Posts Tagged ‘federal receiver’
Monday, February 15th, 2010
A brief update on Stanford (earlier posts are available here):
Evidentiary hearings scheduled for late January in the ongoing struggle for control over the financial assets of Stanford International Bank, Ltd. (SIB), the cornerstone of Allen Stanford‚Äôs financial-empire-turned-Ponzi-scheme, were cancelled by presiding US District Court Judge David Godbey.
As readers of this blog are aware, Antiguan liquidators Peter Wastell and Nigel Hamilton-Smith‚Äôs efforts to obtain recognition in the US for their Antiguan wind-up of SIB, and US receiver Ralph Janvey‚Äôs competing efforts to do the same in Canadian and UK courts, were to culminate in a hearing set for late last month.¬† But shortly after a scheduled status conference on pre-hearing matters, the evidentiary was cancelled.
Recent reporting by Reuters (available here) may provide a reason for the change: Reuters reported on February 5 that the liquidators and Mr. Janvey may, in fact, be settling. According to staff writer Anna Driver, a dispute over $370 million in assets traced to Stanford, as well as $200 million located in Switzerland and the UK, are driving the parties toward a deal.
But there may be other pressures as well. The Associated Press reported (here) that last Thursday, Judge Godbey indicated his intent to rule on a request by third-party investors to commence their own involuntary bankruptcy filing, thereby replacing Mr. Janvey as a receiver.
Monday, December 14th, 2009
An update regarding Peter¬†Wastell and Nigel Hamilton-Smith’s¬†dispute with¬†federal Receiver Ralph Janvey over¬†control of Stanford International Bank Ltd. (SIB)’s financial assets, and¬†the 13th in a series on this blog covering the dissolution of Allen Stanford’s erstwhile financial empire and alleged international “Ponzi scheme” – a dissolution playing out in Montreal, London, and Dallas.
Wastell and Hamilton-Smith, liquidators appointed by Antiguan regulators for the purpose of winding up SIB in Antigua, and Janvey – a federal Receiver appointed at the behest of the US Securities and Exchange Commission to oversee the dissolution of Stanford’s financial interests in connection with an enforcement proceeding in the US – have¬†sought recognition of their respective efforts in courts outside their home jurisdictions.¬† Each has met with mixed results: Janvey’s request for recognition was denied in the UK, while Wastell and Hamilton-Smith, originally recognized in Canada, have been removed and replaced by a Canadian firm.¬† Each of these results has been appealed.
Meanwhile, Wastell and Hamilton-Smith have sought recognition of the Antiguan wind-up in Janvey’s home court pursuant to Chapter 15 of the US Bankruptcy Code.¬† Initial briefing was submitted several months ago; supplemental filings (including copies of the decisions rendered in London and Montreal) have been trickling in.¬† US District Court Judge David Godbey has set an evidentiary hearing for mid-January 2010.
Messr’s. Wastell and Hamilton-Smith’s supplemental¬†brief, filed last week in Dallas,¬†addresses three issues, apparently raised by Judge Godbey during a recent conference call with the parties:
The Current State of Fifth Circuit Law on What Constitutes an Entity’s “Principal Place of Business,” Including Whether Stanford International Bank’s (“SIB”) Activities Were Active, Passive or “Far Flung.”
The liquidators acknowledge that while Chapter 15 of the US Bankruptcy Code doesn’t refer to an entity’s “principal place of business” in dealing with a cross-border insolvency,¬†many US courts nevertheless analogize an entity’s “principal place of business” to its “center of main interests” (COMI) for purposes of determining the forum that should host the “main case.”¬†¬† The American approach is, according to the liquidators, similar to that followed by European courts.
That said,¬†what constitutes an entity’s¬†”principal place of business” is not a settled¬†question under US federal case law: The Fifth Circuit (where the Stanford matters are pending) applies a “total activity” test, which is also applied by the Sixth, Eighth, Tenth and Eleventh Circuits, whereas the Ninth Circuit applies a “place of operations” test, the Seventh Circuit applies a “nerve center” test, and the Third Circuit examines the corporation’s center of activity.¬† The liquidators suggest in a footnote that these “varying verbal formulas” are functional equivalents, and “generally amount to about the same thing” under nearly any given set of facts.
A significant portion of the liquidators’ brief is devoted to applying the facts of SIB’s dissolution to the Fifth Circuit’s “verbal formula;” i.e., “(1) when considering a corporation whose operations are far-flung, the sole nerve center of that corporation is more significant in determining principal place of business, (2) when a corporation has its sole operation in one state and executive offices in another, the place of activity is regarded as more significant, but (3) when the activity of a corporation is passive and the ‚Äėbrain’ of that corporation is in another state, the situs of the corporation’s brain is given greater significance.”¬† See J.A. Olson Co. v. City of Winona, 818 F.2d 401, 411 (5th Cir. 1987).
The liquidators argue:
- SIB’s principal place of business was in Antigua;
- SIB’s activities were neither “passive” nor “far flung” and thus the “nerve center” test should not predominate; but
- even if SIB’s operations were passive or far flung (which they were not), its “nerve center” was in Antigua.
The Relationship Between SIB and the Financial Advisors Who Marketed SIB’s CDs to Potential Investors.
The liquidators are emphatic that financial advisors who marketed and sold SIB’s CD’s to potential investors were not, in fact, agents of SIB.¬† Rather, “they operated individually under management agreements with SIB, or were employed by other Stanford companies which had management agreements with SIB . . . .¬† These advisors worked for Stanford related entities all over the world, including Antigua, Aruba, Canada, Colombia, Ecuador, Mexico, Panama, Peru, Switzerland, and Venezuela, as well as in the United States . . . . All of the financial advisors marketed the CDs but none had authority to contract on behalf of SIB . . . . Further, Liquidators understand that the financial advisors sold other Stanford-related products besides SIB CDs.”¬† Those advisors who were located in the US ‘worked for an entity called the Stanford Group Companies (“SGC”), and though they marketed SIB CDs to potential depositors, they were not agents of SIB.’”
