- The Washington Times - Tuesday, November 17, 2009

Seven current and former major league baseball players, along with hundreds of other investors, can keep the millions of dollars they put into R. Allen Stanford’s purported $7 billion Ponzi scheme, a federal appeals court has ruled.

The decision by the 5th U.S. Circuit Court of Appeals undercuts a central strategy of the lawyer appointed to take control of Mr. Stanford’s assets, and one lawyer says it may set a precedent for how money can be recovered in future scams.

The court’s ruling came in response to receiver Ralph Janvey’s efforts to seize the money hundreds of people made investing with Mr. Stanford and distribute thecash among the thousands of victims of the alleged scam. Mr. Janvey sought the initial investments that the innocent investors made with Mr. Stanford, as well as the interest they received.

In the cases of the baseball players, that meant Mr. Janvey sought $9.5 million, of which $9.2 million was the money initially put up by the players on the assumption that Mr. Stanford ran legitimate businesses.

The effort by Mr. Janvey — which several lawyers have called “unprecedented” because it sought both principal and profit — made national headlines after being reported in June by The Washington Times.

Last Friday, the appeals court ruled that Mr. Stanford’s investment business may have been phony, but the written agreements between him and his investors related to the accounts were real. That means the investors legitimately owned the money in their accounts, both the initial principal and the interest earned, and it can’t legally be taken from them.

The appeals court lifted a lower court order freezing the investors’ money.

“I think the 5th Circuit has set some clear boundaries for equity receivers going forward that could avoid costly litigation over novel legal issues,” said lawyer Gene Besen, who represents all seven baseball players involved in the case.

The legal rationale given by Mr. Janvey was that since the last round of people in a Ponzi scheme are left holding the bag for all the losses, the fairest thing to do would be to put all the money involved from everybody into a single pool and then divide that amount out according to how much people put in.

The players involved are likely future Hall of Fame pitcher Greg Maddux; retired New York Yankees slugger Bernie Williams; Yankees outfielder Johnny Damon; Boston Red Sox outfielder J.D. Drew; Tampa Bay Rays first baseman Carlos Pena; Jay Bell, a shortstop who played for several teams before retiring in 2003; and Andruw Jones, a free-agent outfielder who played for the Texas Rangers in 2009.

Jacob S. Frenkel, a former federal prosecutor and enforcement lawyer for the Securities and Exchange Commission, said the decision could set precedent because there is relatively little case law related to the role of receivers in frauds like those that prosecutors say occurred in the Stanford case.

“There isn’t much case law or common-sense analysis necessary to apply to reach this decision,” he said. “For investors in fear of the mighty ‘clawback,’ this is good law.”

In praising the court’s decision, Mr. Frenkel was harshly critical of Mr. Janvey, who did not return phone or e-mail messages seeking comment.

“It’s widely recognized that the receiver in the Stanford case was out of control,” he said. “If there were a movie titled ‘Receivers Out of Control,’ Ralph Janvey would get the starring role.”

William Prickett, a lawyer who specializes in securities and financial litigation and represents victims of convicted scammer Bernard Madoff’s Ponzi scheme, agreed with Mr. Frenkel that the appeals court decision was not a surprise.

But he doesn’t think it will have wide-ranging impact on the handling of other Ponzi-type schemes.

Mr. Prickett said Ponzi schemes don’t tend to have the type of written agreements for “certificates of deposits” seen in the Stanford case.

“I think if people apply [the 5th Circuit opinion] based on its facts, it won’t have a ton of broader implications,” he said.

Mr. Stanford remains jailed awaiting trial on federal charges that he sold self-styled “certificate of deposits” that promised impossibly high returns but were said to be part of a Ponzi scheme that afforded Mr. Stanford a jet-setting lifestyle.

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