State regulators in Louisiana and a Pennsylvania financial services firm did not verify the value of assets purported to support multibillion-dollar investments of Houston promoter Robert Allen Stanford before his indictment in 2009, an investor attorney alleged Friday.
Phillip W. Preis, an attorney for 86 Stanford investors, told state District Judge R. Michael Caldwell his clients should be allowed to represent all other Louisiana victims of Stanford’s proven $7 billion in worldwide frauds in a class-action lawsuit.
That lawsuit is pending against the Louisiana Office of Financial Institutions and SEI Investments Co., which provided administrative services to Stanford Trust Co.
“OFI feigns ignorance” of Stanford’s frauds, Preis argued. He said SEI, contracted by Stanford Trust for bookkeeping purposes, should have verified the value of assets Stanford said supported certificates of deposit in his Caribbean flagship, Stanford International Bank.
Stanford, who maintains he is innocent, is serving a 110-year term in federal prison for his conviction this year on charges that he spent investors’ money on himself until his bank scheme collapsed.
“SEI was not involved in sales” of those certificates of deposit, countered SEI’s Philadelphia attorney, J. Gordon Cooney Jr., adding that “SEI did not make any false statements” to Stanford investors.
Because SEI neither controlled Stanford Trust nor became the Baton Rouge firm’s partner, “The issue here is not one of duty,” Cooney told Caldwell. “The duty to disclose is on somebody who sells or offers to sell. If SEI is not the seller … end of story.”
Caldwell should not grant class certification for the plaintiffs in the Baton Rouge lawsuit, Cooney said.
Such certification could attract hundreds of other Stanford victims. If the investors were to win a judgment in the case, the expanded number of plaintiffs could greatly inflate any cash award.
“SEI has not violated Louisiana securities law,” Cooney said.
OFI also did not ignore any obligation to verify the value of Stanford’s holdings, argued David M. Latham, an attorney for the agency. Latham earlier told the judge OFI has no such obligation. He, too, asked Caldwell to deny class certification for the investors’ lawsuit.
Earlier in the day, Al Delpizzo, president of SEI Private Trust, testified that he was operations manager for SEI’s work on behalf of Stanford Trust during the period covered by the investor lawsuit. That period was 2007 until February 2009, when federal regulators seized all Stanford operations.
During questioning by SEI attorney Elizabeth H. Fay, Delpizzo said the firm plugged customer account activity, provided by Stanford, into a computer program used to spit out monthly and quarterly reports.
“Did SEI ever have custody of the Stanford Trust customers’ CDs?” Fay asked.
“We did not,” Delpizzo said.
Delpizzo also said SEI charged each CD holder $110 per month for maintenance of his or her Stanford account.
Harry C. Stansbury, who took state retirement in 2004 after 29 years as deputy commissioner of securities for Louisiana, is an attorney who served as an expert witness for SEI.
Stansbury, of New Iberia, testified that SEI had no obligation to research the value of Stanford’s purported assets.
“There’s no duty for them to have asked any of those questions,” Stansbury said.
“We’ve made a case of omission,” Preis told Caldwell.
Preis argued that both SEI and OFI had an obligation to research the actual value of Stanford’s claimed assets.
The Securities and Exchange Commission didn’t protect Stanford investors from loss of their savings to a program that was fraudulent from its inception, Preis told Caldwell.
The investor attorney added that the congressionally created Securities Investor Protection Corp. has refused a directive from the SEC to pay up to $500,000 of each individual Stanford investor’s losses.
Preis added that many Stanford investors in Louisiana were retirees who now find themselves desperate for cash to carry them through old age.
Those retirees don’t have time to wait years for resolution of their claims, Preis said, before invoking the adage: “Justice delayed is justice denied.”
Caldwell gave all parties deadlines for filing post-hearing briefs. The judge said he would render a decision on class certification by Nov. 30.