Put succinctly, the liquidators’ argument is that an international network of independent sales agents does not create the sort of “agency” that would alter cross-border COMI analysis under US law: “[US] Courts analyzing similar circumstances have consistently held that a company’s COMI or its principal place of business is in the jurisdiction where its operations are conducted even if the company has sales representatives in other jurisdictions.”
The “Single Business Enterprise” Concept as Part of the “Alter Ego” Theory of Imposing Liability.
¬†Finally, the liquidators argue that SIB is neither part of a “single business enterprise” nor an “alter ego” of other Stanford entities or of Stanford’s senior managers¬†- and their respective “principal place[s] of business” in the US cannot be imputed to SIB for purposes of determining SIB’s COMI.¬† This is so, according to Messr’s. Wastell and Hamilton-Smith, because:
- The doctrine of “single business enterprise” liability is a particular creature of Texas law – which, in addition to being inapplicable to an Antiguan-chartered international bank such as SIB, is itself no longer viable even in Texas.¬† See SSP Partners v. Gladstrong Invs. (USA) Corp., 275 S.W.3d 444, 456(Tex. 2008) (rejecting the theory because Texas law does not “support the imposition of one corporation’s obligations on another” as permitted by the theory); see also Acceptance Indemn. Ins. Co. v. Maltez, No. 08-20288, 2009 WL 2748201, at *5 (5th Cir. June 30, 2009) (unpublished) (recognizing the holding of Gladstrong).
- The doctrine of “alter ego” does not apply because its primary use is to permit corporate creditors to “pierce the corporate veil” and seek recourse from the corporation’s parent or individual shareholders.¬† Here, the liquidators argue, Mr. Janvey is attempting to pierce the corporate veil in the opposite direction:¬† He is attempting to permit creditors of a corporate parent or individual principals to seek recourse from a distinct and separate foreign subsidiary.¬† Such “reverse veil piercing” is properly obtained (if at all) through the “extreme and unsual” remedy of substantive consolidation through bankruptcy.¬† However, liquidation of the Stanford entities through a federal bankruptcy proceeding is something Mr. Janvey has, to date,¬†”studiously avoided.”
- The equitable purposes of the “alter ego” doctrine would be frustrated in this case.¬† The “injustice” that “alter ego” relief is designed to reverse would, in fact,¬†only be furthered where SIB investors would see their recoveries diluted by creditors of other Stanford entities.
Mr. Janvey’s response is due December 17.
Monday, November 23rd, 2009
A brief but important update regarding Antiguan liquidators Peter Wastell and Nigel Hamitlon-Smith’s pending request for US recognition of their wind-up of Stanford International Bank, Ltd. (SIB):
US District Court Judge David Godbey has set an evidentiary hearing to determine whether SIB’s center of main interest (COMI) is Antigua – or whether, as urged by US receiver Ralph Janvey, Dallas-based enforcement proceedings commenced by the US Securities and Exchange Commission (SEC) and involving numerous Stanford entities (including SIB) should serve as SIB’s “main case.”
As readers of this blog are aware, Wastell and Hamitlon-Smith’s request to modify an injunction in the SEC enforcement matter and seek US recognition of their Antiguan wind-up proceeding was previously granted over Mr. Janvey’s objection.¬† Recognition of the Antiguan wind-up already has been granted in the UK through London’s High Court of Justice (Chancery Division) – and already has been the source of some scholarly commentary in that jurisdiction.¬† Prior posts on the UK ruling – as well as on other aspects of the Stanford case – are available here.
Judge Godbey’s evidentiary hearing is scheduled for January 21, 2010.¬† The parties’ proposed briefing schedule is available here.
Monday, September 21st, 2009
A brief update in the ongoing struggle between Antiguan liquidators Peter Wastell and Nigel Hamilton-Smith and federal receiver Ralph Janvey over control of the financial assets previously controlled by Sir Allen Stanford, including Stanford International Bank, Ltd. (SIB):
Readers of this blog will be aware that several recent court rulings – including a detention order for Sir Allen issued by the US District Court and recognition orders issued in England and Canada – have threatened to undermine Mr. Janvey’s position in a Dallas receivership before US District Judge David Godbey, where Stanford’s financial assets are under court control.¬† For details on each of these orders and on other aspects of the Stanford matters, see prior posts located¬†here, here, here, here, here, here, here, and here.
Recently, however, Mr. Janvey may have gotten a little help . . . from North of the border.
In related rulings issued Friday, September 11, Mr. Justice Claude Auclair of the Quebec Superior Court found that Vantis Business Recovery Services – a division of British accounting, tax, and advisory firm Vantis plc, and the firm through which Messr’s. Wastell and Nigel Hamilton-Smith were appointed liquidators for SIB – should be removed from receivership of SIB’s Canadian operations.
According to a report by Toronto’s Globe¬†and Mail, Mr. Justice Auclair found that Wastell and Hamilton-Smith’s firm acted improperly in destroying original computer evidence from SIB’s Montreal branch office and “stonewalled efforts by Quebec’s financial authority – the Autorit√© des march√©s financiers [the Financial Market Authority] – to get access to the copied information.”
In verbal rulings that will cost the liquidators control of the Canadian receiverhsip (which will now go to Ernst & Young Canada), Mr. Justice Auclair reportedly “derided” Vantis’ “high-handed” behavior after an Antiguan court made appointments to wind down SIB – and its Montreal office – and recover funds for alleged Canadian victims.
