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R. Allen Stanford arrives at the Bob Casey Federal Courthouse in Houston, where he was sentenced to 110 years in prison for one of the largest Ponzi schemes in U.S. history, June 2012. Houston Chronicle, Johnny Hanson/AP

When 18,000 people got fleeced in Allen Stanford’s $7.2 billion Ponzi scheme, the court appointed a receiver in 2009 to recover as much money as possible from Stanford’s failed companies to return to investors.

After four-and-a-half years, the receiver, Ralph Janvey, began mailing checks ranging from $2.81 to $110,000 to hundreds of investors. That amounts to about $55 million of the $6 billion lost in the scheme, less than a penny on the dollar.

Unlike the investors, Janvey, who has billed from $340 to $400 an hour for his services, is making out quite well. To date, Janvey and his team have recovered $234.9 million from the bankrupt Stanford Financial Group and spent more than half the total — approximately $124 million — on personnel and other expenses.

“From the victims’ point of view there is no way, shape or form that the receivership could be viewed as successful,” said Angela Kogutt, whose extended family lost a total of $4.9 million investing with Stanford. “This has been one of the biggest failures of a liquidation in history.”

The largest chunk of the Janvey team’s expenses — $67.1 million — was spent on “receivership’s professional fees and expenses,” according to court documents. Those fees and expenses add up to more than 28.5 percent of the money recovered from Stanford’s assets so far.

Janvey has “complete and exclusive control, possession, and custody” of the assets left behind by Stanford’s business, according to the court order that named him receiver on Feb. 17, 2009.

Janvey’s attorney, Kevin Sadler of Houston law firm Baker Botts, said the high costs are an unfortunate downside of unwinding Allen Stanford’s 18-year financial house of cards, which had offices in 23 states and 13 countries and more than 3,000 employees.

Worldwide tug of war

Sadler said Janvey has been fighting a “worldwide tug of war over what was left of Stanford’s assets,” involving multiple national governments and liquidators in Antigua where Stanford International Bank was located. In March, Janvey reached a settlement to recover about $300 million worth of Stanford’s assets that have been frozen in Switzerland, Canada and the United Kingdom.

Janvey has been enmeshed in controversy regarding the Stanford liquidation. The Securities and Exchange Commission, which nominated Janvey and rarely has public disputes with receivers, won a motion to rein in some of his spending in June 2009 after the first fee applications were submitted.

The expenses included a $160,000 payment to a public relations firm called Pierpont Communications for three months of reviewing, sorting and forwarding emails in 2009. In a written objection to the fee application, court-appointed examiner, John Little, said he had “significant doubt that Pierpont has created any benefit for the Receivership Estate.”

FTI Consulting — a forensic accounting firm — billed more than $528,000 in airfare, parking, hotels, taxi, and subway costs to the estate for its first 56 days on the job. Little objected, pointing out that this amounted to “$9,439 in travel-related expenses per day, every day, during the first 56 days.”

A large part of the receivership’s early spending — $48 million — went to winding down the more than 100 companies in the Stanford Group, costs that were unavoidable, Sadler says.

Today, Little says Janvey’s spending has slowed. In the 12 months ended June 30, he’s spent $9.1 million, compared to $20 million spent in the first two months of the receivership in 2009.

U.S. District Judge David C. Godbey denied a 2011 request by unhappy investors to intervene in the case because they believed Janvey was spending too much money. Godbey noted that “the rate of expenditures on professional fees has decreased markedly over time, with the bulk of such expenses incurred relatively early in the receivership.”

Silk plants, once belonging to the Stanford Financial Group, are stocked in a Fort Lauderdale, Fla. warehouse, June 2009. (Alan Diaz/AP)
Gilded furnishings and artwork from Stanford Financial Group’s Miami offices awaiting sale in a South Florida warehouse, June 2009. (Alan Diaz/AP)

Guaranteed income

When large Ponzi schemes or companies go bankrupt, court-appointed receivers often find themselves employed for long stretches of time with a guaranteed income. There are no clear rules or guidelines dictating how a receiver should go about unwinding a failed or fraudulent business or recovering its assets, Sadler said.

That allows receivers like Janvey to work full-time for years on an estate, billing either investors or the congressionally chartered Securities Investor Protection Corp. (SIPC).

Allen Stanford’s $7 billion scam was just one of many Ponzi schemes to fall apart within the past five years. Most notably, Bernard Madoff was sentenced to 150 years in prison for operating a $50 billion Ponzi scheme that cost investors more than $17 billion.

