Kathy Mier still remembers the feeling she got in the pit of her stomach when she heard that federal agents had raided the downtown Baton Rouge offices of the Stanford Group. It was February 16, 2009, and Mier, a retired school teacher who lives with her husband, Louis, on a spacious tract just north of Zachary, was watching the local 10 p.m. news.
“He was already in bed when the story came on,” Mier says. “I ran to the bedroom and woke him up and said, ‘Louis, I think we’ve lost all our money with Stanford.’”
As it turned out, the Miers lost some $240,000 with the collapse of Stanford—her $70,000 retirement pension from the East Baton Rouge Parish School System and his $170,000 rollover IRA from Georgia-Pacific, where he’d worked for decades as a storeroom clerk. It didn’t wipe them out entirely but it represented a significant portion of their savings, money they need today more than ever. She is now 72; he is 80 and suffering from the advanced stages of Parkinson’s Disease.
“This is the time when I wish we had it to fall back on,” she says. “We need so much help in the house taking care of Louis.”
It has been exactly 10 years since the collapse of the Ponzi scheme on which the Stanford Group’s fortune was built, and the Miers have yet to recoup the money they lost in the scam. They are not alone. More than 18,000 victims worldwide invested in the bogus certificates of deposit offered by Stanford’s Antigua-based bank. Collectively, they have claimed losses that exceed $5 billion. They are still waiting to be made whole. For many, it’s already too late.
South Louisiana was hit particularly hard by the collapse. The Stanford Group’s swank downtown Baton Rouge office in City Plaza was among the firm’s most successful in the world. It had a large, diverse and loyal clientele, cultivated by advisors who forged relationships through institutions like churches, Rotary clubs and neighborhood banks. They were bonds built on trust in a community that still does business by a handshake, and thousands of victims fell prey. Advisors in the Baton Rouge office alone wrote an estimated $2 billion worth of bogus CDs from the Stanford International Bank.
Ten years later, the scars of the scandal still run deep, too deep for many to talk about. There is anger, resentment, sadness and, especially, embarrassment—emotional wounds the passage of time has yet to heal.
There is also frustration by the slow pace of recovery. A court appointed-receiver in Dallas has thus far recovered just $500 million of the more than $5 billion lost, and nearly half of that has gone to attorney’s fees. The other $272 million has been divided among some 18,000 victims, which averages just $15,000 each.
In an unrelated—and more promising—effort, local attorney Phil Preis has been working on a class action lawsuit that covers about 900 mostly Louisiana victims. He recently scored a potentially major victory, when a federal judge transferred the case to Baton Rouge, where it will be tried in the U.S. Middle District Court. The move gives Preis a sort of homefield advantage that could prove especially helpful in speeding up the procedural motions and discovery process. Still, it will be late summer 2020 at the earliest before the case goes to trial, and probably much longer.
Preis has been working the case for 10 years. He knows many of the clients personally and has followed the story of their lives. He has watched them age, and some die. He knows he is running out of time to help them. That is among the reasons he keeps going.
But he also is motivated by a desire to hold those who had a role in the scandal accountable. R. Allen Stanford, the Houston mastermind behind the Ponzi scheme, is serving a 110-year prison sentence. His empire collapsed. He is bankrupt and broken. There is no longer anything to recover from him or his top few executives.
But companies that serviced the Stanford Group and performed its back-office functions should have known what was going on or, at least, asked questions. That’s why Preis’ suit targets the multibillion financial services firm, SEI. Until such companies are forced to pay up for enabling the scheme—however unwittingly—Stanford Group scandals will continue to happen, he says.
“This is the time when I wish we had it to fall back on. We need so much help in the house taking care of Louis.”
KATHY MIER, Stanford Group Ponzi scheme victim.
In the early days following the news about the federal raid and the collapse of the Stanford Group, Baton Rouge could talk about little else. In a city that still feels more like a big small town—the kind of place where circles overlap and people size you up based on where you went to high school—everyone knew someone touched by the Stanford scandal.
The victims ran the gamut. Wealthy investors like Lafayette oilman Michael Moreno and Baton Rouge developer Mike Wampold lost millions. Middle-class retirees from Exxon and other plants along the river lost lifetimes of savings from their companies’ generous 401(k) plans. Nonprofit organizations like the Baton Rouge Symphony Orchestra and institutions like LSU lost the hefty donations Stanford had made to them in its quest to buy credibility and engender trust.
Mier recalls planning a dinner party that first week with several couples and calling the wives ahead of time, begging them not to bring up money or the Stanford Group as a topic of conversation at the table.
“It was so hard,” she says. “They were all Exxon people and all the men were obsessed with Stanford and money.”
Ten years later, victims are still obsessed because Stanford changed everything. While some of the wealthier investors were able to write off the losses and move on, those who had retired from the plants—the average, middle-class folks—had to liquefy other investments, go into debt and go back to work.