Reacting to arguments that Antiguan banking privacy laws prevented direct disclosure of information to the Canadian authorities and that destruction of SIB’s Montreal computer databases was necessary to keep them out of the hands of creditors seeking to repossess SIB’s Montreal office, Mr. Justice Auclair is said to have retorted, “As if we don’t have any safes in Canada to protect and preserve” such materials.
As if, indeed.
In pleadings filed with the US District Court, Mr. Janvey previously complained¬†that¬†the liquidators “erased all SIB electronic data from SIB servers in Montreal, removed data to Antigua, and attempted to seize over US$21 million in SIB funds through an ex parte legal proceeding in which they failed to disclose to the Canadian court the existence of [the receivereship] and the appointment of the US Receiver”¬† Messr’s. Wastell and Hamilton-Smith have, of course, indignantly disclaimed Mr. Janvey’s “scurrilous and specious accusations of misconduct” regarding their administration of Canadian assets.
Whether or not it is “scurrilous” or “specious,” the liquidators’ conduct has apparently created controversy with more than Mr. Janvey alone,¬†if the Globe and Mail’s account is accurate.
Meanwhile, the parties await Judge Godbey’s ruling in Dallas.
Tuesday, September 8th, 2009
Several weeks have passed since Antiguan liquidators Peter Wastell and Nigel Hamilton-Smith and federal receiver Ralph Janvey briefed US District Judge David Godbey on the liquidators’ request for US recognition of their proposed Antiguan liquidation of Stanford International Bank, Ltd. (SIB).
Readers will recall that Messr’s. Wastell and Hamilton-Smith have been at odds with Mr. Janvey, a federal receiver appointed in Dallas’ U.S. District Court for the purpose of administering not only SIB, but all of the assets previously controlled by Sir Allen Stanford (links to prior posts can be found¬†here).¬† Those assets and their creditors span at least three continents – North America, South America, and Europe – and have spawned insolvency proceedings in several countries.
One of the preliminary questions in these proceedings is which of them will receive deference from the others.¬† Of particular interest is which proceeding – and which court-appointed representative – will control the administration of SIB.¬† The¬†Eastern Caribbean Surpeme Court (Antigua and Barbuda)¬†has found, perhaps predictably,¬†that SIB’s liquidation is to be adminsitered in Antigua.¬† It also has found that Mr. Janvey has no standing to appear as a “foreign representative” or otherwise on behalf of SIB or other Stanford entities.
In London, the English High Court of Justice, Chancery Division’s Mr. Justice Lewison reached a similar conclusion in early July.¬† Based on a determination under English law that SIB’s “Center of Main Interests” (COMI) is in Antigua, he designated Messr’s. Wastell and¬†Hamilton-Smith as “foreign representatives” of SIB for purposes of Stanford’s English insolvency proceedings.
In Dallas, meanwhile, Judge Godbey has permitted the Antiguan liquidators¬†to commence a Chapter 15 proceeding under the US Bankruptcy Code and to make application for similar recognition of SIB’s Antiguan liquidation in the US.¬† Messr’s. Wastell and Hamilton-Smith and Mr. Janvey have each briefed the question of whether, under US cross-border insolvency law, that liquidation ought to be recognized here as a “foreign main proceeding” – and, more specifically, whether Antigua or the US is the properly designated¬†COMI for SIB.
In briefs submitted over six weeks ago, the liquidators urged a finding consistent with that of the English and Antiguan courts.¬† They argued essentially that a debtor’s “principal place of business” is essentially the location of its “business operations,” and referred repeatedly to SIB’s undeniably extensive physical and administrative operations in Antigua.
In opposition, Mr. Janvey argued strenuously for a finding that SIB’s COMI is, in fact,¬†the US.¬† He did so relying largely on the contention that, despite SIB’s physical location and operations in Antigua, Sir Allen allegedly “spent little time in Antigua” – and that Sir Allen¬†effectively managed and controlled SIB from the US.¬†¬†Mr. Little, the examiner appointed by Judge Godbey to assist him in overseeing the receivership, generally concurred with Mr. Janvey.
Last week, Mr. Janvey’s contention may have received a set-back.
The United States Fifth Circuit Court of Appeals recently upheld a detention order confining Sir Allen to¬†the US pursuant to a separate federal indictment issued against him – and in so doing, concurred in the lower court’s conclusion that Sir Allen’s ties to the State of Texas were “tenuous at best.”¬† The Fifth Circuit’s 3-judge panel¬†recognized that Stanford “is both an American citizen and a citizen of Antigua and Barbuda, and has resided in that island nation for some fifteen years,” and further noted:
Stanford admitted that he established a new residence in Houston in preparation for his required presence during the pendency of the case against him.¬† Several of his children have recently moved to Houston to be closer to him during the proceedings.¬† While Stanford did grow up in Texas, he has spent the past fifiteen years abroad.¬† His international travels have been so extensive that, in recent years, he has spent little or no time in the United States . . . .¬† [O]ne of Stanford’s former pilots [testified] that Stanford . . . engaged in almost non-stop travel on the fleet of six private jets and one helicopter belonging to [Stanford Financial Group] and its affiliates . . . .
On September 1, Messr’s. Wastell and Hamilton-Smith sought leave to file the Fifth Circuit’s order in support of their prior application for recognition, and over Mr. Janvey’s anticipated objection.
It appears that where Sir Allen’s indictment is concerned, home is where the corporate jet is.
But where SIB’s liquidation is concerned . . . where is COMI?
Sunday, July 12th, 2009
A flurry of pleadings this week precede Judge David Godbey’s anticipated ruling on Peter Wastell’s and Nigel Hamilton-Smith’s request for recognition of their liquidation of Stanford International Bank, Ltd. (SIB), now pending in Antigua.
