Bashian & Papantoniou, P.C.

Trial Update: Trial of Allen Stanford of Stanford Financial Group begins

The trial of R. Allen Stanford, a money manager and chairman of the now defunct Stanford Financial Group, began on Monday, January 23, 2012.  Stanford has been accused of running a $7.2 billion Ponzi scheme after being arrested in 2009 in Virginia.  As with most fraudulent Ponzi schemes, Stanford Financial Group was investigated by the SEC, FBI, and the Financial Industry Regulatory Authority (FINRA), a major U.S. private-sector oversight body, to determine how Stanford International Bank was able to consistently make higher-than-market returns to its depositors.  The complaint alleges that Stanford defrauded more than 20,000 investors through the sale of bogus certificates of deposit at Stanford International Bank, Ltd., a financial institution created by Stanford and based in Antigua.

Several aspects surrounding this case will make for an interesting trial.  First, Stanford was the victim of a vicious prison beating in 2009 stemming from an altercation regarding use of the telephone.  He now claims that he has lost all memory and that he cannot recall the details of his business and banking operations.  Second, Stanford has filed a lawsuit accusing federal prosecutors, the FBI and the SEC of his complaint terms “abusive law enforcement,” and adamantly adhering to his claim of innocence.  The suit seeks $7.2 billion in damages, which, coincidentally, is about the same amount that he is accused of stealing in the Ponzi scheme.  Stanford has also filed suit against insurer Lloyd’s of London, claiming that Lloyd’s should be held liable for his legal fees as part of the Director’s and Officer’s policy held by Stanford Financial Group.  However, after it was determined that Lloyd’s did not have to pay, Stanford is now attempting to have the U.S. taxpayer pick up his legal fees through his claim that he is indigent.

Finally, James Davis, the former CFO of Stanford Financial Group and Stanford’s college roommate at Baylor University, will testify as the government’s key witness.  Davis has already pled guilty and hopes that his testimony will lead to a lighter prison sentence at his own sentencing.  There is no doubt that these juicy details ensure that Stanford’s trial will be one to watch.

Co-founder of Megaupload arrested for copyright infringement and money laundering

Kim Dotcom, computer programmer and co-founder of Megaupload, was arrested for charges of copyright infringement and money laundering. Dotcom – born Kim Schmitz in Germany but a legal resident of both Finland and New Zealand – became notorious for his abilities as a computer hacker and has been convicted of insider trading, and embezzlement in the past. Megaupload is a Hong Kong-based internet company established in 2005 that ran a number of online services related to file storage and sharing. In essence, it is alleged that Megaupload operating as an organization dedicated to copyright infringement, costing copyright holders more than $500 million in lost revenue from pirated films and other media. Dotcom and 4 of his associates were arrested in New Zealand at his rented multi-million dollar mansion, which has been reported as the most expensive in the country. In a multinational law enforcement effort, New Zealand authorities were cooperating with the FBI, U.S. Justice Department, Hong Kong Customs, the Hong Kong Department of Justice, the Netherlands Police Agency and the Public Prosecutor’s Office for Serious Fraud and Environmental Crime, London’s Metropolitan Police Service, Germany’s Bundeskriminalamt and the German Public Prosecutors, the Royal Canadian Mounted Police and the Canadian Department of Justice. Concurrent with his arrest, authorities seized a number of bank accounts, PayPal accounts, a Rolls-Royce, a rare Lamborghini, a Maserati and fifteen Mercedes-Benz vehicles. Most were adorned with creative license plates including with the license plate “GOD,” “HACKER,” “POLICE,” “STONED,” “GOOD,” “CEO,” and the ominous “GUILTY.” Even more notable, the indictment alleges that Megaupload or its officers spent almost $8 million on yacht rentals in the Mediterranean during the months of April through June of 2011 alone. The arrest has brought to the forefront the future of global action to prevent internet piracy. Recently, two pieces of controversial anti-piracy legislation, the Protect IP Act (PIPA) and the Stop Online Piracy Act (SOPA), have been introduced in Congress as a means of providing a check on copyright infringement on the internet. In response, several websites, including Wikipedia, went “dark” for twenty-four hours to protest the legislation. The uproar over PIPA and SOPA has led to the Obama Administration’s declaration that both bills would not be passed in their current state, as the government would not support any anti-piracy legislation that facilitates online censorship.  However, anti-piracy remains a hot-button issue and the arrest of Kim Dotcom does not bode well for those opposed to this latest round of internet regulation.

Supreme Court: Police must obtain a warrant before attaching a GPS tracker to a suspect’s vehicle

In a unanimous decision, the U.S. Supreme Court has ruled that police must obtain a warrant before attaching a GPS tracker to a suspect’s vehicle.  However, the Court was split 5-4 in its reasoning behind the ruling, with Justice Antonin Scalia writing for the majority.  Justice Scalia reasoned that the Fourth Amendment’s protection of “persons, houses, papers, and effects, against unreasonable searches and seizures” would extend to private property, including one’s vehicle.  In contrast, the minority decision emphasized a more sweeping declaration that installing the GPS tracker not only trespassed on private property, but violated the suspect’s “reasonable expectation of privacy.” 

The case involves a narcotics operation allegedly run by the defendant, Antoine Jones.  During the course of the investigation, DC police and FBI agents tracked Mr. Jones, a nightclub owner, through several means of surveillance techniques, which included tapping his cellphone under a warrant from a federal judge.  Authorities also placed a GPS tracking device on his Jeep Grand Cherokee without a valid warrant, which the government argued was not constitutionally required.  The Justice Department argued that the FBI uses GPS tracking devices in thousands of investigations each year, and attaching a tiny tracking device to a car’s undercarriage was too trivial a violation of property rights to matter.  However, the majority shot this argument down, reasoning that even a small trespass, if committed in “an attempt to find something or to obtain information,” constituted a “search” under the Fourth Amendment.

This is a landmark case as far as constitutional rights in the digital age are concerned.   Justice Sotomayor joined in the majority opinion, but wrote separately to set out various privacy issues that emerging technology was presenting.  For example, smartphones have the ability to disclose a user’s location unless the internal GPS functions are actually turned off.  Unfortunately, the Court’s ruling provided no definitive answers as to whether the government must obtain a warrant for access to such private property.