Fifth Circuit Judge to Stanford Receiver: You're Nobody
By Andrew Longstreth
November 03, 2009
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Clawback litigation arising from Ponzi schemes is cutting-edge stuff. And it's unclear just how far courts will let receivers go in pursuing investors. But the Fifth Circuit gave some clues about its thoughts Monday when it heard oral arguments in the clawback case initiated by the receiver of Stanford International Bank.The Stanford receiver, Ralph Janvey of Krage & Janvey, is seeking the principal certain investors withdrew from Stanford shortly before the alleged fraud was discovered and assets at the firm were frozen. According to Reuters, the district court allowed Janvey to seek the interest investors made, but not the principal. At the oral argument before the Fifth Circuit, the more fundamental question of standing was also addressed. Senior Judge Will Garwood asked Kevin Sadler of Baker Botts, who represents Janvey, why the Securities and Exchange Commission wasn't bringing the case.
"What gives you statutory authority to sue people the SEC did not?" Garwood asked. "It seems to me that the plaintiff or defendant ought to be the ones...Frankly, in a sense, you're nobody. You are neither one."
Michael Quilling of Quilling, Selander, Cummiskey & Lownds, who represented the investors at the Fifth Circuit, told us that he thought the argument went well for his side. "I hope the court will put a barbed wire fence around what a receiver can do," he told us.
Quilling downplayed the potential role that a decision in the Stanford matter could play in the Madoff clawback cases. Quilling said that the Madoff receiver, Irving Picard of Baker Hostetler, isn't pursuing investors as aggressively as Janvey. For example, Picard has not gone after the principal of investors, said Quilling. "He's just gone after fictitious profits," said Quilling of Picard. “[He also] isn't trying to usurp the SEC."
Kristie Blumenschein, an attorney with Janvey's firm, told us in an email that Janvey is doing a job he was appointed to do. "We are pursuing these claims, despite the SEC’s reluctance, because the SEC has, in this case, abandoned its duty and responsibility by impeding the recovery on behalf of all victims of significant assets traceable to the estate that we have been directed by court order to pursue," she wrote.
