NANCY F. ATLAS, District Judge.
The Court held a preliminary injunction hearing in this insurance coverage case from August 24 through August 27, 2010, to address issues raised by the Motion to Vacate Preliminary Injunction [Doc. # 260] filed by Defendants Certain Underwriters at Lloyd's of London and Arch Specialty Insurance Co. (collectively, "Underwriters"). Plaintiffs Mark Kuhrt, Gilbert Lopez, and R. Allen Stanford
R. Allen Stanford is, and at all times pertinent to this case was, the sole owner, directly or indirectly, of more than 100 separate Stanford-related entities, including Stanford International Bank Limited ("SIBL" or the "Bank"). These entities constituted a financial services network publicized and referred to internally as "Stanford Financial Group" ("SFG") or "Stanford Financial." SFG and certain relevant financial affiliates were headquartered in Houston, Texas. SIBL, which Stanford owned personally, directly or indirectly, was a private offshore bank with its principal place of business in Antigua. SIBL was not a normal commercial bank; it did not offer checking accounts or engage in general lending. The Bank's principal product offering, and principal source of funds, was its certificate of deposit ("CD") program. SIBL's "purported business model was to invest proceeds of the CD sales in order to provide investment returns sufficient to cover inter alia the required interest payments on the CDs, redemptions of CDs, and overhead."
Plaintiffs are defendants in a criminal action pending in this Court before Senior United States District Judge David Hittner captioned United States v. R. Allen Stanford, et al., No. 4:09-CR-0342 (S.D. Tex. filed Jun. 18, 2009) ("Criminal Action"). Plaintiffs also are defendants in an action commenced by the Securities and Exchange Commission (the "SEC") and pending before United States District Judge David Godbey in the United States District Court for the Northern District of Texas, Dallas Division, in the matter of Sec. & Exch. Comm'n v. Stanford Int'l Bank, Ltd., et al., No. 3:09-CV-298 (N.D. Tex. filed Feb. 17, 2009) ("SEC Action").
The day before the SEC Action was filed in February 2007, the District Court for the Northern District of Texas, acting at the request of the SEC, froze the assets of several Stanford entities as well the assets of Stanford, Davis and Pendergest-Holt personally, and placed these entities and individuals into a Receivership. Ralph Janvey was appointed Receiver. That same day, the Receiver retained Karyl Van Tassel of FTI Consulting Services, Inc. ("FTI") to assist him in investigating the alleged Stanford fraud. According to Van Tassel, FTI "perform[ed] a variety of services, including assisting in the capture and safeguarding of electronic accounting and other records of the Stanford Entities, and forensic accounting analyses of those records, including cash tracing."
Following initiation of the SEC and Criminal Actions, Plaintiffs sought coverage for their defense costs under several related directors' and officers' insurance policies (collectively, the "Policy")
The date of Underwriters' retroactive denial of coverage was not arbitrarily selected. August 27, 2009 was the date the Chief Financial Officer of SIBL, James M. Davis, entered into a plea agreement with the United States in the matter of U.S. v. James M. Davis, No. 4:09-cr-0335-01 (S.D. Tex., filed June 18, 2009). Davis entered a plea of guilty to conspiracy to commit wire, mail and securities fraud; mail fraud; and conspiracy to obstruct a proceeding before the SEC. Davis admitted that while employed with Stanford Financial Group he knowingly participated in a scheme to defraud purchasers of SIBL CDs by, among other things, misrepresenting to actual and potential CD purchasers the nature of SIBL's investment portfolio, creating fictitious financial statements, and concealing large unsecured loans to Stanford. These material misrepresentations were intended to, and in fact did, induce sales of billions of dollars of SIBL CDs. There is no dispute that Davis and others made use of interstate wire facilities and the mails in carrying out the scheme.
In denying coverage, Underwriters relied on a "Money Laundering Exclusion" in the Policy. That exclusion "bars coverage for loss (including defense costs) resulting from any claim arising directly or indirectly as a result of or in connection with any act or acts (or alleged act or acts)" of money laundering, as that term is defined in the Policy.
After Underwriters denied coverage, Plaintiffs instituted this proceeding to obtain a judgment declaring that Underwriters are obligated to pay for Plaintiffs' defense costs and expenses in the SEC and Criminal Actions, among other relief. On January 26, 2010, Judge Hittner granted Plaintiffs a preliminary injunction prohibiting Underwriters from "withholding payment" for defense costs "already incurred" by Plaintiffs and to be "incurred by them in the future . . . until a trial on the merits in this case or such other time as this Court orders." Pendergest-Holt v. Certain Underwriters at Lloyd's of London, 681 F.Supp.2d 816, 836 (S.D.Tex.2010), aff'd in part, rev'd in part, and modified by 600 F.3d 562 (5th Cir.2010).
