Lloyd’s D&O Coverage an Issue in Stanford Fraud Case

Lloyd’s of London has told a federal judge he should not allocate the proceeds of a directors and officers insurance policy for accused swindler Allen Stanford and other executives because they have no guarantee of coverage, according to a court filing.

A number of Stanford executives, including Stanford and former Chief Investment Officer Laura Pendergest-Holt, have filed claims against the policy issued by Lloyd’s.

Stanford and Pendergest-Holt had their assets frozen in February when the U.S. Securities and Exchange Commission filed civil fraud charges, alleging a “massive” Ponzi scheme. The asset freeze has left the executives unable to pay their defense lawyers, they have said in numerous court filings.

Lloyd’s initially agreed to reimburse some “reasonable and necessary legal expenses,” for Pendergest-Holt, but Ralph Janvey, the receiver in the case, argued proceeds are assets of the Stanford estate. He threatened to hold Lloyd’s in contempt of court if they made payments to the executives, court papers show.

In response, lawyers for Pendergest-Holt filed a motion asking U.S. District Judge David Godbey in Dallas, who is overseeing the civil fraud case, to clarify whether the insurance proceeds should go to the receiver.

If the court determines the policy proceeds were assets of the estate, then the funds should be allocated to pay defense costs in accordance with the insurance policy, Pendergest-Holt’s motion, said. But Janvey also asked to allocate the majority of the insurance proceeds to the receivership.

Claims resulting from “money laundering, and from dishonest, fraudulent, or criminal acts, are excluded from coverage,” Lloyd’s said in court papers.

Stanford and Pendergest-Holt have denied wrongdoing.