The judge in the civil cases surrounding the alleged Stanford Financial Ponzi scheme has set a hearing for this Friday on the thorny issue of whether to "claw back" hundreds of millions of dollars from Stanford investors.
As CNBC first reported Thursday, the court-appointed receiver—who is supposed to be recovering Stanford assets to return to investors—has sued hundreds of themclaiming their investments, both interest and principal, were "fraudulent proceeds" from Stanford certificates of deposit.
The receiver, Dallas attorney Ralph Janvey, is seeking to recover close to $1 billion, nearly half of it from hundreds of Stanford investors whose accounts have been frozen since February. He says the money will then be shared "equitably" by all Stanford investors, including more than 20,000 whom Janvey says have received "little or nothing" from their Stanford investments.
U.S. District Judge David Godbey in Dallas scheduled a hearing for Friday evening at 5:00pm Central Time to determine if the receiver's claim should be allowed to go forward.
The concept of "clawbacks" is extremely controversial in unwinding alleged Ponzi schemes, and never more than in this case. Even the Securities and Exchange Commission, which had Janvey appointed as receiver when it sued Stanford in February, has argued against the clawbacks, saying they target innocent victims.
In his court filings, Janvey does not allege the investors did anything wrong. But he argues that the funds in their accounts—which they thought consisted of principal, interest, and proceeds from redemptions—"were simply money that was stolen from the thousands of (other) investors who were deceived into purchasing CDs."
The claim adds insult to injury for more than 500 Stanford investors targeted in the suit whose accounts were frozen before they could get their money out.
That group includes Troy Lillie, 59, of Maurice, Louisiana—a retired ExxonMobil refinery supervisor whom CNBC profiled in May in the original documentary "Secrets of the Knight: Sir Allen Stanford and the Missing Billions." Like many Stanford investors, Lillie put his life's savings—$954,000—into Stanford CDs. Most of the money has been frozen in his account since February; he had withdrawn about $50,000 of it earlier to purchase his home. Janvey is demanding all of it.
Lillie, who is in failing health, has been forced to return to work, but could only find employment as a clerk on an offshore oil platform. He works two weeks at a time offshore, leaving his ailing wife home alone. Reached by phone on the oil platform, Lillie told CNBC Thursday that the claim "is going to ruin a lot of lives, and you're talking to one of 'em."
In addition to targeting investors like Lillie, Janvey is seeking $494 million from 49 account holders who withdrew their funds prior to the freeze. He is also suing 66 former Stanford financial advisors, including Michael Word of Louisiana, who was Troy Lillie's advisor. Word's attorney has previously denied any wrongdoing by his client.
At $925 million, Janvey says the clawbacks would represent the largest single asset recovered in the alleged Stanford fraud—a far cry from the more than $7 billion that Stanford had claimed the CDs were worth.