On March 4, 2008, twenty-one Stanford Financial Group investors filed an action in the Southern District of Texas against the SEC, the U.S. Marshal’s Service and the Stanford Group receiver claiming that the defendants violated the investors’ rights under the U.S. Constitution by freezing their Stanford Group accounts though the investors have been accused of no wrongdoing.


The investors’ complaint (which can be found here) opens with a quotation from Thomas Jefferson ("The true foundation of republican government is the equal right of every citizen in his person and property and in their management") and alleges that "acting in secret on President’s Day," the defendants "seized private property and suppressed free speech and assembly." The complaint alleges that the defendants "have not come forward with any evidence that the owners of the seized accounts did anything wrong, yet the Defendants continue to exercise control over Plaintiffs’ property in a reckless and negligent manner."


The complaint alleges that the SEC obtained a judicial order authorizing the freezing of the Stanford entities’ assets and appointing Ralph Janvey as receiver, and that the next day the U.S. Marshals surrounded and seized Stanford’s offices. As a result of these actions, the complaint alleges, the defendants took control of 35,000 bank accounts, including those of the plaintiffs. As a result of these actions, the plaintiffs cannot access their accounts. 


The group of twenty-one plaintiffs includes a gallery of victims whose woes surely tug the heartstrings. Plaintiff Tory DeArmond "lost her husband to cancer five days after the Presidents’ Day order froze the couple’s account." Plaintiff Alva Kerr suffers "the constraints of multiple sclerosis." Plaintiff Catherine Coulter "runs the Greyhound Pets of America Houston organization that places retired greyhounds for adoption."


Interspersed with these paragons are a number of financial advisor plaintiffs, some of whom were employed by the Stanford Group, and one of whom contends that he "wants to contact his clients immediately to tell them about the freeze and to advise them to take actions" but was told "that if he communicated with his clients, he could be put in jail."


The complaint seeks relief for "Violations of the First Amendment" (an apparent reference to the prohibitions barring the financial advisors from contacting their clients); "Violations of the Fourth Amendment" (for unreasonable seizures); Conversion; Negligence; and Gross Negligence. The complaint seeks actual damages; prejudgment interest; attorney’s fees; punitive damages; and post-trial damages. Oddly, the complaint does not specifically seek to have the freeze order lifted.


Meanwhile, and coincidentally also on March 4, the Stanford Group receiver, Ralph Janvey, apparently has petitioned the court to release the frozen Stanford investor accounts containing less than $250,000, so long as they aren’t linked to an $8 billion fraud investigation, according to a March 4, 2009 Bloomberg article, here. The accounts could be released as soon as March 9.


However, since the twenty-one plaintiffs seek compensatory not injunctive relief, the receiver’s actions to lift the freeze order would at least on a theoretical level neither supersede the plaintiffs’ claims nor provide the relief the plaintiffs seek.


The perennial law student within me feels compelled to point out that lurking somewhere within the investors’ complaint is what is referred to as a Bivens action. The name refers to the 1971 Supreme Court case of Bivens v. Six Unknown Named Agents of the Federal Bureau of Narcotics. The Bivens case held that a plaintiff can recover money damages from officers of the U.S. government for their actions violating the plaintiff’s fourth amendment rights. However, one difficulty these plaintiffs will face is that Bivens actions can only be asserted against federal officials, not federal agencies. Against federal agencies, the equivalent relief is limited to that available under the Federal Tort Claims Act, which among other things, prohibits relief for many intentional torts.


These legal observations are supplemented by the helpful comments of an esteemed legal professor (to whom I happened to married), who points out that the Administrative Procedure Act allows actions for injunctive relief against the U.S. and that the U.S. Supreme Court has long allowed plaintiffs to sue federal officials personally for injunctive relief. Which highlights the question as to why the investors’ complaint fails to seek injunctive relief.


I have in any event added this complaint to my list of Stanford Group lawsuits, which can be accessed here.


A March 4, 2009 Bloomberg article about the investors’ lawsuit can be found here.


You, You’re Nothing But a Hedge Fund: Apparently the insult du jour is to say that an enterprise is "just a hedge fund." First, on March 3, 2009, Ben Bernanke, in congressional testimony in which he declared how "angry" the AIG bailout made him, said that the AIG Financial Products division "was a hedge fund basically that was attached to a large and stable insurance company."


If a company can be disparaged by calling it a hedge fund, then how about a whole country? Michael Lewis (author of Liar’s Poker and other books) in an article in the April 2009 issue of Vanity Fair entitled "Wall Street on the Tundra" (here) quotes an unnamed IMF official as having said in October 2008, "Iceland is no longer a country. It is a hedge fund."


Lewis’s article tells the fascinating tale of how Iceland turned itself into a global financial powerhouse, and describes the astonishing wreckage left behind when the powerhouse turned out to be a house of cards. There are so many gems in this article it is hard to choose just one, but here is a sample. In explaining how the country adopted an entirely new way of economic life, one commentator noted that it was "just a bunch of young kids" who "came in, dressed in black, and started doing business."


His Name Was Maurice, He Called Himself Hank, But Everyone Knew Him for Chutzpah: Over the years, The D&O Diary has studiously avoided saying anything critical about Hank Greenberg. Frankly, The D&O Diary is scared of Hank Greenberg. However, all of a sudden, others seem to have decided that it is open season on Hank Greenberg.


First, a March 4, 2009 column in the Financial Times entitled "Too Much Time in the Spaceship, Hank" (here) chides Greenberg for his "chutzpah," compares him to "Ozymandias" and derides him because AIG’s failings "stem from its having been designed to be run by Mr. Greenberg. As soon as its domineering chief executive was shown the door, it was difficult for anyone to get a grip on what was going on."


The column hastens to add that "this implies, however, that things would be all right if Mr. Greenberg were still at the helm of AIG, and there is no proof of it." To the contrary, the column notes, the activities that brought AIG down started on Greenberg’s watch. The column concludes that "from this distance, amid this noise, it is hard to know what occurred, but no version of events fully exonerates Mr. Greenberg."


There is much more of this in the same vein in Ann Wolner’s March 4, 2009 Bloomberg column (here), in which she too emphasizes that the AIG Financial Products Division started while Greenberg still ran the company, and that it was on his watch that "that AIG began marketing credit default swaps linked to subprime mortgages."


She also notes that "it is rarely convenient for him to mention his status as an unindicted co-conspirator in a $500 million deal involving General Reinsurance Corp. that got the indicted co-conspirators convicted and imprisoned," and that "the company has so far paid $1.8 billion in fines and penalties to resolve civil claims by government regulators looking into the Greenberg era at AIG." She concludes that "it would be refreshing if Greenberg would stop for a moment pointing his finger at others and admit that he, too, was part of the problem."


I wish to stress that the views expressed in the two columns quoted above are solely those of their authors and should not necessarily be interpreted as expressing the views or opinions of The D&O Diary.


March Madness is Just Around the Corner: Many readers will be interested to learn about the Washington Post’s new site entitled "Beer Madness" (here). Be sure to roll your cursor across the beer bottles on the bottom of the page.


If You Knew Sushi Like I Knew Sushi: Here is a truly odd but interesting video, taken in a  restaurant in Tomakomai, on the Japanese island of Hokkaido. Watch, and leave your world behind for a few moments. (The fun is basically over once the camera goes into the kitchen.) Special thanks to a loyal reader for the video link.