SOUTHEAST TEXAS RECORD

By Nathan Bass 

NEW ORLEANS (Legal Newsline) – The U.S. Court of Appeals for the Fifth Circuit has ruled for the creditors of imprisoned financier Allen Stanford and ordered the return of political contributions made by “Stanford Defendants” to Democratic and Republican campaign committees.

The Securities and Exchange Commission successfully brought suit against the Stanford Defendants in 2009 for the perpetration of a large Ponzi scheme. Out of this action, Ralph Janvey (the Receiver) was authorized by the district court in broad language to “collect, marshal, and take custody, control, and possession of all the funds, accounts, mail, and other assets” controlled by the Stanford Defendants.

Additionally, he was authorized to file “such actions or proceedings to impose a constructive trust, obtain possession, and/or recover judgment with respect to persons or entities who received assets or records traceable to the Receivership Estate.”

This case, instigated by Janvey, was first brought in the United States District Court for the Northern District of Texas under the Texas Uniform Fraudulent Transfer Act (TUFTA). The district court granted summary judgment in favor of the receiver and the unlikely coalition of Republican and Democratic Committees appealed.

Janvey sought to recover approximately $1.6 million in contributions made to two Democratic and three Republican committees over a period of approximately nine years. Given to the Democratic committees was $1,150,000 and $450,345 to the Republican committees.

The Committees appealed to the Fifth Circuit on three arguments. They were that (1) the Receiver may not stand in the shoes of the creditors of the Stanford Defendants, (2) the Receiver’s action was barred by the statute of limitations, and (3) federal campaign finance laws preempt the state TUFTA claim.

Judge James Dennis, writing for the three-member panel that also included judges Grady Jolly and Fortunato Benavides, found ample precedent in the Fifth Circuit as well as other circuits in ruling “the Receiver represents the creditors, via the Stanford corporations, in pursuing the TUFTA claims.”

On the second argument, the Receiver argued that the “one year after the transfer” statutory limitation to file an action was deferred by the discovery rule, which stops the accrual of time until the plaintiff “knew or, through the exercise of reasonable diligence, should have known of the facts giving rise to the cause of action.” The Court agreed, ruling “the Receiver exercised reasonable diligence and thus brought the action within one year of when the transfers reasonably could have been discovered.”

Finally, the Court found no preemption of TUFTA writing. “TUFTA is a general state law that happens to apply to federal political committees in the instant case,” the opinion says.

It found that the cases cited by the Committees were not relevant because they “pertain to state laws that specifically regulated federal campaign finance” and this case is about donations that were carried out in the operation of a fraud.

The ruling by the district court that “Stanford Defendants gave contributions to the Committees with actual intent to defraud,” as required by TUFTA, appears to have been the dominant factor in the Fifth Circuit’s affirmation of the award of summary judgment by the district court.