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Victim payout plan sought in Stanford's Ponzi case

By Jonathan Stempel

(Reuters) - Victims of Allen Stanford's alleged $7.2 billion Ponzi scheme may soon have a chance to submit claims, though it remains unclear how much of their losses they might ultimately recover or when that recovery might take place.

Ralph Janvey, the court-appointed receiver for Stanford's firm, asked a federal judge in Dallas for permission to set up a claims process, 2-1/2 years after the financier's arrest, a Wednesday court filing shows.

Approval could pave the way for investors to eventually recover at least some money lost in Stanford's alleged fraud.

Stanford, 61, faces 14 criminal charges and U.S. Securities and Exchange Commission civil charges over allegations he deceived investors who bought fake certificates of deposit from his Antiguan bank, Stanford International Bank Ltd.

The February 2009 lawsuit by the SEC came two months after Bernard Madoff's Ponzi scheme was uncovered.

Wednesday's filing is "a major step" toward returning money to victims, Kevin Sadler, a partner at Baker Botts representing Janvey, said in an email.

Though court-appointed examiner John Little and a committee of Stanford investors expressed disagreements over parts of the process at an October 13 court conference, "the court made clear at the status conference that the process should begin, and the receiver has acted accordingly," he added.

It is unclear how much money will be distributed, how any payouts will be calculated, and when distributions will begin.

"For investor claimants, the amount of the investor's net investment in the Ponzi scheme will be one of the most significant factors" in determining payouts, Janvey said.

Peter Morgenstern, a lawyer for the investors' committee, on Thursday declined immediate comment.

Little, in an email, said he would have preferred that the parties "fully explored" opportunities to cooperate in creating a claims process with Antiguan liquidators and the Securities Investor Protection Corp, which handles claims for investors whose brokerages fail. He also said the claims process will be expensive, and that the receivership has "limited" assets.


According to court papers, the receivership as of October 31 had $80.1 million of unrestricted cash, after accounting for professional fees and costs, and $96.6 million of "material" assets. It was also seeking $955.3 million through litigation.

This latter sum included $610 million from other Stanford investors and vendors, and $335 million in British, Canadian, Swiss and other accounts. Liquidators in Antigua have sought control of some of these accounts, court papers show.

The $7.2 billion figure reflects CDs on Stanford's books when the receivership was set up, not investor losses.

At the October 13 conference, Sadler said at least $2 billion of investor funds had been lost through a series of backdated fictitious loans. "If one wanted to consider a floor of money that's gone, that certainly would be a candidate," he said.

Stanford recently moved to a Houston federal detention center from the Butner Federal Correctional Complex in North Carolina, where he was treated for an addiction to an anti-anxiety medication.

His criminal trial is expected to begin in January in the federal court in Houston. Stanford is scheduled to be arraigned under his most recent indictment on November 28. That proceeding had been delayed because of his treatment at Butner.

On Thursday, U.S. District Judge David Hittner, who oversees the criminal case, barred Stephen Cochell, a lawyer for Stanford in the SEC case, from meeting his client at the Houston detention center until the criminal case is finished.

The judge said public comments by Cochell about Stanford's current mental status could impact the criminal trial. Cochell did not immediately respond to a request for comment.

Madoff is serving a 150-year prison term at Butner.

The civil case is SEC v. Stanford International Bank Ltd, U.S. District Court, Northern District of Texas, No. 09-00298. The criminal case is U.S. v. Stanford, U.S. District Court, Southern District of Texas, No. 09-00342.

(Reporting by Jonathan Stempel in New York, editing by Dave Zimmerman, Bernard Orr)