Charged with fraud, man who bankrolled cricket

February 18, 2009

By David Usborne in New York

Depositors rush to get money out of billionaire’s Antigua-based bank
Federal regulators in the United States have charged Sir Allen Stanford and two associates with a “massive” $8.5bn (£6bn) fraud at his Antigua-based bank, sending fresh shock waves through Wall Street as well as the world of cricket where he had emerged in recent years as a generous – if controversial – sponsor.

Agents with the FBI and other federal departments raided the Houston headquarters of the Stanford Group of companies, demanding documents and interviewing employees about the alleged fraud. The bank in Antigua, the Stanford International Bank, is part of the group.

The Securities and Exchange Commission (SEC), which filed the criminal charges, began investigating the bank several months ago in response to suspicions it was paying rates of return to its clients on so-called certificates of deposit far in excess of what was considered realistic by most financial experts.

When news of the inquiry surfaced last week, some anxious depositors flew to Antigua to withdraw their money, fearful that Sir Allen might emerge as the next Bernard Madoff, the New York money manager who ran a $50bn Ponzi scheme where early investors were paid with funds from later investors.

The Texan-born Sir Allen, who lives in the US Virgin Islands, had been “orchestrating a fraudulent, multibillion dollar investment scheme”, the SEC said. As well as filing the charges, the SEC froze his assets and appointed a receiver to protect clients’ assets. The bank is listed as having $8bn in assets and 30,000 clients.

Rose Romero, a regional director for the SEC in Texas who oversaw the raids in Houston, said: “We are alleging a fraud of shocking magnitude that has spread its tentacles throughout the world.” Also charged yesterday were the Stanford Group’s chief financial officer James Davis and its chief investment officer Laura Pendergest-Holt.

The prospect of an unravelling of the Stanford empire could be deeply destabilising for Antigua. Aside from Stanford International, the Bank of Antigua is also owned by the tycoon, who is worth about $2.2bn.

Sir Allen has long been a key benefactor of West Indies cricket. Last year, however, he burst on to the international scene as the promoter behind the so-called Twenty20 for Twenty Tournament pitting a West Indian team, the Stanford Superstars, against England players. He offered $1m for each member of the winning team and a $20m prize fund in total.

While the tournament went ahead as planned it was seen by some in the sport as breaking new ground in unwelcome commercialism, if not sheer tackiness. In one of his more flamboyant moments, the billionaire landed at Lord’s cricket ground in a gold-plated helicopter trailing a clear chest stuffed with $20m in bank notes.

The England and Wales Cricket Board (ECB) said yesterday that it was suspending all further talks with Sir Allen on future tournament sponsorship. The ECB has a five-year deal to play against the Stanford Superstars. In Antigua last November, the Superstars won the inaugural tournament. The ECB chaiman, Giles Clarke, yesterday defended the original deal. “A lot of work was done to ensure we believed he could pay the prize money he was offering and that money was paid into bank accounts in advance,” he told the BBC. “None of these accusations had been levied at the time.”

The SEC complaint ran over 25 pages and alleged a string of lies told by the Antigua bank to its clients, including an assertion that it had no exposure to the Madoff debacle. The SEC says that, to the contrary, the bank had $400,000 in Madoff funds.

The complaint notes that in 1995 and 1996, the Antigua bank offered identical – and inexplicable – rates of return of 15.71 per cent on certificates of deposit, suggesting the alleged fraud had been going on for 13 years at least. It adds that Sir Allen and Mr Davis have “wholly failed to co-operate with the Commission’s efforts to account for the $8bn of investor funds purportedly held by” Stanford International Bank. The bank, the SEC says, appears to have been run almost autocratically by Sir Allen and a very close circle of family and friends. The horror for clients of Stanford International, meanwhile, is that if fraud has been committed, they may find their deposits have been vaporised. As anxious clients began to arrive in Antigua from all over the world at the weekend, they were told that only certificates of deposit that had already reached their agreed date of maturity could be cashed in in advance.

While the focus was on Stanford International, there were worries about the condition of the group as a whole, which manages $51bn in assets. Those in the financial industry who have for years competed for clients against Stanford and his fabulous rates of interest may not be surprised by the sudden turn of events. Russ Dallen, a former head of the Oppenheimer and Co’s business in Caracas, Venezuela, told The Huffington Post that Sir Allen wooed his clients away with promises of “14 per cent on savings, guaranteed”, he said. “We were just gobsmacked because guaranteeing those kinds of returns is just not possible.”

According to the bank’s website, it could offer a one-year, $100,000 CD (certificate of deposit) that would yield a 4.5 per cent annual yield as of 28 November. That contrasts with a one-year, $10,000 CD bought from JPMorgan Chase, the US high street bank, that would earn 1.75 per cent.

Texas Firm Accused of of $8 Billion Fraud

February 18, 2009
By CLIFFORD KRAUSS, PHILLIP L. ZWEIG and JULIE CRESWELL
HOUSTON — In Texas, Robert Allen Stanford was just another wealthy financier.

But in the breezy money haven of Antigua, he was lord of an influential financial fief, decorated with a knighthood, courted by government officials and basking in the spotlight of sports and charity events on which he generously showered his fortune.

