Judge allows Allen Stanford, others to seek defense fees

HOUSTON (Reuters) - Financier Allen Stanford and other executives who face charges related to an alleged $7 billion fraud may file claims for defense funds under a directors' and officers' insurance policy, a federal judge said on Friday.

Stanford has had his assets frozen since civil charges were filed against him in February. He said he has no money to pay his lawyers, and is currently represented by court-appointed lawyers.

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

Lloyd's initially agreed to reimburse some legal expenses for Pendergest-Holt, but Ralph Janvey, the receiver in the case, argued proceeds are assets of the Stanford estate and should be set aside for investors.

Janvey had threatened to hold Lloyd's in contempt of court if they made payments to the executives, court records show.

"Today the court holds only that its prior orders do not bar Lloyd's from disbursing policy proceeds to fund directors' and officers' defense costs in accordance with the D&O polices' terms and conditions," U.S. District Judge David Godbey said in a nine-page order.

Jeffrey Tillotson, a lawyer for Pendergest-Holt, said he was very pleased with Godbey's decision.

"Our client is entitled to a defense and now she will have the resources to pay for one," Tillotson said, adding that his client, who also had her assets frozen, has been living off "kindness, friends and family."

Godbey also said he would have authorized payment of the defense fees even if the insurance proceeds were part of the Stanford estate.

A representative for Janvey declined to comment on the ruling.

Still, there is no guarantee of coverage. Lloyd's said in a September court filing that claims resulting from "money laundering and from dishonest, fraudulent, or criminal acts" are excluded from coverage.

Stanford and Pendergest-Holt have both pleaded not guilty to the charges related to what prosecutors labeled a massive Ponzi scheme tied to the firm's offshore bank in Antigua.

The case is SEC vs Stanford International Bank Ltd, U.S. District Court for the Southern District of Texas, No. 09-00298.

(Reporting by Anna Driver, editing by Leslie Gevirtz and Matthew Lewis)