Irving Picard, the Madoff receiver who was appointed in December 2008, says he has spent about $850 million trying to recover money for investors. The number is huge but it’s less than 10 percent of the $9.5 billion he’s returned to Madoff’s victims. He’s distributed $4.9 billion.

He declined to say whether he believes Janvey’s costs are too high.

“I don’t know enough about the specifics about what he had to do,” Picard said in an interview.

Like Janvey, Picard kept Madoff’s firm open to determine whether he should sell it before winding it down, and he paid all the employees for a short period. “You don’t jump in and automatically say. ‘Boom, you’re gone,’” he said. “And by the way, it was Christmastime. You’ve got to look at that.”

Picard has also sued hundreds of people and is working in more than 20 countries to recover money.

As he describes his work, Picard speaks repeatedly about the cost-benefit analyses he makes for each decision. “You do it for every decision,” he said. “And then perhaps you drop it.”

Sadler said Madoff’s scheme was a “compact operation to wind down” in comparison to Stanford’s, which involved more than 100 different interconnected companies.

Like Picard, he said, Janvey watches his costs.

“We’ve been pretty sensitive to the fact that we can’t spend $10 to recover $10 — or even $5,” he said.

Suing the employees

Janvey has sued about 1,800 former Stanford employees and customers whom he says got money from the company — either in salary, bonuses or investment returns — that rightfully belongs to the defrauded investors.

“Everyone we have sued, we have sued because in both fact and law we believe they received money they were not entitled to,” Sadler said.

He said the total amount Janvey could recover from these lawsuits is $1 billion, the only remaining source of money for the defrauded investors. Most of the former employees and clients are fighting the suits because they believe they only got money they were entitled to. Such lawsuits are now the best hope for getting more money back for Stanford’s victims, he said.

Susan Jurica was a fixed-income portfolio manager at the company. In 2008, about a year before the SEC shut down the company, her entire team was let go. Jurica took a lump sum severance of $50,000 rather than opt for monthly payments. When Janvey took over, she says, he looked for any person who got a payment of $50,000 or more and went after the money on behalf of investors.

At the heart of the fraud were certificates of deposit that were sold to victims, which Jurica says she did not profit from.

“I was very surprised that they had the gall to try to tell us that we were being paid with proceeds from CDs,” Jurica said in an interview. “We never bought any of the Stanford CDs.”

Jurica is still fighting the lawsuit in a Texas court.

Janvey has sued thousands of people but he has forgone many lawsuits because the return wasn’t worth it. For example, Janvey sued the Democratic and Republican national party committees to recover Stanford’s contributions. He also sent letters to the more than 50 senators and House members who received Stanford contributions but did not go to court.

Fewer than 20 returned the money, he said.

Picard’s fees are not taken directly out of the estate, but are paid off by the SIPC at a 10 percent discount off his usual rate. Janvey, on the other hand, is paid directly by the estate at a 20 percent discount because the Stanford case was turned down by the SIPC. The SEC sued SIPC over the decision not to protect Stanford investors, but lost. It will appeal that decision this fall.

The SIPC said it does not cover the Stanford investors because the Securities Investor Protection Act “does not authorize SIPC to protect monies invested with offshore banks or other firms that are not SIPC members. The Act also does not protect investors against a loss in value of a security, including because of mismanagement or fraud,” according to its website.

Another receivership backed by SIPC was the Lehman Brothers Holdings Inc. bankruptcy.

The expenses billed by the receiver in that case, James W. Giddens, including administrative, professional, consulting and operational costs total more than $1.8 billion since the filing date in 2008, according to court documents. The returns have been big.

“Customer distributions will exceed $105 billion, by far the largest customer distribution in history,” Giddens’ ninth interim report states.

Janvey has been widely criticized for spending too much, but Sadler insists it’s the only way to resolve a major fraud.

“When these things collapse, they just cost a lot of money to clean up,” he said.

Meanwhile, Stanford’s investors are still waiting.

John Wade of Covington, La., was looking to sell his business and retire when he started doing business with Stanford. The veterinarian and his partner decided to invest $2.5 million in pension funds and personal savings with a Stanford Financial Group financial advisor as they prepared to put their business, which provides microchip IDs for pets, on the block.

“We worked hard for many years and put money away. It was time,” Wade said, “I had just bought a boat and a guitar and I was off to go fishing.”

Instead, seven years later, Wade is “just trying to rebuild the retirement nest egg.”

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