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.”