As readers of this blog are aware, Messr’s. Wastell and Hamilton-Smith have been at odds with Ralph Janvey, a federal receiver appointed in U.S. District Court for the purpose of administering not only SIB, but all of the assets previously controlled by Sir Allen Stanford.¬† Those assets and their creditors span at least three continents – North America, South America, and Europe – and have spawned insolvency proceedings in several countries.
The Antiguan liquidators previously obtained permission from Judge Godbey – over Mr. Janvey’s opposition – to commence a Chapter 15 case in Dallas.¬† The liquidators then¬†sought recognition for their Antiguan liquidiation pursuant to the provisions of Chapter 15 – which Mr. Janvey has again opposed.¬† A recent post on this blog summarized the Antiguan liquidators’ reply to these objections.
This week, as scheduled, John Little – an examiner appointed by Judge Godbey to assist the Court in overseeing the receivership – filed papers summarizing his position on the liquidators’ request.
Before he did so, however, yet another court – this one in England – weighed in on the Stanford matters.¬† In a decision rendered on the eve of America’s July 4 holiday, the English Hight Court of Justice, Chancery Division (London)’s Justice Lewison found that Antigua – and not the US – should be SIB’s “Center of Main Interests” (COMI) under the UK’s 2006 Cross-Border Insolvency Regulations (the general equivalent of the US’s Chapter 15).
The crux of Mr. Justice Lewison’s 29-page decision, at least as it regards SIB’s COMI, rests both on the burden of proof to demonstrate COMI and on the nature of the evidence required to carry that burden.
The English decision holds, first,¬†that once certain prima facie¬†evidence is¬†introduced to¬†establish COMI in a particular jurisdiction, the presumption of COMI in that jurisdiction arises in favor of the foreign representative and it is the burden of a contesting party to defeat the presumption.¬† Second, the¬†decision holds that the¬†only evidence that counts in rebutting the decision is that which would be objectively ascertainable to third parties – specifically, creditors.
Mr. Justice Lewison’s analytical framework leads to¬†an emphasis on the outward, physical aspects of SIB’s business operations,¬†which the parties generally agree were centered in Antigua.
Mr. Little, the examiner whose 19-page brief was filed last Wednesday, respectfully disagrees with Mr. Justice Lewison.¬† The essence of Mr. Little’s analysis is that it is the location of the management of an enterprise that determines its COMI.¬† According to Mr. Little:
Banks are not just groups of tellers and form checkers, but institutions that gather money, pool it and invest it in the hopes of keeping the funds secure and making a profit.¬† Banks are more than the street corner branch offices or drive-through windows at which people make deposits, cash checks, pay bills and verify balances.¬† The weightiest activities of a “bank” are the activities involved in what a bank does with the money it gathers and manages.¬† To determine the locale of SIB’s COMI, the Court must determine where that activity was primarily carried out.¬† (Emphasis supplied).
Mr.¬†Little also argues that the English Court’s decision ought not to guide Judge Godbey’s determination of COMI.
In particular, he argues that Mr. Justice Lewison’s assignment of the burden of proof regarding COMI – to the Receiver who, under English law, must overcome a presumption of COMI in the foreign representative’s favor – is at odds with American case law.¬† American law, explains Mr. Little,¬†renders the COMI presumption of little weight and further assigns the burden of proof to the foreign representative seeking recogntion of a “main case” – and not to the foreign representative’s opponent.¬† Mr. Little argues that the “objective” evidence “ascertainable by a third party” is far different than that which an American court would consider, as borne out by relevant US decisions.¬† He suggests that a ruling made on such factors may, in fact,¬†provide a “roadmap” of sorts to parties who plan to defraud the public by permitting them to construct an “objectively ascertainable” – but sham – business in a jurisdiction of their choosing.
Finally,¬†Mr. Little acknowledges that the “public policy exception” to Chapter 15 – set forth at Section 1506 of the Code – is a very narrow one, but offers the observation that to the extent it may apply in this case, the SEC’s position in the matter should be construed as US policy.
On Friday, Mr. Janvey requested leave to file a supplemental brief¬†addressing various aspects of Mr. Justice Lewison’s decision.
Though Judge Godbey has yet to provide leave to file them, Mr. Janvey’s papers echo much of the same observations made by Mr. Little.¬† They also add some of Mr. Janvey’s own, additional arguments – one of which is that Mr. Justice Lewison’s reliance on an “objectively ascertainable” standard is a unique creature of the EU Insolvency Regulation, and finds no basis either in the UK Regulations (which should have controlled Mr. Justice Lewison’s decision) or in US law.¬† In particular, Mr. Janvey argues that the Eurofoods decision – a seminal decision on COMI rendered by the European Court of Justice, and which¬†formed the primary basis for Mr. Justice Lewison’s decision¬†- imposes an unnecessary restriction on the evidence which ought to be reviewed by an American court (or, for that matter, by an English court) for this purpose.
In fact,¬†Section 1508 itself provides that in interpreting phrases such as “center of main interests,” “the court shall consider” how those phrases have been construed in other jurisdictions which have adopted similar statutes.¬† As a result, considerable ink¬†already has been spilled in the US over the EU Regulation, Eurofoods,¬†and foreign decisions generally and their interpretive effect on determing COMI in a US Chapter 15 case.¬†¬† In a recent and¬†extensive discussion of the interpretatation of “COMI”¬†as it¬†appears in Chapter 15, Judge Bruce Markell discusses both the EU Regulation and Eurofoods, and¬†observes that
a commonality of [US] cases analyzing debtors’ COMI demonstrates that courts do not apply any rigid formula or consistently find one factor dispositive; instead, courts analyze a variety of factors to discern, objectively, where a particular debtor has its principal place of business. This inquiry examines the debtor’s administration, management, and operations along with whether reasonable and ordinary third parties can discern or perceive where the debtor is conducting these various functions.
See In re Betcorp, 400 B.R. 266, 290 (Bankr. D. Nev. 2009) (emphasis supplied).
