WEB EXCLUSIVE: The Stanford saga
Tim Prudhoe TEP summarises the key events in
the liquidation of Stanford International Bank (SIB)
On 6 March 2012, financier and cricket mogul
Allen Stanford was found guilty of 13 out of 14 charges against him
arising from his involvement in a USD7 billion Ponzi scheme. His
conviction followed a six-week-long jury trial in Houston (US v
Stanford 09cr342 US District Court, Southern District of
Texas). His sentencing is scheduled to occur on 14 June 2012,
at which victim impact statements representative of the many
investors will be heard.
It is a cruel irony indeed that, in a
post–Madoff world, a scheme as large as USD7 billion is
far less newsworthy than it once would have been. However, the
Stanford saga has shone a light on attitudes from and within the
USA regarding cross-border insolvency with particular focus on
international financial centres (the so-called offshore world).
The framework within the US for recognition of
cross-border insolvency (based on the UNCITRAL Model Law) came into
force in 2005 and has been successfully invoked many times, in
particular since the financial crisis of 2008 (Fairfield Sentry
– BVI and New York, Millennium Global Emerging Credit
Master Fund – Bermuda and New York). That said, in respect of
the efforts made in the North District Court of Texas (by way of
receivership, rather than liquidation) it is highly questionable as
to whether the necessary definition of ‘collective proceeding’ is
even satisfied, by which primacy recognition of a foreign
insolvency proceeding is granted.
A race to court
In what amounted to a race to court, the
Antigua and Barbuda joint liquidators won: beating the Texas
Federal Court appointed US receiver and thereby avoiding a
determination on the merits of the ‘collective proceeding’ issue in
respect of the US receivership. Hard on the heels of the Order of
the Eastern Caribbean Supreme Court (Antigua and Barbuda), the
Antiguan joint liquidators obtained recognition in the English
Courts (subsequently upheld on appeal) as the primary action
(foreign main proceeding) and by which gaining control of assets
held in the name of Stanford International Bank in that
jurisdiction. The Antiguan joint liquidators were similarly
recognised in Switzerland and limited permission was later granted
to them in Quebec, Canada, for the purposes of being ‘knowing
assistance’ claims as against a bank there (Toronto Dominion).
A bit of background
Of the many steps in an increasingly
complicated procedural background to the insolvency, the following
are of particular note:
· 16 February 2009,
the US SEC applied successfully to a US District Court in Texas for
an order appointing a US receiver (the US receiver) over the assets
of SIB and Mr Stanford.
· 15 April 2009,
the Court of Antigua granted an order for the liquidation of SIB
and for the appointment of Mr Wastell and Mr Hamilton-Smith as its
joint liquidators. This order meant that all of the assets of SIB
wherever situated were vested in the Antiguan liquidators.
· 22 April 2009,
the Antiguan liquidators applied to the High Court in England under
Article 15 of the Model Law for an order for recognition of the
Antiguan liquidation of SIB as the ‘foreign main proceeding’
· 8 May 2009, the
US receiver also applied to the English High Court for recognition
of the US receivership of SIB.
· June 2009, the
competing recognition applications of the Antiguan liquidators and
the US receiver were heard by Mr Justice Lewison. Mr Justice
Lewison accepted the application of the Antiguan liquidators and
dismissed that of the US receiver.
· 25 February 2010,
the English Court of Appeal held
that the US receiver was not a ‘foreign proceeding’ within the
meaning of that expression as defined in Article 2(1) of the Model
Law (and that the Antiguan liquidation was a foreign proceeding).
It held that SIB’s centre of main interest, or ‘COMI’ was
Antigua).
· 12 May 2011, the
High Court of Justice for Antigua and Barbuda appointed Messrs ‘
Marcus Wide and Hugh Dickson of Grant Thornton as the new
liquidators for SIB.
· 5 December 2011,
the Antiguan Liquidators applied to the US District Court seeking
recognition of a foreign main proceeding. The decision is still
pending.
· 10 April 2012 the
same Texas judge hearing the recognition application by the
Antiguan liquidator issues a request for evidence (‘a Letter of
Request’) to the English Court, the basis for which is to
completely ignore the current primacy of the Antiguan
liquidation.
SIB assets
It is believed that SIB has around USD8
billion in assets located all over the world, with 92 per cent of
these assets yet to be traced. This sum is made up of 30,000
depositors in 100 different countries. 15.74 per cent of these
depositors are US nationals, representing 22.21 per cent of the
actual investments. Depositors from Latin America represented 71.17
per cent of total depositors and 58.56 per cent of investments.
