With the global financial crisis bearing down on him in late-January, 2009, financier Allen Stanford traveled to Libya in search of a lifeline—money from the Gaddafi regime, whose sovereign wealth funds had been investing with Stanford for some time.
It was already too late for Stanford, whose financial empire was shut down three weeks later by the Securities and Exchange Commission, which called it a massive $8 billion Ponzi scheme.
But somehow the Libyans managed to withdraw some $55 million of their Stanford investments just before the company collapsed.
A court-appointed receiver rounding up Stanford's assets, Dallas attorney Ralph Janvey, says that money belongs to Stanford investors, since it represents returns on their investments. Janvey won a temporary injunction in June, essentially freezing the money.
Now, with a hearing on that injunction scheduled for next month, the new Libyan government says the Libyan people were victims of the Stanford fraud, too, and they want the $55 million back.
Libya's new government, the Transitional National Council, has hired two powerful Washington law firms—Patton Boggs and Shearman & Sterling—to fight the injunction.
In court papers filed this week, the TNC denies the proceeds the Libyan sovereign wealth funds received came from the alleged Ponzi scheme, and said one of the funds, the Libyan Foreign Investment Corporation, appears to be a "major victim" of the alleged Stanford fraud.
The battle is yet another potential complication for Stanford's 28,000 retail investors, who so far have recovered just pennies on the dollar.
In addition to the battle over the Libyan millions, there are hundreds of millions more in limbo depending on the outcome of Stanford's criminal trial, currently scheduled for January.
Separately, the Securities Investor Protection Corporation has still not decided whether to grant insurance coverage to Stanford's investors, which would clear the way for payments of up to $500,000 per account.
Stanford has denied wrongdoing.