BREAKING NEWS: Feds Charge Billionaire Allen Stanford With Running Massive Offshore Fraud Scheme In Antigua
Antigua was very much on the minds of members of AdSurfDaily Inc. after Andy Bowdoin told investigators last summer the company had more than $1 million on deposit in the Caribbean island nation of Antigua, a 108-square-mile country with a history of lax banking standards.
The money was not in ASD’s name, according to prosecutors.
Antigua this evening is very much back in the news: The Securities and Exchange Commission has charged Robert Allen Stanford and three of his companies “for orchestrating a fraudulent, multibillion dollar investment scheme centering on an $8 billion CD program” run out of an Antigua bank.
Forbes magazine lists Stanford as one of the richest men in the United States, with personal wealth estimated at $2.2 billion. The SEC’s complaint is, simply put, a piece of nonfiction that reads like a piece of impossible fiction. The document include lines that require readers to suspend their disbelief — in the same fashion and form readers of documents in autosurf Ponzi scheme cases are required to suspend their disbelief before recognizing that some people actually believe they can fool all of the people all of the time.
Charged along with Stanford were Stanford International Bank (SIB) of Antigua; Stanford Group Co. (SGC), a Houston-based broker-dealer and investment adviser, and Stanford Capital Management (SCM), an investment adviser .
Meanwhile, the SEC also charged SIB Chief Financial Officer James Davis, and Laura Pendergest-Holt, chief investment officer of Stanford Financial Group (SFG).
An Instant Receivership
U.S. District Judge Reed O’Connor entered a temporary restraining order, froze the defendants’ assets and immediately appointed a receiver.
“As we allege in our complaint, 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 in this enforcement action to stop this fraudulent conduct and preserve assets for investors.”
Rose Romero, director of the SEC’s Fort Worth regional office, said the scale of the fraud was mind-boggling.
“We are alleging a fraud of shocking magnitude that has spread its tentacles throughout the world,” Romero said.
“Acting through a network of SGC financial advisers, SIB has sold approximately $8 billion of so-called ‘certificates of deposit’ to investors by promising improbable and unsubstantiated high interest rates,” the SEC said. “These rates were supposedly earned through SIB’s unique investment strategy, which purportedly allowed the bank to achieve double-digit returns on its investments for the past 15 years.”
It was all a web of deception, the SEC said.
“[The] defendants have misrepresented to CD purchasers that their deposits are safe, falsely claiming that the bank re-invests client funds primarily in ‘liquid’ financial instruments (the portfolio); monitors the portfolio through a team of 20-plus analysts; and is subject to yearly audits by Antiguan regulators,” the SEC said.
In a Bernard Madoff-like assertion, SIB claimed results that were the envy of investors worldwide — and yet defied the laws of probability, the SEC said.
“SIB reports identical returns in 1995 and 1996 of exactly 15.71%,” investigators said in the complaint. “[But] [a]s Pendergest-Holt — SIB investment committee member and the chief investment officer of Stanford Group Financial (a Stanford affiliate)Â — admits, it is simply ‘improbable’ that SIB could have managed a ‘global diversified’ portfolio of investments in a way that returned identical results in consecutive years.
“A performance reporting consultant hired by SGC, when asked about these ‘improbable’ returns, responded simply that it is ‘impossible’ to achieve identical results on a diversified investment portfolio in consecutive years. Yet, SIB continues to promote its CDs using these improbable returns,” investigators said.
In a line that reads as though it came out of a Madoff or autosurf Ponzi complaint, the SEC said Stanford tightly compartmentalized knowledge and hid details about its financial underpinnings to fool investors.
“[C]ontrary to assurances provided to investors, at most only two people — Stanford and Davis — know the details concerning the bulk of SIB’s investment portfolio,” investigators said. “And SIB goes to great lengths to prevent any true independent examination of those portfolios. For example, its long-standing auditor is reportedly retained based on a ‘relationship of trust’ between the head of the auditing firm and Stanford.”
Stanford told lie after lie to keep investors from asking too many questions, investigators said.
“[C]ontrary to recent public statements by SIB, Stanford and Davis (and through them SGC) have wholly failed to cooperate with the Commission’s efforts to account for the $8 billion of investor funds purportedly held by SIB,” investigators said. “In short, approximately 90% of SIB’s claimed investment portfolio resides in a ‘black box” shielded from any independent oversight.
“In fact, ” investigators continued, “far from ‘cooperating’ with the Commission’s enforcement investigation (which Stanford has reportedly tried to characterize as only involving routine examinations), SGC appears to have used press reports speculating about the Commission’s investigation as way to further mislead investors, falsely telling at least one customer during the week of February 9, 2009, that his multi-million dollar SIB CD could not be redeemed because ‘the SEC had frozen the account for two months.’
“At least one other customer who recently inquired about redeeming a multi-million dollar CD claims that he was informed that, contrary to representations made at the time of purchase that the CD could be redeemed early upon payment of a penalty, R. Allen Stanford had ordered a two-month moratorium on CD redemptions,” investigators said.
Who’s Minding The Store?
In another line that sounded as though it could come from an autosurf Ponzi complaint, the SEC said that a cattle rancher and car salesman — along with a person with no prior experience in financial services or securities — were key members of SIB’s braintrust.
“SIB is operated by a close circle of Stanford’s family and friends,” the SEC said. “SIB’s investment committee, responsible for the management of the bank’s multibillion dollar portfolio of assets, is comprised of Stanford; Stanford’s father who resides in Mexia, Texas; another Mexia resident with business experience in cattle ranching and car sales; Pendergest-Holt, who prior to joining SFG had no financial services or securities industry experience; and Davis, who was Stanford’s college roommate.”
Stanford abuses were not limited to SIB, the SEC said.
“[Investigators] also allege an additional scheme relating to $1.2 billion in sales by SGC advisers of a proprietary mutual fund wrap program, called Stanford Allocation Strategy (SAS), by using materially false historical performance data,” the SEC said.
‘[T]he false data helped SGC grow the SAS program from less than $10 million in 2004 to more than $1 billion, generating fees for SGC (and ultimately Stanford) of approximately $25 million in 2007 and 2008,” the SEC said. “The fraudulent SAS performance was used to recruit registered investment advisers with significant books of business, who were then heavily incentivized to reallocate their clients’ assets to SIB’s CD program.”