Robert Allen Stanford, Federal prison inmate and mastermind behind a Ponzi scheme which allegedly cost Southeast Louisiana investors several billion dollars as part of an overall estimated loss of $7 billion to all investors in the scheme. On July 23, 2024, sixteen (16) years after the scheme collapsed, the class action lawsuit of his victims against the Louisiana Office of Financial Institutions (OFI) commenced.
In today’s Sound Off Louisiana feature, founder Robert Burns provides an overview of the August 1, 2024 proceedings of Lillie et. al. vs. Louisiana Office of Financial Institutions (OFI) with an intense focus on one question posed by plaintiffs’ attorney Phil Preis:
Highlights of August 1, 2024 proceedings of Lillie et. al. vs. OFI with particular focus on Preis’ “wolves” question and how OFI may better handle the matter going forward.
Now, as Burns indicated on the video, he believes that the April 3, 2004 letter from OFI to all State-chartered banks in Louisiana directing them not to invest in Stanford International Bank (SIB) CDs is potentially the most impactful evidence exhibit presented to the jury. Accordingly, he took the time to make a replica of the memorandum, and that replica follows:
We feel compelled to point out that other past and present bank examiners feel that Burns is placing too much emphasis on that one memorandum sent out by the OFI. [Addendum: Now that these present and former examiners have watched the video and heard Preis’ question, they’re changing their tunes.]
Only time will tell if that’s the case, but we are comfortable in stating that the OFI has not authoritatively shot down the false perception that the OFI was treating one set of potential investors (individuals owning self-directed IRAs) very differently (i.e. “throwing them to the wolves”) than another set of potential investors (State-chartered banks).
Burns makes it very clear in the above video how he would combat even the potential that the false perception exists among jurors.
Burns’ combat relies heavily upon the concept of “financial leverage.”
To best illustrate that point, consider the following table wherein the purchase of a “junk bond” is contrasted by the impact of a falling price upon a self-directed IRA vs. a commercial bank (regulators would never permit the purchase of a “junk bond” by a bank, but let’s go on the premise for illustrative purposes that they would):
| Item Analyzed | Self-Directed IRA | Commercial Bank |
| Capital ratio (i.e. how much of each dollar in assets is held in the form of ownership interest). | 100% | 7% (if well-capitalized). |
| Purchase of "junk" bond (i.e. one with below a BBB rating) if it would be allowed by regulators for banks (it most certainly would NOT). Interest rate to reflect risk. | $1,000 (12% interest). Investment allowed. | $1,000 (12% interest). Would NOT be allowed by regulators, but let's just operate on the premise that it would be allowed. |
| Value of bond after some adverse announcement (e.g. poor earnings or a loss by the company issuing the junk bond). | $700 | $700 |
| Impact on Capital Ratio | Capital ratio is still 100% although the absolute amount is reduced from $1,000 to $700. | Capital ratio is now (32.85%). In other words, the bank is now INSOLVENT. Why? Because asset value = $700; liabilities (mostly deposits) now $930, meaning the bank has a NEGATIVE net worth of -$230. So, (-230/700) = (32.85%). |
| Impact of bond decline on future of entity making investment. | Individual is free to hold on for recovery, or he can sell and take the hit and move on. Either way, the investor REMAINS TOTALLY SOLVENT and can withstand even another big hit to the price of the bond. | Bank would be IMMEDIATELY CLOSED due to being insolvent. |
We genuinely believe OFI needs to make the distinction between why an identical investment is perfectly acceptable for a self-directed IRA but totally unacceptable for a bank. Otherwise, the jury may enter jury deliberations under the false perception Burns references above. At a minimum, it’s better to be safe than sorry on this type of a matter.
Links for attorney arguing their clients case (so far):
Plaintiffs: Phil Preis and his daughter, Caroline Graham.
Defendant: Dennis Blunt, Nena Eddy, and Michael Victorian.
Preis’ wolves’ comment does need to be countered. I think the most effective way to do this is to point out that OFI regulates banks, not individuals. If we were to believe Mr. Preis’ version, he thinks the people of Louisiana want a government agency telling them where they can and cannot invest their own money. This is what socialism looks like. Not even California does this. I think Preis’ comments can be countered during closing with a couple of simple statements. The true statement that OFI does not regulate individuals, and then ask the jury a rhetorical question, do you want a government agency telling you where you can invest your money? Because apparently Mr. Preis does.