In the wake of Bernard Madoff’s alleged $50 billion Ponzi scheme, the United States Securities and Exchange Commission today charged Robert Allen Stanford and three of his companies with orchestrating multi-billion dollar fraudulent investment schemes. In addition to naming Mr. Stanford personally, the SEC Complaint names as Defendants Antiguan-based Stanford International Bank, Ltd., Houston-based broker-dealer and investment advisor Stanford Group Company, investment advisor Stanford Capital Management, LLC, and two other individuals ? James M. Davis and Laura Pendergest-Holt. The action was filed in the United States District Court for the Northern District of Texas, Dallas Division. According to the SEC, the fraudulent schemes involve purported Certificates of Deposit (“CDs”) marketed by Stanford International Bank as well as a proprietary mutual fund wrap program marketed by Stanford Group Company.
“We are alleging a fraud of shocking magnitude that has spread its tentacles throughout the world,” commented Rose Romero, Regional Director of the SEC’s Fort Worth Regional Office. “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,” added Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement.
The SEC’s Complaint alleges that Stanford International Bank sold approximately $8 billion of so-called CDs to investors through a network of Stanford Group Company financial advisors. Investors were promised improbable and unsubstantiated interest rates that were supposedly earned through Stanford International Bank’s unique investment strategy, which purportedly achieved double-digit returns over the past 15 years. The Stanford Defendants further misrepresented to would-be CD investors that their deposits were safe, that their funds were re-invested primarily in “liquid” financial instruments, that the portfolio was monitored by a team of 20-plus analysts, and that it was audited annually by Antiguan regulators, said the SEC. Recently, Stanford International Bank attempted to calm its investors by falsely claiming that the bank has no “direct or indirect” exposure to the Madoff scheme, reported The Wall Street Journal today.
The SEC’s Complaint also alleges that Stanford Consulting Group perpetrated another fraud scheme relating to sales of $1.2 billion of its proprietary mutual fund wrap program, called Stanford Allocation Strategy. This fraudulent scheme involved the use of materially false historical performance data that helped grow the Stanford Allocation Strategy program from less than $10 million in 2004 to more than $1 billion in 2007. Stanford Consulting and Stanford reaped approximately $25 million in fees in 2007 and 2008, according to the Complaint.
These activities violated the anti-fraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Advisors Act, and the registration provisions of the Investment Company Act, according to the SEC.
U. S. District Judge Reed O’Conner entered a temporary restraining order, freezing the Defendants’ assets and appointing a receiver to marshal those assets for the benefit of defrauded investors.
Atlanta attorney James Dunlap of James A. Dunlap Jr & Associates LLC stated that, “My phone has been ringing off the hook since the announcement of the SEC’s action. It appears that this is another huge betrayal of investor trust. I fear that this situation has all the earmarks of a Madoff-type fraud. Predatory behavior of the type described in the SEC complaint must be dealt with harshly and swiftly.”
SGC had recently defended its practices and called visits by regulators “routine,” reported Matthew Goldstein in his article titled “Are These CD Rates Too Good To Be True?” published in the February 23, 2009 edition of BusinessWeek. Stanford’s “CDs” required a minimum investment of $50,000. Allen Stanford, 58, had emerged as prominent figure on Wall Street in recent years and had a fortune exceeding $2.2 billion as reported by Forbes, according to the article.
The SEC’s investigation is continuing, as is a possible criminal probe. Today, U. S. Marshals raided Stanford’s offices and seized materials.