Perhaps unfortunately for Mr. Janvey, Nevada’s Judge Markell sounds a bit like London’s Mr. Justice Lewison.
Saturday, June 27th, 2009
Nearly two weeks ago, this blog highlighted further scuffling in the ongoing contest for administrative control between Ralph Janvey – a federal receiver appointed at the SEC’s behest to seize and administer financial assets once controlled by Sir Allen Stanford, and¬†Peter Wastell and Nigel Hamilton-Smith – English¬†liquidators charged with¬†liquidating¬†Stanford International Bank, Ltd. (SIB), an¬†Antiguan entity through which Stanford did significant amounts of business.
To summarize prior posts¬†- available by linking here – Wastell and Hamilton-Smith have sought recognition of SIB’s Antiguan liquidation through a Chapter 15 case commenced before U.S. District Judge David Godbey in Dallas.¬† Janvey, along with the SEC and the Internal Revenue Service, vehemently oppose recognition of the Antiguan liquidation as the “main proceeding” in the Stanford entities’ administration.
In an extensive brief filed earlier in the month, Mr. Janvey – joined by the SEC in separate briefing¬†- detailed his reasons for doing so.¬† In essence, Mr. Janvey and the SEC claim that the “center of main interests” (COMI) of an investment fraud – which the SEC alleges Stanford¬†perpetrated – is headquartered where the fraud is . . . and not from the presumptive location where the victims were led to believe a legitimate business was run.¬† They also appear to place heavy reliance on the fact that, though SIB was physically located in Antigua, it was not authorized to do regular business with local residents – and its liquidation therefore resembles numerous hedge fund liquidations that, to date, have experienced difficulty obtaining recognition as foreign “main proceedings” in other US Bankruptcy Courts.
This week, Mess’rs. Wastell and Hamilton-Smith answered Janvey’s argument.
In a 25-page reply brief, supported by extensive Appendices, Wastell and Hamilton-Smith explain that Janvey’s “fraud-based” argument is beside the point – as is the fact that SIB was maintained primarily for “offshore” operations in the US, South America, and Europe.
Instead,¬†the liquidators claim that the extent of SIB’s physical operations in Antigua make its liquidation¬†far different from the “letter-box” entities in Caribbean tax havens that US Bankruptcy Courts have, to date,¬†been reluctant to recognize.¬† Wastell and Hamilton-Smith rely heavily on a California decision – In re Tri-Continental Exch. Ltd., 349 B.R. 627 (Bankr. E.D. Cal. 2006) -¬†which involved alleged “sham” insurance entities that sold fraudulent insurance policies to US citizens through a network of domestic brokers and agents, but¬†whose 20 employees and only office were operated in St. Vincent and the Grenadines.¬† Over the objection of a US judgment creditor, the U.S. Bankruptcy Court in Tri-Continental recognized as the foreign “main proceeding” a liquidation commenced through the Eastern Caribbean Supreme Court, holding that even through the fraud was perpetrated primarily in the US and Canada, the debtors’ COMI was in St. Vincent and Grenadines because the debtors “conducted regular business operations” there.¬† 349 B.R. at 629.
Using this analysis, Wastell and Hamilton-Smith argue that SIB’s Antiguan liquidation should likewise be recognized as a foreign “main proceeding” since, as even Mr. Janvey acknowledges, a debtor’s COMI is tantamount to its “principal place of business” under US law.¬† According to the liquidators, a debtor’s “principal place of business” is essentially the location of its “business operations,” and their brief¬†refers repeatedly to SIB’s extensive physical and administrative operations in Antigua.¬† Wastell and Hamilton-Smith appear to tiptoe around Mr. Janvey’s argument that the Court should look to the debtor’s¬†”nerve center” (in this case, the location of executive decisions) where a business’s operations are “far-flung,” using a brief (and conclusory) footnote to draw a distinction between the Stanford entities’ admittedly “far-flung” sales, on the one hand, and its operations on the other – which, according to the liquidators, were concentrated exclusively in Antigua.
Judge Godbey’s appointed examiner is due to weigh in on these issues shortly after the US July 4 holiday.
Tuesday, June 16th, 2009
This blog has intermittently followed the Texas-sized contest for control over now-defunct financial and investment entities once operated by Sir Allen Stanford.¬† That contest has pitted Antiguan liquidators Peter Wastell and Nigel Hamilton-Smith against federal receiver Ralph Janvey.¬† Prior posts are located here, here, and here.
Approximately one month ago, US District Judge David Godbey permitted Messr’s. Wastell and Hamilton-Smith to commence a Chapter 15 case on behalf of Stanford International Bank (SIB), headquartered in Antigua.¬†¬†A hearing regarding the liquidators’ request for¬†US recognition of SIB’s liquidation is tentatively calendared for mid-July.¬† The parties have submitted a joint status report and have also filed further briefing on the question of the Stanford entities’ “Center of Main Interests” (COMI) -¬†which the parties believe will¬†determine the location of¬†a “main proceeding” for the¬†Stanford entities, and will further determine what (if any)¬†recognition US courts will give that proceeding.
