U.S. charges Allen Stanford with ‘massive’ fraud

HOUSTON/ST JOHN’S, Antigua, (Reuters) – Flamboyant  Texas billionaire Allen Stanford and three of his companies  were charged with “massive ongoing fraud” yesterday as federal  agents swooped down on his U.S. headquarters.

Allen Stanford
Allen Stanford

In a civil complaint filed in federal court in Dallas, the  U.S. Securities and Exchange Commission accused Stanford, who  sponsored international cricket matches, and two other top  executives at Stanford Financial Group of fraudulently selling  $8 billion in high-yield certificates of deposit in a scheme  that stretched from Texas to Antigua and around the world.

“We are alleging a fraud of shocking magnitude that has  spread its tentacles throughout the world,” said Rose Romero,  regional director of the SEC’s office in Fort Worth, Texas. The SEC complaint names Stanford International Bank, based  in Antigua with 30,000 clients in 131 countries and $8.5  billion in assets, as well as broker-dealer and investment  adviser units based in Houston, with 30 U.S. offices. In all  the company claims to oversee $50 billion in assets.

Stanford’s assets have been frozen and a federal judge has  appointed a receiver “to take possession and control of  defendants’ assets for the protection of defendants’ victims.”

Yesterday morning, about 15 federal agents, some wearing  jackets identifying them as U.S. marshals, entered the lobby of  Stanford’s office in the Houston Galleria area, a Reuters  eyewitness said.

Stanford Financial remained open for business but was  “under the management of a receiver,” according to a sign taped  to the door of the firm’s Houston office. Stanford spokesman  Brian Bertsch referred press inquiries to the SEC.

Stanford, a 58-year-old Texan running the firm that his  grandfather founded, has denied any wrongdoing. His location  remained a mystery after the SEC said yesterday he had failed  to respond to recent subpoenas seeking testimony and did not  produce “a single document.”

Stanford’s real estate holdings and celebrity associations  have drawn comparisons with Wall Street investment manager  Bernard Madoff, charged in an alleged $50 billion fraud.

U.S. Marshals (L) begin securing the Stanford Financial Group office building in Houston yesterday. REUTERS/Donna Carson (UNITED STATES)
U.S. Marshals (L) begin securing the Stanford Financial Group office building in Houston yesterday. REUTERS/Donna Carson (UNITED STATES)

Stanford has endorsement relationships with golfer Vijay  Singh and England soccer star Michael Owen as well as  involvement in polo.

Last year Forbes Magazine estimated Stanford’s personal  fortune at $2.2 billion.

Stanford’s website showed no apparent cause for distress yesterday, touting a motto of “hard work, clear vision, value for  the client.” The website highlighted its sponsorship of the  2009 Sony Ericsson Open in Key Biscayne, Florida in March.

According to the 25-page SEC complaint, Stanford  International Bank (SIB) sold $8 billion in CDs “by promising  high return rates that exceed those available through true  certificates of deposits offered by traditional banks.”

There were no signs of imminent criminal charges against  Stanford, and a Justice Department spokesman would not confirm  or deny the existence of a criminal investigation.

But Peter Henning, a professor at Wayne State University  Law School in Michigan and a former federal prosecutor, said  U.S. prosecutors have likely already filed a sealed criminal  indictment against Stanford to be unveiled at a later time.

“The amount of money involved indicates that there will be  criminal interest in this, as well as the number of potential  victims involved,” Henning said.

Investors like Kelly Dehay, a Realtor, showed up at  Stanford’s Houston office yesterday to inquire about their  funds, only to be turned away at the door.

Dehay said his Stanford broker sold him a CD held by the  Antiqua-based SIB and promised returns above 8 percent. “I  started planning for my retirement a long time ago,” Dehay  said. “I feel very betrayed.”

A U.S. Marshal holds a notice posted on the front doors of the Stanford Financial Group building in the upscale Galleria District of Houston yesterday. REUTERS/Donna Carson (UNITED STATES)
A U.S. Marshal holds a notice posted on the front doors of the Stanford Financial Group building in the upscale Galleria District of Houston yesterday. REUTERS/Donna Carson (UNITED STATES)

The developments come as investors, politicians and  regulators focus on the returns promised and provided by  investment firms, following the alleged Madoff scheme.

Stanford’s investment companies were exposed to losses from  the alleged Madoff scheme but falsely reassured investors  otherwise, the SEC charged.

The SEC outlined the Madoff link in its charges against  Stanford, and said his firm had sought to remove nearly $200  million from its accounts in recent weeks.

The SEC also alleged that Stanford falsely told at least  one customer earlier this month that he could not withdraw a  multimillion-dollar certificate of deposit because the SEC had  frozen the account.

“Recently, as the market absorbed the news of Bernard  Madoff’s massive Ponzi scheme, SIB has attempted to calm its  own investors by claiming the bank has no ‘direct or indirect’  exposure to Madoff’s scheme,” the SEC said. “These assurances  are false.”
SERIES OF

ALLEGATIONS

The SEC also alleged that:

— SIB reported identical returns of 15.71 percent in 1995  and 1996, which the SEC called “improbable” and suspicious.

— Ninety percent of SIB’s claimed investment portfolio was  in a “black box” shielded from any independent oversight, and  only Allen Stanford and aide James Davis, also charged, knew  details of the bulk of the portfolio.

— Stanford failed to cooperate with the SEC probe and  continued to mislead investors by falsely saying the SEC had  frozen accounts or the company had ordered a moratorium on CD  redemptions.

— A major, unidentified clearing firm stopped processing  wires to SIB for purchase of SIB-issued CDs after the clearing  firm was unable to obtain information about the company’s  financial condition.

— Stanford used false information to promote a mutual fund  program separate from the CDs. The program grew to more than  $1.2 billion from less than $10 million in 2004.

James Dunlap, an Atlanta lawyer representing about a dozen  investors who bought CDs from Stanford Financial Group, said he  planned to sue the financial firm and would  likely allege the company breached its contract.

Dunlap is representing several investors who tried  unsuccessfully to get back their investments with Stanford in  recent days.

Several investors have told lawyers they assumed the CDs  they bought were safe short-term instruments that were insured,  two lawyers said. But when an investor working with Dunlap  tried to get $250,000 out of a CD that came due last week, she  was told she would have to wait.

ANTIGUA

Stanford came to prominence in the cricket world following  his private Twenty20 competition in the Caribbean and, in  particular, the $20 million game in November between England  and his own team, made up of West Indian players.

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