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Court voids insurance settlement tied to massive Ponzi scheme

Court voids insurance settlement tied to massive Ponzi scheme

(Reuters) – A federal appeals court on Monday threw out a settlement requiring insurers to pay $65 million to a court-appointed receiver for companies once run by Allen Stanford, the Texas financier serving a 110-year prison term for running a large Ponzi scheme.

By a 3-0 vote, the 5th U.S. Circuit Court of Appeals said the judge who approved the accord lacked authority to void or release some claims against the insurers, including underwriters at Lloyd’s of London, and bar further legal challenges over their policies and Mr. Stanford’s companies.

“The district court and receiver lacked authority to dispossess claimants of their legal rights to share in receivership assets for the sake of the greater good,” Circuit Judge Edith Jones wrote for the New Orleans-based appeals court.

Ralph Janvey, the receiver, said in a May 22 letter to Republican Senator John Kennedy of Louisiana that he had recovered $573 million for Mr. Stanford’s victims since being appointed in 2009, and been authorized to pay out $232 million.

The insurance settlement had drawn objections from former Stanford managers and employees seeking to obtain insurance coverage and press their own claims, and from former Stanford investors who sued brokers covered by the insurance policies.

Monday’s decision returned the case to U.S. District Judge David Godbey in Dallas.

Kevin Sadler, a lawyer for Mr. Janvey, said the receiver may appeal. “It is especially regrettable that the interests of the former Stanford executives and financial advisers have been elevated over the rights of the Stanford victims,” Mr. Sadler said.

Once considered a billionaire but later declared indigent, Mr. Stanford, 69, was convicted of fraud by a Houston jury in 2012 over what prosecutors called a $7.2 billion Ponzi scheme that lasted two decades.

Prosecutors said Stanford sold fraudulent high-yielding certificates of deposit through his Antigua-based Stanford International Bank and used investor money to make risky investments and fund a lavish lifestyle.

The cases include Certain Underwriters at Lloyd's of London et al v. Haymon, 5th U.S. Circuit Court of Appeals, No. 17-10663.