These figures speak for themselves on this issue of whether it is
accurate to characterise dealing with victims of the scheme as
necessarily US-centric.
US receivership v Antiguan claims
process
From the (extensive) court filings in the
pending Texas recognition application by the Antiguan liquidator as
the ‘foreign main proceedings’, the US receivership compares badly
to the Antiguan claims process:
· Estimates as to
the cost of claims processing within the US receivership are put at
USD3.85 million
· Estimates as to
equivalent Antiguan costs (on a process predicted to be completed
by September 2012) as USD0.95 million
· Recoveries thus
far by the US receiver have been USD217 million (of which USD63
million was in cash anyway) as against fees and expenses of as much
as USD112 million.
· Of the USD112
million fees and expenses, USD50 million is said to relate to
‘winding-down costs’, where claw-back claim recoveries total only
USD12 million.
· Unlike Antigua,
the US receivership has no statutory framework for the claims
processing.
In addition, the US process is far more
vulnerable to the effect of the USD330 million forfeiture Order in
favour of the US Department of Justice (DoJ) made in early March at
the conclusion of the recent criminal trial (and conviction) of
Allen Stanford in that:
· Pending the
inevitable appeal by Allen Stanford that money cannot be
distributed to victims of the fraud.
· There is neither
oversight nor transparency in respect of subsequent distributions
by the DoJ following forfeiture. For example, in 2009 of the USD1.4
billion in total recovered by the DoJ that year, as little as
USD152 million/10.9 per cent was actually distributed to
victims.
While all concerned agree in the abstract as
to the need to avoid the further cost and delay caused by the
ongoing battle for primacy as the main insolvency proceedings,
there is little sign of agreement on a workable way of implementing
that in advance of a decision on the pending Chapter 15 application
by the Antiguan joint liquidators in Texas. An interesting recent
move in the ongoing ‘hearts and minds’ campaign by the Antiguan
joint liquidator has been the ‘open offer’ (as also filed in the
Texas recognition proceedings) to the effect that:
• There be
an immediate initial interim distribution to creditors (99.92 per
cent of which are depositors).
• Release
of approx. USD80 million (UK), USD20 million (Canada) USD208
million (Switzerland) that would be deemed forfeit to the DoJ, but
released to the Antigua joint liquidators for agreed
distribution.
• Initial
distribution of 80 per cent of the cash balance, 20 per cent
retained to cover liquidation costs.
•
Ring-fenced against payment to the Antiguan government (a constant
theme of the US receiver).
• No
payment of contingency fees and DoJ to have a right of audit
As of late May 2012, this offer has not been
accepted by the US receiver and no counter-offer has been made. The
saga will continue, and the Texas court’s decision on the pending
recognition application by the Antiguan joint liquidators will
remain key. Latest moves in the Texas proceedings including efforts
by the US receiver to avoid the problems inherent with their Letter
of Request to the English court by seeking relief from the Texas
court directly against the subjects of the Letter of Request
(namely HSBC bank) in both proceedings related to the Chapter 15
application as well as in other, separate, proceedings in which at
least some of the same documentation has already been disclosed by
HSBC (Rotstain v Trustmark National Bank
3:09-CV-2384).
Awaiting a decision
Given that this direct application by the US
receiver for banking documentation is based on the alleged lack of
cooperation by the Antiguan joint liquidators, simply by virtue of
the fact of their having even made the Chapter 15 recognition
application at all, it is a further illustration of the US
receiver’s attitude towards the notion of anyone outside of the US
being left in charge of the claims and distribution process. The
long-awaited decision on the Chapter 15 application for recognition
will be key as to the future direction of this highly controversial
cross-border insolvency.
Re Stanford International Bank Ltd (In Liquidation)
[2010] EWCA Civ 137
This is a summary of a lecture given
at the STEP Caribbean Conference 2012 in the Cayman Islands in
conjunction with the Joint Liquidator of SIB, Marcus
Wide.
Tim Prudhoe TEP is a barrister and partner
with Kobre & Kim LLP, an international litigation and
arbitration boutique with offices in New York, London, Hong Kong,
Miami, British Virgin Islands and Washington DC. Tim, who works out
of both the British Virgin Islands and London offices, specialises
in multi-jurisdictional disputes including contentious insolvency,
onshore and offshore trusts, asset tracing and international
judgment enforcement related matters. He is a contributor to
Gore-Browne on Companies on a variety of topics in relation to his
practice and a regular conference speaker both in England and
offshore.