Stanford Investors Face Dwindling Hope for Recovery

Eight months after he seized control of what was left of their life's savings, a court-appointed attorney in Dallas has finally met with investors in the alleged Stanford Ponzi scheme, CNBC has learned.

Allen Stanford

The meeting, which took place Thursday in Dallas, was described by both sides as productive. But the chances it will help investors recover much money are tenuous at best.

Attorney Ralph Janvey took control of Stanford's assets in February after the Securities and Exchange Commission sued the firm and the court placed it in receivership.

The SEC says Stanford ran a massive international Ponzi scheme involving bogus certificates of deposit. The firm's founder, flamboyant Texas billionaire R. Allen Stanford, has denied wrongdoing. He is being held without bail on federal criminal charges in Houston.

While Janvey is supposed to be gathering what is left of Stanford's assets to distribute to investors, he has drawn fury for not communicating with them, and for attempting to collect some $27 million in fees for his work. The meeting appears to have eased some of the tensions, even on the issue of Janvey's fees.

"The amount of investigative work the receiver has had to undergo just to make heads or tails of Stanford's scattered assets is astonishing," said Angela Shaw, a founder of the Stanford Victims Coalition who attended the meeting. "This is work that could have been prevented or should have already been done by the criminal prosecutors and the financial regulators," said Shaw, who, along with her husband, lost $2 million invested with Stanford. 

A spokeswoman for Janvey confirmed the meeting, calling it "positive and productive."

"We look forward to assisting the coalition in its continuing efforts on behalf of all the victims of the Stanford fraud," said Kristie Blumenstein of the law firm Krage & Janvey. She would not comment on why it took so long to meet with the victims' group.

But despite the new lines of communication, recovering money for victims of the alleged $8 billion fraud is proving difficult — and contentious.

Next Monday, Nov. 2, Janvey will argue before a United States appeals court that he should be allowed to "claw back" millions of dollars from hundreds of Stanford investors who managed to withdraw their funds before the alleged Ponzi scheme collapsed. The Securities and Exchange Commission, as well as the investors Janvey is targeting, argue the clawbacks are illegal and are aimed at innocent victims.

But on the other side are investors like Annalisa Mendez of Austin, Texas, who were unable to get their money out in time.

"I fail to see why a small number of us who were tipped by our brokers to get out should be allowed to do so at the expense of everyone else," Mendez wrote in an e-mail to CNBC. "To put this in perspective, 2% of the victims could walk away with what could well be 50% of the total amount recovered for the Estate."

Because the clawback issue pits one group of investors against another, the Stanford Victims Coalition has not taken a position ahead of next week's arguments.

Instead, the group is focusing on trying to get insurance coverage from the Securities Investor Protection Corporation, SIPC, which typically insures securities at member firms for up to $500,000.

SIPC did cover victims of the Madoff fraud, for example, but has refused to pay Stanford investors, arguing the certificates of deposit — which were issued by Stanford's offshore bank in Antigua — are not covered.

The victims' coalition recently took up a collection to hire a former SIPC attorney to argue their case, and the group says Janvey has agreed to help as well. But that effort could also pit victims against one another, since the SIPC coverage may only extend to investors who purchased their CD's through Stanford's U.S. broker-dealer, a SIPC member. Others, mainly international investors, could be out of luck.

Still, the SIPC coverage, along with lawsuits targeting everyone from Stanford's insurance carriers to the government of Antigua, may be the investors' best hope.

Following the meeting with Janvey, the victims' coalition acknowledged what many have feared for months: "The recovery is expected to take several years and will be pennies on the dollar," the group said in a statement.