Five years after learning they were victims of a $7 billion Ponzi scheme, investors in the Stanford Financial Group say they feel abandoned, even though their losses rival those in the Madoff scam that was revealed two months earlier.
Unlike the Madoff case, in which a court-appointed trustee has said he is well on his way to recovering all of the investors' principal—estimated at $17.5 billion—Stanford victims have recovered less than one penny on the dollar since the Securities and Exchange Commission sued the firm and a court placed it in receivership on Feb. 17, 2009.
"I do have to say the Stanford victims do feel like the stepchildren in the Ponzi world," said Angela Shaw Kogutt, who estimates her family lost $4.5 million in the scam. Shaw heads the Stanford Victims Coalition, which has been trying for years to drum up support in Washington.
Some 28,000 investors—10 times the number of direct investors in the Madoff case—bought certificates of deposit from Stanford International Bank in Antigua, which was owned by Texas financier R. Allen Stanford. Stanford's U.S. sales force had promised the investors—many of them retired oil workers—that the CDs were at least as safe as instruments from a U.S. bank. But a jury later found most of the clients' money financed Stanford's lavish lifestyle instead of the high-grade securities and real estate it was supposed to.
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Stanford, who portrayed himself as a self-made billionaire, exuded the American Dream. He claimed to have built his global financial empire from a family insurance business in his rural hometown of Mexia, Texas. A generous contributor to politicians of all stripes, Stanford effectively took over the financial sector in Antigua while nurturing rumors of his unique connections.
But asked directly by CNBC in 2009 about suggestions he was a government informant, Stanford demurred.
"You talkin' about the CIA?" he asked. "I'm not gonna talk about that."
On the eve of the fifth anniversary of the scandal, Dallas attorney Ralph Janvey, appointed by a federal judge to head the receivership and round up assets for the victims, said he feels the victims' pain.
"Even though my team and I have worked hard and made much progress over the last five years, the process of unwinding the fraud and the pace of recovering money have been frustratingly slow," Janvey wrote in an open letter to "all those affected by the Stanford fraud."
In the Stanford case, progress is relative.
Last April, Janvey won court approval to begin distributing $55 million to some investors. In the letter, he said $25 million has already been distributed, another $5.5 million could be paid this month and another $18 million in Stanford assets from Canada could be distributed this year as well.
But the rest of the investors' money was either spent by Stanford or is tied up in litigation. Janvey said some $200 million in assets is in Swiss banks and tied up in the criminal forfeiture process. He has sued dozens of people and institutions that allegedly profited from the Ponzi scheme, seeking more than $680 million. The prospects for recovering anything close to that amount, however, are unclear.
"Asset recovery litigation is difficult, lengthy and expensive," Janvey wrote. "The defendants, many of whom have significant resources, are defending the cases aggressively, and many of the favorable rulings in these cases have already been appealed."
Further complicating matters, victims allege: the Justice Department has not been as aggressive in the Stanford case as it has been in the Madoff case.
Even the federal judge overseeing the Stanford receivership, David Godbey in Dallas, made note of the apparent contrast during a status hearing Jan. 16, a week after authorities announced a $2 billion settlement with JPMorgan Chase for its role in the Madoff scandal.
"I read with interest in the media that JPMorgan Chase is paying the Madoff folks a whole bunch of money. I assume our check will follow shortly," Godbey said, according to a transcript of the hearing.
No fewer than five banks—though not JPMorgan Chase—have been sued in the Stanford case for allegedly facilitating the fraud, but there have been no signs of interest from criminal authorities. A spokesman for the Justice Department did not respond to a request for a comment.
The government did prosecute Allen Stanford and several of his top executives. Stanford, 63, is serving a 110-year sentence at a federal penitentiary in Florida. He has appealed his 2012 conviction on 13 criminal counts, but with his assets frozen and having fired his court-appointed attorney, Stanford is representing himself and filing handwritten legal motions from prison. One was filed March 4, 2013 and another on March 12, 2013.
"I or any other American citizen deserve better than this," he wrote in a filing last March. "The presumed innocent part of our constitution is only a myth in America today."
The pending appeal is yet another complication for Stanford's victims, since approximately $300 million he was ordered to forfeit as a result of his conviction cannot be released until the appeals process is complete.
But one of the biggest sources of frustration for the victims is another stark contrast to the Madoff case.
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The Securities Investor Protection Corp. (SIPC), which insures U.S. brokerage accounts, has refused to pay Stanford victims, while qualified Madoff victims are eligible for SIPC's maximum coverage of $500,000 per account.
The SEC sued SIPC in 2012 on behalf of the Stanford investors, arguing they also were entitled to coverage, as Stanford's U.S. brokerage was an SIPC member. But SIPC says its insurance covers only securities, and even if the Stanford CDs are considered securities, they are worthless.
The judge in the case sided with SIPC. A federal appeals panel is considering the SEC's appeal, and victims are anxiously waiting for a ruling.
"I really think the only chance the victims really have to recover something is either years down the road or through SIPC," said Kogutt of the victims' coalition.
Because many of the victims are elderly, there is no time to waste. Since the scandal broke in 2009, 176 of Stanford's investors have died.
—By CNBC's Scott Cohn. Follow him on Twitter