On Tuesday, his reign was thrown into turmoil as a caravan of cars and trucks carrying federal authorities pulled up to the headquarters of his company, the Stanford Group, to shut down what the regulators described as a “massive ongoing fraud” stretching from the Caribbean to Texas, and around the world.

Unknown is the status of investments in as much as $8 billion in high-yielding certificates of deposit held in the firm’s bank in Antigua, which the Securities and Exchange Commission, in a civil suit, said Mr. Stanford and two colleagues fraudulently peddled to scores of investors.

Also unknown Tuesday were the whereabouts of Mr. Stanford — or Sir Allen, as he became known after the Antiguan prime minister knighted him — whose financial activities on the tiny island had raised eyebrows among American authorities as far back as a decade ago.

Like Bernard L. Madoff, who is accused of operating a $50 billion Ponzi scheme, Mr. Stanford offered investment opportunities that sounded almost too good to be true: promises of lucrative returns on relatively safe certificates of deposit that were often more than twice the going rate offered by mainstream banks.

In fact, a substantial portion of the bank’s portfolio was in very illiquid real estate and private equity investments. The portfolio was monitored by only two individuals — Mr. Stanford and James M. Davis, a director and chief financial officer of Stanford Group and the Antigua-based bank affiliate. The Antiguan auditor does not audit the bank’s portfolio or verify its assets.

While regulators are not accusing Mr. Stanford of operating a Ponzi scheme, they claim Stanford Group lulled investors into believing the C.D. purchases were safe by advertising investments in “liquid” securities that could be bought and sold easily.

Stanford Group said it could pay higher rates on the C.D.’s because of the consistently high returns it made on investor assets. And it claimed to be safe, thanks to monitoring by a team of more than 20 analysts and yearly audits of the investments by regulators in Antigua.

None of that was true, according to the S.E.C.’s complaint.

In its filing, the S.E.C. said the bank’s consistent returns — it reported identical returns of 15.71 percent in 1995 and 1996 — were “improbable, if not impossible.”

And while the size of the alleged fraud spun by Mr. Stanford and his colleagues pales in comparison to Mr. Madoff’s scheme, the revelation that Stanford Group’s returns may, in fact, have been ephemeral is likely to further erode confidence among investors who place money with investment advisers.

“I am extremely concerned. On a scale from one to 10 — infinity,” said Brett Zagone, a Houston technology saleswoman who walked up to Stanford Group’s Houston offices Tuesday to find out what had happened to the money she had invested there.

At the St. John’s branch of Stanford’s Bank of Antigua, a long line of customers waited to withdraw money as the news spread, Reuters reported.

Regulators, too, are likely to face tough questions as more is learned about Mr. Stanford’s activities. Already under fire for missing several red flags over the years in the Madoff case, regulators could face similar questions as Mr. Stanford’s offshore banking activities caught the attention of law enforcement agencies dating as far back as 1998. In its complaint, filed in Federal District Court in Dallas, the S.E.C. accused Mr. Stanford, Mr. Davis and Laura Pendergest-Holt, the chief investment officer of both organizations, with misrepresenting the safety and liquidity of the C.D.’s. The Antiguan bank and its registered broker-dealer in Houston, which sold the C.D.’s, were also named. The bank claims $8.5 billion in assets and 30,000 clients in 131 countries, and the brokerage unit operates about 30 domestic offices.

Most witnesses, including Mr. Stanford, Mr. Davis and the Antigua-based bank’s president, failed to appear to testify and did not provide any documents shedding light on the assets. Stanford Group declined to comment.

Over the years, Mr. Stanford cultivated the profile of a successful American businessman, partly by burnishing his connections with athletes. For example, the pro golfer Vijay Singh signed a deal to make the firm’s logo, the Golden Eagle, the dominant brand on his apparel and golf bag. A spokesman for Mr. Singh’s agent declined to comment.

On the tiny island of Antigua, Mr. Stanford’s presence was both large and controversial. He was viewed by many as cozying up with key politicians to win their favor. His activities there drew the eye of American law enforcement agencies in the late 1990s, when regulators were closely scrutinizing the growth of the offshore banking sector, after a couple of money-laundering scandals had hit the industry.

Around that time, Mr. Stanford had also become an adviser to Lester Bird, then Antigua’s prime minister, who formed a banking advisory board to clean up the country’s image. Mr. Stanford’s bank was the largest bank regulated by the board. The project was paid for by the Antiguan government from money lent or granted by Mr. Stanford.

“They wanted to convince us that Antigua was clean and to highlight reform efforts,” recalled Jonathan Winer, who was at the time a deputy assistant secretary of state.

In 2001, Antigua was removed from the financial watch list.

Mr. Stanford and his firm have emerged as recent contributors to various American lawmakers, focusing particularly on legislators considering bills that could change offshore banking rules. In 2008, he made $3,300 in political contributions to Representative Charles B. Rangel, a New York Democrat who has presided over legislation easing tax policies for the Virgin Islands as head of the House Ways and Means Committee.

The current S.E.C. charges stem from an inquiry opened in October 2006 after a routine exam of Stanford Group, according to Stephen J. Korotash, an associate regional director of enforcement with the agency’s Fort Worth office.

He said the S.E.C. “stood down” on its investigation at the time at the request of another federal agency, which he declined to name, but resumed the inquiry in December 2008.

Clifford Krauss reported from Houston, and Julie Creswell and Phillip L. Zweig from New York.