In a decision stemming from the conviction of a Texas man on multiple fraud counts, the Fifth Circuit ruled in October that contributions made to various political committees were “fraudulent transfers” under the Texas Uniform Fraudulent Transfer Act (TUFTA). After the conviction of R. Allen Stanford for an alleged “Ponzi scheme,” a court-appointed receiver sought to recover assets as possible from Stanford and several of his business entities. The ruling in Janvey v. Democratic Senatorial Campaign Committee, Inc., et al, No. 11-10704 (5th Cir., Oct. 23, 2012), held that the committees must disgorge about $1.6 million in contributions. While the case is civil in nature, rather than criminal, it requires proof of intent to commit fraud in order to hold that a transfer of money is “fraudulent.”
Federal prosecutors charged Stanford with multiple counts of wire fraud, mail fraud, conspiracy to commit money laundering, and other offenses in 2009. They alleged that he and others defrauded investors who purchased about $7 billion in certificates of deposit from Antigua-based Stanford International Bank. Prosecution witnesses included officers from Stanford’s companies who described various fraudulent activities. Stanford steadfastly denied defrauding anyone, and asserted that his business activities were legitimate. A Houston jury convicted him on thirteen of fourteen charges in March 2012 after a six-week trial. Judge David Hittner sentenced Stanford to 110 years in prison on June 14, 2012, and ordered him to forfeit $5.9 billion that Stanford no longer possessed. The judge also authorized the government to pursue about $330 million on behalf of investors.
The government described Stanford’s activities as a “Ponzi scheme,” which it defines as a form of investment fraud where existing investors are paid returns directly from money contributed by subsequent investors. Rather than legitimately investing money received from new investors, the Ponzi schemer pockets some of the money and uses the remainder to simulate high returns to earlier investors. Proving the existence of such a scheme requires proving a complicated web of intent to defraud investors. Mere mismanagement of investments, although perhaps actionable in civil law, should not lead to criminal liability for fraud.
The U.S. Securities and Exchange Commission (SEC) brought civil suit in 2009 to halt the alleged fraud of Stanford and various associates. A court-appointed receiver, Ralph Janvey, also brought suits against various defendants seeking to recover money allegedly transferred by Stanford in order to obstruct the fraud investigation. TUFTA holds that any transfer made “with actual intent to hinder, delay, or defraud any creditor” is “fraudulent.” Tex. Bus. & Comm. Code § 24.005(a)(1). The Fifth Circuit’s ruling in October affirms a summary judgment order holding that Janvey may recover money paid by or on behalf of Stanford to several political committees, both Democratic and Republican, finding that those payments were fraudulent in nature.
Michael J. Brown, a board-certified white-collar criminal defense attorney, fights for the rights of Texas defendants, making certain that law enforcement and the courts abide by all the rules and procedures of the criminal justice system. To learn more about how we can assist you in your legal matter, contact us online or at (432) 687-5157.
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Photo credit: ‘Pyramid scheme’ by Security and Exchange Commission, U.S. Federal Govt.This vector version by Mysid [Public domain], via Wikimedia Commons.