A civil suit by 86 defrauded investors was certified by a Baton Rouge judge Wednesday as a class action against Louisiana’s regulator of financial institutions and a Pennsylvania company that compiled customer financial statements on behalf of convicted swindler Robert Allen Stanford.
The ruling by state District Judge R. Michael Caldwell could open the door for some 1,000 investors damaged by Stanford’s fraudulent $7.2 billion scheme to join the suit. Those people now have the option to join the original plaintiffs in seeking judgments against the Louisiana Office of Financial Institutions, or OFI, and the financial services firm of SEI Investments Co.
If investors win that suit, OFI and SEI could share liability for as much as $1 billion in losses in Louisiana, according to estimates by their attorneys.
SEI took investment-performance information from Stanford, now serving a prison term of 110 years, and used it for financial statements that went to investors. But both the Pennsylvania firm and OFI deny failing any obligations to investors.
“I do certify this lawsuit as a class action,” Caldwell told a courtroom populated by former Stanford investors and attorneys for all sides in the litigation.
The judge noted his decision merely opens the door for more defrauded investors to join the lawsuit against OFI and SEI. Additional litigation will be needed to determine whether those investors are entitled to recover any money from the two defendants for allegedly failing an obligation to warn them of indicators of fraud on Stanford’s part.
Many people lost their money, Caldwell said, adding that there were more than 1,000 investor accounts at Stanford Trust Co. in Baton Rouge.
Additional investors’ money was drawn into the scheme through Stanford Group Co.
“Some of them lost all of their money,” Caldwell said of the victims. “Some of them lost hundreds of thousands of dollars, and some of them lost millions.”
Phil Preis, lead attorney for the plaintiffs, said Caldwell’s ruling “affords the people of Louisiana their day in court.” Preis said his clients “are overjoyed.”
Zachary resident and Stanford victim Kathy Mier said, “I am very, very, very excited, very happy. Someone has listened, and I’m ready to go on.”
Mier and her husband, Louis Mier, lost $240,000 of their retirement nest egg to Stanford, 62.
“For the first time in a long time, I felt like someone really listened to us, and we’re moving forward with our fight,” Kathy Mier said.
Debbie and Ken Dougherty, of Central, recovered their principal investment in Stanford’s certificates of deposit at his bank on the Caribbean island of Antigua before federal officials shut down his operations in February 2009. But they continue to face demands from a court-appointed receivership in Dallas for return of more than $100,000 in profits.
“I know this is just one hurdle, but it’s huge,” Debbie Dougherty said after Caldwell’s certification of the class action lawsuit. “If we can get something for those folks who got nothing, then this (court fight) will be worth it.”
Attorneys for OFI and SEI, however, said long before Caldwell’s ruling that the government agency and financial services corporation did not violate any obligations to investors and will fight investor claims in court.
“The role of OFI is to regulate, not to ensure that those who invest in companies subject to OFI regulation will never lose money as a result of criminal actions,” OFI attorney David Latham wrote in one court filing.
In May 2011, however, former Stanford employee-turned-whistleblower Charles W. Rawl testified in Washington, D.C., before the House Financial Services Subcommittee on Oversight and Investigations. Rawl told members of Congress that he advised OFI officials of corrupt Stanford practices in 2008.
In late summer 2008, Rawl testified, OFI officials blocked future sale of additional Stanford bank certificates of deposit into Individual Retirement Accounts at Stanford Trust Co.
Preis said after Caldwell’s ruling: “The state examined the trust company. For a period of four years, we allege, they (OFI officials) knew of (Stanford’s) Ponzi scheme.”
A Ponzi is not a legitimate investment program. From beginning to end, it is intended to do nothing more than drain money from investors and transfer those assets to criminals. Early investors are paid dividends in order to attract new investors, whose money prolongs the scheme.
Both the Securities and Exchange Commission and the U.S. Attorney’s Office in Houston alleged in 2009 that Stanford’s operations were fraudulent from the beginning. Federal judges in Dallas and Houston have since agreed with that assessment.
But those court rulings have yet to benefit any defrauded investors. And they did not target any blame toward OFI and SEI.
SEI attorney J. Gordon Cooney Jr. told Caldwell two months ago that SEI did not falsify any information in investors’ financial statements, which routinely showed healthy profits, even as Stanford’s worldwide empire was collapsing.
All financial information used in those statements was provided by Stanford or his employees, Cooney added. He said SEI did not knowingly participate in the dissemination of false information to investors.