Allen Stanford Ponzi Scheme

[scion]

Stanford International Thanked CD Investors With Flowers, Gifts

By Saijel Kishan and Alison Fitzgerald
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aw2cpNsLMXqg#

Feb. 18 (Bloomberg) -- Daniel, a 42-year-old businessman in Mexico, said he pulled out of his Stanford International Bank investments two years ago, happy with the return.

"I got up to 12 percent" in interest on the certificates of deposit, he said. "For me it was real, but for the others, who knows?"

His in-laws still have more than $10 million in CDs issued by the Antigua-based bank, whose Mexico City office sent cards and flowers on birthdays and other special occasions, said Daniel, declining to give his last name because he didn't want to jeopardize his relatives' investment.

"They went out of their way to treat you well," he said. "They showered us with gifts all the time."

Now, "I wonder why they had to send us flowers," he said.

The U.S. Securities and Exchange Commission said yesterday that Stanford Group Co. Chairman R. Allen Stanford was running a "massive, ongoing fraud" while selling about $8 billion in certificates issued by the Antigua bank through his Houston-based firm. Stanford International touted "improbable, if not impossible" returns for its CDs, the SEC said in a civil complaint.

Stanford Group, which used a network of 39 bank and broker- dealer branches from Panama to Switzerland to attract clients, told investors their funds would be placed mainly in easily sellable financial instruments, monitored by more than 20 analysts and audited by regulators in Antigua, the agency said.

Instead, the "vast majority" of the portfolio was managed by Stanford and the Antigua subsidiary's chief financial officer, James Davis, according to the complaint.

' Warren Buffett-Style'

A "substantial" part of the portfolio was invested in private equity and real estate, the complaint said.

U.S. District Judge Reed O'Connor signed a temporary restraining order yesterday in Dallas federal court to freeze the Stanford companies' assets and property. A Stanford spokesman, Brian Bertsch, referred questions to the SEC.

Dozens of Stanford Group clients from the U.S., Mexico and Venezuela called and sent e-mails to Bloomberg News yesterday asking for information and wondering about their investments.

Marie, a 45-year-old homemaker who put the proceeds of her husband's life insurance into Stanford International CDs after he died in 2007, said she was suspicious of the returns as early as spring of last year.

"My broker said at the time that Stanford has secured the higher rate back in November before rates were dropped," Marie said, declining to give her surname.

She called her broker in Little Rock, Arkansas, last week to see if she could pull her money out, she said.

"He assured me that all was well and that the firm was doing ' Warren Buffett-style' investing by putting a lot of money in real estate, distressed assets and things like that," she said. "He was just regurgitating what he was told by his superiors."

' Enjoying Those Checks'

Stanford Group financial advisers were paid a 1 percent commission if they sold a net $2 million of the Antigua CDs in a single quarter, according to documents provided to Bloomberg News by former advisers. For sales more than $15 million in a quarter, an adviser would earn an additional $125,000 bonus.

The company also offered trips as incentives for teams to meet sales goals. An internal e-mail from 2005 obtained by Bloomberg showed Stanford urging a team of 61 Stanford Group financial advisers to bring $62.5 million in new money to the bank in one quarter.

"Many of you are just now enjoying those checks from our 2nd quarter team performance" of $44 million, the e-mail said. "I'm sure you look forward to getting another one after this quarter."

False and Misleading

The SEC has been investigating Stanford Group since at least last summer over the CD sales. Stanford and Davis didn't appear for testimony or provide documents in response to subpoenas as investigators tried to account for $8 billion in investor money, the agency said.

Besides the CDs, Stanford Group advisers sold more than $1 billion of a mutual-fund "wrap program," named Stanford Allocation Strategy, "by using materially false and misleading historical performance data," according to the SEC complaint.

A Stanford Group client in Houston who contacted Bloomberg News said she was invited in 2006 to the company for a presentation about retirement savings. The 40 or so potential investors who attended were doctors or their spouses, the client said.

Corporate Chef

After a dinner prepared by Stanford Group's chef was served, the audience watched a video that included footage of corporate jets and the Antigua bank, she said. Persuaded, she transferred about $500,000 from Paine Webber to Stanford Group, which assured a return of 14 percent, the client said.

A year later, after she consulted another financial adviser, she pulled all her money out.

Merle Impson, a former construction-company owner, invested $350,000 through a broker in Sarasota, Florida, who had been employed by UBS AG before going to work for Stanford Group.

"My broker is just as much in the dark about this," Impson said. "He's just as devastated as I am. He also had his own money invested."

To contact the reporters on this story: Saijel Kishan in New York at [e-mail]; Alison Fitzgerald in Washington at [e-mail]
Last Updated: February 18, 2009 00:01 EST

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