US Authorities Face Questions Over Their Investigation of Allen Stanford

Feb 2009 // Guardian UK

By Andrew Clarke
February 19, 2009

The US authorities are facing questions over why they took so long to act against Allen Stanford’s business empire amid accusations that a “massive fraud” at his Antigua-registered banking group dates back to the mid-1990s.

As the billionaire financier and cricket entrepreneur remained missing today, an investigation broadened around the world into his allegedly corrupt Stanford International group.

The Venezuelan government seized a Stanford-linked bank following a run on deposits and in Britain, the Serious Fraud Office said it was monitoring a link to an auditing firm with offices in London. Customers lined up outside branches of Stanford-controlled banks the Caribbean island of Antigua to withdraw their savings.

Lawyers representing investors who put money into Stanford International accused the US Securities and Exchange Authority of failing to act on a succession of “red flags” arousing anxiety as far back as 1995.

In London, international fraud expert Jeffrey Robinson said suspicions over Sir Allen dated back 15 years and were on “everybody’s radar” for the last decade.

“I know, personally, because I have discussed it with them, a number of law enforcement agencies in the United States, plus a number of prosecutors who have been looking at Mr Stanford for the past 15 years,” Robinson, a journalist and author, told the BBC’s Today programme.

Law enforcement authorities have accused Stanford of selling $8bn of purportedly ultra-safe certificates of deposit to US investors by advertising phony returns as high as 10% annually and making false promises about the way the money was invested.

America’s ABC News network, citing US federal authorities, said the FBI was investigating whether Stanford was involved in laundering money for a Mexican drugs cartel. Quoting unnamed officials, it said Mexican authorities had found cheques from a drugs gang in a detained private jet owned by Stanford.

“It’s very frustrating for investors who got in late that the SEC and other regulators have been investigating for years and haven’t done anything,” said Ross Intelisano, a New York securities lawyer. “It’s frustrating that they took so long to shut him down.”

An SEC complaint against Stanford mentions that as long ago as 1995 and 1996, Stanford International reported identical annual returns of 15.71% – a statistical phenomenon so unlikely that the agency views it as “impossible”.

More recently, in 2006, a former Stanford employee, Laurence De Maria, filed a lawsuit in Florida claiming that the bank was operating a giant “Ponzi scheme” by taking investors’ money under false pretences to finance an unprofitable offshore brokerage operation.

Stanford paid a $20,000 fine in 2007 for having insufficient capital to act as a broker dealer, followed by a $10,000 penalty the same year for misleading investors about its certificates of deposit. Last year, it was fined $30,000 by the US Financial Industry Regulatory Authority (Finra) for failing to disclose how it was valuing securities.

Regulators complain that Stanford consistently refused to co-operate with questions over the whereabouts of clients’ money. Thomas Ajamie, a Texas lawyer representing Stanford clients, said: “If the regulators are not being let in, that’s not a red flag – it’s a bright red explosion in front of you.”

He said there was weariness in Houston at the spectre of another major financial scandal: “This is the same state where the Enron scandal occurred over many years.”

The whereabouts of the billionaire tycoon remains a mystery. Stanford’s 81-year-old father, James Stanford, said he last spoke to his son last week but didn’t know his current whereabouts.

“He said something, stuff that had been rumoured, but nothing like this,” he told the Houston Chronicle.

Asked whether he was in Antigua, Stanford’s father said: “I don’t know where he is … I certainly would love to talk to him.”

Since federal marshals entered Stanford International’s Houston head office on Tuesday, ripples have been spreading around the world. The Serious Fraud Office said it was “monitoring” reports that Stanford’s Antiguan auditor, CAS Hewlett, recently moved its operations to London.

In Latin America, Panamanian regulators occupied branches of a Stanford bank hit by a run on deposits, while Colombia and Ecuador halted the operations of local brokerages.

In Caracas, president Hugo Chavez’s regime seized control of Stanford Bank Venezuela after customers withdrew $26.5m, amounting to 12% of deposits, in a bank run. Venezuelan finance minister Ali Rodriquez said: “We have taken the decision to take over.”

A former president of Switzerland, Adolf Ogi, stepped down from Stanford Financial Group’s advisory board. Sportsmen including the golfer Vijay Singh faced dilemmas over whether to continue wearing Stanford-sponsored clothing.

A Dallas judge has frozen Stanford’s assets and business activities. Rose Romero, regional director of the SEC’s office in Fort Worth, Texas, described the scandal as a “fraud of shocking magnitude that has spread its tentacles throughout the world”.

View the original article written in the Guardian UK.