“We’ve lost so many from old age and suicide,” says Debbie Doughtery, who has become an advocate for the local victims and keeps them apprised of various legal developments. “It wasn’t the kind of thing where you could just get on with your life. It affects everything you do, every penny you spend, the way you think about things.”
“I was fortunate I had friends that brought me in to do commercial construction with them. So at least I was able to get a good job. But at 52, to lose $1.2 million and your million-dollar house was really hard.”
BLAINE SMITH, chairman of the Louisiana Stanford Group Coalition.
Some have turned to activism as a way to cope. Blaine Smith is a commercial builder now, who lost $1.2 million when the Stanford Ponzi scheme unraveled. At the time, he was in his early 50s and had been enjoying an early retirement from Exxon, dabbling in residential real estate and enjoying life with a boat, motorcycle and house in upscale Bocage Lakes. After the collapse, he sold it all and went back to work.
“I was fortunate I had friends that brought me in to do commercial construction with them,” he says. “So at least I was able to get a good job. But at 52, to lose $1.2 million and your million-dollar house was really hard.”
Smith is now chairman of the Louisiana Stanford Group Coalition. While Dougherty serves as a conduit between those who are members of Preis’ class-action lawsuit, Smith is a local go-between with court-appointed, Dallas-based receiver Ralph Janvey. He keeps up with the various lawsuits and recovery efforts Janvey is pursuing. He also works with the state’s Congressional delegation to exert pressure on regulators, the courts and anybody who will do anything to help Stanford victims recover their money.
“I got involved because I thought I could help others and make a difference,” he says. “I didn’t work two, sometimes three jobs for 30 years to then do nothing in trying to recover my life savings.”
“We’ve lost so many from old age and suicide. It wasn’t the kind of thing where you could just get on with your life. It affects everything you do, every penny you spend, the way you think about things.”
DEBBIE DOUGHTERY, advocate for local Stanford Group victims.
Slow pace of recovery
In the early years after the Stanford Group collapse, victims had reason to hope they would eventually get at least some of their money back. Investors in Bernie Madoff’s fraudulent pyramid scheme ultimately recovered about half the nearly $20 billion they lost, thanks to the Securities Investor Protection Corporation, a federally mandated, member-funded insurance program that protects investors if their broker-dealer goes bust.
But in 2014, a federal appellate court in Washington D.C. ruled the Stanford losses were not covered by the SIPC because the Stanford International Bank was an offshore, unregulated institution. The decision was a crushing blow to Stanford victims.
“If such coverage had been available, it would have provided substantial compensation to victims,” says attorney Kevin Sadler of the San Francisco-based Baker Botts, which represents the receiver. “It also would have paid for professional fees and expenses for the necessary liquidation, litigation and claims process and distribution efforts.”
With SIPC recovery off the table, the receiver instead has gone after big banks and financial administrators that dealt with Stanford investments, as well as advisors and brokers who sold the fraudulent CDs. Several of those advisors worked out of the Baton Rouge office and are still in the area. (See graphic, below). Some have only recently settled the suits against them. Others are still negotiating. A few plan to go to trial, which is set for later this year. Those reached for comment decline to be interviewed for this story.
The recovery process is slow because the stakes are so high and those who are ordered to pay up often continue to fight. In 2018, the receiver reached settlements in three separate lawsuits that totaled some $200 million. The money should have been distributed by now to victims, but some former Stanford employees raised objections to the settlements so the case is tied up in the U.S. Fifth Circuit Court of Appeals.
The receiver is also getting considerable pushback from multinational investment bank Société General, which is holding $160 million in Stanford victims’ money at its bank in Switzerland, where Allen Stanford laundered money. Those funds have been frozen for 10 years, though the receiver recently reached an agreement with the U.S. Securities and Exchange Commission, U.S. Department of Justice and Antiguan authorities to return the money. The bank is stonewalling, laying claim to the funds in Swiss court.
In mid-February, U.S. Sens. Bill Cassidy and John Kennedy penned a letter to Société General North America CEO Slawomir Krupa, demanding the funds be returned.
“Let us be very clear: this is not your money,” the senators wrote. “It belongs to Americans who have been victimized by Stanford International Bank with your complicity.”
Krupa has yet to respond.
In another recent development, the U.S. Fifth Circuit ruled in favor of the receiver on one of his largest claw-back claims, a case seeking nearly $80 million from Stanford’s biggest U.S. investor, Colorado billionaire Gary Magness. The case alone may result in a final judgment, including attorneys’ fees and prejudgment interest, of nearly $125 million, which would represent a potentially sizable recovery for distribution to victims. But it’s unclear how long it will be before the funds are available or whether Magness will try to take writs to the U.S. Supreme Court.
