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    Posts Tagged ‘“Sir Allen Stanford”’

    The Stanford Saga – Chapter 16: Settlin’ Words? Or Something Else?

    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’s 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’s efforts to obtain recognition in the US for their Antiguan wind-up of SIB, and US receiver Ralph Janvey’s 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.

    Stay tuned.

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    The Stanford Saga – Chapter 10: “Bleak House” Redux?

    Monday, October 19th, 2009

    Postings on this blog have focused on the cross-border battle between Antiguan liquidators Peter Wastell and Nigel Hamilton-Smith and federal receiver Ralph Janvey for control of the financial assets previously controlled by Sir Allen Stanford, including Stanford International Bank, Ltd. (SIB).  A complete digest of prior posts is available here.

    Mr. Janvey, meanwhile, has had to address yet another challenge to his receivership – from investors seeking to commence an involuntary Chapter 7 case.  In early September, an ad hoc group of CD and deposit-holders fronted by Dr. Samuel Bukrinsky, Jaime Alexis Arroyo Bornstein, and Mario Gebel requested an expedited hearing on their request for leave to commence an involuntary bankruptcy against the Stanford entities.

    The ad hoc investor group’s September request was not their first: In May of this year, the same investors requested essentially the same relief.  That request was never acted on, presumably because presiding US District Court Judge David Godbey already had imposed a 6-month moratorium on interference with the receivership.

    With the moratorium’s expiration, the investors have raised the issue once again.

    A Receivership Run Wild?

    Their second request largely repeats the investors’ prior arguments, many of them rather personal: No one is happy with the way this receivership has been run, they claim.  Specifically, the receivership is far too expensive and the lack of meaningful participation deprives creditors of significant due process rights.  Instead, an involuntary liquidation under Chapter 7 of the US Bankruptcy Code is the best and most efficient means of reining in expenses and preserving those rights.  The investors’ brief offers a picture of the 21st century Stanford receivership more closely resembling Dickens’ 19th century “Bleak House”: Professional fees accruing at an “alarming” rate (in this case, an estimated $1.1M per week); an estate at risk of being consumed entirely by administrative costs; and investors ultimately twice victimized.

    The investors further argue that an injunction prohibiting creditors’ access to the US bankruptcy system is, at best, an interim measure.  As such, it can never be employed on a permanent basis – and, therefore, cannot survive the standards for injunctive relief articulated under the Federal Rules of Civil Procedure.  They cite a variety of decisions which stand – according to them – for the proposition that the US Bankruptcy Court offers the best forum for complex liquidations such as the one at hand.

    Creditors Who Don’t Know What’s Best For Them?

    Predictably, Mr. Janvey disagrees in the strongest terms.

    As he sees it (and as he sees a string of federal cases referenced in his response), a federal equity receivership – and not a federal bankruptcy proceeding – is the accepted, “decades-long practice” of federal courts in winding up entities that were the subject of alleged Ponzi schemes and other frauds.  Moreover, Mr. Janvey suggests that if creditors are dissatisfied with the expense and claimed inefficiency of this proceeding, transition to a liquidation under the US Bankruptcy Code would be even more so.  In support, Mr. Janvey offers a “parade of horribles,” such as the “procedural nightmare” involved in transitioning much of the complex litigation already underway in the receivership to a bankruptcy trustee’s administration, the likely existence of multiple creditors’ committees (and the attendant expense of their counsel), and the need to sort out the Antiguans liquidators’ competing Chapter 15 recognition request even if a Chapter 7 petition is filed.

    Perhaps most significantly, however, Mr. Janvey believes that flexibility regarding a plan of distribution should govern the administration of the Stanford matters:

    Like the Bankruptcy Code, equity receiverships ensure that persons similarly situated receive similar treatment. In a case such as this involving massive deception, however, a searching evaluation of the facts is required to discern relevant differences between and among categories of creditors. Unlike a trustee in bankruptcy, the Receiver can take into account relative fault within a class of creditors, and fashion an equitable plan of distribution that does not treat all creditors within a class identically if they are not deserving of equal treatment.

    Mr. Janvey does not develop how a receiver’s application of equitable principles might differ from the equitable and other subordination provisions of Bankruptcy Code section 510.  Ultimately, his response reduces itself to a simple proposition for Judge Godbey and for creditors:

    “Trust me.”

