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Billionaire R. Allen Stanford accused of $8-billion investment scam

The SEC charges Stanford and two other principals of his investment and banking empire in a complaint alleging massive fraud.

February 18, 2009|Carol J. Williams

R. Allen Stanford, the Texas billionaire charged Tuesday with perpetrating an $8-billion investment fraud, cast himself as offshore investment guru to the transatlantic jet set and benefactor to the Caribbean islands' poor through multimillion-dollar promotions of their beloved sport of cricket.

The Securities and Exchange Commission charged Stanford and two other principals of his investment and banking empire in a complaint alleging massive fraud just two months after the investment operation of former Nasdaq Chairman Bernard Madoff collapsed.

A federal judge froze the assets of Stanford and three of his financial services companies and appointed a receiver to marshal what funds could be located.

"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 enforcement division. "We are moving quickly and decisively in this enforcement action to stop this fraudulent conduct and preserve assets for investors."

The SEC called Stanford's promises of high-interest returns on his bank's certificates "improbable and unsubstantiated." The 25-page complaint filed in federal court in Dallas cast doubt on Stanford's claims of a "unique investment strategy" that allowed the bank to achieve double-digit returns on its investments over the last 15 years.

Also charged were James Davis, Stanford International Bank Ltd.'s chief financial officer, and Laura Pendergest-Holt, Stanford Financial Group's chief investment officer. The SEC said the trio had engaged in "a fraud of shocking magnitude that has spread its tentacles throughout the world."

Stanford and Davis, former Baylor University roommates, refused to cooperate with investigators, the SEC complaint said.

It wasn't immediately clear how much of the Stanford empire would be subject to the SEC action. Federal investigators raided his Houston offices and shut them down, but much of the financial services group is based abroad, primarily on the tiny Caribbean island of Antigua, part of the two-island country of Antigua & Barbuda.

Stanford Group is regulated and audited by the Financial Services Regulatory Commission of Antigua & Barbuda. Commission Chairman Leroy King told Reuters news service Tuesday that he hadn't initiated any special probe of Stanford's operations because the commission hadn't received any complaints from island citizens.

"We have no credible information coming to us to say that they are not sound," King said.

However, news agencies later reported a run on the Bank of Antigua, a Stanford entity that was not named in the SEC complaint.

Stanford's whereabouts were unknown. He has homes in Texas, Antigua & Barbuda and the U.S. Virgin Islands. A duty officer for the U.S. Marshals Service declined to say whether a warrant had been issued for Stanford's arrest or whether the billionaire had been taken into custody.

Stanford Financial Group has offices in 14 U.S. cities in addition to its operations in the Caribbean.

Neither Brian Bertsch, a spokesman for Stanford Group, nor Rose Romero, the SEC's Fort Worth regional director, responded to The Times' inquiries about what authority the U.S. financial watchdog might wield over Stanford's foreign-based assets.

As with other offshore investment havens such as the Cayman Islands and Bermuda, U.S. regulation is probably limited to the taxable revenues of U.S. citizens or corporations.

Lawyers familiar with international investment law pointed out that U.S. regulators lack the authority to seize assets abroad without the foreign country's assistance.

"The ability of the United States to go after someone in a foreign country, or to go after someone's assets in a foreign country -- it varies but it's generally difficult," said Bob Klueger, a wealth management attorney in Los Angeles. He added that the reason investors often go to foreign countries is the absence of formal treaties obliging local governments to cooperate in putting crooked offshore entities out of business.

Stanford, 58, acquired Antigua & Barbuda citizenship a decade ago and was bestowed the title of knight commander by the British Commonwealth nation in 2006, allowing him to become known of late as "Sir Allen."

In December, Stanford Group initiated a monthly newsletter to investors to calm their concerns over world markets and the failure of Madoff's alleged $50-billion Ponzi scheme.

"We want our depositors to know that SIBL had no direct or indirect exposure to any of Madoff's investments," Stanford's 30,000 clients were told. "Just as the bank had no direct or indirect exposure to the securitized debt or subprime meltdown."

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