Trial in Stanford Trust Ponzi scheme looms 15 years later | Courts - The Advocate
Nearly 1,000 Louisiana retirees who fell victim to the second-largest Ponzi scheme in U.S. history have waited more than a decade for their day in court.
They are among thousands of people across the globe who lost their savings and pensions after investing in fraudulent Stanford Trust retirement accounts at the turn of the century. Some plaintiffs have died, and most who have survived the yearslong legal battle are well into their 80s.
But for after 15 years, a long-awaited trial in the multibillion-dollar global Ponzi scheme is poised to get underway next month inside the 19th Judicial District Courthouse in Baton Rouge.
At least $400 million in total losses will be at stake when the two-week trial begins July 22.
Eighty-four plaintiffs were named in the class-action lawsuit when it was originally filed in August 2009. Chief District Judge Donald Johnson recently certified a class in the Baton Rouge case that attorneys said expanded the lawsuit's scope to more than 900 plaintiffs. It was the first time in the case's long history that a group of victims was formally defined.
According to Johnson's May 21 order, the qualifying class is confined to investors who bought or renewed Stanford International Bank certificates of deposit in Louisiana through the Stanford Trust Company between Jan. 1, 2007, and Feb. 13, 2009.
The Stanford Trust Company was a Baton Rouge-based arm of the international bank that served as custodian of the rollover IRA accounts that held the investors' certificates of deposit, or CDs.
The lawsuit alleges the Louisiana Office of Financial Institutions, a state regulatory agency that examined Stanford Trust's books each year, failed to protect investors from founding Chair R. Allen Stanford's predatory practices.
The billionaire tycoon was convicted in federal court of preying on investors for two decades, using money from the offshore international bank to finance his personal businesses and lavish lifestyle. In 2012, Stanford was sentenced to 110 years in prison for embezzling $7 billion worth of investment funds from nearly 25,000 victims worldwide as part of the Ponzi scheme.
He remains in federal custody at a high-security Florida penitentiary, U.S. Bureau of Prisons records show. According to court records, a federal judge in Houston denied Stanford's latest motion for compassionate release last year.
Courts have already reached settlements totaling more than $1.6 billion with five of the banks that helped Stanford run his embezzlement operation. The most recent was February 2023, when Toronto Dominion Bank in Canada agreed to pay more than $1.2 billion in damages.
The class-action suit in Baton Rouge could mark the first Stanford-related case that actually goes to trial. It mostly involves retirees from Exxon Mobil and other plants along the Mississippi River that cumulatively invested an estimated $250 billion into fraudulent CDs as rollover IRAs. Phillip Preis, the Baton Rouge attorney representing the plaintiffs, said the case includes another $200 million in damages from accrued interest racked up over the past 15 years along with the cost to pursue the civil claims.
Stanford International Bank was based in Antigua and sold CDs with higher premiums than the interest rates offered by U.S. banks. Financial advisers at Stanford Trust sold customers on the investments by convincing them the CDs were safer because the money was held at the international bank's offshore headquarters in the Caribbean islands.
David Godbey, chief judge of the U.S. Northern District Court of Texas, seized and froze all of the bank's assets in 2009 and appointed Dallas attorney Ralph Janvey to oversee the Stanford Financial Receivership.
Janvey analyzed how much was stolen from each of the Stanford entities' U.S. victims in 2011 and determined loss proportions. Godbey approved Janvey's calculations as part of Multi-District Litigation Panel proceedings in the Texas federal court.
In a June 11 ruling, Johnson accepted Janvey's loss calculations for the victims in the Baton Rouge civil case. Earlier this month, attorneys in the case here deposed Karyl Van Tassel, a forensic financial investigator hired by Janvey, who could be among the expert witnesses to testify at next month's trial.
A legal team from Baton Rouge law firm Phelps Dunbar is defending the Office of Financial Institutions on behalf of the Attorney General's Office. The state regulator has denied wrongdoing and liability for all portions of the Ponzi scheme administered through Stanford Trust.
In court filings, the Office of Financial Institutions' attorneys say the state agency only had limited authority to regulate Stanford Trust and didn't become aware of Allen Stanford's fraudulent practices until June 2008, when federal authorities investigating the Ponzi scheme met with OFI leaders in Fort Worth, Texas. The feds told them not to take action until the investigation was complete, OFI says.
But Preis has argued that OFI had a "duty to disclose" suspected risks of the retirement funds to potential investors. Court records reveal he intends to show "intentional and willful" malfeasance by proving that OFI was aware of Stanford's illicit and undisclosed source of income for at least five years and did nothing to act on it. The agency's concerns, Preis has alleged in court filings, were detailed in a 2007 OFI report that stated "rapid proliferation" of Stanford International Bank's CDs lacked "proper due diligence and ongoing reviews" and was exposing Stanford Trust to an "undue level of risk."
The plaintiffs accuse OFI of knowing the CDs had no value and not stepping in to stop investors from purchasing the retirement funds through Stanford Trust.
Getting those records admissible has been a challenge. According to Louisiana law, OFI reports are strictly confidential records that can be released only by court order or if the commissioner orders them to be publicly disclosed.
Several exhibits and evidentiary documents have been filed under seal, and the public has been locked out of some of the pretrial hearings at OFI's behest.
Johnson previously granted the plaintiffs access to OFI documents between 2005 and 2009. OFI's attorneys have maintained any records outside that time frame bear no relevance in the case.
In April 2023, Johnson enlarged discovery to include reports, emails, memos and letters from the state agency dating back to 1998.
The 1st Circuit Court of Appeal reversed Johnson's order last July, ruling that plaintiff attorneys "did not adequately describe the documents" they sought and failed to provide enough evidence to show why they needed OFI reports prior to 2005.
As part of his June 11 order, Johnson again ordered OFI to hand over pre-2005 documents to plaintiff attorneys as part of discovery. It is a critical decision that is likely to be challenged again before the trial begins, attorneys noted during a June 10 hearing.
"Make no mistake about it: It's a threshold issue because if they prevail on that issue, the case is over with. So that is the key issue in the case," Preis told the judge.
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