A jury trial was held last month in federal court in Dallas against Peter Romero, a former U.S. Ambassador to Ecuador and former advisor to R. Allen Stanford. The Romero trial represented the first of a dozen trials scheduled for 2015 and 2016 in cases brought by the Stanford receiver, Ralph Janvey, and the Official Stanford Investors Committee against alleged Stanford insiders. Stanford is currently serving 110 years in prison for one of the largest financial frauds in modern history; his $7 billion Ponzi scheme affected over 20,000 investors who bought his bank’s certificates of deposit over at least 10 years. In these cases, the receiver is seeking to recover from the defendants tens of millions of dollars paid to them by Stanford using money stolen from clients. In the Romero case, the receiver and investor committee sought approximately $1.1 million in payments made to Romero by Stanford between 2002 and 2009. In a unanimous verdict, the jury found that Romero had been unjustly enriched and should return more than $700,000 in consulting fees as they were fraudulent transfers. The jury excluded approximately $350,000 in proceeds from the fraudulent certificates of deposit previously held and cashed in by Romero.
The Receiver and Investor Committee asserted that Romero was one of several high-profile individuals, mainly politicians and other dignitaries, retained by Stanford to serve on its International Advisory Board (IAB) and “lend the appearance of legitimacy to the Stanford Entities.” They further asserted that Romero had direct contact with high-ranking senior officials and his services on the IAB provided no benefits to creditors but rather served only to help Stanford expand its fraud scheme. They asserted that Romero knew or should have known of red flags indicating that Stanford was engaged in fraudulent activities and was insolvent, which should have led him to investigate the Stanford enterprise and the transfers he received.
Romero argued that he received the consulting fees in good faith and that he provided value to Stanford in exchange for reasonably equivalent value. He asserted that at no time was he aware of information that should have aroused suspicion regarding Stanford’s activities, that he was not involved in Stanford Financial Group’s daily operations, and had no involvement in marketing or selling the Stanford CDs or investing or allocating proceeds from the CDs. Romero testified that he never familiarized himself with the underlying operations of the Stanford financial company and he “had no earthly idea that Stanford Financial Group was a Ponzi scheme.” With its verdict, the jury rejected Romero’s defense of good faith, instead siding with the Receiver’s position that Romero should have noticed red flags about the underlying scheme and should have known that what he was doing was wrong.
The Romero case is an important case that could impact the course of the nearly 1,300 similar cases that the Receiver has filed against former affiliates of Stanford and raises the broader question of how deeply a consultant who serves as the face of a business is required to investigate the operations of the business he represents. Coming up this month is another trial, also before Judge Godbey in the Northern District of Texas, in which the Receiver seeks $5 million against former Texas Lieutenant Governor Ben Barnes, who Stanford hired as a lobbyist. Next, a trial is expected in a $6 million claim by the Receiver against the University of Miami relating to funds Stanford paid to fund research fish and coral in Antigua, where his Stanford International Bank was headquartered. While each case brought by the Receiver is different in some respects, the Romero case could suggest that jurors may be inclined to side with the Receiver and Stanford victims in these cases against defendants who received payments from Stanford. And while this verdict alone likely will not cause a chain of settlements in the large group of similar cases, if the Receiver can string together a number of such victories, commentators believe it could have an effect on other defendants who thus far have fought hard against returning money paid to them by Stanford.