- The Washington Times - Tuesday, July 28, 2009

Seven former and current major league baseball players and others who made money from R. Allen Stanford’s purported Ponzi scheme and who now worry that their own cash will be taken have found an unlikely ally: the Securities and Exchange Commission.

The SEC has asked a federal judge to stop the “receiver” — the lawyer charged with taking control of assets related to the supposed scam — from suing investors for their proceeds in the Stanford investment.

The receiver, Ralph S. Janvey of Dallas, has filed several lawsuits that seek to seize tens of millions from innocent investors. These so-called “clawbacks” include amounts that reflect initial investments as well as interest earned as part of the purported scam. In the case of the baseball players, whom Mr. Janvey sued last month for more than $9.5 million, the combined initial investment of their own money was $9.2 million.

The SEC anticipates dozens more such filings to come within the next week.

“The receiver’s clawback claims against innocent investors seeking the return of principal are not supported by case law and are contrary to commission practice,” the SEC wrote in a federal court filing last week.

“The commission simply does not make a practice of suing innocent victims of Ponzi schemes for the return of principal, and applies a great deal of discretion and consideration before asserting claims against victims for the return of interest payments received by them,” the commission wrote.

The SEC is asking U.S. District Court Judge David C. Godbey in Dallas to give the agency, instead of Mr. Janvey, the sole authority to seize money from investors with Mr. Stanford, who is jailed on charges of running a massive, $7 billion Ponzi scheme.

Mr. Janvey has not filed a response to the SEC’s request and did not return a message Monday seeking comment.

Gene R. Besen, an attorney for all seven players, has asked a judge to halt the proceedings against his clients in light of the SEC’s request.

“The SEC’s motion is unprecedented, and it’s an indication that the SEC views the receiver of having gone off the reservation with these clawback claims,” he said.

Bradley Simon, a white-collar-criminal defense attorney and former federal prosecutor, called the SEC’s request “incredible” for several reasons, including the fact that the SEC asked the judge to appoint a receiver in the case.

“I’m at a loss to understand where the SEC is coming from with respect to its action,” said Mr. Simon, who also called the practice of “clawing back” Ponzi-scheme money legitimate. “In my view, the receiver is doing exactly what it should be doing.”

He also criticized the SEC for intervening “on behalf of a small number at the expense of a whole group of investors.”

William Prickett, a lawyer who specializes in securities and financial litigation, said the SEC filing is “generally unusual, but there are sort-of unique facts here that have caused the SEC to decide to make a filing and state its position.”

Mr. Prickett, who represents victims of convicted scammer Bernie Madoff’s Ponzi scheme, noted that in that case, the receiver is not seeking to seize victims’ initial investments, only the phony returns that Madoff distributed.

Mr. Janvey has argued in court flings that all of Mr. Stanford’s victims — those who made money and those who lost it — should be treated equally. His plan was to collect all the assets related to the scheme and distribute it equally among all the victims. Mr. Janvey argued that those assets included money paid out to some investors.

The SEC argued that that strategy would be ineffective.

“In all probability, these funds will be a small percentage of the billions owed to investors worldwide, not contributing to investor recovery in any meaningful way,” the SEC wrote in its filing. “It makes little sense to assert claims against these victims.”

Scott Hershman, a white-collar defense attorney, said this case is an example of several he knows of in which the SEC and receivers “are at odds, for sure.”

“That’s not something for me that is ridiculously unusual,” he said.

“Usually, they play ball together, but they don’t have to.”

Steve Lee, an economist who specializes in analyzing fraud schemes, agreed.

“And in this case, particularly with high-profile investors, the SEC may be taking the position that while recoveries for the Ponzi victims are important, they do not outweigh the interests of innocent investors who received ‘earnings’ during the course of the Stanford scheme,” said Mr. Lee, managing partner of his self-named firm. “What may be unusual is the extent to which the SEC has weighed in on this type of matter by bringing its own motions.”

The players targeted are retired Atlanta Braves 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.

Mr. Janvey has also has sought to seize more than $11 million in proceeds received from Mr. Stanford by six other investors.

In other cases, he has 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 also has asked for permission to sell property belonging to Mr. Stanford.

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