In late April, following the SEC successfully obtaining a Preliminary Injunction freezing his assets, R. Allen Stanford’s moved to modify the Preliminary Injunction Order to permit him access to $10 million of the frozen funds to pay attorneys’ fees. Today the SEC filed an Opposition to that motion, arguing that Stanford is not entitled to access to these funds “because he has made no showing that he has sufficient personal assets to satisfy a judgment in this case, and he has failed to show how a modification of the Preliminary Injunction would be of any benefit to the victims of his fraudulent conduct.”
The SEC stated in its Opposition that Stanford’s operation was a “house-of-cards” and that his
fraudulent activity has profoundly impacted the lives of thousands of people world-wide. Stanford has left 21,500 investors holding certificates of deposit with little value (Receiver’s Report at 12); caused the closure of 33 offices and the termination of more than 1,000 U.S. employees (Id. at 9); created a long line of service providers and creditors who have little hope of payment. (Id.). Stanford has also burdened the receivership estate with $226.6 million of unpaid personal income taxes for 1999-2003. (Id. at 52).
The SEC added that despite Stanford’s unsupported claims that his companies had real assets and profits, “Stanford has provided no assistance to the Receiver in locating or repatriating assets to the United States. For example, Stanford has provided no assistance in accounting for approximately $1 billion in cash that the Receiver cannot reconcile with SIB’s financial records.”
On the specific legal point regarding the requested release of funds, the SEC stated that Stanford is not entitled to use his ill-gotten gains to pay for his defense. The SEC argues that when seeking to unfreeze funds for legal fees, a defendant must establish (1) that the frozen assets exceed possible disgorgement, and in many cases penalties, and (2) the release of funds for legal fees is also in the best interests of the victims.
Stanford, the SEC argued,
makes no showing – or argument — that he has sufficient assets to satisfy a disgorgement order in this case, and makes no showing that he has $10 million available to fund his defense. Further, Stanford makes no argument explaining how the release of funds to cover his legal bills would benefit the victims of his scheme. Simply put, Stanford has not: (i) accounted for investor funds that he fraudulently obtained; (ii) accounted for his personal assets or the assets of his companies; or (iii) assisted the Receiver in any way to identify or preserve assets for the benefit of the receivership estate.
Finally, the SEC states boldly in its conclusion that “[w]ith the exception of the Madoff matter, Stanford’s fraud is unprecedented in terms of scope and duration.”
