HUGE. It’s the eight or ninth largest country in the world, depending on your calculation method and sparsely populated with only 17 million inhabitants (about half Mulsim, half Russian Orthodox Catholics).
The place is a mineral treasure trove with practically every element in periodic table, including that ever-important U. Oil (about 3% of the worlds reserves) and gas, to boot. (They need the gas…it gets REALLY cold in Kazakhstan in winter).
Sounds like a great place to invest, right? Well, that depends. Politically, it is led by a “demtator” Mr. Nursultan Nazarbayev since its breakaway in 1991. The constitution allows him to run for president as long as he lives, although future presidents will be limited to two five year terms (we know that can always change). Dissidence is not well tolerated. So keep that in mind
Unlike some of his South American demtator counterparts, however, Mr. NN has embraced market economics and the country has moved in that direction. The Heritage Foundation ranks it 83rd among nations in terms of economic freedom with a “moderately free” classification. (Venezuela is currently 174th, only surpassed by Eritrea, Burma, Cuba, Zimbabwe and North Korea). The economy has enjoyed stellar growth since 2000 until, well, recently (like everyone). Transparency International has Kazakhstan at 2.2 in the corruption scale. (0-10, 0 being the worst).
To his credit, Mr. N has done a pretty incredible foreign policy balancing act. He gets along well with the neighboring Chinese and Russians. He has visited Iran, which lies across the Caspian Sea from Kazakhstan, and still also enjoys relatively good relations with the US and Israel.
The country is facing an economic crisis, the onslaught of which was about a year ahead of the rest of the world (except perhaps Iceland). Banks are the center of the crisis, as local institutions, which financed domestic consumption and construction excesses with foreign capital (sound familiar?) find themselves in trouble.
A few weeks ago, fourth largest bank Alliance, found a $1.1 billion “surprise” liability and has defaulted. This week, the largest bank BTA, already taken over by the government in February, is facing the prospect of default and failure if it is unable to restructure its over $13 billion in foreign borrowings, despite receiving a $2 billion capital infusion from the government. LINKLINK2
In summary, it’s a mess, like everything else, except this mess is an 8-hour plane trip from civilization in every direction.
For the adventurous but risk-adverse, we offer Kazmunaigaz, the state-owned gas concern. Its 2013 bonds with a 8 3/8% coupon are trading at around 92%, yielding around 11%, while the 9.125% 2018s are around 87%, yielding close to 12%. Kazakhstan has $18 billion in reserves and I don’t think their gas company is going to default.
On the other hand, for those wishing to roll the dice a bit, we’ll make a suggestion in the banking sector. Not BTA and Alliance, although their bonds trading at 10-20% of par are enticing, restructuring and all. The one we like is Bank Centercredit, a smaller bank, whose largest stockholder (with 30%) is Kookmin Bank, the largest bank in South Korea.
BCCD’s 2011 bonds are trading at 61% to yield a whopping 41% to maturity, while its 2014 offering goes for about 50% to yield 28%. It may be a “coin flip”, but considering the backing, the chances for recovering the full amount at maturity look good enough.
There is a catch, however. If you are a US Person these bonds are off-limits. You can not buy them, you can not read about them. Please stop now before your eyes explode!
Why, you may ask? Well the US may enjoy economic freedom as far as the Heritage Foundation is concerned, but in terms of “investor” choice and freedom, its down by the bottom. Kazakhis can buy US bonds, but US investors cannot return the favor.
But that’s another story.
*demtator = democratically elected dictator. Dictocracy already has an entry in the Urban Dictionary and it means something else.
Venezuelan daily Ultimas Noticias is reporting that the Latinamerican Parliament (also known as Parlatino) came out last week in Paraguay in defense of the Latin American depositors affected by the Stanford International Bank fraud case.
In their declaration of the the public service committee it was stated that "action was required by the US and Antiguan governments to preserve the rights of the depositors without privileges based on nationality" and that Parlatino would be "siding with the depostors affected by the this international financial fraud and demanding that those responsible be brought to justice".
Basically, Parlatino is weighing in on the receiver war between the British Accountants (Vantis) and the Texas Lawyer (Janvey).
A representative by the name of Correa proposed taking the declaration to other instances of Parlatino, so apparently this first declaration was just from the committee.