Briefing and evidence submitted to date provides a preview of the parties’ positions, as well as on the issues that the Judge Janvey will need to address:
- COMI.¬† A supplemental¬†affidavit submitted by Mr. Hamilton-Smith in support of recognition appears to stress both (i) SIB’s corporate separation from other Stanford entities; and (ii) its function as the effective “nerve center” of global Stanford investment operations.¬† In¬†a 50-page response to the Liquidators’ petition for recognition, Mr. Janvey argues that (i) the Stanford entities’ principal interests, assets, and management are not in Antigua; (ii) SIB was a mere “shell” for a fraudulent scheme¬†headquarted in, and implemented from, the US; and (iii) COMI is the location from which the fraud emanates, and not from the location where investors have been duped into believing a legitimate business was run.¬† And lest we forget matters of policy,¬†the Receiver offers the somewhat conclusory arguments that because a receivership (rather than a bank liquidation) is the appropriate means of investigating a fraud, because the Antiguan government is somehow too close to this liquidation, and because the liquidators have allegedly attempted to “end run” the Receivership by obtaining a recognition order in Canada (an allegation bitterly contested by the Antiguan Liquidators), recognition of a Chapter 15 would be against public policy.¬† A concurrent response filed by the SEC largely concurs in these arguments.¬† The SEC appears to rely heavily on the US citizenship of Mr. Stanford and most members of his board of directors (in fact, “Sir Allen” holds joint US-Antiguan citizenship), the purported location of management¬†decisions (according to the SEC, within the US), and the comparative dollar volume of¬†SIB investment sales in the US¬†as the primary basis for opposing the request to recognize SIB’s Antiguan liquidation as the “main proceeding.”
- Substantive Consolidation?¬† The parties’ briefs to date raise the issue of substantive consolidation (or “aggregation”).¬† The Liquidators advise Judge Godbey that they expect the Receiver to argue in support of substantive consolidation of the Stanford entities.¬† Mr. Janvey never directly addresses his position on substantive consolidation, calling it a “bankruptcy question” which is appropriate only in the event that multiple Stanford entities find themselves in bankruptcy in the US (a possibility triggered by filings briefly mentioned below).¬† However, Janvey goes on to reiterate his position that the Stanford entities must be treated as part of a single, integrated receivership, since the Stanford entities operated as a single “integrated network.”
- Involuntary Proceedings?¬† The parties’ joint status report mentions a request by certain investors for permission to file involuntary bankruptcies in the US against one or more of the Stanford entities.¬† That request has been opposed by the Receiver, who argues that rather than bankruptcy, a federal receivership (i) is really the best way to adminsiter an alleged Ponzi scheme; (ii)¬†protects creditors’ and investors’ due process (and bankruptcy doesn’t?!);¬†and¬†(iii) provides the maximum degree of flexibility, essential to the equitable relief and redress this case requires.¬† The Examiner disagrees with the Receiver, suggesting that Judge Godbey can – and, indeed,¬†should – evaluate the relative merits of a bankruptcy (rather than a receivership) for the Stanford entities, but cautions that the investors must demonstrate the relative benefits of such a proceeding vis √° vis a receivership.
- Cooperation?¬† In a now-familiar refrain, the Receiver and the Antiguan Liquidators blame each other for failing to cooperate, all the while holding out their own respective proposed cooperation schemes.¬† Mr. Hamilton-Smith’s affidavit (mentioned above) proposes a general framework of cooperation in the event that a request for recognition of SIB’s liquidation is approved.¬† The same investors seeking permission to commence an involuntary proceeding (also mentioned above) argue that, in fact, Chapter 15 provides the best¬†vehicle for¬†cross-border coordination no matter where the “center of main interests” is ultimately determined.
Further briefing – and some decisions – are due later in the month.
Overall, it’s shaping up to be a hot summer in Texas.
Saturday, May 16th, 2009
A¬†prior post on¬†this blog mapped out the field of combat in the brewing battle between SEC receiver Ralph Janvey and Antiguan liqudators Nigel Hamilton-Smith and Peter Wastell for control of the now-defunct financial empire of Sir Allen Stanford, the native Texan who acceded to Antiguan knighthood¬†but who now stands accused of running an alleged¬†world-wide Ponzi scheme.
That battle has now commenced.
To review, the Securities and Exchange Commission obtained appointment of a receiver for Stanford’s assets and the Antiguan government appointed liquidators for Stanford International Bank, Ltd. (SIB) within 3 days of one another.¬† The Receiver’s and the liquidators’ initial attempts to cooperate¬†degenerated into a battle for control over global efforts to marshal assets and make distributions to creditors.
The parties recently brought their disputes before the US District Court in Dallas, where Judge David Godbey must now decide (i) whether his previously-issued receivership order (which prohibited the commencement of any bankruptcy proceeding during the pendency of the SEC receviership) should be modified to permit the liquidators’ commencement of a Chapter 15 case regarding SIB; and (ii) whether the Chapter 15 proceedings (if any) ought to be referred back to the Dallas bankruptcy court (itself a division of the District Court).
A hearing on these disputes has yet to be scheduled.¬† However, the parties have put forth the following arguments (to see the parties’ respective briefs, click on¬†each applicable party’s name):
- The US Government.¬† The federal government – and more specifically, the SEC and the Internal Revenue Service¬†- oppose the commencement of a Chapter 15.¬†¬†
The IRS complains that doing so will disrupt its efforts to litigate tax claims against Sir Allen.¬† In essence, the IRS trusts Judge Godbey’s ability to facilitate this litigation more than it does the Antiguan court system.¬† It also warns that the Antiguan liquidation scheme will not respect the IRS’s asserted tax liens against Stanford’s assets – including SIB assets – and will not sufficiently protect US taxpayers and investors.
The SEC, in an argument that appears somewhat circular, reminds Judge Godbey that he originally imposed a stay on extraneous litigation in connection with the receivership; therefore, that stay ought not to be modified because . . . to do so would¬†countenance extraneous litigation.
In a footnote, the SEC signals its willingness to appeal an adverse ruling by noting that where the receivership order has already been appealed by other third parties, Judge Godbey is without jurisdiction to make any further amendments to it – but must instead preserve the status quo.¬† At a substantive level, the SEC intimates that the¬†pre-liquidation relationship between SIB and the Antiguan goverment was overly cozy and that because SIB lent over US$100 million to the Antiguan government (and holds approximately $84 million in receivables payable by the Antiguan government), the Antiguan court’s judgment (and, by extension, that of the liquidators) in handling the Antiguan liquidation is not to be trusted.¬† At an equitable level, the SEC argues that the Antiguan liquidators may not urge the Antiguan courts to ignore the SEC’s receivership, then request that Judge Godbey recognize their liquidation.
