Stanford: a little help from his friends

June 19, 2009

stanford3You can officially called R. Allen Stanford the alleged criminal mastermind of a giant multi-year Ponzi scheme.

Stanford’s name, of course, is all over the 21-count indictment. But the big shocker in the investigation into the $7 billion fraud involving those bogus certificates of deposit is an allegation that a top regulator in Antigua–where Stanford’s offshore bank was based–was on the take.

OK. Maybe that’s not such a shocker, given the fact that the former prime minister of Antigua basically gave Stanford a blank check to do whatever he wanted on the tiny island nation–including a chance to help write the country’s banking laws.

But in filing criminal charges against Leroy King, the former administrator and chief executive officer for the Antigua financial services regulatory commission, US prosecutors have a shed a lot more light on the years of deception that was at the core of Stanford’s sprawling financial empire. Prosecutors are charging King took bribes in excess of $100,000 from Stanford to help conceal the allegedly fraudulent activites at Stanford’s bank from the Securities and Exchange Commission.

Like Stanford, King is both a US citizen and a citizen of the double island nation of Antigua and Barbuda. Stanford was knighted by the former ruling party in Antigua.

Stanford also got some friendly help after the Securities and Exchange Commission filed civil fraud charges and effectively shutdown his high-pressured CD machine in February. Prosecutors seperately charged Bruce Perraud, a Stanford security specialist, with allegedly ordering the shredding of documents at a Stanford Financial Group office in Ft. Lauderdale.

 The shredding party took place on Feb. 23, six days after the SEC stepped in and the a court-appointed receiver ordered all of the company’s 4,000 employees to preserve documents.

It always seems these fraud cases involve some evidence of shredding, don’t they?

Oh and one other thing—we have to stop calling it an $8 billion fraud. The magic number in the 57-page indictment is $7 billion.

The upshot of the criminal case, which also includes charges against two Stanford bank accountants, is that nothing was real with Stanford’s financial empire. The money taken in from investors who bought CDs never went where it was supposed to. Most of it either went into Stanford’s pockets to feed his lavish lifestyle. Other investor money went to finance Stanford deals that were then widely inflated.

For the estimated 30,000 investors who purchased Stanford CDs–about 5,000 of whom live in the US–the indictment today may give them some solace. But it is not going to get them their money back.

The Stanford affair is a harsh lesson about the danger of investing money in tiny offshore locations with questionable regulatory track records. Then again, I guess someone could say many US financial firms could fit that description too.

Update: Here’s a statement from Stanford’s readily quotable defense lawyer Dick DeGuerin, who says his client “will continue to fight these allegations.”

14 comments

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It is telling that all these crooks like Bernie Madoff or Allen Stanford were caught/ gave themselves up when the Obama administration replaced the GOP hands-off policy with a more professional approach as documented in the May 20, 2009 Fraud Enforcement and Recovery Act. For those who lost their life savings I hope that there won’t be a Ken Lay like event that prevents the forfeiture of Stanford’s apparently ill-gotten gains.

Posted by hanswall | Report as abusive

Madoff’s scam is more than eight times Standford’s, affecting many more American citizens. Does this mean that China – now bankrolling America – should take this harsh lesson about the danger of investing money in developed countries with ideal regulatory track records?

Furthermore, why does action against Stanford and “his help” seem to be much swifter than that against Madoff and his help?

Posted by Danni | Report as abusive

hanswall,

Excuse me if I laugh hysterically at your proposition that Bernie Madoff gave himself up in December simply because he realized that Barack Obama was being sworn in as President in less than 6 weeks and he knew it was all over. Likewise it is laughable to believe that the SEC was unable to piece together the Stanford matter until Barack Obama was sworn in.

The problems with enforcing the nation’s securities laws are not rooted in partisan political affiliations. The SEC has been dysfunctional for decades. You may feel that the problem of financial fraud has been brought to an end by the inauguration of Obama. Personally, I would rather look at ways of reforming the SEC, FINRA and the rest of the regulatory structure.

