Stanford should have been shut down in 2003

By Felix Salmon
May 6, 2009

The Stanford International Bank Ponzi scheme could and should have been shut down as early as 2003: regulators had more than enough information to do so. Fox Business Network has the story, after receiving 237 pages of SEC documents related to Stanford dating back as far as 2002. This one, I think, is the real smoking gun. It’s worth reading in full — it’s not long — but here are a few snippets:

This letter discloses another possible case of Corporate Fraud being perpetuated by the Stanford Financial Group and its owner, banking and real estate mogul Mr. Allen Stanford.

Stanford Financial is the subject of a lingering corporate fraud scandal perpetuated as a massive Ponzi scheme that will destroy the life savings of many, damage the reputation of all associated parties, ridicule securities and banking authorities, and shame the United States of America…

With the mask of a regulated US corporation and by association with Wall Street giant Bear Stearns, investors are led to believe these CDs are absolutely safe investments. Notwithstanding this promise, investor proceeds are being directed into speculative investments like stocks, options, futures, currencies, real estate and unsecured loans…

The questionable activities of the bank have been covered up by an apparent clean operation of a US broker-dealer affiliate… Registered representatives of the firm, as well as many unregistered representatives that office within the B-D [broker-dealer], are unreasonably pressured into selling the CDs. Solicitation of these high risk offshore securities occurs from the United States and investors are misled about the true nature of the securities.

The offshore bank has never been audited by a large reputable accounting firm, and Stanford has never shown verifiable portfolio appraisals…

By the size of the portfolio, this would be one of the largest Ponzi schemes ever discovered.

This letter is being written by an insider who does not wish to remain silent, but also fears for his own personal safety and that of his family.

It’s all pretty unambiguous stuff, and it was received by the SEC in September 2003 — more than five years before Alex Dalmady published his own, similar, analysis. What’s more, the letter was copied to the Wall Street Journal, the Miami Herald, and the Washington Post; none of them seem to have done anything with it.

If Stanford had been shut down in 2003, billions of dollars would have been saved. But no one seemed to care — certainly not enough to do anything about it. Which is quite disgraceful.

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