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From Securities Regulation Daily, February 3, 2014

Stanford receiver asks Court to decide scope of standing

By Anne Sherry, J.D.

The receiver charged with winding down the $7-billion Stanford International Bank Ltd. (Stanford) Ponzi scheme has asked the Supreme Court to determine whether a federal equity receiver has standing on behalf of the receivership’s general creditors. The district court had granted Ralph S. Janvey’s request for a preliminary injunction freezing accounts of Stanford employees who had allegedly received fraudulent transfers from the Ponzi scheme, but the Fifth Circuit ultimately held that Janvey lacked standing to bring claims on behalf of creditors (Janvey v. Alguire, January 22, 2014).

Further background. According to Janvey’s petition for certiorari, the Fifth Circuit panel withdrew, sua sponte, an earlier opinion in favor of the receiver, substituting a new opinion that relied on a Seventh Circuit case to hold that a federal equity receiver has standing to assert only the claims of the entities in receivership. The panel then reversed the district court’s denial of the employees’ motions to compel arbitration and remanded the case to the district court to reconsider those motions in light of the new standing analysis.

Caplin confusion. The issue warrants cert, according to Janvey, because the Court’s only clear statement about the standing issue dates back to its 1935 opinion in McCandless v. Furlaud, where the Court affirmed a federal equity receiver’s standing on behalf of creditors of the receivership. But, dictum in Caplin v. Marine Midland Grace Trust Co. of N.Y. (U.S. 1972) characterizing McCandless as a case in which the receiver stood in the shoes of the corporation, not its creditors, “has generated widespread confusion, and even chaos, in the courts of appeals.” Janvey stresses that the issue is critical in an environment of enormous Ponzi schemes, including the Madoff scheme, the receiver for which has also petitioned for cert raising a similar question. The Court has invited the Solicitor General to weigh in on that petition.

McCandless, Janvey’s petition continues, made clear that the receiver “is acting also for the stockholders of the corporation, and the creditors … and the receiver is in position to assert and enforce their rights.” But the court wrote in Caplin, a bankruptcy case, that in McCandless, “Justice Cardozo clearly emphasizes that the receiver … was suing on behalf of the corporation, not third parties; he was simply stating the same claim that the corporation could have made had it brought suit prior to entering receivership.” Janvey asserts that this sentence of dictum “characterized McCandless in a cryptic, puzzling way” and has led to both inter- and intra-circuit confusion regarding the law of receiver standing.

The case is No. 13-913.

Attorneys: Scott D. Powers (Baker Botts L.L.P.) for Ralph S. Janvey.

Companies: Stanford International Bank Ltd.

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