Stanford Ponzi Scheme Receiver’s $79 Million Award Vacated

The $79 million clawback the receiver won from investors in the Stanford International Bank Ponzi scheme was vacated by the Fifth Circuit May 24.

The Texas Supreme Court needs to sort out how the good faith exception to the Texas Uniform Fraudulent Transfer Act applies to the case, the U.S. Court of Appeals for the Fifth Circuit said.

The Fifth Circuit, in a per curiam ruling, asked the state high court whether TUFTA’s good faith exception requires a transferee on inquiry notice to conduct an investigation, or show one would have been futile.

Over 18,000 investors lost $7 billion in SIB’s fraudulent certificate of deposit scheme.

Gary D. Magness and associated entities were among SIB’s largest investors. In October 2008, Magness borrowed $79 million from SIB, which SIB’s receiver sued to recover.

A jury decided Magness had inquiry notice that SIB was running the Ponzi scheme, but that an investigation would have been futile. The district court ruled Magness was protected by TUFTA’s good faith exception.

The Fifth Circuit reversed the district court in January, but now vacated that opinion.

Other states that have adopted the Uniform Fraudulent Transfer Act have adopted a standard that the Texas courts have yet to consider, the federal court said. The Texas courts haven’t discussed the applicability of either the diligent inquiry requirement or the futility exception, and should do so, it said.

Chief Judge Carl E. Stewart, and Judges James L. Dennis and Don R. Willett were on the panel.

Baker Botts LLP represented the receiver. Ballard Spahr LLP represented Magness.

The case is Janvey v. GMAG LLC, 2019 BL 191321, 5th Cir., No. 17-11526, 5/24/19.