U.S. regulators accused R. Allen Stanford of running a “massive, ongoing fraud” through his Houston-based Stanford Group Co. while selling about $8 billion in certificates issued by an affiliated bank in Antigua.
Stanford International Bank touted “improbable, if not impossible” returns, the Securities and Exchange Commission said today in a complaint against Stanford, firms he controls and two colleagues. A federal court in Dallas agreed to freeze assets and appoint a receiver to account for investor money.
“We are alleging a fraud of shocking magnitude that has spread its tentacles throughout the world,” Rose Romero, director of the SEC’s Fort Worth office, said today in a statement. Stanford spokesman Brian Bertsch didn’t return a call seeking comment.
The SEC has been investigating Stanford Group since at least last summer over sales of the certificates. The inquiry intensified after the December arrest of New York money manager Bernard Madoff, who allegedly confessed to masterminding a $50 billion fraud in which early investors were promised steady returns and paid with money from later participants.
Private Equity, Property
Stanford Group, selling the certificates through a network of financial advisers, told clients their funds would be placed mainly in easily sellable financial instruments, monitored by more than 20 analysts and audited by regulators in Antigua, the Caribbean nation, the SEC said.
Instead, the “vast majority” of the portfolio was managed by Allen Stanford and the Antigua subsidiary’s chief financial officer, James Davis, according to the regulator. A “substantial” part of the portfolio was invested in private equity and real estate, it said.
Stanford and Davis didn’t appear for testimony or provide any documents in response to SEC subpoenas in the past several weeks as investigators tried to account for the $8 billion in investor money, the agency said. Laura Pendergest-Holt, a member of Stanford International’s investment committee, couldn’t account for the funds, nor could a former senior investment officer, the agency said. She and Davis were also named as defendants in the civil case.
‘False, Misleading’
Attorneys for Allen Stanford, Davis and Pendergest-Holt couldn’t be located for comment.
Stanford Group’s alleged fraud wasn’t limited to the sale of certificates of deposit, the SEC claimed. Since 2005, SGC advisers sold more than $1 billion of a proprietary mutual fund “wrap program,” named Stanford Allocation Strategy, “by using materially false and misleading historical performance data,” according to the SEC complaint.
The allegedly false data helped the program grow from less than $10 million in 2004 to more than $1.2 billion, generating fees exceeding $25 million.
The SEC said the bank’s stated investment returns are “strange.” It reported gains of exactly 15.71 percent in both 1995 and 1996 and a loss of 1.3 percent last year, when financial markets plunged, according to the agency’s complaint. Stanford International Bank says it has 30,000 clients and $7.2 billion in assets under management, according to the SEC.
‘Routine Examinations’
Investigators from the Financial Industry Regulatory Authority visited six Stanford Group offices in January, downloaded information from computer hard drives and looked through files, people familiar with the events said. The people declined to be identified because they didn’t want to put their current jobs at risk.
“Regulatory officers have conveyed to us these visits are part of their routine examinations,” Allen Stanford said in a Feb. 11 letter to clients and an e-mail message to the company’s employees obtained by Bloomberg.
Stanford said in a Feb. 12 e-mail to his employees that he’d “fight with every breath to continue to uphold our good name” in the face of the investigations.
The SEC has stepped up probes after being accused of failing to heed warnings that Madoff’s investment returns were too good to be true. Madoff was arrested Dec. 11 after allegedly telling his sons that his business was a $50 billion Ponzi scheme. The SEC has since announced unrelated lawsuits against at least seven money managers for allegedly inflating profits or siphoning off client money.
$2 Billion Net Worth
Finra in November 2007 fined Stanford Group $20,000 for failing to adequately state the risks involved in the CD investments or to disclose that an affiliation between the broker-dealer and the bank could pose a conflict of interest. Stanford consented to the sanctions without admitting or denying wrongdoing, according to a file on the Finra Web site.
The Stanford Financial companies, including Stanford Group, Stanford International Bank and Stanford Trust, were founded by Allen Stanford, who is their chairman. The Texas native was listed last year by Forbes Magazine as the 605th-richest man in the world with an estimated net worth of $2 billion.
Allen Stanford is a citizen of the U.S. and of Antigua & Barbuda after being naturalized in that country 10 years ago, according to a biography on the company’s Web site. He was knighted by the Antiguan government in 2006 and now uses the title “Sir.” Stanford Group Co. has 19 offices in the U.S. and more than $43 billion under management or advisement, according to its Web site.
Stanford has been a backer of Twenty20 cricket, a shortened form of the sport played over about three hours. Last June, he landed in a helicopter at Lord’s Cricket Ground in London to announce an annual Twenty20 series of matches between England’s national team and the Stanford Superstars, a team of West Indies players, for a winner-takes-all prize of $20 million. Stanford plucked dollar bills from a crate he brought with him to illustrate the amount of money on offer.
Today, after learning of the SEC’s allegations, cricket’s governing bodies in the U.K. and the Caribbean said they ended further talks with Stanford. “The England and Wales Cricket Board and the West Indies Cricket Board have suspended negotiations with Sir Allen Stanford and his financial corporation concerning a new sponsorship deal,” the groups said in a statement.
Source: bloomberg.com
