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In the Courts
Fifth Circuit Reverses Ponzi Funds Ruling
On Jan. 10, 2019, a Fifth Circuit panel held that Gary Magness, a former Stanford International Bank investor, cannot keep the approximately $79 million he received from the bank following the revelation that the bank had conducted a Ponzi scheme that defrauded thousands of investors.
In July 2008, the Securities and Exchange Commission opened an investigation of Stanford's operations, eventually charging founder Allen Stanford and other executives with fraud related to a certificate of deposit investment plan that offered “improbable and high interest rates.” Ultimately, the Ponzi scheme left over 18,000 investors with approximately $7 billion in losses. A U.S. District Court appointed Ralph Janvey as the receiver for the bank.
Magness was one of Stanford's largest investors, having purchased $79 million in Stanford CDs between 2004 and 2006. In October 2008, following reports that the SEC was investigating Stanford, Magness began pulling his investment out of Stanford through a series of loans backed by his CD investments and earned interest. He received a total of $88 million from Standford (the original $79 million, plus approximately $9 million in accrued interest), which Stanford then “recouped” by applying Magness accrued CD interest to the loan balance.
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