Editors note: This story has been changed since originally published.
Emma Chammah, a young professional in Baton Rouge, went to her financial adviser at the Stanford Group—which already was in control of her 401[k]—when deciding what to do with her savings. She’d been told it was unsafe to keep $10,000 just sitting in her checking account and to invest it.
“We sat and talked; he told me it was FDIC-insured. It was about the safest thing you could do with your savings for three months,” Chammah says. And the minimum investment for the three-month certificate of deposit she purchased was just about all the savings she had.
Now Chammah, other small investors and also those with millions at Stanford are scrambling to learn if they’ll ever see their money again. But the ultimate fallout Baton Rouge might soon see will not be from investors who simply lost money, but those who received money, interest from Stanford products and now have to give it back.
In the March 2 “Statement on the Status of the Receivership,” issued by the court-appointed receiver, Ralph Janvey, explains that Stanford clients who once owned CDs for which interests were paid using the cash from other investors [according to the allegations by the SEC] might be required by the court to return the assets they received, whether they now are in a new account or have been invested in other products.
That means even if the funds now are in completely legitimate investments, they are party to the fraud that Stanford was perpetrating. “The Receivership Estate may, as required by the court’s order, seek to reclaim these proceeds or the securities purchased with the proceeds,” Janvey writes, “so that this value can be shared equitably by all victims of the fraud, as well as those who cashed out their CDs before the date of the Order.”
Lance Paddock, the director of investment strategy for Peters Wealth Advisors, says the receiver’s call to collect funds over the next few years might hit Baton Rouge hard. “You’re talking about there being roughly 400,000 people in the metropolitan area, and us having between $1 and $2 billion invested with Stanford.” The fallout is going to be astronomical.
Paddock also says if the example of the Madoff scandal is any indicator, the interpretation of investors’ guilt also will be utilized in deciding who will need to give back money. Meaning those clients who raised red flags and suspected something are more “guilty” than those who did not. “They’re going to look to see who pulled their money when they suspected something was wrong,” Paddock says. “Those who wanted to get their money out before it all unraveled will be held accountable because they’re kind of complicit at this point.”
And clients of Stanford might not be the only parties required to return cash. Nonprofit organizations that benefited from Robert Allen Stanford’s immense “generosity” over the years as well as politicians who received campaign contributions also might be required by the receivership to return the money. “With charities, there’s this empathy factor,” Paddock says. “But you’ve also got this retiree that’s got half their life savings gone. Does the Arts Council have a claim to keep the money above that?” That decision will be up to Janvey, his team and the court to decide.
Janvey and droves of Stanford clients and attorneys will return to court in Houston on March 16 to discuss the next steps. Janvey could suggest that some of the smaller accounts not linked to CDs be released by the end of March, but it could be weeks, months or years before investors see the final result of Stanford’s alleged fraud.
Numerous law firms in the Capital Region were contacted regarding their take on the receivership. Some did not respond, while others declined comment as they are tied either to the receivership or to Stanford clients.
Meanwhile, Chammah says she is waiting—but she’s not planning on being able to access her life savings any time soon. “I quit my job to move to New York with my savings,” she says. “Now I’m not counting on getting my money back in April. I just hope I get it back eventually.”
OBSTACLE TO RESOLUTION:
• More than $6 billion is not held by Stanford; Pershing and J.P. Morgan Clearing Corp. hold more than 35,000 accounts on behalf of Stanford
• There are 3,000 Stanford employees throughout the world with varying levels of access to company information
• Throughout the 175 entities and 70 financial institutions, there is no unified system of record-keeping
• Receivership must identify all accounts related to any of the fraudulent activities
• On March 16, the court-appointed receiver, Ralph Janvey, will recommend early release of some small, nonfraud-related accounts
• Receivership team will establish a claims procedure for Stanford clients
• Claims will be examined to determine their legitimacy
• Receivership will establish safeguards to keep people from utilizing courts to jump ahead in line
Update: The assigned judge overseeing the receivership of Stanford’s accounts has authorized the release of 12,000 accounts held on behalf of Stanford Group at Pershing, LLC, at the insistence of the designed receiver, Ralph Janvey. Those accounts to be released are valued at $250,000 or less and have not been linked to fraudulent funds or to Stanford employees. Account holders will be required to establish a new broker-dealer relationship in order to access the funds.
At this time, the court has not recommended that any of the accounts held with J.P. Morgan Clearing on behalf of Stanford be released.