Posted by Big Al | Report as abusive

Danni,

Good question about China… They also bankroll developing countries too – at a cost. Must use their contractors and labor in civil works projects, but the Transparency Institute says that is the most corrupt system known in the world. Endorsed by the government, how can it be wrong, aye?

investors must learn to invest their money carefully. as a general rule, never allow third parties to determine where to place your money. investment advisors are sales people, nothing more , nothing less. whether investing with madoff or stanford, the old adage still stands- let the buyer beware. if the going rate is less than 5 and someone offers you over 10 shouldn’t you be worried?

Posted by kenray | Report as abusive

Greed, plain and simple. These guys can’t devour enough. They have to have more and more and more…

The Feds and members of Congress had questions and complaints about Stanford as far back as 2003.

Posted by Justapoint | Report as abusive

…”if the going rate is less than 5 and someone offers you over 10 shouldn’t you be worried?”

Only if I swallow the shillaker’s pitch – then revert to the Common Sense of the Prudent Man and the Due Diligence thereof – AFTER having fallen for the scam and thus forked over all my money.

Otherwise, the entire BushCo Gang of Fraudulent Finance Operators can just go whistle Dixie and fly many pretty pie-shaped kites all day long, while pounding the sand beneath their (slightly scuffed) Florsheim Imperials into their next meal.

Next!

Frankspeak….You are correct its simply Greed! But I must say greed by investors as well.3% from our local banks is no longer acceptable.

Posted by Kim | Report as abusive

I think these guys got caught for the simple reason that a ponzi scheme requires a constant influx of new investment in order to pay older investors. What was happening in Wall Street and in the overall economy caused people to hold onto their money and invest less and this lower investment activity caused these ponzi schemes to unravel.

Posted by Pollywog | Report as abusive

Who can you trust? Banks wonder, investors wonder, ordinary people wonder. It is good to use caution. Stay away from so-called freebies and the higher paying so-called CDs…they are designed to attract the greedy.

Posted by Ken | Report as abusive

Just curious….why is it ok for the US Gov’t to run their own Ponzi schems, ie Social Security and Medicare but prosecute citizens for following their example.

Posted by Ruby | Report as abusive

Will people EVER GET THE CORRECT AMOUNT OF INTEREST THAT ALLEN STANFORD OFFERED CD HOLDERS? IT HAS BEEN INACCURATLEY REPORTED IN THIS FIASCO FROM THE GET GO. The amount was NOT 10% but only aroung 6% to possibly 8. If you look at the facts people who invested in the cds were lied to and told that these cds had multiple insurance and backed by us regulators and laws. Since the state of texas had an agreement with antigua it was also misleading to investors that bought in the us that the sib bank was in essence a us bank and therefore under all the us regulatory laws. People who invested their money in the sib bank were totally lied to and submitted to outright fraud and were preyed upon by unscrupulous greedy liars. The investors are honest people who did not want to take risks and were sold a bill of hogwash that played to thier need to purchase a safe investment vehicle like a certificate of depostit. EVERY THING THEY WERE TOLD WAS AN OUTRIGHT LIE AND THE SEC WAS INVESTIGATING RAS AS FAR BACK AS 1999 and told NO ONE of his dirty laundry. They could have at least told investors that he was under investigation but chose not to. If the sec had shared what they knew all those years instead of hiding it from honest investors thousands of people would NEVER HAVE INVESTED WITH RAS. Again it was NOT BECAUSE WE WERE GREEDY AND STUPID WE DID OUR DUE DILIGENCE AND WE ONLY RECIEVED A FRACTION MORE INTEREST THAT ANY OTHER BANK.

Posted by lynnette | Report as abusive

The lure of offshore investment havens will only diminish temporarily. So long as humans continue to seek the next greater advantage, they will risk putting money somewhere exotic for greater returns, decreased taxation, and bragging rights.