On appeal, the Fifth Circuit disagreed with the District Court's reasoning, but affirmed the preliminary injunction in part and remanded the case for further expedited proceedings on the coverage question. See Pendergest-Holt, 600 F.3d at 576. Specifically, the Fifth Circuit disagreed with Judge Hittner's conclusion that there must be a traditional "duty to defend" determination under the Texas doctrine known as the "eight corners rule" separate from a decision on indemnity obligations under the Policy with regard to the Money Laundering Exclusion. The Court of Appeals held instead that the Policy created a contractual obligation for the carriers to reimburse the insureds for their respective corporate-related litigation defense costs from inception of the covered litigation unless there was an "in fact" "determination"
The case was remanded to this Court, which concluded that the "in fact" determination must be made in a preliminary injunction context and scheduled an evidentiary hearing. The Court held that Underwriters had the burden to prove the application of the Money Laundering Exclusion by a preponderance of the evidence. For purposes of the preliminary injunction analysis, the Court requires Underwriters to show a substantial likelihood of success that the Money Laundering Exclusion in the Policy applies to each Plaintiff. More specifically, Underwriters must demonstrate a substantial likelihood that it could demonstrate by a preponderance of the evidence that each Plaintiff "in fact" committed Money Laundering as defined by the Policy.
For the reasons explained below, the Court holds that Underwriters have satisfied that burden, and concludes as to each Plaintiff that the Policy's Money Laundering Exclusion applies to justify Underwriters' denial of insurance coverage at this time. These findings and conclusions are neither final findings of fact nor conclusions of law for use in the criminal or SEC cases pending against each Plaintiff.
The Policy's Money Laundering exclusion precludes coverage for "Loss" resulting from any "Claim"—
Underwriters assert that Plaintiffs each engaged in Money Laundering as defined by the Policy and that coverage for their respective defense costs is therefore excluded. Underwriters have the burden of proving the applicability of the Money Laundering Exclusion in the D & O Policy as to each Plaintiff by a preponderance of the evidence.
"Criminal Property" is defined to include:
The Policy defines "Criminal Conduct" as "conduct which constitutes (or would constitute) an offence in any part of the world."
Thus, to demonstrate the applicability of the Money Laundering Exclusion, Underwriters must first establish the existence of Criminal Property, which for purposes of this opinion is defined as a benefit that a Plaintiff knew or suspected, or reasonably should have known or suspected, was obtained from or as a result of, or in connection with, Criminal Conduct.
Stanford was the sole owner, directly or indirectly, of SIBL, a private offshore bank with its principal place of business in Antigua. The Bank's principal product, and principal source of funds, was its CD program.
SIBL and the financial advisors promoted the CDs as liquid, conservative investments.
SIBL's assurances in annual reports to existing and potential CD purchasers about the safety of its CDs described the Bank's investment strategy as "designed
In addition to giving the impression that SIBL was a financially strong institution where CD holders' money would be secure, largely invested in diversified, marketable securities, SIBL's annual reports from 2002 through 2007 created a perception of astounding financial success in sales of CDs and in SIBL's investment of CD holders' monies. According to SIBL's annual reports, both customer CD deposits and SIBL's assets grew by more than $5 billion during this period.
SFG also aggressively marketed the SIBL CDs through financial advisors employed by Stanford Group Company ("SGC"). SGC financial advisors, such as Mark Tidwell, the former sales manager of the Houston SGC office and a credible witness, were trained by executives of their employer, SGC, and by others within SFG, to market CDs to clients as safe and secure investments. Tidwell credibly testified that he was trained that the funds from the CDs were placed in a highly liquid investment portfolio consisting mainly of marketable securities. The financial advisors were told that Laura Holt and James Davis, SIBL's Chief Investment Officer and Chief Financial Officer, respectively, oversaw a global team of money managers who managed SIBL's investment portfolio. When Tidwell asked about the details of the portfolio, he was told that the information was proprietary and confidential, and was given no information. He was assured, however, that substantially all of the Bank's investments could be liquidated within three or four days and that the portfolio contained very few real estate investments. Indeed, Tidwell testified that he once suggested a lucrative,
SIBL, SGC financial advisors, Stanford, and SFG top executives, such as Holt and Davis, emphasized that the SIBL CDs earned unusually high rates of return. SIBL's CD interest rates often substantially exceeded rates generally available in the United States.
