EXCLUSIVE: Fed seeks millions from ballplayers in Ponzi scheme

EXCLUSIVE:

The lawyer trying to recover the money from R. Allen Stanford's purported Ponzi scheme wants seven current and former Major League Baseball stars who had invested with the accused swindler to turn over millions of dollars, mostly of the players' own money.

Ralph S. Janvey, whom the Securities and Exchange Commission appointed as the "receiver" in the case, wants to take $9.5 million from the players, an amount that mostly consists of their initial investments, so that the athletes' money can be split up among all of Mr. Stanford's purported victims.

"The fact that the [ballplayers] are innocent investors and committed no wrongdoing does not entitle them to retain proceeds received from the fraudulent" scheme, lawyers for Mr. Janvey wrote in a filing last week with the U.S. District Court in Dallas.

Gene R. Besen, an attorney for all seven players, declined to comment on the move by the receiver.

Targeted by the filing are accounts at Pershing, a clearing broker used by Mr. Stanford and where brokerage accounts were held by retired pitcher Greg Maddux, retired New York Yankees slugger Bernie Williams, current Yankees outfielder Johnny Damon, Boston Red Sox outfielder J.D. Drew, Texas Rangers outfielder Andruw Jones, Tampa Bay Rays first baseman Carlos Pena and Jay Bell, a shortstop who played for several teams before retiring in 2003.

David B. Smith, a Virginia lawyer who is co-chairman of the Forfeiture Abuse Task Force of the National Association of Criminal Defense Lawyers, said Mr. Janvey's filing is "unusually aggressive."

The players are not accused of wrongdoing, yet are being asked to turn over huge amounts, including the legitimately made money they invested at the start, not simply their profits, Mr. Smith noted.

"You get into these philosophical questions of what is really fair?" said Mr. Smith, who has represented the victims in several Ponzi scheme cases. "None of the cases that I have been involved in follow this scenario."

Mr. Stanford pleaded not guilty Thursday in federal court in Houston to charges contained in a 21-count indictment that say he ran a $7 billion Ponzi scheme. Judge David Hittner on Friday ordered him held without bond pending a hearing Monday morning.

Authorities say Mr. Stanford sold fraudulent "certificates of deposit" that promised impossibly high returns.

In reality, investigators say, Mr. Stanford was simply running a Ponzi scheme, in which earlier investors were paid with money from new investors. Mr. Stanford also took much of the money for himself, authorities say, including a $1.6 million "personal loan" from money he received from investors.

The ballplayers were among the investors who just happened to make money from the apparently fraudulent "certificates of deposit." The move against them is the first in which Mr. Janvey has sought to retrieve Stanford money paid out to innocent investors.

Mr. Janvey previously sought to seize $40 million from 66 financial advisers the government doesn't accuse of wrongdoing, but who had been employed by Mr. Stanford. He has also asked a judge for permission to sell property belonging to Mr. Stanford.

Mr. Janvey and his lawyers at the Baker Botts firm, which made the filing, did not return phone and e-mail messages left by The Washington Times.

According to court documents, the "proceeds" the ballplayers received from Mr. Stanford's self-styled "certificate of deposits" were found in accounts at Pershing, a clearing broker frequently used by Mr. Stanford.

On the lower end, Mr. Damon stands to lose $400,070, which includes the $400,000 principal that Mr. Damon put up and about $70 in interest he got from Mr. Stanford. According to court records, Mr. Maddux is at the higher end, with the receiver seeking nearly $3.7 million - Mr. Maddux's $3.5 million initial investment and $170,000 in profit.

"At the end of the day, these guys will get something back from the collective pot," white-collar defense lawyer Barry J. Pollack said. "While they might be putting in $1.25 now, they may be getting 75 cents down the road."

The receiver argues it is only fair that all of the money recovered goes into one pool and is distributed among all the investors, both those who made money and those who lost money.

"I do think this is [the receiver] trying to establish a beachhead, and once they get the court to buy the concept, I do think they will go looking for other investors who have been paid back either their principal or their return on their investment," Mr. Pollack said. "It's a little bit of a Robin Hood concept - we are going to take from the lucky few that got paid back and put it in a pool and distribute to everybody."

About the Author

Ben Conery

Ben Conery is a member of the investigative team covering the Supreme Court and legal affairs. Prior to coming to The Washington Times in 2008, Mr. Conery covered criminal justice and legal affairs for daily newspapers in Connecticut and Massachusetts. He was a 2006 recipient of the New England Newspaper Association’s Publick Occurrences Award for a series of articles about ...

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