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US charges Allen Stanford with 'massive' fraud

February 18, 2009 09:07 IST

Texas billionaire Allen Stanford and three of his companies were charged with "massive" fraud on Tuesday as federal agents swooped down on his US headquarters.

In a civil complaint filed in federal court in Dallas, the US Securities and Exchange Commission accused Stanford, who sponsored international cricket matches, and two other executives of fraudulently selling $8 billion in high-yield certificates of deposit in a scheme that stretched around the world from Texas and Antigua.

"We are alleging a fraud of shocking magnitude that has spread its tentacles throughout the world," said Rose Romero, regional director of the SEC's office in Fort Worth, Texas.

On Tuesday, Romero's contact information was in the Media Contacts section on the Stanford Group website.

The SEC complaint named Stanford International Bank, based in Antigua with 30,000 clients in 131 countries and $8.5 billion in assets, as well as broker-dealer and investment adviser units based in Houston, with 30 US offices. In all, the company claims to oversee $50 billion in assets.

Stanford's assets have been frozen and a federal judge has appointed a receiver "to take possession and control of defendants' assets for the protection of defendants' victims."

Early Tuesday, about 15 federal agents, some wearing jackets identifying them as US marshals, entered the lobby of company headquarters in the Houston Galleria area, a Reuters eyewitness said.

The company remained open for business but was "under the management of a receiver," according to a sign taped to the door. Spokesman Brian Bertsch referred press inquiries to the SEC.

Stanford, a 58-year-old Texan running the firm that his grandfather founded, has denied any wrongdoing. His location remained a mystery after the SEC said on Tuesday he had failed to respond to subpoenas seeking testimony and did not produce "a single document."

James Davis, a Stanford aide, and O.Y. Goswick, a board member of Stanford International Bank (SIB), had also been subpoenaed but failed to appear, the SEC said.

SOUGHT EMBRACE OF WASHINGTON, SPORTS

Stanford's real estate holdings and celebrity associations have drawn comparisons with Wall Street investment manager Bernard Madoff, who has been charged in an alleged $50 billion fraud.

Stanford opened a Washington lobbying office about two years ago after buying the Washington Research Group, a policy study unit of Charles Schwab & Co, in 2005.

The company's spending on lobbying rose sharply in 2008 to $2.8 million on its own and through the lobbying firm Ben Barnes Group, according to records accessed through the Center for Responsive Politics, which tracks campaign contributions and lobbying.

Stanford's political action committee and employees have given more than $2.4 million to parties and candidates for federal office since 1989.

Stanford also has endorsement relationships with golfer Vijay Singh and soccer star Michael Owen, as well as involvement in polo.

The company's website highlighted its sponsorship of the 2009 Sony Ericsson Open in Key Biscayne, Florida, in March.

On Tuesday, the England and West Indies cricket boards suspended sponsorship talks with the Stanford group.

Stanford came to prominence in the cricket world after his private Twenty20 competition in the Caribbean, and the $20 million (14 million pound) game in November between England and his own team of West Indian players.

ECB chairman Giles Clarke said his organization may utilize get-out clauses in its deal with Stanford, and he suggested that the proposed quadrangular Twenty20 series in England in May was now unlikely to happen.

Last year, Forbes Magazine estimated Stanford's personal fortune at $2.2 billion.

According to the SEC complaint, SIB sold $8 billion in CDs "by promising high return rates that exceed those available through true certificates of deposits offered by traditional banks."

Antiguans expressed shock on Tuesday, and their prime minister said it could be "catastrophic" for the West Indian island nation.

Many feared the US charges would revive Antigua's image as one of the Caribbean's most corrupt nations, which local policymakers took pains to shake off in the 1990s.

There were no signs of imminent criminal charges against Stanford, and a Justice Department spokesman would not confirm or deny the existence of a criminal investigation.

But Peter Henning, a professor at Wayne State University Law School in Michigan and a former federal prosecutor, said US prosecutors have likely filed a sealed criminal indictment against Stanford to be unveiled at a later time.

"The amount of money involved indicates that there will be criminal interest in this, as well as the number of potential victims involved," Henning said.

'BETRAYED'

Investors like Kelly Dehay, a realtor, showed up at the office in Houston on Tuesday to ask about their funds, only to be turned away at the door.

Dehay said his Stanford broker sold him a CD held by SIB, promising returns above 8 percent. "I started planning for my retirement a long time ago," Dehay said. "I feel very betrayed."

The developments come as investors, politicians and regulators focus on the returns promised and provided by investment firms, after the alleged Madoff scheme.

Stanford's investment companies were exposed to losses from the alleged Madoff scheme but falsely reassured investors otherwise, the SEC charged.

The SEC outlined the Madoff link in its charges against Stanford, and said his firm had sought to remove nearly $200 million from its accounts in recent weeks.

The SEC also alleged that Stanford falsely told at least one customer earlier this month that he could not withdraw a multimillion-dollar certificate of deposit because the SEC had frozen the account.

"Recently, as the market absorbed the news of Bernard Madoff's massive Ponzi scheme, SIB has attempted to calm its own investors by claiming the bank has no 'direct or indirect' exposure to Madoff's scheme," the SEC said. "These assurances are false."

SERIES OF ALLEGATIONS

The SEC also alleged that:

-- SIB reported identical returns of 15.71 percent in 1995 and 1996, which the SEC called "improbable" and suspicious.

-- Ninety percent of SIB's claimed investment portfolio was in a "black box" shielded from any independent oversight, and only Allen Stanford and aide James Davis, also charged, knew details of the bulk of the portfolio.

-- Stanford failed to cooperate with the SEC probe and continued to mislead investors by falsely saying the SEC had frozen accounts or the company had ordered a moratorium on CD redemptions.

-- A major, unidentified clearing firm stopped processing wires to SIB for purchase of SIB-issued CDs after the clearing firm was unable to obtain information about the company's financial condition.

-- Stanford used false information to promote a mutual fund program separate from the CDs. The program grew to more than $1.2 billion from less than $10 million in 2004.

James Dunlap, an Atlanta lawyer representing about a dozen investors who bought CDs from Stanford Financial Group, said he planned to sue the firm as early as Tuesday and would likely allege the company had breached its contract.

Several investors have told lawyers they assumed the CDs they bought were safe short-term instruments that were insured, two lawyers said. But when an investor working with Dunlap tried to get $250,000 out of a CD that came due last week, she was told she would have to wait.

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