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In addition to freezing Stanford’s accounts, analyzing records and interviewing employees, receiver Ralph Janvey will likely use so-called clawback litigation to force Stanford investors who cashed out early to return all or part of their profits.

Feb. 20, 2009 (Bloomberg) -- Ralph Janvey, the lawyer appointed by a judge to recover assets of billionaire R. Allen Stanford’s Antigua-based bank, may need a decade to finish repaying victims of the suspected $8 billion fraud, experts said.

The prolonged timeframe is a result of Janvey’s taking on the most difficult receivership job in history behind the unwinding of Bernard Madoff’s investment advisory firm, the alleged center of a $50 billion Ponzi scheme, said Michael Goldberg, a lawyer with Miami-based law firm Akerman Senterfitt.

“Madoff and Stanford are the two largest cases in complexity and sheer size and they will be more difficult for a receiver to administer,” said Goldberg, who has handled 30 Ponzi scheme cases and isn’t involved with Stanford or Madoff litigation. “They also both have international reach; typical Ponzi schemes do not.”

Janvey, a former assistant director of securities for the U.S. Comptroller of the Currency in Washington, was named receiver Feb. 17, the same day U.S. regulators sued Stanford and three of his companies for allegedly running a “massive” fraud that touted “improbable, if not impossible” returns for certificates issued by Antigua-based Stanford International Bank.

The judge gave Janvey, a securities lawyer with Krage & Janvey LLP in Dallas, broad authority to seize Stanford’s computer records, demand documents and summon witnesses, court records show.

Identifying Assets

With that ability, Janvey should immediately identify existing assets he can take control of to prevent them from being dissipated and later look at the bank’s distributions, said Jeff Marwil, a Proskauer Rose lawyer in Chicago who also has been a receiver in large cases.

“The receiver has got to get a handle on what kind of redemptions and distributions have been made, and when they were made, to understand the fraud and find out if it was a Ponzi scheme or something else,” according to Marwil, who was the trustee for the bankrupt hedge fund firm Bayou Group LLC.

The bank, with 30,000 clients in 131 countries, was named in the lawsuit with Houston-based broker-dealer Stanford Group Co. and investment adviser Stanford Capital Management. No criminal charges have been filed against Stanford, who was found yesterday by the FBI in the Fredericksburg, Virginia, area. He was served with a subpoena from the Securities and Exchange Commission.

Hiring Professionals

Janvey will need to hire “numerous” professionals and get them up to speed on the inner workings of Stanford’s business and how the money flowed, said Goldberg, who was receiver for Worldwide Entertainment Inc., once the world’s second-largest independent concert promoter.

Pershing LLC, the Jersey City, New Jersey-based clearing firm that handled Stanford accounts, told clients today that they couldn’t retrieve their money from Stanford International Bank because the receiver had frozen the accounts.

In addition to freezing Stanford’s accounts, analyzing records and interviewing employees, Janvey will likely use so- called clawback litigation to force Stanford investors who cashed out early to return all or part of their profits, according to Goldberg. Such clawbacks are expected to be used in the Madoff case.

Janvey will also “see if there are any claims against professionals, financial institutions or any other third parties that may have assisted negligently or intentionally with Stanford’s scheme,” said Goldberg, who estimated the case will take from seven to 12 years to complete.

Jay Westbrook, a University of Texas bankruptcy-law professor, said Stanford’s receivership process will take at least three years and could take as long as a decade if there are many international investors involved.

U.S., Antigua ‘Dance’

“There’s a dance that has to go on between American and Antiguan authorities and that adds a lot more time,” Westbrook said in a phone interview. “You have to get people organized and that takes a lot of time.”

Stanford’s Caribbean link will require forensic work across international borders, making Janvey’s job more challenging as he seeks to locate and analyze a wide variety of documents and financial data, Goldberg said.

Other challenges include determining exactly what kind of jurisdiction Janvey has in Antigua and whether authorities there are cooperating, according to Goldberg. Janvey may also need to reassemble or recreate business records to determine who owes what and who might be responsible, Goldberg said.

Janvey didn’t return calls or e-mails seeking comment. His lawyer, Kevin Sadler of Baker Botts LLP in Austin, Texas, didn’t immediately return a call or e-mail seeking comment.

Investor Contacts

The receivership process for Stanford, which is in its infancy, will be accompanied by a deluge of phone calls from potential creditors seeking information about their investments, Goldberg said.

“The receiver has to put in place a mechanism for dealing with all these creditors -- a Web site and possibly a phone bank,” Goldberg said. A similar system was used to locate and give information to Madoff investors.

Perhaps the biggest question now facing Janvey is whether Stanford’s receivership process will continue to be handled in district court or eventually become a bankruptcy case, as Madoff’s did, according to Marwil.

Madoff’s firm was forced into bankruptcy liquidation by the Securities Investor Protection Corp. on Dec. 11, the same day Madoff was arrested. SIPC provides financial protection to customers of failed broker-dealers.

A Stanford bankruptcy could also result from an involuntary case filed by a creditor or a voluntary petition filed by the receiver, according to Westbrook. A bankruptcy would help Janvey recover payments made by the bank as much as a year earlier and recover so-called fraudulent conveyances of property as long as 10 years prior to the filing, Westbrook said.

‘Powerful Tools’

“Bankruptcy has a lot of very powerful tools that become available if it’s filed,” Westbrook said. “Those powers are useful enough on their own, but they’re particularly useful when there’s fraud alleged.”

Janvey, an adjunct professor of law at Southern Methodist University since 1990, teaches corporate planning and regulation of securities and commodities markets, according to his firm’s Web site. He earned his undergraduate degree at the University of Wisconsin and his law degree at Southern Methodist University in Dallas.

The SEC lawsuit also names Stanford’s chief financial officer, James M. Davis, and chief investment officer, Laura Pendergest-Holt. Stanford Financial Group claims to have more than $50 billion in assets under management, according to its Web site.

“It’s a very large case and there’s certainly going to be a significant amount of work for any receiver just to learn what took place,” Goldberg said.

The case is Securities and Exchange Commission v. Stanford International Bank Ltd., 3:09-cv-00298, U.S. District Court, Northern District of Texas (Dallas).