The attorneys trying to track down billions of dollars the government said went missing in a massive pyramid scheme allegedly run by Texas businessman R. Allen Stanford will get paid at least $20 million for three months of work, a federal judge ruled Thursday.
That's about $7 million less than what court-appointed receiver Ralph Janvey had requested for his law firm and the team of attorneys and consultants he hired.
Judge David C. Godbey rejected about $2.1 million in fees and expenses for some accountants and consultants Janvey hired. He also held back 20 percent of Janvey's bill and said he would consider releasing that money later.
In court papers, Janvey defended the fees and said he and the firms he hired already were working at a 20 percent discount.
"Stanford has been at this for 20 years," Kevin Sadler, Janvey's attorney, said Thursday. "A complex empire like this wasn't built overnight, and it won't be dismantled overnight."
The Securities and Exchange Commission has accused Stanford and some of his top executives of running a $7 billion scheme by promising inflated returns to more than 20,000 investors on certificates of deposit at his bank in Antigua. Instead of investing the money, Stanford, who faces additional criminal charges in Houston, paid off old investors with deposits from new investors, according to the government.
Mounting fees for attorneys and accountants threaten to swallow up what Janvey has been able to recover for investors. The $20 million bill Godbey approved represents about one-fourth of the $81 million Janvey has under his control. Janvey and the allegedly defrauded investors get paid from the same pot of money.
Stephen A. French of Legalbill, a consultant company that analyzes the cost of legal work, said Janvey's initial bill was "a very inefficient use of the money" and out of line with typical legal costs in receivership cases. Receiver fees usually eat up about 20 percent of the overall estate, he said. Janvey had been asking for 34 percent.
Janvey and his team are getting paid for their work from mid-February, when the SEC filed suit against Stanford, to the end of May. SEC attorney David Reece said he expects Janvey to file an additional fee request next week for another $15 million, covering work for June, July and August.
Reece asked the judge to help bring Janvey "under control" out of concern his fees could eventually exhaust what money is left to pay back investors.
Godbey did so, ordering Janvey to prepare a budget and work with the SEC on reducing future expenses.
"Every dollar that goes to the professionals will not be available to divide among the investors" or returned to Stanford if he is found not guilty, Godbey said.
The SEC, which recommended Janvey for the job, and just about every other stakeholder in the case opposed Janvey's bill. The SEC's public opposition is considered unusual by securities experts, who say a receiver and the agency usually work together.
Sadler defended his client's fees and expenses, saying the task of winding down Stanford's businesses and chasing the missing money was an expensive and complicated job.
"We didn't create this ... but we are working hard to sort it out," Sadler said.
Besides the civil case in Dallas, Stanford and four executives of his now defunct Stanford Financial Group are accused in a criminal indictment in Houston of orchestrating the alleged fraud. Investigators said Stanford secretly diverted more than $1.6 billion in investor funds as personal loans to himself.
Stanford and executives Laura Pendergest-Holt, Gilberto Lopez and Mark Kuhrt pleaded not guilty to various criminal charges in Houston, including wire and mail fraud, in a 21-count indictment issued June 18. The three executives are free on bond while Stanford himself remains jailed in the Houston area.
James M. Davis, Stanford's former chief financial officer, pleaded guilty to three counts: conspiracy to commit mail, wire and securities fraud; mail fraud; and conspiracy to obstruct the investigation. Davis struck a deal with the Justice Department in exchange for a possible reduced sentence.