Disgraced financier Allen Stanford’s alleged $7 billion Ponzi scheme is said to have ruined the livelihoods of thousands of victims. Now it could result in a seven-figure loss for one more party: his own defense team.
A group of financial experts from the mega New York accounting firm Marcum was hired last year by Stanford on a $3.2 million budget in the lead up to his trial.
But in a series of documents filed in recent weeks as the case rolled forward in a federal court in Houston, those same experts said they may be stiffed out of at least $1.9 million by the time the jury reaches its verdict.
The issue arises because a powerful federal judge blocked the experts from getting paid for work they had already done and then ordered them to do even more without any guarantee they would be compensated for it.
Legal observers tell TPM the judge’s actions are surprising and could create a opening for Stanford to appeal his case if found guilty on charges related to the collapse of the Stanford Financial Group.
“That’s pretty unusual,” said Sam Buell, a law professor at Duke University and former federal prosecutor. “It potentially creates an appellate issue.”
The problem, according to the accounting firm, is that their work is being bankrolled by the federal government. After a series of events that included Stanford’s assets being frozen or seized following his 2009 arrest, the former billionaire cricket mogul was left with no money to pay for his own defense.
That left it up to the feds to pay for all the lawyers and financial experts needed to ensure Stanford would get a fair trial.
It also meant that anyone hired to help him would have their spending monitored by powerful US Appeals Court Judge Edith Jones, who, among her other duties, oversees the budgets of federal courts in Mississippi, Louisiana and Texas.
After a series of delays and turnovers on Stanford’s defense team, the accountants from Marcum were hired last June. A giant company with $250 million in annual revenue, offices throughout the world and no previous connection with the Stanford case, Marcum was picked to comb through millions of documents that could be used as evidence from the ex-financier’s international business dealings.
Court documents show the firm negotiated a budget with defense lawyers and David Hittner, the Houston judge overseeing the case. The figure they settled on was $3.2 million.
The sum was far greater than what most needy defendants would get to spend on experts, but Marcum insisted that it was less than its accountants would get paid for the work under normal circumstances.
Court records show their efforts seemed to be going fine for the first few months. Marcum submitted bills for June, July and August and got paid on time for each one.
But after submitting a bill for September, the checks stopped coming. The firm dropped its rates once again and did more work for October and November, but still nothing came.
Court records are somewhat vague about what happened next. Most of filings that document the back-and-forth over the payments were sealed at the request of the defense so that prosecutors would not be able to get a glimpse of their strategy.
Likewise, no one from Marcum or the rest of the defense team was willing to speak for this story. Jones, the judge who called the shots on the budget, did not return TPM’s call seeking comment.
But this much is clear: On Dec. 30, with less than four weeks to go before Stanford’s trial, Marcum said it was resigning from the case for lack of payment.
Then on Jan. 4, Jones made an extraordinary order. She said she would approve $205,000 for work done from September to November — less than a quarter of the $845,000 Marcum said it was owed.
On top of it, the judge told the accountants they were not allowed to resign from the case. They would have to keep working through the trial and she would decide when it was all over whether to pay them anything more.
“It would be neither feasible nor economical to obtain a replacement to perform the services Marcum was expected by counsel to provide,” she wrote.
Including that payment, the firm had been paid a total of a little more than $600,000 at the time. But even at its reduced rates, Marcum said in court filings that it would be on the hook for another $1.25 million with no guarantee that it would be paid.
Court records show that two other companies with smaller roles in the defense also had similar problems. Accumyn Consulting, which does financial analysis, was paid just $78,000 on $99,000 in billings. The Worley Group, a private investigations firm, was paid about $28,000 on $34,000 in billings.
But Marcum by far had the most to lose. It was also the only company of the three to fight Jones’ ruling.
The firm first appealed it to the same court that Jones sits on, hoping her colleagues would strike down her decision. But on Feb. 7, the other 5th Circuit judges said they had no authority to overrule their chief judge since she was in charge of budgeting.
Marcum also asked the US Supreme Court to get involved. But last week, the high court turned down the appeal.
New York University professor of legal ethics Stephen Gillers told TPM that Jones’ ruling was unusual but almost certainly also within her authority.
He said the company probably should have waited for Jones to sign off on its budget before doing any work on the case. Not even an OK from the lower court judge should have been enough.
They “should realize that it’s not over till it’s over,” Gillers said. “I mean, the fact that they’re appointed, the fact that the district judge approves their bill doesn’t guarantee they’ll get paid.”
But, Gillers added, Jones also risks setting a bad example by stiffing Marcum on what it expected to get paid.
“If the word on the street becomes that Edith Jones is stingy with experts or lawyers,” he said, “you’re going to see both groups of people shying away from the high price tag cases.”
Duke University’s Buell agreed. But he also said Marcum’s chances of changing the judge’s mind on the matter are pretty slim.
“I can certainly see why an accounting firm that’s not used to being ordered around by federal judges might be pretty upset,” Buell said. “Lawyers are used to being ordered around by judges all the time. And they’re not going to like it, but they’re going to live with it.”
Both observers said Jones’ ruling also creates the possibility that Stanford could use it as a way to appeal a conviction if he is found guilty. Stanford could argue that his team of experts may have done inferior work after they stopped getting paid.
But Gillers said the appeal on those grounds would be “very hard to win.”
Buell agreed, noting that any appeal would be heard by the 5th Circuit — the same court that Jones oversees and that has already turned down one appeal by Marcum.
In the meantime, it appears that Stanford’s attorneys have already laid the groundwork for that kind of appeal. On Jan. 11, his attorneys Robert Scardino and Ali Fazel asked the court to let them step down from the case.
Judge Jones’ decision, they said, had made it impossible for them to be able to represent Stanford at even a minimum level.
“Proceeding to trial under these circumstances would result in representation that falls well below the constitutional standard for effective assistance of counsel,” they wrote.
The judge, however, refused to let them withdraw. The trial began Jan. 23 and is still ongoing.