As the economic crisis of 2007 and 2008 unfolded, SIBL CD holders and financial advisors began to question the security of the Bank's CDs and investment portfolio. During the same time, press reports challenging the legitimacy of SIBL's operations also began to surface.
Five days later, however, SIBL was placed in Receivership. The SEC sued certain Plaintiffs the following day.
At the inception of the Receivership, SIBL's obligations to CD holders totaled $7.2 billion according to SIBL records.
Significantly, and independent of any particular asset valuations, it is clear that, to the extent that internal SFG documents listing SIBL assets reflect assets actually owned by SIBL, the composition of the reported assets was grossly inconsistent with SIBL's widespread representations that it invested in liquid, highly marketable securities, and that it only engaged in cash-secured lending to CD holders.
Van Tassel's findings dovetail with statements given by Davis in his plea agreement about his conduct in falsifying SIBL financial statements and the resulting deception of CD purchasers, all of which was designed initially to induce purchases of CDs and later to enable SIBL to retain purchasers' money as the Bank was failing. Davis pleaded guilty to engaging in mail fraud in violation of 18 U.S.C. § 1341, conspiracy to violate the mail, wire and securities fraud laws in violation of 18 U.S.C. § 371, as well as conspiracy to obstruct a proceeding before the SEC in violation of 18 U.S.C. § 371.
Davis in his guilty plea admitted that he intentionally and knowingly participated in a scheme to defraud purchasers of SIBL CDs by, among other things, misrepresenting the nature of SIBL's investment portfolio to CD holders and potential CD purchasers, by creating fictitious financial statements, and by concealing the composition of the SIBL investments and financial condition from regulators and SFGC financial advisors. Misrepresentations also include non-disclosure of large unsecured loans to Stanford personally and to companies he owned and controlled. As explained by Davis and SFGC financial advisor Mark Tidwell, as well as three CD purchasers,
There is no dispute that Davis and others used mail facilities and wire facilities, such as email to communicate with the CD purchasers and prospects, as well as for
The Court credits Davis's statements about his own conduct but does not reach the question of whether Plaintiffs were conspirators in the crimes Davis admits.
Davis also admitted that he falsified revenue and asset figures on SIBL's financial statements.
The Court finds that Davis engaged in Criminal Conduct as defined under the Policy in connection with CD purchasers' funds.
The Court now turns to whether any Plaintiff knew or suspected, or reasonably should have known or suspected, that the CD purchasers' funds were Criminal Property in that the funds were "a benefit obtained from or as a result of or in connection with [C]riminal [C]onduct" and whether such Plaintiff engaged in an act included in the Policy's definition of Money Laundering.
To prove a Plaintiff engaged in Money Laundering under the Policy, Underwriters must show that the Plaintiff knew, suspected, or should have known or suspected, that the CD funds were Criminal Property as defined in the Policy and that he knowingly engaged in an act of Money Laundering with regard to those funds. Underwriters principally advance three theories. They contend that Kuhrt and Lopez (i) "reverse-engineered" SIBL's revenue numbers each month, (ii) designed a plan to inflate $63.5 million in real estate investments into a $3.174 billion asset, and (iii) failed to require SIBL to disclose in its financial reports that SIBL had extended $1.7 or $1.8 billion in personal loans to Stanford. The Court focuses primarily on the reverse-engineering theory.
Kuhrt and Lopez did not testify at the hearing. On advice of counsel, they each elected to invoke their Fifth Amendment right against self-incrimination.
Notably, Westheimer testified that at no time during the interview, which lasted several hours, did Kuhrt and Lopez disagree with one another's rendition of events, procedures, or anything else. The Court therefore attributes to both Kuhrt and Lopez all aspects of Westheimer's explanations of these men's duties, knowledge and beliefs.
Kuhrt and Lopez played meaningful roles in connection with the Stanford-related entities' financial reporting. Lopez was the Chief Accounting Officer of Stanford Financial Group Company ("SFGC"), an entity that provided administrative services, including accounting services, to other Stanford-related entities. Lopez's job duties included "overall supervision of the accounting reports and budgetary process" and "supervisory and managerial duties for the accounting process."