- The Receiver.¬†¬†Mr.¬†Janvey¬†- himself acting as the arm of the District Court’s equitable jurisdiction¬†- argues that¬†the Court’s¬†exclusive control over the Stanford entities through his receivership is . . . well, equitable.¬†
Janvey’s 24-page brief is generally consistent with that of the SEC and, in the end, reduces itself to the¬†old adage that “there are too many cooks in the kitchen”:¬†It accuses Messr’s. Wastell and Hamilton-Smith of grabbing for control of substantially all of the¬†Stanford entities’¬†assets through their administration of one Stanford entity, of attempting to “end run” the Texas receivership through a Canadian proceeding, of standing idly by while the Antiguan government seeks to appropriate Antiguan real estate otherwise available for general creditors’ benefit, and of generally hampering the Receiver’s job.
Mr. Janvey further argues there is nothing to preclude the District Court from exercising its very broad equitable powers to enjoin a Chapter 15 proceeding.
- The Examiner.¬† In¬†a thoughtful brief, John Little – an Examiner appointed by Judge Godbey to assist him in running the receivership – advises the Court that, in fact, it is a good idea to first permit the commencement of a Chapter 15 case, then to address the validity of the Antiguan liquidators’ requests for recogntion on their own legal and factual merits.
Essentially, Mr. Little, while not disagreeing that a District Court sitting in equity has broad discretion, suggests that Judge Godbey utilize that discretion to grant the liquidators’ request, then¬†determine (i) whether¬†Messr’s. Hamilton-Smith’s and Wastell’s request for recognition is viable or otherwise impermissible on the grounds that¬†SIB is a “foreign bank,”¬†ineligible for Chapter 15¬†relief; and (ii) if recognition applies, whether SIB’s “center of main interests” is Antigua, or elsewhere.
- The Liquidators.¬† Messr’s. Hamilton-Smith and Wastell call the Receiver’s and the SEC’s mud-slinging exactly what it is . . . then waste precious little time in slinging their own.
In a number of reprises, all of which¬†end in the same refrain – “The Pot is Calling the Kettle Black” – the Antiguan liquidators bristle with indignance at the misconduct alleged of them, accuse Mr. Janvey and his federal government allies of misstating both the facts and the law, and point out that many of the “parade of horribles” supposedly arising in Antiguan insolvency proceedings apply with equal force (or much worse) in US-based federal equitable receiverships.
They note, for example, that Judge Godbey’s refusal to entertain a request for recognition will do nothing to prohibit courts with Stanford-related insolvency proceedings now pending in the UK, Switzerland, and Canada from refusing the same recogntion to Mr. Janvey – and will therefore fail to accomplish the global administration and control Mr. Janvey seeks.¬† Likewise, the IRS’s complaint that Antiguan insolvency proceedings do not embrace a priority scheme analogous to the US Bankruptcy Code strikes Messr’s. Hamilton-Smith and Wastell as ironic, since the distribution that arises under a federal receivership is entirely arbitrary, and effectively outside any statutory distribution scheme (including the US Bankruptcy Code’s).¬†
Amidst the name-calling and the attempts to find precedent in a federal receivership which appears, by all accounts, to be one of first impression, it may be easy to miss the importance – and the potential – of the wide discretion provided to the US District Court¬†in Chapter 15.
This discretion appears in at least two ways.
First, a US Court applying Chapter 15 is generally free to communicate and coordinate insolvency proceedings directly with courts of other jurisdictions.¬† Prior to Chapter 15’s enactment, it was common practice for separate courts administering a multi-national insolvency to confer directly by means of “protocols” specifically designed for the purpose of administering the case at hand.¬† These “protocols” – often individually negotiated for a specific case – facilitated adminsitration and helped coordinate the rulings of various courts for maximum efficiency and uniformity.¬† Much of this former practice lives on in Chapter 15: Section 1525 specifically codifies and authorizes it, while Section 1527 lists several, non-exclusive means of such cooperation.¬†¬†
Second, US Courts applying Chapter 15 have broad discretion to grant, modify, or otherwise tailor relief for foreign representatives, thereby shaping the administration of a foreign case inside the US.¬† Though certain types of relief are “automatic” upon recognition of a foreign “main” case, Section 1522 permits a court to “modify or terminate” much of the relief available to foreign representatives on its own motion, and in a manner which protects all of the entities involved.
How might a Chapter 15 proceeding alleviate some of the rancor that has developed between Mr. Janvey and his Antiguan counterparts?
Perhaps some coordination and cooperation of the sort envisioned by the Bankruptcy Code – for example, web conferencing between judges in Antigua, the UK, the US, Canada, and Switzerland designed to develop a “Stanford protocol” within the context of Chapter 15’s provisions and foster unified worldwide administration of the Stanford cases¬†- would¬†go some distance toward¬†establishing the judicial “end game” that preserves the integrity of the federal receivership process and of the foreign insolvency proceedings.
Along the way,¬†the same cooperation might further demonstrate the remarkable flexibility of Chapter 15.¬† And who knows?¬† It might prevent all of the cooks in the kitchen from hitting one another with blackened pots . . .¬†thereby preserving a little more for Stanford’s creditors and investors.
Monday, April 27th, 2009
When a foreign representative meets a federal receiver, who’s ultimately in charge?¬† And in charge of what?
The US Bankruptcy Code’s cross-border provisions were enacted by Congress to foster “cooperation between (A) courts of the United States, United States trustees, trustees, examiners, debtors and debtors in possession; and (B) the courts and other competent authorities of foreign countries involved in cross-border insolvency cases.”¬† The same provisions were also intended to promote “greater legal certainty for [international] trade and investment.”
