The Stanford Breaking Financial Scandal : A New Ponzi Scheme ?
Mr. R. Allen Stanford
Just when the financial world is trying to come to grips with the unravelling Madoff financial scandal and Ponzi scheme, another major financial scandal is breaking ! This time also from The US in the form of Texas billionaire R. Allen Stanford whose Stanford Financial Group is now under close scrutiny by the SEC and they have now Mr Stanford and two other persons with major financial fraud to the amount of 8 billion US$.
Hoping to halt what it called “a fraud of shocking magnitude that has spread its tentacles throughout the world,” the Securities and Exchange Commissioncharged billionaire R. Allen Stanford and other executives at his massive financial services company, Stanford Financial Group, with operating a multibillion-dollar fraudulent investment scheme.
In a complaint filed early Tuesday in U.S. District Court in Dallas, the SEC alleged Antigua-based Stanford International Bank (SIB) fabricated investment returns in order to market and sell high-yielding certificates of deposits.
Certainly the method Mr Stanford and his partners went about their scheme has strong resemblances with Mr Madoff’s as the Forbes article highlights :
The complaint charged SIB with selling approximately $8 billion of CDs to investors by promising improbable and unsubstantiated interest rates.
The bank falsely claimed it was able to pay high interest rates because of its unique investment strategy, which allowed it to achieve double-digit returns on its investments for the past 15 years, according to the complaint.
Earlier Tuesday federal agents raided Stanford Financial Group’s offices in Houston. A sign hanging outside the office reads: “Now under management of a receiver.”
The SEC says it has frozen Stanford’s assets. He had no comment.
LA Times also looks into Mr. Stanford’s “”unique investment strategy”" :
“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 enforcement division. “We are moving quickly and decisively in this enforcement action to stop this fraudulent conduct and preserve assets for investors.”
The SEC called Stanford’s promises of high-interest returns on his bank’s certificates “improbable and unsubstantiated.” The 25-page complaint filed in federal court in Dallas cast doubt on Stanford’s claims of a “unique investment strategy” that allowed the bank to achieve double-digit returns on its investments over the last 15 years.
The US investigation will most likely be complicated by the fact that Mr Stanford’s entity is domiciled in Antigua but that will not deter the SEC from pursuing the case according to LA Times :
It wasn’t immediately clear how much of the Stanford empire would be subject to the SEC action. Federal investigators raided his Houston offices and shut them down, but much of the financial services group is based abroad, primarily on the tiny Caribbean island of Antigua, part of the two-island country of Antigua & Barbuda.
Stanford Group is regulated and audited by the Financial Services Regulatory Commission of Antigua & Barbuda. Commission Chairman Leroy King told Reuters news service Tuesday that he hadn’t initiated any special probe of Stanford’s operations because the commission hadn’t received any complaints from island citizens.
“We have no credible information coming to us to say that they are not sound,” King said.
However, news agencies later reported a run on the Bank of Antigua, a Stanford entity that was not named in the SEC complaint.
Stanford’s whereabouts were unknown. He has homes in Texas, Antigua & Barbuda and the U.S. Virgin Islands. A duty officer for the U.S. Marshals Service declined to say whether a warrant had been issued for Stanford’s arrest or whether the billionaire had been taken into custody.
Stanford Financial Group has offices in 14 U.S. cities in addition to its operations in the Caribbean.
Neither Brian Bertsch, a spokesman for Stanford Group, nor Rose Romero, the SEC’s Fort Worth regional director, responded to The Times’ inquiries about what authority the U.S. financial watchdog might wield over Stanford’s foreign-based assets.
Ironically, Stanford Group issued a calming letter to its investors in December 2008 amidst the height of the Madoff scandal according to LA Times :
In December, Stanford Group initiated a monthly newsletter to investors to calm their concerns over world markets and the failure of Madoff’s alleged $50-billion Ponzi scheme.
“We want our depositors to know that SIBL had no direct or indirect exposure to any of Madoff’s investments,” Stanford’s 30,000 clients were told. “Just as the bank had no direct or indirect exposure to the securitized debt or subprime meltdown.”
Where this breaking scandal ends no one knows but the timing could not have been worse for the US and its struggling financial markets and scene with investor confidence already at an all-time low. This blog will monitor this case even though this one is a mere US$ 8 billion !
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