The picture is of Jorge Pizarro Soto from Chile, who is currently the President of Parlatino. (I didn't know that).
In one of my posts (one of the non-Stanford posts a few of you read), I wrote of my wife’s no-hassle junk bond portfolio. And I also wrote a post about bonds overall. I’ll link to that. If you’re new to this, start there. LINK.
Only us junkers have noticed, but JUNK has been ON FIRE lately, so this portfolio is up on average about 10% this year. A few of the bonds have become pricey over the last weeks.
But I still think it’s a good example for investors who may be new to bonds or junk bonds. Fixed income can be more than a CD. And should be. My wife put this together with a little help from me and as I explained she is NOT a financial expert. So with a little work (and money), you could too. Click on the table to get a bigger version.
Here we go:
1. Advanced Micro Devices. This is actually a convertible bond with the “convertible part of it worth very little (convertible at 20…stock is around 3). So forget that. AMD is Intel’s only real competitor these days. Things aren’t that great for AMD these days with high debt and sales down,, but they have a solid backer in an investment firm from Abu Dabi. This is the high-risk play of the portfolio. A coin flip, if you will. But the wife thinks the odds of AMD of surviving are better than of it going under. So she made the call.
2. Alcoa. The large aluminum company. This bond is actually “investment grade” according to S&P. My wife calls this an industrial “too big to fail”. I thought the balance sheet was a bit heavy in debt…but they cut the dividend, so that means more money for bondholders.
3. Chiquita Brands. The longest maturity in the portfolio with 5 ½ years left. Bananas. My wife likes bananas.
4. Corrections Corp of America. These guys operate jails for a number of states. Anyone think that business is in a recession? Of course, there is no such thing as riskless. Nice short term bond.
5. Davita. I mentioned this bond in my J-Word Junk bond primer/rant. These guys operate kidney dialysis centers. As far as necessities go, that’s a service that is hard to do without.
6. Home Depot. It seems my wife single-handedly expects to keep these guys in business. She loves Home Depot. This is a bond that she might actually sell. It was bought below par and with less than 2 years left is at 102-104%. The highest graded bond in the portfolio at BBB+.
7. Jo-Ann Stores. This is an arts and crafts and sewing material retailer. Nothing is recession-proof, but these guys do ok when people make their own clothes or other stuff. The wife liked the stores, I liked the balance sheet. They have a credit line in excess of three times the bonds outstanding. And they have been buying the bonds back. S&P says CCC, the wife says…buy, buy, buy.
8. Owens Illinois. Only a year left on this one. Glass maker. Wife thinks they’ll make the payment too.
9. Seagate Technologies. Disk Drives. My wife takes WAY too many photos and has too much music. Always running out of space. Seriously though, business isn’t great, but these guys managed to issue new debt to the market so they should be able to refi by the time these bonds mature.
10. Starwood Hotels. Sheraton, Westin and several other brands. My figures that the collateral is good and if it comes to the worst we can turn in the bonds for a time-share or something.
That’s it. A nice little collection of junk, if you ask me. Short maturities. Somewhat diversified (no financials…hmmm) and a yield to maturity of 10.27% if nothing goes wrong. Too good to be true? The wife doesn’t think so, and neither do I.
Law360 (subscription) and the Financial Times are reporting that Vantis has filed a petition for a Chapter 15 bankrupcty for the US assets belonging to Stanford International Bank Ltd. (SIBL).
A good explanation of what Chapter 15 means is HERE. What I undertand is that Vantis is looking for SIBL's direct investments in the US. That is: eLandia, HSSO, Forefront and the Majestic Grille in Memphis among others. They can do so because SIBL has already initiated the liquidation process in Antigua.
They will NOT be looking for Stanford Group Company or the advisors' commissions. SGC as we have noted before was the personal property of Allen Stanford, NOT SIBL's.
The Ecuadorian government led by Rafael Correa has just launched a proposal to complete a quite impressive and unorthodox debt restructuring.
Ecuador is offering to repurchase its Global 2012 and Global 2030 bonds for cash at around 30 cents on the dollar according to this Bloomberg release.
It’s a great financial move, as the country will take advantage of the deep discount that its bonds are trading at and save a ton of cash going forward. Of course, the reason those bonds are trading so cheap is because they defaulted on them (failed to pay interest) back in November, not because they didn’t have the cash to pay, but because they claimed that the debt was contracted illegally.