During 2000 to 2007, Kuhrt worked initially as Account Manager, then Assistant Controller, and later Controller at SFGC. Kuhrt supervised an accounting staff. In 2007, as part of a corporate restructuring, allegedly for "tax reasons," Kuhrt moved to St. Croix, and became Global Controller for a new entity called Stanford Financial Group Global Management ("SFGGM"). He apparently performed substantially the same tasks as in his prior position as Controller for SFGC in Houston.
Kuhrt told Westheimer that his responsibilities included creating budget parameters for the global budgeting process and budget templates, compiling budgets for Davis's approval,
Westheimer, Kuhrt and Lopez claimed they believed the figures Davis gave them were accurate reports of investment revenues for a multi-billion dollar banking institution.
This procedure was illogical and without accounting or business justification. The revenue an investment portfolio generates in a given month is a matter of historical fact based on the performance of investments held by third parties. Plaintiffs provide no explanation how any budget or projected performance figures could possibly be helpful to ascertain the actual performance of SIBL's investments. The "budget" figures Kuhrt and Lopez used apparently were derived from earlier projections of revenue numbers for SIBL. While unclear when and exactly how these projections were created or adjusted by Kuhrt, it appears they were aspirational goals set for planning purposes. To the extent they were budgets prepared before the beginning of the fiscal year, the numbers were at best educated guesses of the amount of revenue that SIBL hoped to bring in from CD sales, the amount of CD redemptions, and the size of expenditures, as well as predictions about what investments of the SIBL funds would be made and the associated anticipated revenues.
Most significantly, Kuhrt and Lopez were denied all actual investment performance information and reports from the institutions in which the investments allegedly had been made. The absence of any documentary backup from Davis was a red-flag that something was seriously amiss. Nevertheless, Kuhrt and Lopez deliberately and knowingly—month after month for years—engaged in this peculiar process for preparing the investment revenue reports.
The lack of demonstrable factual foundation of the SIBL investment revenue entirely undermines the reliability of SIBL's financial reports. The SIBL assets were derived substantially from CD sales. Kuhrt and Lopez knew from their work on the annual reports that those assets were to be invested in conservative, multi-national institutions, government securities, fixed-income investments, or other liquid assets.
Kuhrt and Lopez offer no explanation for why they accepted the proposition that Davis and his staff could "work off of" projected or budgeted numbers rather than simply pulling the actual figures from the statements of account for each investment and compiling the figures. When, over several years, Davis could not timely provide any investment revenue figures for any month, Kuhrt and Lopez should have known or at least suspected, contrary to SIBL's promotional material and annual reports, that the funds were not invested as advertised. In addition, the extraordinarily high returns SIBL's investments purportedly earned were not credible. Kuhrt and Lopez, as trained accountants, knew or suspected that these high returns could not be achieved with the claimed low-risk investments advertised.
The Court thus finds that Underwriters have met their burden to demonstrate a substantial likelihood that a preponderance of the evidence would establish that the Money Laundering Exclusion applies to Kuhrt and Lopez. The Court finds that Kuhrt and Lopez knew, suspected, or reasonably should have known or suspected that the investment revenue figures Davis sent back to them for posting in the SIBL books were fictitious or, at the very least, were not accurate reflections of SIBL's investments' performance. Kuhrt and Lopez clearly knew that the figures Davis gave them were being used in annual reports and marketing materials given to regulators and to existing and prospective CD holders. They therefore knew, suspected, should have known or should have suspected that the CDs were being sold under false pretenses, and that funds from SIBL CD sales constituted a benefit obtained from or as a result of (or in connection with) criminal conduct, i.e., Criminal Property.
While these findings and conclusions warrant application of the Money Laundering Exclusion to Kuhrt and Lopez, the Court, for the sake of completeness, addresses Underwriters' other theories. First, both Kuhrt and Lopez admitted to Westheimer that they were aware of, and were in fact tracking, substantial increasing SIBL loans to Stanford personally and his related entities. Kuhrt and Lopez also were aware that SIBL had adopted international accounting standards in 2005, and that those standards required the disclosure of the Stanford loans.
The evidence also is clear that, by summer 2008, Kuhrt and Lopez were taken even more closely into Stanford and Davis's confidence.
Accordingly, the Court concludes that the Underwriters have met their burden to show a substantial likelihood of success that the Money Laundering Exclusion in the Policy applies to Kuhrt and Lopez.
