Allen Stanford Investors Could Get (Tiny) Payout
Almost exactly four years after authorities shut down Allen Stanford's $7 billion Ponzi scheme, his investors could finally get some of their money back—but it won't be much.
The court-appointed receiver rounding up Stanford's assets has asked a federal judge for permission to distribute $55 million to some 17 thousand investors. The distribution, the first since Stanford's assets were frozen in February, 2009, would amount to less than 1.3 cents on the dollar. (Read More: Allen Stanford: Descent from Billionaire to Inmate.)
Nonetheless, an attorney for receiver Ralph Janvey said the proposed distribution is a major milestone for thousands of investors.
"These investors were the primary source of both the funds that fueled the Stanford Ponzi scheme and the funds recovered by the Receiver," attorney Kevin Sadler wrote in a court filing requesting the distribution.
Janvey's recovery efforts have been hampered by litigation fighting his attempts to claw back proceeds from the Stanford scam, and by the fact that the vast majority of the funds are believed to be in offshore accounts.
Stanford's conviction last year on 13 criminal counts was supposed to help authorities access those funds. But an estimated $300 million in Canada, Switzerland and Great Britain remains tied up in forfeiture proceedings, according to the filing.
Stanford, who is serving a 110-year prison sentence, is appealing his conviction. (Read More: White Collar 'Country Club' Prisons? Not So Much.)
With so little money available to return to investors, Janvey recommends that thousands of former Stanford employees and contractors be excluded from this first distribution, giving outside investors top priority.
"Claimants who never worked for a Stanford entity and who lost money in the Ponzi scheme are the primary (and most desperate) victims off the Stanford scheme," the filing said. (Read More: Allen Stanford Investors Face Long Haul to Recover Money.)
While the proposed $55 million payout is a tiny percentage of the investor losses in the scam, it is also a fraction of the $108 million in expenses the receivership had run up as of last May, according to a court filing. Angela Shaw, founder of the Stanford Victims Coalition, said the payout is too little, too late.
"It is a very harsh reality the Stanford Financial Group empire had more cash on hand the day the companies were taken into receivership almost four years ago than is now available for the victims," Shaw wrote in a statement. "Sadly, if checks had been cut on February 17, 2009, the victims would have recovered dramatically more of their lost savings than they can now expect from the Receiver's distribution."
(Read More: Wall Street Jailbirds.)
In an email to CNBC, attorney Kevin Sadler said Janvey hopes to distribute more funds to investors soon, especially if he can reach an agreement with liquidators in Antigua, home of the offshore bank at the heart of the scheme.
"Then, millions in foreign assets currently frozen overseas can become available for additional distributions," Sadler said.
The Stanford Ponzi scheme was based on certificates of deposit issued by the Antiguan bank. A federal jury found last year that the CDs, which were supposedly backed by sound investments like real estate and equities, were in fact largely used to finance Allen Stanford's lavish lifestyle.
—By CNBC's Scott Cohn; Follow him on Twitter: @ScottCohnCNBC