A judge has approved the sale of some private equity interests of indicted financier Allen Stanford, including interests in Israeli venture capital funds and a hotel project in downtown Houston.
The sale approvals are from the private equity holdings of Stanford’s businesses, in a portfolio valued at $650 million. A court appointed receiver, Ralph Janvey, is working with Blackstone’s Park Hill Group to sell off the private equity holdings through secondary sales.
Allen Stanford, the head of the Stanford Financial empire, has been criminally and civilly charged with defrauding investors of $7 billion through the sale of phony certificates of deposit. Stanford has denied all wrongdoing and argues the sale of the private equity holdings will cheat investors of profits as the holdings need time to mature.
District judge David Godbey, in Dallas, approved the sale earlier this week as the company faced potential default penalties for missing capital calls from the funds.
The venture holdings consisted of a $50 million commitment to Israel Opportunity Fund I and an LP stake in IOF II. The company committed to the first fund last October, and has not yet extended capital to the fund.
Stanford Financial bought into the second Israeli Opportunity Fund through an indirect route. The company had committed $10 million to AquAgro Fund, an Israeli venture fund; $15 million to Catalyst Private Equity Partners II, based in Jordan; and $1 million to Infinity I-China Fund, a Chinese-Israeli firm. The company had extended about $14.3 million to the funds and had outstanding capital commitments of more than $11 million.
The company last October signed over its interest in the three funds to Israel Opportunity Fund II in exchange for a stake in IOF II. Stanford still retained its obligation to fund the more than $11 million in outstanding commitments to the three funds.
The underlying funds have issued capital calls in the past few months, putting pressure on the company to meet the obligations or face default interest penalties.
IOF agreed to pay $4.1 million for the venture stakes, including $2.5 million to be used to pay down the capital calls and the rest going to the company in cash. IOF also agreed to relieve Stanford Financial of all future capital obligations in the amount of $61 million and waive all claims against the company.
“[We] evaluated the offer and determined that the liquidation of these investments will impart maximum benefit to the …estate,” Janvey said in court documents.
“The …offer to purchase [the company’s] interest in IOF II does not rise to the level of [the company’s] initial investment, it represents a fair market cash price when taking into account the economic uncertainties,” Janvey said.
The judge also approved the $2.7 million sale of Stanford’s stake in Midway CC Hotel Partners, which is building a mixed-used development, including a hotel, in Houston. Stanford had invested $15.3 million in the partnership. Another limited partner in Midway CC Hotel Partners made the offer to buy Stanford’s stake.
The private equity portfolio includes limited partnership stakes in Mountain Partners, ACON-related fund, SSM Venture Partners III, Louisiana Ventures, Panorama Capital, Memphis Bio-Med Ventures II, SSM Venture Partners IV. The company also had direct investments in companies like Golden Financial Services, Greystone Pharmaceuticals, American Leisure and Health Systems Solutions.