Fourteen years ago, on Feb. 16, 2009, lawyers for the U.S. Securities and Exchange Commission stood on the front lawn of U.S. District Judge Reed O’Connor’s home in Tarrant County seeking an emergency order to freeze all assets of R. Allen Stanford and his investment firm, accusing the Houston financier of perpetrating a massive $8 billion fraud.
Judge O’Connor appointed a receiver, Dallas lawyer Ralph Janvey, to pursue all efforts to recover funds for the thousands of investors who lost their future retirements because of the scheme.
In four days – exactly 14 years and 10 days later – jury selection is set to begin in federal court in Houston for three banks that the receiver has accused of aiding and abetting Stanford in the fraud.
The trial against Toronto-Dominion Bank (TD Bank), HSBC Bank and Independent Bank (formerly Bank of Houston) before U.S. District Judge Kenneth Hoyt is expected to last four to six weeks. The receiver will ask the jury to award damages of $4 billion to $10 billion against the three banks.
Any money recovered from the banks will be added to the $1.1 billion that the court-appointed receiver and the Official Stanford Investors Committee have previously recovered and will be paid to the 18,000 victims who invested with Stanford – thousands of whom live in the Houston area.
The $1.1 billion does not include two recent settlement agreements: one with Trustmark Bank for $100 million in January, and a $157 million in a deal announced Tuesday with Société Générale Private Banking of Switzerland.
“It is incredibly sad and frustrating and disappointing how long it has taken this case to get to trial,” said Gregg Costa, the former federal prosecutor who won the criminal conviction of Stanford. The Mexia native, now 72, is serving a 110-year sentence in federal prison.
The case against the primary banks doing business with Stanford has taken so long to get to trial that Costa, after prosecuting Stanford, was then appointed to a federal judgeship in Galveston. Two years later,he was promoted to the federal court of appeals. Costa spent a decade on the bench and then last year went back to practicing law at Gibson, Dunn & Crutcher.
“Cases should not take this long,” Costa told The Texas Lawbook in an interview last year when he was leaving the U.S. Court of Appeals for the Fifth Circuit. “It reeks of abuse.”
The federal court docket in this case and the related cases, which were consolidated into a multidistrict litigation before U.S. District Judge David Godbey in Dallas, has more than 11,000 entries.
The number of lawyers who have made appearances in the litigation can be counted in the hundreds, as the banks and dozens of other large corporations, such as Lloyd’s of London and BDO USA, hired some of the top law firms in the U.S. in an all-out effort to keep the cases from reaching trial.
Teams of lawyers from global corporate law firms such as Skadden Arps, Simpson Thacher, Norton Rose Fulbright and Morgan Lewis have represented the banks, which also hired several prominent Texas law firms, including Jackson Walker, Beck Redden and Gibbs & Bruns.
The lead lawyers in the trial set to begin Monday are Kevin Sadler of Baker Botts for the receiver and investors committee; Lynn Neuner of Simpson Thacher for TD Bank; John Schwartz of Locke Lord for HSBC; and Chip Babcock of Jackson Walker for the Bank of Houston. (By agreement, Independent Bank will be referred to at trial as Bank of Houston, its previous name that appears in hundreds of earlier pleadings.)
Lawyers for corporate defendants appealed various aspects of the Stanford litigation more than a dozen times to the U.S. Court of Appeals for the Fifth Circuit – each appeal adding several months to the cases.
The most recent appeal occurred only three weeks ago, when TD Bank filed a mandamus petition asking the appeals court to halt the upcoming trial, arguing that the trial court’s orders setting the case for trial were filled with legal errors.
A three-judge panel of the Fifth Circuit rejected the banks’ arguments and ended its two-page order by stating, “Call your first witness.”
On Tuesday, Judge Hoyt is expected to tell Sadler to do just that.
One of the first witnesses against the banks will likely be Janvey, who will walk jurors through the 14 years of litigation and describe how Stanford sold certificates of deposit to the public, promising that their money would be invested in high-quality securities. Instead, Stanford used much of the money to support his extravagant lifestyle and put the rest into risky private equity ventures that did not pay off.
Janvey and Sadler, both of whom declined to comment for this article, have traveled far and wide collecting evidence, taking depositions and negotiating settlements.
Together, the duo has scored some huge successes, including settlements with Lloyd’s of London for $65 million, BDO USA for $29.8 million, the New York law firm Proskauer Rose for $63 million and law firm Chadbourne & Parke for $35 million. In 2017, Chadbourne merged with Norton Rose Fulbright, which is one of the law firms representing TD Bank in next week’s trial.
Sadler and Janvey have won smaller but important victories, too. They recovered $8 million from the seizure of airplanes and two yachts owned by Stanford, liquidated $14.5 million in assets located in Panama, Peru and Ecuador, and got another $2.3 million from coins, furniture and other equipment owned by Stanford.
Of the $1.1 billion recovered to date, more than $680 million has already been returned to investors. The two recent settlements will add another $257 million.
But the upcoming trial against TD Bank, HSBC and Independent Bank offers the biggest opportunity for defrauded investors to be made whole.
Court documents filed by Sadler in the recent Société Générale settlement agreement state that they have taken the depositions of 76 fact witnesses and 21 expert witnesses in preparation for the upcoming trial.
Baker Botts lawyers and FTI Consulting forensic accounting experts “reviewed more than a million pages of documents,” including “thousands of pages of accounting statements and thousands of emails” of bank officials and Stanford officials.
“The prosecution of the claims required thousands of hours of investigating and understanding the complex web of Stanford companies, the financial transactions, interrelationships and dealings between and among the various Stanford entities related to the fraud scheme and how it was perpetrated,” Sadler wrote in the petition asking the court to accept the Société Générale settlement.
To be sure, the 14 years of contentious litigation and appeals by the defendants has also led to extensive costs by the professionals working for the receiver and the investors committee. The lawyers, forensic accounting experts and other professionals working for the receiver and the investors committee have been paid $293.9 million for tens-of-thousands of hours of work on the case.
Sadler, the Baker Botts partner leading the litigation, agreed to be paid $555 an hour on the case. The federal court has since increased his hourly rate to $875, which is 40 percent less than the rate he charge corporate clients.
Judge Hoyt told lawyers for the receiver and the banks that jury selection will take place Monday afternoon and opening statements will follow Tuesday morning.
Sadler is supported by Baker Botts lawyers Scott Powers, David Arlington, Stephanie Cagniart, Brendan Day, Ariel House and Mary Margaret Steinle.
Neuner and Simpson Thacher partner Peter Kazanoff will be supported supported by Norton Rose Fulbright lawyers Rodney Acker, Ellen Sessions, Warren Huang, Jonathan Franklin and David Kearns.
In addition to Schwartz, HSBC Bank will be represented by Locke Lord lawyers, Roger Cowie, Kent Hoffman, Susan Kidwell and Katherine Locke.
In addition to Babcock, Independent Bank’s defense team includes Jackson Walker lawyers Paul Watler, Edwin Buffmire, Jonathan Neerman, Minoo Blaesche and Lindsey Brown.
Other lawyers for the plaintiffs, including the investors committee, include Fishman Haygood attorneys James Swanson, Caroline Pascal, Lara Richards, Lance McCardle, Molly Wells and Benjamin Reichard.
Editor’s note: Texas Lawbook reporter Bruce Tomaso will be in Judge Hoyt’s court and will have regular updates on the trial.