US charges Stanford with massive Ponzi scheme

HOUSTON, (Reuters) – U.S. securities regulators on  Friday accused Texas billionaire Allen Stanford, his college roommate and three of their companies of carrying out a “massive Ponzi scheme” over at least a decade and misappropriating at least $1.6 billion of investors’ money.

Meanwhile, a Houston judge ruled on Friday that Laura  Pendergest-Holt, the only person arrested in the $8 billion  Allen Stanford fraud investigation, could walk free after she  posted a $300,000 bond.

Allen Stanford
Allen Stanford

In an amended complaint filed in a federal court in Dallas,  the Securities and Exchange Commission increased its civil  charges against Stanford to include a Ponzi scheme where early  investors are paid with the money of new clients.

Along with his former Baylor University roommate James  Davis, the 58-year-old golf, cricket and polo promoter  “misappropriated billions of dollars of investor funds and  falsified” financial statements issued by Antigua-based  Stanford International Bank, the SEC charged.

Stanford and Davis could not be reached immediately for  comment and have yet to name their legal representatives in the  case. The company is directing all inquiries to the SEC.

It was the second high-profile alleged Ponzi scheme  revealed by U.S. regulators, after charges that Wall Street  veteran Bernard Madoff carried out a $50 billion fraud that  allegedly involved a giant Ponzi scheme.

In the amended complaint, the SEC alleged that by February,  Stanford and Davis – who have not been charged with criminal  wrongdoing – had misappropriated at least $1.6 billion in  investor money through “bogus personal loans” to Stanford. The  funds were invested in “speculative, unprofitable private  businesses controlled by Stanford,” it said.

Every month, Stanford and Davis set a predetermined rate of  return for certificates of deposit issued by their Antigua bank, then bank accountants reverse-engineered financial  statements to “report investment income that the bank did not  actually earn,” the SEC charged.
The $1.6 billion in loans first came to light in a criminal complaint filed by the Justice Department against  Pendergest-Holt, the 35-year-old chief investment officer for  the Stanford Financial Group who was arrested by the FBI on  Thursday.

The criminal complaint referenced a $1.6 billion loan from a Stanford account labeled “Loan to Share-holder,” which was the  focus of the SEC’s questions to Pendergest-Holt.

After spending a night in a Houston detention center  Pendergest-Holt faced U.S. Magistrate Judge Mary Milloy in  court on Friday.
U.S. prosecutors had asked the judge to set bond at $1  million, an amount that Pendergest-Holt’s attorney, Dan  Cogdell, called “outrageous.”
While agreeing it was a serious case, Milloy lowered the  amount to $300,000 and ordered Pendergest-Holt, who appeared in  court dressed in a dark pants suit and heels, to wear an  electronic tracking device after her release.

FBI agents had arrested her at Stanford’s Houston-based  headquarters and accused her of obstructing a probe into what  the SEC called “massive ongoing fraud” by Stanford and his  companies.

Under questioning from Pendergest-Holt’s lawyer, FBI agent  Vanessa Walther said there is no arrest warrant for Stanford,  who was served with the SEC’s earlier civil complaint last  week.

Meanwhile, Stanford’s assets are under the control of a  court-appointed receiver — Dallas attorney Ralph Janvey — who  must sort out dozens of claims by Stanford account holders who  have seen their funds frozen indefinitely.

A Dallas judge is expected to rule today on whether to  extend a temporary restraining order that gives Janvey control  of Stanford’s assets — pegged by the company at $50 billion.

Pendergest-Holt’s criminal case also moves to U.S. District  Court in Dallas, where the charges were filed, lawyers said.
The receiver thus far has identified only about $90 million  in actual assets, the FBI’s Walther told the judge on Friday.  That does not include a Credit Suisse account containing about  $160 million that Pendergest-Holt had access to and signed over  to the receiver shortly before her arrest.
“There are billions missing in this case,” Justice  Department attorney Paul Pelletier told Judge Milloy on Friday.
The FBI’s Walther said Pendergest-Holt’s salary in 2007 and  2008 was near $1 million, including bonuses.

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