These same bonds were trading close to par as recently as September 2008, so this chain of events has been quite shocking for holders of Ecuadorian debt.
Maybe its more shocking that people were actually surprised by all this. President Correa was voted into office with an anti-debt rhetoric, he created a commission to study the “legality” of the debt in 2007.
And in a complete shock said commission concluded that the 2000 restructuring in which the 2012 and 2030 bonds were born was an inconvenient and illegal deal for Ecuador, or pretty much the same conclusion that CORREA HIMSELF reached in this 2005 paper. LINK (In Spanish…don’t bother reading, it won’t win a Nobel).
What is it with Latin American leaders? They TELL you what they plan to do, and people are shocked when they do just that.
I hate to leave the blog without any new material for so long, so a quick update on the Stanford issue. First of all, you can get exceptional extended coverage of the case at Venepirámides (in Spanish) or the Stanford Watch at the Houston Chronicle. Someone also set up a twitter. (Don’t ask me to explain twitter…I still don’t get the blogging deal).
Summing up. In Antigua the courts authorized that SIB go into liquidation and Vantis the receiver becomes Vantis the liquidator. Here’s a good link from the BBC. You can hear Vantis on Radio HERE. Scroll to minute 32 which is where the Stanford part starts.
The liquidator also had bad news for SIB depositors, confirming that SIB was in fact very much akin to a ponzi scheme. Since SIB is in liquidation, depositors have become creditors. No distributions are expected any time soon and the bank could take as long as 5 years to “wind up”. This is unfortunate and probably reflects that liquid assets have been scarcer than I believed and perhaps the only Tier II assets are those in the CS account that was frozen by the SEC. (see Begun,,,,).
It is also unfortunate because it hinders and delays other legal action that depositors could take against third parties. How can you sue for losses, until you know how much those losses actually are? (You can...but this is a bother) A quick wind up of SIB would have been ideal.
In the meantime, the Houston receiver Ralph Janvey, had his motions to control assets in Antigua quashed, but he still managed to sue 66 US advisors for over $40 million in commissions from CD sales. Normally I would link the complaint, but it lists these advisors’ home addresses and that really wasn’t a good idea if you ask me.
Also the first interest “clawback” was achieved as an investor accepted to put aside some $15,000 he had received in SIB CD interest in the past, in exchange for getting his brokerage account unfrozen. LINK
Oustide the US, the Panamanian Authorities were accepting bids for the local Stanford Bank. LINK. The results of the bids weren’t to be disclosed immediately. LINK. The Venezuelan bank will go to auction again, after the first bidding process didn’t yield a result acceptable to the government. This time the government will not get a “premium” for the bank, all the money will go to recapitalizing the bank itself (so the investor is just paying himself and absorbing losses). LINK. And count Mexican soap opera actress Laura Zapata among Stanford’s victims. LINKLINK. Yes, that is her picture at the top of the post.
As for as the criminal case, Allen Stanford now has a lawyer, but he doesn’t expect charges to be brought for a couple of weeks. Oh…and the mother or his girlfriend defends his innocence. Shocking! LINK.
More interesting, however, is that David Finn, who is CFO Jim Davis’ attorney has a blog. Not really much case discussion, though…except for one little headline: “My baloney has a first name..it’s A-L-L-E-N". LINK Davis and Stanford were roomates at Baylor University back in the '70s.
I think this is the END of a beautiful friendship, Louis...I mean Allen.
As has been reported in the SEC complaints, Stanford International Bank (SIBL), classified its investment portfolio into Three categories or “Tiers”.
Tier 1 was for cash and cash-like instruments (short dated paper, etc.). Very important Tier. It’s a well-known banking fact that you can run an insolvent bank for years, as long as you have liquidity. Knowing that, SIB maintained around 10% of its deposits in cash (Tier 1). This was an important pitch point for salesmen and officers, as in “The bank has never failed to pay in XX amount of years”. There was never a problem...until there WAS a problem.
In late 2008, as the bank faced an onslaught of redemptions, this cash balance was reported as low as $28 million, prompting management to seek funds from Tier 2.
Tier 2 was the actual portfolio. According to testimonies given to the SEC, it was worth a bit over $1 billion as of December 31, 2007 (instead of the $6.3 billion in the “books”) and had dwindled to $850 million as of June 2008 and only $350 million at year end 2008. This portfolio was “overseen” (not actually managed) by Laura Pendergest-Holt and her team in Memphis.
