It’s been 15 years since Thomas Swingle first learned that about $1 million of his family’s savings had gone up in smoke, after the financier Robert Allen Stanford was exposed for having sold billions in fraudulent certificates of deposit to investors around the world.
The memory of those days is still painful.
“It was literally a life-changing event,” Mr. Swingle, 72, said of the $7 billion scheme that unraveled in early 2009. “It is like someone hit you in the chest with a sledgehammer.”
Now, victims of Mr. Stanford’s company, Stanford Financial, are on the verge of recouping some of their losses, but Mr. Swingle and his wife, Cindy Finch, have to contend with another decision they made: In 2021, they agreed to sell their claim to any future settlement to an investment fund for around $60,000.
That means they won’t get a penny of the funds that are about to be disbursed. Instead, it’ll all go to the claim buyer.
It’s a decision fraud victims have to agonize over in the wake of a big financial scam: Large investors offer them cash in exchange for the rights to any future payment. Many small investors who don’t have much insight into what might happen next may feel they don’t have a choice but to settle for a quick lump sum, rather than wait for a future payment that may never come.
When Mr. Swingle and Ms. Finch sold their claim, he said, it appeared Stanford’s defrauded customers were unlikely to get anything back at all. Had the couple held on to the rights, they might be able to claim as much as $350,000.
“It didn’t turn out good for us,” Mr. Swingle said, “but you gotta move on.”
Mr. Stanford’s scheme involved high interest rate certificates of deposit. His firm was based in Houston, but the certificates were issued by a bank in Antigua, which meant customers’ deposits weren’t federally insured in the United States.
Even though Mr. Stanford had offered little information into how he could offer higher than normal returns, his firm had the trapping of success and wealth — private jets, fancy homes and sports sponsorships — that put even wary customers at ease. In the United States, Mr. Stanford employed an army of brokers to aggressively peddle the certificates.
The whole endeavor collapsed suddenly in February 2009, amid investigations by the Securities and Exchange Commission and other agencies, and after a Bloomberg Businessweek article raised questions about how the firm operated. Two months earlier, Bernard Madoff had turned himself in to federal authorities for running a much bigger Ponzi scheme.
Federal prosecutors charged Mr. Stanford in 2012 with diverting investors’ money to invest in real estate and finance a lavish lifestyle, and he is serving a 110-year sentence in Sumterville, Fla.
But he’s also managed to slow down any recoveries for victims. In 2023, after about a decade of litigation, a handful of banks — most notably Toronto-based TD Bank — agreed to pay about $1.2 billion to settle claims accusing them of ignoring red flags about Mr. Stanford’s operations. The distribution of those bank settlements was held-up by legal objections filed by Mr. Stanford.
Now, the securities lawyer appointed to serve as a receiver in the case, Ralph S. Janvey, is starting to make big payments. He has already paid about $609 million to the firm’s former customers, and he has about $157 million more to dole out in addition to the $1.2 billion. That’s far from the total claims of about $4.9 billion, owed to more than 20,000 customers around the world, but it is more than victims like Mr. Swingle ever thought would be available.
At least $700 million in claims have been sold to hedge funds and other investors in distressed assets, according to Baker Botts, the law firm that Mr. Janvey retained to help recover money for customers.
“The horror here is a bunch of these hedge funds bought these claims from needy people,” said Annalisa Mendez, 66, who lives in Austin, Texas, and lost about $400,000 in the Stanford scheme.
She and her husband did not sell their claims, despite receiving many offers, and Ms. Mendez said they were fortunate that they could do that because her husband was working at the time.
Jean Anne Mayhall, 72, is also a Stanford victim. She said her mother, who has since died, sold her claim because she was tired of waiting. She said the lawsuits against the banks dragged on for so long that many customers simply gave up.
Ms. Mayhall, who lives in a small town near New Orleans, held onto her $500,000 claim, but she knows of more than a dozen victims who died waiting to get any money back.
There is no publicly disclosed list of hedge funds that bought Stanford claims, but some of the biggest purchasers were Contrarian Capital, Whitebox Advisors and Farallon Capital Management, according to three people briefed on the matter. All the firms declined to comment
Bradley Max, director for the claims broker Cherokee Acquisition, which served as a middleman in some of the transactions, said at least 19 hedge funds and deep-pocketed investors had bought claims from the Stanford case.
Over the past decade, statistics gathered by Cherokee showed Stanford claims generally sold for 14 to 17 cents on the dollar before jumping to 35 cents — which is about what claim holders will be paid — shortly after the announcement of the deal with the banks in February 2023.
Ms. Mayhall said she did not begrudge the hedge funds who bought claims. “They didn’t twist anyone’s arm,” she said.
The market for claims is an active one. Customers of FTX, the crypto currency exchange that imploded two years ago, have been selling claims. Victims of Mr. Madoff’s scheme did as well.
But the ultimate payouts have varied widely. In the case of FTX, the customers are expected to recover most of their lost funds. In the Madoff matter, the court-appointed trustee has recovered $14.7 billion, nearly 90 percent of investor losses (excluding tens of billions in phantom profits).
Recovery efforts in the Madoff case were boosted by federal prosecutors who pressured J.P. Morgan Chase to pay $1.7 billion to victims for failing to alert regulators about concerns the bank had about Mr. Madoff’s operation.
Mr. Janvey, the receiver in the Stanford case, said he and his legal team had wanted prosecutors to similarly go after some of the big banks that did business with Mr. Stanford’s firm, but they showed little appetite for such an action.
“If the D.O.J. had interceded, I think we would have had a settlement sooner,” Mr. Janvey said in an interview.
Mr. Janvey has also faced some criticism from victims, over the length of time the process has taken and the fees and expenses his legal team and others have been paid — which over the past 15 years has totaled $463 million in fees and $67 million in miscellaneous expenses. An additional fee request of $38 million is also expected in the coming months.
Angela Shaw Alexander, 52, a victim in the Stanford case who has lobbied over the years for the firm’s customers, said the fees were excessive given how long it had taken for investors to get back their money.
Mr. Janvey said that he felt bad for the victims, but that the fraud was extensive and required years of costly litigation to recoup money for customers.
He said federal authorities believed he would be able to recover at least $2 billion in assets from the bank in Antigua. But he and his team recovered just $63 million in cash and some real estate, planes and private equity investments to sell.
“I have been a receiver before, and there is nothing like Stanford,” Mr. Janvey said. “I understand all the frustration. I didn’t think it would take this long.”
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