Underwriters assert that Stanford personally engaged in numerous acts of Criminal Conduct and was at the epicenter of a massive Ponzi scheme. The Court limits its focus in deciding the application of the Money Laundering Exclusion to the elements Underwriters must show, namely, whether there is a substantial likelihood that Underwriters can prove by a preponderance of the evidence that Stanford knew or suspected, or reasonably should have known or suspected, that CD holders' funds were Criminal Property under the Policy definition and that Stanford knowingly engaged in acts constituting Money Laundering under the Policy with regard to those funds.
Based on the testimony presented at the hearing and the parties' exhibits of record,
Stanford also was closely involved in the purchase and development of real estate using SIBL funds, in particular, the grandiose "Islands Club" project. As Stanford's own witness, Giselle James, explained in detail at the hearing, from 2004 onward, Stanford took great pride and gave significant attention to this project.
Stanford had additional incentive to hide SIBL's weak balance sheet and inadequate investment performance as 2008 progressed. SIBL experienced an unexpectedly high volume of CD redemptions and severe liquidity issues, apparently due to adverse reports about SIBL in the financial press, reports of regulatory investigations and the global recession, resulting in SIBL having difficulty honoring its commitments to CD holders and others.
The Court concludes further that Underwriters have proven a substantial likelihood that a preponderance of the evidence would establish that Stanford knowingly committed acts of Money Laundering involving the Criminal Property. For instance, when Stanford approved financial reports that did not disclose loans or transfers of hundreds of millions of dollars to him and his entities, thus making SIBL's financial condition appear far stronger than it was, he entered into or became "concerned in an arrangement" which he knew would facilitate the "acquisition, use or possession" of Criminal Property. Underwriters also have shown that Stanford knowingly committed acts of Money Laundering under the Policy in that he assisted in the concealing and transfer of SIBL funds by using the funds for related companies' purposes, for at least one enormous real estate development that would not have cash flow for many years, all without disclosing the uses to SIBL CD holders or regulators. Underwriters therefore have shown that they have no obligation to pay Stanford's defense costs in the Criminal and SEC Actions.
The Court's ruling here is narrow. The Court does not reach the issue of whether the evidence supports a finding that Stanford personally engaged in criminal conduct. The ruling is limited to analysis of conduct found by a preponderance of the evidence on a necessarily restricted record and without reliance on inferences that could be drawn from Stanford's invocation of his Fifth Amendment privilege against self-incrimination. These findings and conclusions are not intended for use in the Criminal or SEC Actions.
A stay pending appeal is extraordinary relief and should be entered only when four conditions are met: (1) the movant establishes a likelihood of success on the merits; (2) the movant would suffer irreparable injury if a stay is not granted; (3) a showing that the stay would not substantially harm the other party; and (4) a demonstration that the stay would serve the public interest. See Reading & Bates Petroleum Co. v. Musslewhite, 14 F.3d 271, 275 (5th Cir.1994) (citing United States v. Baylor Univ. Medical Center, 711 F.2d 38, 39 (5th Cir.1983)). "While each part must be met, the appellant need not always show a probability of success on the merits; instead, the movant need only present a substantial case on the merits
The Court finds that there is little likelihood of success on the merits of the issues expected to be appealed in this matter. Moreover, given the Court's interpretation of the proof requirements under the Policy, there is no serious legal question regarding the Policy's Money Laundering Exclusion.
As to irreparable injury if the stay is not granted, the Court acknowledges that Plaintiffs' criminal defense counsel will no longer be paid by Underwriters under the Policy. Nevertheless, Plaintiffs may apply for payment of counsel's future fees and expenses under the Criminal Justice Act, 18 U.S.C. § 3006A. The Court is therefore unpersuaded at this time that Plaintiffs would suffer irreparable injury if a stay pending appeal is denied.
The Court finds, on the other hand, that the grant of a stay would harm Underwriters, who would have to continue to pay Plaintiffs' attorneys' fees and expenses and have little chance for recoupment of those funds. While, under the Policy, Plaintiffs technically have a reimbursement obligation to Underwriters for attorneys' fees and expenses paid on their behalf prior to the Money Laundering Exclusion being found to apply, all indications are that Plaintiffs' have very limited personal assets, and they will be unable to repay the hundreds of thousands, if not millions, of dollars that Underwriters already have spent for each Plaintiff.
Finally, the Court is unpersuaded that a stay of this ruling would serve the public interest. Underwriters and the Stanford entities negotiated a contract that must be enforced by its terms. To do otherwise would disserve the public interest.
