Allen Stanford Ponzi Scheme

[scion]

Allen Stanford, the Texan behind 20/20 cricket riches, charged over $9.2bn 'fraud'

From The Times
February 18, 2009
James Bone in New York
http://www.timesonline.co.uk/tol/news/world/us_and_americas/article5755668.ece

Allen Stanford, the flamboyant Texan billionaire and cricket impresario who sponsored a $1 million-a-man match in the West Indies, was charged in the US yesterday in connection with an alleged $9.2 billion (£6.4 billion) investment fraud.

As investors arrived at his Stanford International Bank (SIB) on the Caribbean island of Antigua to demand their money back, US marshals raided the Houston headquarters and offices in Memphis and Tupelo of the privately-owned parent company, Stanford Financial Group, which says it manages more than $50 billion in assets.

The England and West Indies cricket boards suspended sponsorship negotiations with Mr Stanford last night.

A sign taped to Stanford Financial's door in Houston said the company was still in business but "under the management of a receiver".

A judge froze Mr Stanford's estimated $2.2 billion fortune, as well as the assets of two other top executives. The action came in response to a complaint by the US Securities and Exchange Commission, the country's financial regulator.

"We are alleging a fraud of shocking magnitude that has spread its tentacles throughout the world," said Rose Romero, director of the SEC office in Fort Worth, Texas.

A US Justice Department spokesman refused to confirm or deny the existence of any parallel criminal investigation. Mr Stanford's whereabouts were not immediately known. A dual US-Antiguan citizen, he reportedly spends fewer than 90 days a year in the United States for tax purposes, and has a number of homes from Antigua to St Croix in the US Virgin Islands and Miami. He was given a Commonwealth knighthood by Antigua.

The investigation follows allegations by a whistle-blower that he was operating a "Ponzi scheme" like the alleged swindler Bernard Madoff.

SIB offered investors consistently above-average returns. The alleged fraud was conducted through an $8 billion programme offering certificates of deposit paying above-average interest, according to an SEC complaint.

The bank is housed in grand neo-colonial offices near the airport on Antigua. It caters primarily to wealthy Latin Americans, although it claims to have more than 30,000 clients in 131 countries. In recent days, some clients have been told they cannot withdraw their funds and have travelled to Antigua to try to get their money back.

SIB insisted that its high rates were earned through a unique investment strategy that allowed it to achieve double-digit returns on its investments for the past 15 years. Its returns ranged from 16.5 per cent in 1993 to 11.5 per cent in 2005. Even as Wall Street's S&P 500 share index plunged 39 per cent in 2008, SIB claimed that its "diversified portfolio of investments" lost only 1.3 per cent. Regulators yesterday called these "improbable, if not impossible, returns".

They say that only two people - Mr Stanford and James Davis, his chief financial officer - know the details of the bank's investments, and both have failed to cooperate in the SEC's efforts to track down the $8 billion of funds. "In short, approximately 90 per cent of SIB's claimed investment portfolio resides in a ' black box' shielded from any independent oversight," the SEC complaint said.

The SEC also alleges that the group's Houston-based brokerage, Stanford Group Company, provided false information about the historical performance of Stanford Allocation Strategy to achieve $1.2 billion sales. The sales generated more than $25 million in fees.

"As we allege in our complaint, [Mr] Stanford and the close circle of family and friends with whom he runs his businesses perpetrated a massive fraud based on false promises and fabricated historical return data to prey on investors," said Linda Chatman Thomsen, director of the SEC's Division of Enforcement. "We are moving quickly and decisively to stop this fraudulent conduct and preserve assets for investors."

The SEC is seeking the return of allegedly ill-gotten gains, with interest, and fines, as well as an injunction barring Mr Stanford from breaking securities laws. It said the company had tried to remove almost $200 million from its accounts in recent weeks.

The investigation follows allegations by several former Stanford employees and a red flag raised by Alex Dalmady, a financial analyst. Dalmady has also raised concerns that SIB uses a little-known West Indian firm, CSA Hewlett, as auditor.

Baldwin Spencer, the Antiguan Prime Minister, said on Sunday that the investigation could tarnish his country of 70,000, where Mr Stanford's personal wealth dwarfs the island's GDP. He said Stanford Financial Group had already laid off about 175 staff on the island.

http://www.timesonline.co.uk/tol/news/world/us_and_americas/article5755668.ece