Stanford & Fraud: Feds Say Houston Banker Operated $8 Billion Scam

Feb 2009 // New York Post

Last updated: 11:17 am
February 18, 2009

Wealthy Texas businessman Sir R. Allen Stanford ran a “massive, ongoing fraud,” scamming unsuspecting investors out of at least $8 billion by luring them in with unrealistically high returns on bank CDs and mutual funds, federal regulators charged.

The Securities and Exchange Commission, which filed the charges yesterday, quickly won an order to freeze assets and appoint a receiver to take control of investors’ money.

US marshals and FBI agents yesterday morning swarmed the Houston headquarters of Stanford’s company, Stanford Financial Group, sequestering employees and loading documents and computers into nearby vehicles, a witness told The Post.

The 58-year-old Stanford’s whereabouts were undisclosed yesterday. He holds citizenship in both the US and Antigua. He was the first American to be knighted by the West Indies island.

It’s the second-largest fraud to emerge since Bernard Madoff allegedly confessed to running a $50 billion Ponzi scheme in December.

“After Madoff, everything sounds small, but $8 billion is not small,” said Thomas Ajamie, a Houston securities lawyer who’s been fielding calls from worried investors.

The SEC accused Stanford of using a network of companies to perpetrate his alleged fraud, including an Antigua-based bank.

According to the SEC’s complaint, financial advisers from Stanford’s Houston-based advisory company, Stanford Group Co., sold roughly $8 billion in certificates of deposits managed by his Antigua bank Stanford International Bank Ltd.

The bank touted “a unique investment strategy” that purported to produce double-digit returns for its CDs over the past 15 years, the SEC said.

The agency also lobbed charges against the bank’s chief financial officer, James Davis – who the SEC claims is the only other person besides Stanford to be privy to certain details of the bank’s investment portfolio – and Chief Investment Officer Laura Pendergest-Holt, who is accused of aiding and abetting.

Officials began investigating Stanford last year but the probe heated up a few months ago amid reports that investors were unable to get their money out, according to a person familiar with the matter. Investigators also discovered the bank sought to remove more than $178 million from its accounts in recent weeks.

Stanford’s fraudulent conduct also extended to more than $1.2 billion of proprietary mutual funds, the SEC said.

What’s more, the SEC said $400,000 of the bank’s assets were invested in Meridian, a New York hedge fund that used Tremont Partners, which invested 6 percent to 8 percent of its assets with Madoff’s investment firm.

After the Madoff scandal broke, Stanford lied to investors, saying it had no “direct or indirect” exposure to the alleged scheme, the SEC said.

View the original article written in the New York Post.