By Laurel Brubaker Calkins and Andrew M. Harris 

DALLAS, USA (Bloomberg) -- Ralph Janvey, the court-appointed receiver for Allen Stanford’s businesses who is trying to recoup money for creditors, can sue investors only for interest payments they received from the financier, a judge has ruled.

US District Judge David Godbey on Thursday denied a US Securities and Exchange Commission request to strip Janvey of the power to pursue so-called clawbacks following a hearing at the federal courthouse in Dallas. Godbey said any recoveries must be limited to interest paid to investors.

The judge encouraged Janvey to seek what he called a “second opinion” on the issue of whether a receiver has the right to pursue principal as well as interest in clawback claims.

“Your arguments are not silly,” Godbey told Janvey and his attorney, Kevin Sadler of Baker Botts LLP in Houston. “I don’t think it’s a stupid position. I just disagree with it, and I think the commission’s view is better.”

Godbey put his ruling on hold for 10 days to give Janvey a chance to appeal. Janvey, who has sued to recover as much as $925 million from Stanford investors and stockbrokers who profited from the alleged fraud, said Friday he’ll temporarily suspend the suits until an appeals court can review the propriety of suing investors for principal.

“This will effectively eliminate clawbacks because 95 percent plus of what he’s seeking consists of principal,” Stephen Malouf, a lawyer for investors, said of the ruling’s effect on Janvey’s efforts. Malouf said in court that he represents about 600 investors who bought certificates of deposit through Antigua-based Stanford International Bank Ltd.

The SEC sued Stanford, two associates, the bank and two other businesses, accusing them in February of running an $8 billion fraud scheme involving the sale of CDs through the bank.

The financier has denied those allegations, as well as charges contained in a criminal fraud indictment returned against him and four other people by a federal grand jury in Houston on June 18.

In February, the court in Dallas froze the defendants’ personal and business assets and appointed Janvey to marshal those assets to repay investors and other creditors.

With those decrees in place, Janvey began suing Stanford investors for principal and interest they received through the alleged Ponzi scheme, which Janvey claimed were tainted proceeds or “stolen money” rightfully belonging to other investors.

John J. Little, an examiner named by Godbey to represent investor interests, objected to the clawback claims, as did the SEC and attorneys representing individual Stanford clients.

“The commission simply does not make a practice of suing innocent victims of Ponzi schemes for the return of principal, and applies a great deal of discretion and consideration before asserting claims against victims for the return of interest payments received,” SEC lawyer David Reece said in papers filed with Godbey on July 20.

The SEC “is not aware of any compelling reason” for Janvey to pursue Stanford investors, he said.

Rose Romero, head of the SEC’s Fort Worth, Texas, office told Godbey Thursday in court that the agency could file any necessary clawback lawsuits without spending any of the investors’ money. Janvey is spending $4,500 an hour or “a little more than a million a week,” to pursue investors, she said.

“We want to try to save some of the money that’s dwindling away,” she told Godbey. “They’re spending receivership assets, and we’re spending taxpayer money.”

Faced with a Godbey-imposed Aug. 3 deadline for determining whether he had claims against those investors whose accounts were frozen, Janvey broadened his earlier clawback case on July 28 to seek $925 million from Stanford investors and stockbrokers.

Opposing the SEC bid to strip him of the ability to bring such claims in papers filed July 30, Janvey told the court its prior orders “operate to benefit all investors who were cheated, not just those lucky enough to have cashed-out their investments before the Ponzi scheme came crashing down.”

Sadler yesterday told Godbey that while there was a “strong constituency” that opposed Janvey’s pursuit of investors, the overall strategy served a greater good.

“We want to help the thousands, the poor folks who put the last $70 million in before the music stopped,” Sadler said. That money was received by Stanford within 30 days of the SEC’s lawsuit, he said.

“Activities regarding the pursuit of clawback claims against investors for principal will cease until such time as the Fifth Circuit provides its guidance” on whether defrauded investors can be sued for principal as well as interest, Janvey said in an e-mailed statement Friday. Janvey’s statement, which his spokeswoman Nancy Sims said will be posted to the receiver’s Web site (www.stanfordfinancialreceivership.com) later today, said Janvey will file his appeal “on an expedited basis.”

Some Stanford customers have been without access to their money since Feb. 17, when the asset-freezing order was issued. About $4.7 billion in customer brokerage accounts, which were held by two clearinghouses used by Stanford Group Co., were frozen under the initial order. The majority of the frozen funds have since been released.

Godbey extended the Aug. 3 expiration date for the order freezing investor assets for 10 days, granting Sadler the time he had requested to file an appeal.