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5th Circuit Rules for Investors in Stanford Clawback Action
Investors include Johnny Damon and several other major league baseball players
The American Lawyer
November 17, 2009
Johnny Damon is having a good November. There was that small matter of helping the Yankees win their 27th World Series earlier this month. But more importantly -- at least to those legions of us who are not Yankees fans -- Damon was a winner at the 5th U.S. Circuit Court of Appeals, which last week denied an attempt by the Stanford International Bank receiver (pdf) to keep investors' assets frozen. The decision will affect more than 500 investors, including several pro ballplayers managed by superagent Scott Boras.
The investors have been unable to get at money that was in their Stanford accounts when the SEC won a freeze order after discovering Allen Stanford's alleged fraud. The examiner in the case, Ralph Janvey of Krage & Janvey, tried to extend that freeze order, even against investors who are not accused of any wrongdoing. As we reported earlier this month, the receiver's position put him at odds with the SEC and inspired one appellate judge to tell his lawyer, Kevin Sadler of Baker Botts, that the Stanford receiver was "nobody."
In its opinion, the 5th Circuit ruled that the receiver failed to show that Stanford International investors were "relief-defendants" who could be sued in a clawback action. The three-judge panel found that the lower court lacked authority to freeze their assets.
More than a dozen investor groups -- including the baseball players, who were represented by Sonnenschein Nath & Rosenthal -- filed briefs with the 5th Circuit. Among the players, in addition to Damon, were: Carlos Pena of the Tampa Bay Rays; Andruw Jones of the Texas Rangers; former New York Met Jay Bell; former New York Yankee Bernie Williams; J.D. Drew of the Boston Red Sox; and former pitching great Greg Maddux, who ended his career with the Los Angeles Dodgers.
Gene Besen of Sonnenschein told us that the receiver will now have to decide whether to give up or to bring fraudulent transfer actions against investors.
John Donnelly at Cozen O'Connor, who represents one of the less celebrated Stanford investors, said the 5th Circuit's ruling offers important clarification of the standard for a relief defendant in clawback cases. "Had it come out the other way, it would have been a vast expansion of the powers of a receiver to go after innocent investors who have already been victimized," he said.
In a statement, Janvey said he would "continue to carry out his duty to recover assets traceable to the Stanford fraud for the benefit of all investors by pursuing recovery of, where cost justified, improper and/or preferential payments of estate funds."
This article first appeared on The Am Law Litigation Daily blog on AmericanLawyer.com.