On the bases detailed above, the Court concludes that Underwriters have met their burden to show a substantial likelihood that the preponderance of the evidence would demonstrate that the Money Laundering Exclusion applies to each Plaintiff and that coverage of defense costs in the Criminal or SEC Action, or related litigation, for Plaintiffs is not required by the Policy.
The Court finds the Van Tassel Declarations, to the extent received in evidence, have strong "circumstantial guarantees" of their trustworthiness. Van Tassel and FTI performed extraordinarily detailed analysis, as described in the Declarations and summarized above. See, e.g., Declaration of Karyl Van Tassel dated June 18, 2010, Underwriters' Exh. 198A ("June 18, 2010 Van Tassel Declaration"), ¶ 4. Van Tassel has "25 years of experience providing a variety of audit, accounting, tax, litigation, valuation and other financial advisory services," is a Certified Public Accountant and the Senior Managing Director of FTI. Id., ¶ 1 and Exh. 1 thereto. The information the Court considers is evidence of highly material facts. See Fed.R.Evid. 807(A). Van Tassel's Declarations, to the extent received, contain statements more probative on the points considered than any other evidence Underwriters can procure through reasonable efforts. See Fed.R.Evid. 807(B). Through no fault of their own, Underwriters have not had access to much of the information that Van Tassel has reviewed. The time for discovery has been short for a case of this complexity. Many witnesses are now unavailable. Finally, the Court finds that the general purposes of the Federal Rules of Evidence and the interests of justice are best served by admission into evidence of the limited findings described in this opinion. See Fed.R.Evid. 807(C). There is no dispute that Plaintiffs received proper notice of Underwriters' intention to rely on the Van Tassel Declarations. See Fed.R.Evid. 807. Plaintiffs' objections to admission of the Van Tassel Declarations are overruled. See generally United States v. Mathis, 559 F.2d 294 (5th Cir.1977).
The Court also has considered Federal Rule of Evidence 403. The Van Tassel Declarations are extremely relevant. Their probative value is not outweighed by the danger of unfair prejudice, confusion of the issues, or any other Rule 403 concerns.
Id. at 574-75. The Court of Appeals stated also that "[t]he underwriters are enjoined from refusing to advance defense costs as provided for in the D & O Policy unless and until a court determine[s] that the alleged act or alleged acts [of Money Laundering] did in fact occur." Id. at 576 (internal quotation marks omitted, brackets in the original).
600 F.3d at 570 n. 17 (emphasis in original). To the extent the last sentence in footnote 17 is an admonition that acts of Money Laundering must be undertaken knowingly, and not merely recklessly, to satisfy the Money Laundering Exclusion, this Court agrees and applies the Money Laundering Exclusion where a Plaintiff knowingly took an action enumerated in that exclusion in connection with Criminal Property as defined in the Policy. The Court of Appeals, however, does not purport to limit the Policy's definition of "Criminal Property." Criminal Property may be created when a Plaintiff knows, suspects, or should have known or suspected, that a benefit was derived from someone's criminal conduct (i.e., conduct that itself is an act that violates criminal law somewhere in the world).
The Court does not reach the applicability of Federal Rule of Evidence 807, although at first blush that rule would appear to permit receipt of the limited information the Court receives in evidence in this case. Underwriters' reliance on Federal Rule of Evidence 803(8) is unavailing. Davis's admissions are not statements of the United States Government.
2006 Annual Report, Underwriters' Exh. 36, at 27. See May 24, 2010 Van Tassel Declaration, ¶ 12 and Exh. 3, at 3, 6; SFG Brochure, Underwriters' Exh. 10, at 3 (touting liquidity of SIBL's investments, including "highly marketable securities, issued by stable governments, strong multinational companies and major international banks," "matching investment time horizons against terms of deposits. . . to ensure adequate liquidity to meet all customers' needs"); see comparable language in Underwriters' Exhs. 11, 30, 31, 32, 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 124, 126, 137.
Stanford's reliance on investigations and reports of the IRS to establish the transfers were not "loans" to him or his entities is also unavailing. After-the-fact characterizations by the IRS of related-party transactions is not probative for present purposes. Moreover, neither loans to nor investments in related parties were consistent with the investment guidelines presented to CD holders.
The Court does not address Stanford's problematic representations that he made two capital contributions to SIBL totaling $741 million. See Email Chain among Holt, Kuhrt, Lopez and Davis, dated Dec. 17, 2008, Stanford Exh. 175 (discussing the need to convert holdings to cash, and including an inquiry about whether the Sept. 30, 2008 and Nov. 30, 2008 "injected capital" was "a cash contribution").