Tier 3 was “everything else” and at the same time “very little”. Allen Stanford’s interview with ABC news gives a few clues about what exactly was and wasn't Tier 3 and how it was created. Here the interview again:
There are some great hints in his declarations. Forget about flying commercial or the Forbes list. He also said:
“Our returns in the “Boom Years” were lower than everyone else’s…No one is talking about that”
Ok. Let’s talk about it.
This goes straight to what was the Stanford “Business Model”. No Loans…just invest in securities. Back in the 90’s it was stocks and bonds (no hedge funds). Here is what Stanford was talking about:
SIB’s average returns from 1992 through 1999 were 15% per year. That figure, believe it or not, is quite feasible for that period, since the S&P averaged 20% total return and the Nasdaq 30% in those years. So SIB “underperformed”. That would also seem logical since SIB didn’t manage a straight equity or index portfolio. At the time they also invested in bonds. Fifteen percent may sound like a lot, but in the late 90s, if that was all you were making…you were an “underperformer”.
AS has stated many times almost wistfully that the portfolio made “only” 14% in 1999, while others were making 30% and more…because his strategy was “conservative”.
Let’s assume, for the sake of the argument that the 15% is correct and it may well be. However, the “smoothness” of the numbers is very suspect, since as good as the market was, it was quite volatile also as returns on the indices reflect.
At some point, the portfolio made more…or more likely less than stated. Take 1994 for example, when the markets turned in a small loss and SIB stated a return of 13.9%. Perhaps it was only 5%.... but for the sake of continuing the business…they upped the number and created a “receivable” or something. Basically, they’d give it back when the market returned to normal.
AND THE MARKET COMPLIED. It was up almost 40% in 1995 and fresh money continued to come into the bank, so possibly they paid that “receivable” back with ACTUAL gains in excess of what was booked in subsequent years. (As a side note…1995 and 1996 are the years with identical returns.).
So the numbers WERE being “managed” or smoothed out…if you will. Heck, even GE was “smoothing” its results, right? (GE was accused of doing JUST THAT back in those years). And money was always coming in (deposits), so if the market bounced back, there was more “raw material” with which to recoup any “temporary” losses.
But then 2000 came around and it was bad. Especially bad for equity and incredibly bad for those high-flying internet and tech stocks that everyone was playing around with. The Nasdaq lost 40% that year, but if you were in the wrong place you could easily have lost 80-90%. It wasn’t only the Nasdaq. The GE’s and IBM’s of the world were down sharply also.
SIBL claimed to have made 14.2% that year. That’s highly unlikely. Let’s assume that instead of that, SIB took a 20% loss. On a $600 million portfolio, you’re looking at about a $200 million difference and bankruptcy. But the common wisdom was “ the market always bounces back” and that had been the experience in the past. So a profit was booked where a loss should have been.
The problem with accounting for “fake” profits is that even fake accounting still has to do a double entry. So when you book that “fake” profit, you also book a “fake” asset. And this most likely how the TIER 3 investment category was born. "NOTHING was booked as an asset".
(Side note: Early this year, Satyam announced that $1 billion was missing from its cash accounts. No one “stole” this money, it was the result of booking false profits).
We know the story of course. The markets didn’t rebound until late 2002 and in the meantime more money entered into SIB, it was invested and lost. More “fake profits”…more TIER 3 Assets.
(Side note: I ran a simulation with a portfolio that was 30% S&P, 30% Nasdaq and 40% a bond composite. An “index” or average portfolio if you will. I used SIB’s deposit/expense flow. That portfolio racked up a $4 billion “shortfall” by the end of 2008. So most of Tier 3 was/is probably “NOTHING”, despite all the money that has entered the bank).
There was no easy way out of this “death spiral”, particularly because of the high cost of SIB’s deposits. Because of high rates and commissions, expenses were running at over 12% of deposits per year (very consistently from 2000 on). So, to make an example, if you had $100 worth of liabilities (deposits) and only $50 worth of productive assets, you’d need to make those assets yield 24% JUST TO BREAK EVEN. Practically impossible. Ah…but those halcyon days of the ‘90s gave them hope.
