On Wednesday Baton Rouge District Judge R. Michael Caldwell certified a class action lawsuit filed by 86 defrauded investors who fell victim to the Stanford Ponzi scheme against the Louisiana Office of Financial Institutions, headed by Acadiana native John Ducrest, and a Pennsylvania company. What that means is any Louisiana investor who purchased one of Stanford’s so-called certificates of deposit between Jan. 1, 2007 and Feb. 16, 2009 now has a shot at recouping some money.
Allen Stanford is serving a 110-year prison sentence for masterminding the $7 billion fraud.
The Advocate reported that the ruling could open the door for about 1,000 investors damaged by Stanford’s fraudulent $7.2 billion scheme to join the suit, which alleges the state "turned a blind eye to the Stanford scheme" and that OFI did not do an adequate job as a regulatory agency. “The State of Louisiana failed to advise Plaintiffs of the new risks it had discovered during its examination of the Trust during 2007 and 2008, and to suspend the sale of the SIB CDs in the state of Louisiana after discovering risk associated with the SIB CDs during 2007 and 2008,” the suit states.
The suit also claims the OFI allowed the trust to market the sale of the CDs to retirees of ExxonMobil and other companies who did not meet the required suitability standards. And although OFI had examined the Trust and ordered that the sales of SIB CDs be restricted and later removed from the Trust, it did not disclose the risk it perceived to each investor who purchased SIB CDs or renewed SIB CDs, according to the suit.
The paper noted that if investors win that suit, OFI and the Pennsylvania-based financial services firm of SEI Investments Co. could share liability for as much as $1 billion in losses in Louisiana. The Pennsylvania firm took investment-performance information from Stanford and used it for financial statements that went to investors, according to The Advocate.
Both OFI and SEI continue to deny that they failed to protect investors, the paper reported.
And a Times-Picayune story published earlier this year says it was concerns expressed by Ducrest, who was first appointed OFI commissioner by then Gov. Kathleen Blanco in 2004, that helped the scheme unravel from 2007 to 2009:
The Louisiana Office of Financial Institutions originally expressed concern about Stanford’s Caribbean banking connections when Stanford applied to purchase Southern Trust, [in 1998] but was persuaded to approve the acquisition after [the Baton Rouge law firm of] Breazeale, Sachse & Wilson allegedly provided a fake letter of reference from the Antiguan finance minister.
The suit [a federal suit filed in Dallas earlier this year by the receiver trying to recover money for Stanford’s victims against Breazeale, Sachse & Wilson LLP and several Baton Rouge attorneys from the New Orleans law firm Adams & Reese] alleges that Breazeale, Sachse & Wilson attorney Claude Reynaud Jr. knew that the letter was actually written by Stanford Financial.
While the Louisiana Office of Financial Institution’s initial approval of the trust company purchase under former Commissioner John Travis in June 1998 opened Stanford’s access to individual retirement accounts, concerns expressed by current Commissioner John Ducrest helped the scheme unravel from 2007 to 2009.
Under Ducrest, OFI concluded in 2008 that Stanford Trust was violating numerous laws, forcing Stanford Financial to move its retirement account business to a third-party trustee. Before that transaction could be completed, the U.S. Securities and Exchange Commission seized its operations in February 2009 and threw the company into receivership.
Stanford victims’ attorneys are sure to argue that OFI could have — and should have — acted earlier.