Four years after Allen Stanford’s $7 billion Ponzi scam was uncovered in 2009, investors who lost money in the scheme are still trying to recover their funds. The 65-year-old Stanford is serving 110-years behind bars for selling investors bogus high-yield CD’s through his Stanford International Bank based in Antigua. Prosecutors said he used customers’ money to fund his expensive lifestyle.
This week, U.S. District Judge David Godbey in Dallas said that law firms Proskauer Rose and Chadborne & Parke will have to contend with claims brought by a committee of these investors and Ralph S. Janvey, the court-appointed receiver for Allen Stanford’s companies.
Chadborne and Prosakuer had sought to have this lawsuit, which seeks to hold the two law firms liable for legal malpractice, dismissed. The plaintiffs contend that Thomas Sjoblom, who worked at the two firms, allegedly obstructed regulator probes into the Ponzi Scam and helped Stanford conceal the SEC’s investigation from auditors.
Now, the Texas-based judge has decided that Janvey and the investor committee can pursue claims of negligent supervision, professional negligence, civil conspiracy, and aiding and abetting fraud against the two firms. Judge Godbey stated that the allegations suggest that Sjobolm knew that Stanford was potentially running a Ponzi scam, and this awareness was imputed to both firms. Godbey said that the plaintiffs have alleged that the defendants knew that Stanford was engaged in sufficient wrongdoing.
Chadbourne and Porsauer are also contending with a proposed class action lawsuit filed by about 18,000 ex-Stanford investors-a complaint that Godbey also refused to toss out earlier this year. In that case, the federal judge rejected the defendants’ contention that they had a right to immunity under Texas law. His decision came a year after the U.S. Supreme Court said that the lawsuit, which brought claims under state law, could proceed even though the defendants had protections under the Securities Litigation Uniform Standards Act.
In another lawsuit, this one against former Stanford executives and other attorneys and firms, class action plaintiffs accused defendants of playing a part in the sale of the bogus CDs during the mid-1980’s up through to the end of the scam. Among the defendants: law firm Breazeale Sachse & Wilson LLP, which referred clients to Stanford Financial Group, resulting in an increase in the sales of these bogus CDS, and Adams & Reese and its partner James Austin, who allegedly knew that the CDs were uninsured and not registered as U.S. Securities. To resolve that case, a number of the defendants consented to pay $5 million.
Meantime, Stanford is appealing his conviction to the 5th U.S. Circuit Court of Appeals. He maintains that the CDs were not securities under federal law. He also is arguing that the judge who presided over his trial made mistakes that made it impossible for him to conduct a proper defense.
Our Texas securities law firm represents investors throughout the state seeking to recover their losses stemming from financial fraud. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.
BigLaw firms must face receiver’s suit over client’s $7B Ponzi scheme, federal judge rules, ABA Journal, June 25, 2015
Investors may pursue U.S. lawsuit over Stanford fraud, Reuters, March 5, 2015
Adams & Reese, Others To Pay $5M In Stanford Fraud Suit