“It’s unbelievable—10 years since the Stanford Ponzi scheme and less than five percent of the billions he took has been returned to victims,” Cassidy says. “These weren’t Wall Street billionaires. He went after hardworking teachers, nurses, firefighters and middle-class folks in Louisiana.”
The fourth quarter
One of the potentially best hopes for at least a some of those middle-class folks is Preis’ class action lawsuit. In late January, a federal judge in Dallas transferred the case, which originated in state court in Baton Rouge several years ago, back to Baton Rouge, where it will be tried in the federal court system by U.S. District Judge Bryan Jackson of the Middle District.
“You’re not going to prevent this from happening again unless you hold the enablers liable for not asking questions. Until that occurs, it’s going to repeat itself.”
PHIL PREIS, attorney representing about 900 victims in a class action lawsuit.
When Judge David Godbey first suggested the move during a conference with attorneys in the summer of 2018, Preis was so excited he wanted to scream, right there in the judge’s chambers. The order eventually came down, quietly and coincidentally, just two weeks before the 10th anniversary of the Stanford collapse.
Though the development went generally unnoticed in the public, it has potentially huge significance for claimants in the suit. Not only will the case be tried in a local court, which was likely going to happen anyway, but all the procedural motions and discovery will take place here, where much of the fraud was perpetrated and where the victims still live.
“This is significant because of the importance of the case to the Baton Rouge community,” Preis says. “The importance of the issues and the age of the plaintiffs should result in the court expediting the treatment of it.”
Not all of Stanford’s Louisiana investors are part of the class action suit, which targets Pennsylvania-based SEI. The claimants are part of a group that invested their retirement savings as rollover IRAs into certain fraudulent CDs sold in Baton Rouge by Stanford Trust Co., one of the Stanford entities.
Together, those claimants lost about $250 million, Preis estimates, though their lawsuit seeks damages that could bring the total amount due to nearly $500 million. The suit alleges SEI is liable because it consistently misreported on the statements it issued the value of his clients’ Stanford CDs.
“They are a major service provider and misrepresented the value of these investments every time they sent out a monthly or a quarterly report,” Preis says. “So they are liable and should be forced to pay.”
Preis believes he has a good shot at collecting from SEI. Thanks to a 2014 ruling from the U.S. Supreme Court, Preis’ suit does not have to prove SEI knew about the fraud; only that the firm was negligent for not asking the right questions. It’s a lower standard and after 10 years of fighting, Preis truly thinks he sees light at the end of the tunnel.
“We’re in the fourth quarter,” he says.
It’s a nice metaphor, but what does it really mean, especially for defendants now in their 70s and 80s? Things move at a glacial pace in the federal court system. Consider that though Judge Godbey ordered the case moved in late January, the files have not electronically been transferred yet to the Middle District. Once they are, a scheduling order will be put into place. Then will come months of combing through 50,000 documents as well as scheduling and taking dozens of depositions.
“I’d say late summer 2020 for a trial at the very earliest,” Preis says. “But given the age of these people we believe the courts will expedite the treatment, and give us a quick assignment of trial.”
Is a settlement a possibility?
Always. But so far, SEI hasn’t made any offers and Preis is preparing to litigate.
Ten years after a defining event like Stanford, it’s tempting to try to draw conclusions about lessons learned or big-picture takeaways. But it’s not really clear all that much has changed in Baton Rouge since the day SEC agents raided the Stanford Group offices.
Unsurprisingly, victims are more skeptical and cautious. Smith, the local victims advocate, says he’d never again trust an independent broker with his money. Doughterty is much more careful in doing due diligence.
One seasoned local broker, who asked that he not be identified, says he has definitely noticed a subtle shift in the attitudes of investors, who are more wary than they used to be. That two other investment scandals happened around the same time as Stanford—the Madoff Ponzi scheme and the much smaller, local collapse of Walter Morales’ Commonwealth Advisors—only exacerbated the sense of distrust.
“Three companies that had no telling how many billions of dollars under management all collapse at one time because greed took over,” the broker says. “There’s a lack of trust in our industry. This makes it worse.”
But Preis isn’t so sure anyone has learned much of a lesson. He notes that more money has been invested in private equity firms in the last five years than ever before, and that as long as the stock market continues its robust bull run, investors will ignore warning signs.
“You never know who’s swimming naked until the tide goes down,” he says. “When the market goes down in the next two to three years, which is inevitable, then you’ll see. It’s going to happen again. It’s happening now.”
More troubling, he believes until those who were on the other end of the Stanford scam—those who perpetrated and profited from the scheme—are held accountable for their actions, they will continue to do the same thing, especially when the market is healthy and people are flush with cash.
“How do you keep this from happening again?” Preis says. “You’re not unless you hold the enablers liable for not asking questions and until that occurs history is going to repeat itself.”