At some point, these guys figured that this wasn’t working and they needed a new plan. It was important to keep deposits coming in, to move the real portfolio/deposit ratio up and they needed something to provide better returns than the market was delivering.
Two strategies appear to have emerged. The first was “private equity”. A company by the name of Stanford Venture Capital Holdings was set up. Some of the investments were made through that vehicle. Others directly by SIBL. Stanford’s website still has its “portfolio” of ptivate equity deals on it. These are all relatively small and almost without exception, terrible investments. As an example SIB sank $127 million dollars into eLandia alone during 2007 and 2008. Their remaining stake is TODAY worth less than $10 million. American Leisure Group is bankrupt. Health Solutions Systems seems to be heading to bankruptcy…and so on.
Where did the money for these investments come from? Book it to Tier 3. How much was it? It would be a matter of adding up, but $500 million, perhaps? How much is left? Not much. ($50 mm is my estimate). But there is always the “Majestic Grille” in Memphis. Enjoy a “Majestic Mimosa” with Brunch on Sundays.
The other strategy was to build up financial businesses along what it considered its ‘area of influence.” Here we have the development of Stanford Group Company (US) and the franchises in Venezuela, Panama, Ecuador, Colombia, Mexico and elsewhere. The important difference with the “other” strategy is that these banks and financial institutions were (are) NOT owned by SIBL and are NOT on SIBL’s books (any version).
These were (are) the property of Allen Stanford. That is why they are called “affiliated” companies. That of course begs the question; Where did the money to acquire these banks come from? SIBL NEVER paid a dividend. Allen Stanford did not have any other significant businesses. So the most likely answer has to be TIER 3. This could very well be the reason that there is supposedly a loan on the books to AS for $1.6 billion or so (although that could very well be something else).
Now in the cleanup of this mess, the liquidation of these institutions would provide money to Allen Stanford’s estate (which could then be theoretically used to satisfy SIBLs creditors). But they are also not worth much. We analyzed SGC in “Stanford vs. Stanford”. Probably worthless. Stanford Bank de Venezuela couldn’t be given away. Equity was declared “lost” and the bidder only had to put in capital (to the bank itself) and pay the government it's deposits. AS's estate will get nothing from that sale. The situation was probably similar elsewhere. The problem was, that although they were “affiliated” these institutions lived off Antigua. SGC took in a large part of its revenues from sales commissions of Antigua CDs. And AS provided capital when needed ($7 million in early 2008 to SGC, for example). The Venezuelan bank gave out domestic loans with Antiguan CDs as collateral. Good luck collecting on those. Without the support of the "mothership" in Antigua, these outposts were unviable.
The other question would be why was AS the owner and not SIBL? The logical answer would be to avoid scrutiny. If SIBL were to buy or set up a bank in Panama, for example, the local regulators might want to look at the books from Antigua. That could lead to some embarrassing questions.
Just so some of the non-financial professionals understand. Nowhere on Earth is a bank owner allowed to take out a loan from his own bank. It’s fraud…defined. What’s more, it’s common policy that bank officers get their personal loans elsewhere precisely in order to avoid such conflicts.
Once you’re on that slippery slope, anything goes. Personal expenses become “Image investments”. Cricket tournaments with $20 million prizes become “advertising investments”...etc. The WSJ in a 2002 article mentions a loan to the Antiguan government. Tier 3? Why not?
So if you kept up with all this, you should understand what Tier 3 contained: a few little somethings that were awful investments, some “anythings” that were definitely ill-advised, but mainly…a whole lot of “nothing”. But definitely NOT what was advertised in the financial statements.
You may also understand what AS was referring to when he mentioned “restatement” on the ABC interview. That will probably be his trial defense: “we messed up the accounting and should have “restated” our profits”. A seven billion dollar "OOPS"
You may also understand why he says “it wasn’t a ponzi”… because ponzis have no assets”. It didn't start as a ponzi. It was probably never really meant to be a ponzi, but it became one for all practical purposes.
Millennium bank was certainly more of a ponzi than Stanford and probably was never anything else. But SIBL was liquidating all its Tier 2 assets as it faced redemptions and was trying to pull cash out of its Tier 3 investments also. Had it been successful, it would have been left with NO assets. Then what would it have been? Call it a PONZ if you like, or perhaps Ponzi without the dot on the i.
(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 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.