Tuesday, February 17, 2009

Sir. R. Allen Stanford Charged with $8B Financial Fraud

Federal regulators are charging R. Allen Stanford and three of his companies with a "massive" fraud that centered around high-interest-rate CDs.

The Securities and Exchange Commission's complaint, filed in federal court in Dallas, alleges that Stanford International Bank sold about $8 billion of so-called certificates of deposit to investors by promising "improbable and unsubstantiated high interest rates."

The rates allegedly allowed the bank to achieve double-digit returns on its investments for the past 15 years. U.S. District Judge Reed O'Connor entered a temporary restraining order and froze Stanford's assets.

The SEC's outgoing enforcement chief Linda Chatman Thomsen says Stanford and his family and friends "perpetrated a massive fraud based on false promises and fabricated historical return data to prey on investors."

Earlier, on February 13, Herald Tribune wrote:

R. Allen Stanford's company oversees a bank that has paid more than twice the national average on certificates of deposit.

For years, R. Allen Stanford, a flamboyant Texas billionaire, richly rewarded the wealthy clients of his private investment empire.

But now the U.S. federal authorities are investigating whether those rewards were simply too good to be true.

Several federal agencies, including the U.S. Securities and Exchange Commission, the FBI and the Internal Revenue Service, have spent "many months" looking into the business activities of the Stanford Financial Group, which is based in Houston, and Stanford's Antigua-based bank, which issues high-yielding certificates of deposit, according to two individuals briefed on the investigations who were not authorized to speak publicly.

The focus of the investigations appears to be how the bank could issue certificates of deposit that pay interest rates that are more than twice the national average.

A spokesman for Stanford Financial said it had been told by the Securities and Exchange Commission and the Financial Industry Regulatory Authority, a securities industry oversight group, that "their visits to our offices were part of a routine examination."

The spokesman said those visits had occurred in January.

Embarrassed by their delayed response to multiple opportunities to uncover the $50 billion fraud that Bernard Madoff is suspected of having orchestrated, regulators are turning up the heat on money-management companies that appear to be performing significantly better than their peers.

This is not the first time Stanford's business operations have provoked attention.

Stanford Financial, a diversified financial company that offers a broad array of services, including investment banking and research, holds about $8 billion in deposits at its bank and has about $50 billion in assets in its wealth management affiliate, its spokesman said.

But a wrongful-termination lawsuit filed in a state court in Texas last summer suggests that the asset sizes may have been inflated. The two former brokers for Stanford Financial who filed the lawsuit said they had left the company as a result of fears that they could be implicated in various "unethical and illegal business practices" they claim to have witnessed.

In their lawsuit, they assert that Stanford Financial overstated individuals' asset value to mislead potential investors, failed to file mandatory forms disclosing its clients' offshore accounts and purged electronic data from its computers in response to an investigation by the Securities and Exchange Commission. A lawyer representing the two men did not return a call.

Stanford Financial, which has filed a countersuit against the two men seeking repayment of certain loans, denied the accusations.

"These allegations were made by disgruntled employees and are totally without merit," the company said. "Our company follows industry standards in generating marketing and sales plans, we are rigorously managed and fully compliant with all U.S. regulations."

A colorful and controversial figure, R. Allen Stanford has claimed ties to Leland Stanford, the former governor of California who started Stanford University. The university, however, has said there is no genealogical relationship between the two.

Stanford and his company have also emerged in recent years as major contributors to various lawmakers, appearing to have focused particularly on legislators considering bills that would tighten offshore banking rules.

And a decade ago, Stanford told The Associated Press that he had flown a Roman Catholic priest displaying signs of "stigmata," or bleeding wounds on his wrists and ankles, from the Caribbean island of Antigua to New York on his jet.

Stanford, who was said by his company to be unavailable for comment, ranked 205th last year on Forbes magazine's annual list of the richest people in the United States, with an estimated net worth of $2.2 billion.

On Antigua and Barbuda, he is akin to royalty, having been knighted by a prime minister and referring to himself as "Sir Allen Stanford" on the company's Web site.

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