SEC Charges Stanford, Others with Fraud

Feb 2009 // Houston Chronicle

By KRISTEN HAYS and TOM FOWLER Copyright 2009 Houston Chronicle
February 17, 2009

The Securities and Exchange Commission today filed civil charges against Texas billionaire Robert Allen Stanford, his offshore bank, two of his Houston-based companies and two other officers, alleging that they have orchestrated a multibillion-dollar investment fraud scheme on certificates of deposit.

U.S. District Judge Reed O’Connor issued an order freezing the defendants’ assets and appointed a receiver to marshal them.

“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, in a statement.

“We are moving quickly and decisively in this enforcement action to stop this fraudulent conduct and preserve assets for investors,” she said.

Company spokesman Brian Bertsch said that all media inquiries should be directed to the SEC until further notice. He declined to elaborate or answer any other questions about the defendants or the status of the company.

The SEC complaint, filed in federal court in Dallas, names Stanford himself, Stanford International Bank in the Caribbean island nation of Antigua and Barbuda, Houston-based broker-dealer and investment adviser Stanford Group Company, and investment adviser Stanford Capital Management.

It also names James Davis, chief financial officer for the bank and Stanford’s roommate at Baylor University in the 1970s, as well as Laura Pendergest-Holt, chief investment officer for Stanford Financial Group.

The SEC had been looking into Stanford for many months, even before two former employees filed suit for wrongful termination last year, said Steve Korotash, Associate Regional Director of Enforcement in the SEC’s Fort Worth office.

“But we ran into a lot of impediments, particularly given the foreign jurisdictions,” he said in an interview.

Investigators just recently were able to see certain holdings of the bank that helped them develop the allegations in the complaint, Korotash said.

“The whole thing was a masterfully done masquerade,” Korotash said.

Alfredo Perez, spokesman for the U.S. Marshal’s office in Houston, said marshals went to the Stanford offices around 10 a.m. this morning. He said they were not removing anything from the building, but were there to make sure no one disturbs computers or documents.

The company has buildings on opposites sides of Westheimer just outside the West Loop.

By late this morning doors were locked and the lobby was filled with people including uniformed officials.

A sign posted on the doors read: “We are temporarily closed; the company is still in operation but under the management of a receiver. For updated information please visit our Web site at”
The site was not immediately active.

Investor Brett Zagone visited the office today, she said, after she couldn’t get her investment adviser on the phone.

She said she first invested with the company about a year and a half ago. Asked to assess her concern about the lastest development, she said, “On a scale of one to 10? A million, infinity.”

Zagone said most of her money – she declined to say how much – was in CDs, but she also had some other investments with the company. She added to her Stanford account in October when she transferred all the money from her late mother’s estate, and she also took money out of the nosediving stock market last year and placed it with Stanford.

She went to the firm’s door seeking to speak with someone and was told somebody would come down. No one did.

Zagone said she was drawn to the company because her brother once worked there.

“Everyone we ever talked to had nothing but good things to say about them,” said Zagone, who added that she was trying to remain optimistic.

The judge’s restraining order issued today freezes assets at the bank, the U.S. businesses and those of the three individuals, including their passports. It also prohibits destruction of documents.

The order said there was “good cause” to believe the defendants improperly obtained investor funds and assets and they would dissipate them. It also said there is good cause to believe Stanford, Davis and Pendergest-Holt may flee the U.S. to avoid responsibility for alleged fraud.

Stanford lives in St. Croix, U.S. Virgin Islands. The SEC complaint said Davis lives in Baldwyn, Miss. and works in Tupelo, Miss. and Memphis. The complaint didn’t identify a residence city for Pendergast-Holt, but said she supervises analysts in Memphis, Tupelo and St. Croix.

As the appointed receiver, Dallas attorney Ralph Danvey has sole control over the businesses, books, records, client lists, financial and accounting documents and computers. He also is the boss, with control to keep, hire and fire employees as well as contractors, officers and directors.

Houston lawyer Tom Ajamie, who specializes in financial cases, said investors likely have to wait to get their money now that Stanford’s funds are in the receiver’s control. The wait could be long because an offshore bank is involved, he said.

“It’s going to be a lot harder now,” he said. “I’d guess no one will see any money for two years.”
Besides the SEC, the FBI and the Internal Revenue Service have been investigating the Stanford operations, a source with knowledge of the matter told the Chronicle last week. Also investigating are the Financial Industry Regulatory Authority and the Florida Office of Financial Regulation.

Another investor who visited the closed offices today, real estate agent Kelly DeHay, said he had no reservations about his investments with Stanford until last week, when he read about the investigations.

DeHay said his most recent investment was an 8.25 percent CD. He said he visited his adviser when he learned of the investigations Friday, and was told he could withdraw interest, but his principal was locked in.

“He looked like a deer in the headlights,” DeHay said.

The SEC complaint alleges that acting through a network of Stanford Group Company financial advisers, the bank has sold about $8 billion of certificates of deposit to investors by promising “improbable and unsubstantiated” high interest rates, the agency said in a statement.

The bank claims that its high rates of return are earned through its unique investment strategy, which provided double-digit returns over the last 15 years.

The complaint alleges further that the defendants misrepresented to CD purchases that their deposits are safe and falsely claim that:

* The bank re-invests client funds primarily in “liquid” assets;

* The portfolio is monitored through a team of 20-plus analysts;

* The portfolio is subject to annual audits by Antiguan regulators.

The complaint also alleges that the bank is operated by a close circle of Stanford’s family and friends.

The firm is a privately held network of financial services companies led by Stanford, the chairman and chief executive. The company’s Web site described its private wealth management, institutional investment banking and emerging growth companies as its core businesses, but it also offers merchant and commercial banking, institutional sales and trading, real estate investment and insurance.

The company claims to have more than $50 billion in assets under management or advisement. It has more than 50 offices in North America, Latin America, the Caribbean and Europe.

Brad Hem and Mary Flood contributed to this story.

View the original article written in the Houston Chronicle.