One of the largest custodians is paying a far lower FINRA arbitration award than the amount requested by nearly three dozen victims of the infamous R. Allen Stanford Ponzi scheme.
BNY Mellon’s Pershing must pay just three of the 35 clients seeking compensatory damages based on allegations that the company “gave material assistance” to Stanford as the clearing firm and custodian for his company and the fraudulent CDs issued by its bank, according to a Dallas panel’s July 8
The meager award stands in contrast to a different FINRA arbitration panel’s decision last year
“We've represented well over 500 investors,” Scarlett says. “For the most part, they're hard-working American citizens who wanted to conservatively invest in what they considered to be CDs. They run the gamut, but I’d say the average client is probably in their 60s or 70s. Some are in their 80s. We have folks who invested their entire life savings.”
While three received respective awards of $87,200, $124,593 and $436,000, the rest of the victims got $750 in costs to cover the non-refundable portion of their filing fees, the award states. Unlike the decision in last year’s arbitration case, this FINRA panel came to the conclusion that Pershing was not liable for transactions before 2008, according to Scarlett.
In a brief explanation in the award, the arbitrators said that “by the beginning” of that year, Pershing “had the requisite level of knowledge” of Stanford’s “wrongful conduct in connection with the CD scheme” and that Pershing “knew or should have known that it was providing meaningful/substantial assistance to that wrongful scheme” by continuing to serve as the clearing firm for the fraudster’s company and carrying out wire transfers for purchases of CDs.
Representatives for Pershing declined to comment, citing a company policy against discussing legal matters.
Victims have filed at least 13 class action lawsuits against Pershing since the scheme went bust in
After working on the case for the past eight, the attorney team has “good documentation to be able to bring claims against Pershing,” and they continue to take calls from possible claimants against the firm, Scarlett says.
“They have very good attorneys, and they're well-experienced and seasoned and they do a good job,” he says. “It is certainly challenging for us, but I think we're up to the challenge.”
With the victims trying every possible means for restitution and largely being unsuccessful, then-SEC Chairman Jay Clayton
“The matter is complex and involves many jurisdictions,” Clayton said. “However, in many cases, the victims were not informed of this complexity or the risks that it entails. This should not happen again.”
Representatives for the SEC didn’t respond to a request for comment on the case or an update on whether the regulator was considering another approach to boost the restitution.
Using the offshore bank that issued the CDs, Stanford misappropriated clients’ money to support purchases such as a 112-foot yacht and six private planes, as well as a series of businesses, including a cricket tournament, according to investigators. In March 2012, a federal jury
