WASHINGTON – In an unprecedented raid, the U.S. government shut down the Stanford Financial Group’s brokerage firm, trust and banking operations in February 2009 alleging it was operating a Ponzi scheme. But seven years later, families and retirees - many of whom are in Louisiana - are still losing money thanks to attorneys who allegedly took more than their fair share.
Investors affiliated with the Stanford International Bank in Antiqua, an offshore bank, have been fighting to recover their money from five banks, including two based in the U.S., which handled billions of dollars in customer deposits. The investors claim that the banks should have realized that Houston-based Stanford was scamming people.
A certified public accountant who examined Stanford entities’ books testified in court that the alleged Ponzi scheme, which lasted from 1999 to 2008, had collected more than $7 billion worldwide by selling fraudulent certificate of deposits.
Losses for an estimated 1,000 investors in the Baton Rouge, Covington and Lafayette areas are close to $1 billion.
A U.S. court-appointed receiver, Dallas attorney Ralph Janvey, is among those who expected to be paid for his efforts, but reimbursements came out of the same chunk of money that was allocated for investors. Janvey had requested $10 million for his team’s work in just a two-month span.
The U.S. Supreme Court eventually ruled that the investors in Allen Stanford’s $7 billion scheme could sue the attorneys and insurance brokers involved in recovery efforts to hopefully recoup their losses. Four sets of plaintiffs filed civil class-action lawsuits, claiming that the defendants actually assisted Stanford and his companies in furthering the alleged Ponzi scheme by falsely stating that the uncovered securities the plaintiffs had purchased were backed by covered securities. The district court originally had dismissed each case, citing the Securities Litigation Uniform Standards Acts of 1998.
Stanford is carrying out a 110-year prison sentence for his involvement in the scam.
Stanford investors sued the New York-based law firms Chadbourne & Parke and Proskauer Rose, and insurance brokerage firm Willis Group Holdings, as well as financial services firm SEI Investments and insurance company Bowen, Miclette & Britt. The suit seeks at least $7 billion.
Melissa Landry, executive director of the grassroots legal reform group Louisiana Lawsuit Abuse Watch, explained that class-action lawsuits are “in a class by themselves” regarding fees and payouts.
“Unfortunately, this is nothing new … generating multimillion-dollar fees for lawyers and peanuts for claimants,” she told the Louisiana Record. “There are dozens of high-profile examples. For instance, a recent class action involving Rice Krispies cereal netted $5 refunds for consumers, while plaintiffs’ lawyers claimed entitlement to more than $1.2 million in fees.
"The recent Red Bull settlement is another example," Landry said. "According to news reports, the case settled for $13 million. As part of the settlement, class counsel received $4.7 million, while consumers who bought the drink between Jan. 1, 2002, and Oct. 3, 2014, received notices that are eligible to receive $10 cash or $15 worth of Red Bull products."
Another example in Louisiana is the $20 million settlement regarding the city in the New Orleans levee breach lawsuit. Almost 10 years after the class-action litigation was filed, the lawyers and administrators will “divvy up” $7 million amongst themselves, Landry said.
“The victims who lost their homes and businesses to flooding in the aftermath of Hurricane Katrina will get less than $500 each," she said. "In spite of trial lawyers’ claims that they ‘took a beat’ on this case, it is obvious who is really benefiting here, and by and large it isn’t the people who had water in their homes."
Landry noted that the Stanford case is yet “another illustration of the fact that the class-action system as we know it today benefits trial lawyers far more than plaintiffs.
“I think it is part of the reason the U.S. Supreme Court has accepted more class-action cases in recent years," Landry said. "It seems the high court is searching for a fair solution to what started out as a problem and has ultimately become a legitimate crisis."
One such investor, LV Reeves, had invested $65,000 with the Stanford group. He recently received a check, but it tallied up to be less one penny per dollar for his investment—just $540. He didn’t join the class-action lawsuit, but rather waited to see what the court-appointed receiver would be able to do. He views the check as an insult for all that happened.
Dane Ciolino, a law professor at Loyola University in New Orleans, explained that there is an opportunity for claimants to object to the fairness of a settlement in all class action lawsuits.
“The process is set up for the judge to police the fairness of any class action settlement and there’s generally an opportunity for claimants to insert an objection in that fairness hearing,” Ciolino told the Louisiana Record. “It’s really not uncommon for a judge to find a negotiated settlement to be unfair to class members. That happened with the NFL brain injury settlement, where a judge found a settlement to be unfair. There is a fairness process that is designed to guide people.”