    Unfortunately, Messr’s. Bukrinsky, Bornstein, and Gebel do not.  Their reply brief – submitted last Friday – again reiterates that the Stanford receivership has outlived its usefulness in this highly complex insolvency.  According to them, the Stanford record speaks for itself.  It is time for a new regime.

    Like the liquidators’ request for US recognition of their Antiguan-based wind-up of SIB, the parties now await Judge Godbey’s decision.

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    The Stanford Saga – Chapter 9: “As If We Don’t Have Safes In Canada!”

    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 Autorité des marchés 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.

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    The Stanford Saga – Chapter 8: Home Is Where The Corporate Jet Is . . . But Where Is COMI?

    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?

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    The Stanford Saga – Chapter 7: Sir Allen Weighs In . . . Sort Of

    Monday, August 10th, 2009

    Since mid-July, Antiguan liquidators Peter Wastell and Nigel Hamilton-Smith and federal receiver Ralph Janvey have awaited Judge David Godbey’s decision on the liquidators’ request for recognition of their liquidation of Stanford International Bank, Ltd. (SIB), now pending in Antigua.

    As discussed in a number of previously-published posts (here, here, here, here, here, and . . . here), Messr’s. Wastell and Hamilton-Smith have been at odds with Mr. Janvey, who was appointed in Dallas’ U.S. District Court for the purpose of administering assets previously controlled by Sir Allen Stanford – including, presumably, SIB.  Stanford’s assets and creditors span at least three continents – North America, South America, and Europe – and have spawned insolvency proceedings in several countries.  Despite the apparent breadth of Judge Godbey’s original receivership order, the liquidators previously requested – and Judge Godbey (over Mr. Janvey’s strenuous objection) granted – a modification to that order for the purpose of commencing a case under Chapter 15 of the Bankruptcy Code on SIB’s behalf.

    While the parties await a ruling on recognition of the Chapter 15 case, Mr. Janvey’s receivership continues forward, with pleadings filed almost daily on a variety of issues.  Among the matters awaiting resolution in the receivership is a request by Sir Allen that raises issues which themselves may impact Judge Godbey’s decision on recognition.

    In early July, Sir Allen filed a seemingly innocuous request for permission to certify tax returns for a number of Antiguan corporations.  He argued that the Antiguan court already had held these companies outside the U.S. District Court’s jurisdiction – and, therefore, outside the jurisdiction of the receivership.  Nevertheless, respect for the U.S. District Court and a preference for consistency between courts regarding the extent of the District Court’s jurisdiction made prudent a request further amendment of the receivership order to permit Stanford’s exercise of these corporate formalities.  A failure to exercise such formalities in short order would, according to Sir Allen, subject the corporations to being stricken from the Antiguan Companies Register.

    About 2 weeks ago, Mr. Janvey fired back with an 8-page opposition.  In it, he argued that (i) the Antiguan court’s refusal to recognize his American receivership remains on appeal; (ii) Mr. Janvey himself never has been provided copies of the returns Sir Allen seeks to certify; (iii) Sir Allen has declined Mr. Janvey’s requests for these returns, apparently, on the basis that doing so would violate his 5th Amendment rights against self-incrimination under the US Constitution; and (iv) should Judge Godbey wish to preserve the Antiguan corporations in question from sanction, he need merely designate Mr. Janvey or his agent to certify the returns.  Janvey’s arguments are based on his fundamental contention that corporate separateness should be disregarded where the corporate form has been used for a fraudulent purpose – and where the corporations in question have been used for this purpose, they ought to be treated as “alter egos” of Stanford himself and therefore are within the ambt of the District Court’s jurisdiction.

    Last Thursday, Sir Allen replied.  Relying once again on the Antiguan court’s prior denial of American jurisdiction over the corporations, Sir Allen insists that Mr. Janvey has no greater jurisdiction than the U.S. Court which appointed him – and that Judge Godbey cannot simply ignore the prior Antiguan ruling.  Further, Sir Allen insists that his prior general assertion of 5th Amendment rights doesn’t justify an inference of fraudulent activity regarding these corporations – and that Mr. Janvey has never provided any other evidence in support of these allegations.

    Distilled to their essence, the parties’ positions closely parallel similar issues relevant to the Antiguan liquidators’ pending recognition request.  They also highlight a number of the complicated questions underlying that request, such as:

    - What should be the effect of the Antiguan court’s prior order regarding Janvey’s receivership?  Should the liquidators’ request for recognition of SIB’s liquidation be treated differently than Stanford’s request to certify returns for the Antiguan companies?  Or should a similar analysis apply to both orders?  How should the U.S. case law doctrine of comity (i.e., American courts’ respect for the rulings of foreign courts) – which informed many prior requests for ancillary relief under the US Bankruptcy Code and which even today informs much of the policy behind Chapter 15 – apply in either case?

