June 2, 2014
Stanford Financial Group was the brainchild of Allen Stanford, who was convicted in 2012 on 13 counts of fraud. Stanford and his company ran a $7 billion Ponzi scheme involving the sale of fraudulent CDs. Since the company was placed into receivership in February 2009, the receiver, Ralph Janvey, has been attempting to get back investor funds.
Janvey is seeking recovery of $686 million from defendants like the Stanford brokers. But the ultimate payout to defrauded Stanford investors will likely end up being pennies on the dollar.
The Stanford brokers’ have forestalled Janvey’s pursuit and argue that he must pursue each broker individually in arbitration because Stanford Financial agreed to arbitrate employee disputes. In fact, Janvey lost an important circuit court case, which ruled that he could only pursue claims on behalf of the various Stanford companies, not investors or other Stanford creditors. That ruling forces Janvey to pursue the brokers in FINRA arbitration. Janvey asked the Supreme Court to hear the issue and allow him to represent the investors.
The brokers claim that Janvey is simply trying to avoid arbitration, but the general issue is to what extent a receiver is stuck with contracts signed by a Ponzi-schemer. Janvey argues that he is not bound by those arbitration agreements and is free to pursue his claim against the brokers in litigation.