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    Posts Tagged ‘Stanford International Bank’

    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 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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    All Right . . . Who’s In Charge Here?!!

    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.

    Happy reading.

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