    - To what extent, if any, should allegations of fraudulent intent be relevant to determining the Stanford companies’ applicable “center of main interests” (COMI) – a decision critical to the relief that the liquidators seek?  And if the allegations of fraud were relevant, what would be the level of evidence ncessary to establish the requisite fraud?

    - To what extent, if any, must an equitable receivership commenced in aid of a governmental enforcement action arising from alleged violations of US securities laws bend to the statutory provisions of cross-border commercial insolvency law?  And to what extent, if any, is a US Court able to uphold such enforcement in the face of a foreign court’s order (or, as here, multiple orders) apparently limiting its jurisdiction?

    As with the recognition request, the parties now await Judge Godbey’s ruling.

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    The Stanford Saga – Chapter 6: Mr. Justice Lewison Steals the Show

    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.

    Stay tuned.

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    The Stanford Saga – Chapter 5: The Liquidators Strike Back

    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.

    Stay tuned.

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    The Stanford Saga – Chapter 4: Where Is a Ponzi Scheme “Headquartered,” Anyway?

    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 á 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.

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    The Stanford Saga – Chapter 3: Antiguans 1, Receiver 0

    Monday, May 25th, 2009

    Last week’s blog post (here) covered early skirmishing between SEC receiver Ralph Janvey and Antiguan liqudators Nigel Hamilton-Smith and Peter Wastell over control of the assets and business entities once operated by Sir Allen Stanford – and which the Securities and Exchange Commission (SEC) alleges furthered an elaborate international Ponzi scheme.  Court pleadings describing the Stanford entities, the alleged Ponzi scheme, and the federal receivership instituted at the SEC’s behest are available here.

    Readers of last week’s post may recall that the primary bone of contention between Janvey and his Antiguan counterparts was whether or not the Antiguans – Messr’s. Nigel Hamilton-Smith and Wastell – should be permitted to seek American recognition of their liquidation of Stanford International Bank, Ltd. (SIB) while a US receivership of Stanford assets (including SIB, and superintended by Janvey) remains pending in Dallas’s U.S. District Court.  The Antiguan liquidators requested that District Court Judge David Godbey permit them to seek recognition.  The receiver, supported by the SEC (and joined by the IRS), objected.

    Judge Godbey’s response was immediately forthcoming.  In a short, 5-page Order issued late last Friday, he authorized the liquidators’ request and modified his prior receivership Order to permit the liquidators to commence a Chapter 15 proceeding and seek recognition of their Antiguan liquidation.

    Two things are worth noting about Judge Godbey’s Order.  First, the mere authorization to seek recognition is no guarantee recognition will be granted.  While recognizing the Congressional intent behind Chapter 15 (i.e., greater international cooperation, greater certainty for trade and investment, fair and efficient administration, etc.), Judge Godbey nevertheless directed the parties to confer regarding a process by which to determine whether the Antiguan liquidation should be recognized.  The Court no doubt anticipates what the Examiner has already identified: a looming fight over SIB’s eligibility for Chapter 15 relief.  More specifically, the parties will provide evidence on the question of whether SIB is a “foreign bank” with a “branch” or “agency” in the US – and, therefore, ineligible for Chapter 15 recognition under Section 1501(c)(1) (which incorporates Section 109(b) by reference). 

    Second, where recognition is appropriate, a prior post asked whether Judge Godbey might not use his broad discretion under Chatper 15 to fashion and direct the mutual cooperation that Congress envisioned – but that to date, has apparently slipped from the parties’ view.  Judge Godbey’s Order suggests that where SIB’s liquidation can be recognized, he may do so: In a brief acknowledgement his own broad discretion, Judge Godbey’s Order notes that “[a]s a practical matter, the mechanism of Chapter 15 is precisely designed to effect coordination between entities like the Antiguan Liquidators and the Receiver.”

    Meanwhile, the Antiguan liquidators and the receiver have until May 29 to confer, jointly prepare, and submit a status report outlining a proposed procedure for moving forward with the request for recognition.

    The devil, as they say, is in the details.

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    The Stanford Saga – Chapter 2: Too Many Cooks In the Kitchen?

    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.

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