Pershing to pay Stanford Ponzi scheme victims $1.4M

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Pershing, the former clearing firm for Ponzi scheme architect R. Allen Stanford’s broker-dealer, must pay $1.4 million to six of his victims, ten years after the SEC shuttered his operations in 2009.

A FINRA arbitration panel rendered the decision after 12 hearing sessions in March and April. Although a half dozen claimants won awards, the other 30 individuals in the case came away empty-handed. All accused Pershing of negligence, breach of fiduciary duty and aiding and abetting common law fraud, among other allegations. As a group, they had requested over $6 million in damages.

Pershing “really could have helped the clients and protected people, but they chose not to do so,” says Charles Scarlett, one of the attorneys for the clients. “They knew too much.”

Stanford’s ponzi scheme, which was exceeded in size only by Bernie Madoff’s infamous fraud, caused more than $7 billion in losses for clients who thought they were investing in legitimate certificates of deposit issued by Stanford’s Antiguan bank, Stanford International Bank. Clients have recovered very little of the lost money, Scarlett says.

“The receivers have only returned approximately 5% of their money in the past 10 years,” he says.

That hasn’t stopped more alleged victims from trying to seek restitution. Pending the outcome of 15 ongoing federal lawsuits, and additional arbitration cases, Pershing could end up on the hook for further losses stemming from Stanford’s broker-dealer, Stanford Group Company.

“The purchasers allege that Pershing, as SGC’s clearing firm, assisted Stanford in a fraudulent scheme and assert contractual, statutory and common law claims,” according to BNY Mellon’s 2018 annual report, filed this March.

A Pershing spokeswoman declined to comment on the cases.

In the meantime, more victims continue to come forward. Earlier this month, several investors filed a lawsuit in Dallas against five banks – not including Pershing parent BNY Mellon – for allegedly turning a blind eye to the scheme, according to the Wall Street Journal.

Scarlett, who represents clients both in federal court and upcoming arbitration cases against Pershing with attorney Scott Hirsch, have “gotten calls from people four or five years after [they] originally spoke with them,” and continue to speak with new victims.

Arbitration cases are reserved for clients with Pershing brokerage accounts, Hirsch says. While the brokerage accounts did not hold fraudulent CDs, Pershing allegedly wired money from them to Stanford’s Antiguan bank in order to pay for the CDs, the attorneys say.

They claim to possess documents that show Pershing repeatedly questioned Stanford’s business dealings over a three-year period, but did nothing about their concerns.

Spokespeople from Pershing and BNY Mellon declined to comment on Hirsch’s allegation.

“Pershing was requesting all this information from Stanford to validate the CDs,” Hirsch says. “They were questioning the returns that were being promised on the CDs: Were they valid and how did they obtain them and what was the makeup of the portfolio? And they never got any of those answers.”

In the recent arbitration decision on behalf of the six victims, the panel directed Pershing to repay one couple $500,000, one claimant $330,000 and three individual parties $200,000 each.

It’s unclear why the panel awarded recovery to some clients and not others, Scarlett and Hirsch say, adding that they are content with the panel’s ultimate decision.

“They listened to both sides very carefully,” Hirsch says. "I can tell you they were very, very fair to both sides.”

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Clearinghouses/custodians Arbitration Fraud losses Broker dealers FINRA Pershing