To this end, Chapter 15 of the Bankruptcy Code sets forth relatively simple, straightforward requirements necessary for foreign representatives to obtain recognition of a “foreign proceeding,” and provides further that once such recognition is granted, US courts “shall grant comity or cooperation to the foreign representative.”¬† But the same chapter also provides that the recognizing US court may “modify or terminate” the relief otherwise available by statute to a foreign representative where the interests of creditors and the debtor “are sufficiently protected.”
These policy objectives – along with the Code’s cross-border provisions – are about to undergo a Texas-sized test next month, where a federal receiver appointed in Dallas to marshal the assets of Sir Allan Stanford’s Stanford Financial Group and other, related companies is wrangling with liquidators appointed for Antiguan affiliate Stanford International Bank, Ltd. – the entity that issued¬†”certificates of deposit”¬†purchased by investors in an alleged $8 billion, world-wide¬†Ponzi scheme.
The case is likely to offer important insight into how federal courts will reconcile¬†their equitable perogatives in other, non-bankruptcy insolvency proceedings (such as federal receiverships) with the Bankruptcy Code’s cross-border insolvency provisions.
In late February, the Securities and Exchange Commission sought a Temporary Restraining Order and immediate appointment of a receiver for the US-based assets of Stanford Financial Group (SFG) and related companies to stop an alleged¬†”massive, ongoing fraud orchestrated . . . through . . . Antiguan-based Stanford International Bank, Ltd. and its affiliated Houston-based financial advisors . . . .”
Upon US District Court Judge David Godbey’s grant of a TRO, Dallas attorney Ralph Janvey was appointed Receiver.¬† Very shortly thereafter, Antiguan regulators placed Stanford¬†International Bank,¬†Ltd.¬†(SIB) into liquidation and¬†appointed Nigel Hamilton-Smith and Peter Wastell as liquidators.
All the parties acknowledge that there were at least initial efforts to reach cooperative arrangements regarding the administration of the concurrent liquidation proceedings.¬† Unfortunately, these efforts apparently went nowhwere.
In mid-March, Janvey’s counsel requested an amendment of the District Court’s receivership order so as to provide Janvey with the exclusive power to commence any federal bankruptcy proceeding (including the prohibition of any petition for recogntion by any other party without prior Court order) and¬†to act as “foreign representative” in non-US courts on the companies’ behalf.¬† The proposed Order further left such arrangements in place for approximately 6 months.
Judge Godbey granted the motion, which was unopposed – but struck provisions of the Order that would designate Janvey as a “foreign representative” in non-US proceedings.
Last Monday, Hamilton-Smith and Wastell sought recognition under Chapter 15 before Judge Godbey and requested (i) a further amendment of Janvey’s already-amended receivership order so as to remove the prohibition against their commencement of a Chapter 15 case; and (ii) referral of the Chapter 15 case to the US Bankruptcy Court.
In papers supporting their requests, the English liquidators essentially argue that the receivership order is unenforceable insofar as it purports to restrict the commencement of a Chapter 15 case – and that the District Court simply may not enjoin such a filing.¬† Hamilton-Smith and Wastell claim further that Janvey has attempted – improperly and, apparently, without success – to interpose himself into the Antiguan liquidation and to have himself appointed as liquidator in that proceeding as well as in the US receivership.¬†¬† Predictably, Hamilton-Smith and Wastell also devote significant attention to establishing Antigua as the “center of main interests” for SIB’s Antiguan liquidation.
Mr. Janvey has yet to respond.¬† But he provided some indication of what that response will be in a 58-page Interim Report filed last Thursday.¬† In it, Janvey claims that SIB is an asset of the Receivership estate, since it was owned by¬†Sir Allan¬†Stanford on the date the receivership was instituted.¬† According to Mr. Janvey, his efforts to intervene in the Antiguan liquidation were rebuffed by the Antiguan court on the grounds that the receivership had no effect in Antigua, and that Janvey was therefore not an interested party to the liquidation.¬† Janvey further accuses Hamilton-Smith and Wastell of obtaining a Canadian registrar’s order recognizing them as the “foreign representatives” for SIB within the contemplation of Canadian insolvency law . . . all with no prior notice to him.
Not surprisingly, Janvey believes the US¬†- and not Antigua – constitutes the “center of main interests” for these cases, and that his receivership, rather than the Antiguan liquidation,¬†ought to be deemed the “main” or primary insolvency proceeding.
Can a federal court, acting within a federal receivership,¬†interpose its own additional barriers upon the Bankruptcy Code’s relatively minimal requirements for obtaining recognition of a foreign insolvency?¬† Can foreign representatives, once they have obtained recogntion for a foreign proceeding, demand and expect “comity” from any US court in aid of their own insolvency objectives, regardless of that court’s ongoing efforts to administer an insolvent estate?¬† Or can¬†that court modifiy the relief otherwise available to suit its own pre-existing administrative scheme for the same estate?¬† Can a federal court utilize its equitable powers to institute a receivership that will administer world-wide assets, claims, and recovery actions?¬† Or can the Court instead use similarly broad¬†discretion to fashion and direct the mutual cooperation that, to date, has eluded Messr’s. Janvey, Hamilton-Smith, and Wastell?
This is a matter well worth watching.
Judge Godbey has scheduled briefing¬†on the Antiguan liquidators’ requests into early May.¬† Copies of the SEC’s¬†papers in support of the TRO, the District Court’s¬†amended receivership order, the liquidators’ notice of Chapter 15 case, motion to amend the receivership order, and papers in support of the motion to refer matters to the Bankruptcy Court¬†. . . and the receiver’s interim report¬†. . . are all available here.