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.


We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see

And, with no supervision by regulators as official executive branch, federal reserve, and congressional policy, this is a big surprise. Remember such dandy ideas as the Commodity Futures Modernization Act of 2000, Sec. 408(c). Stanford was the John Galt model for Texas capitalism, bless him. HeeHaw!!

Posted by E L | Report as abusive

How loud does the whistle have to be before someone hears it?
Our government spends more time and money worrying about swine flu than investigating this kind of corruption. When does Uncle Sam make this right? How about the politicians donate their matching campaign funds to reimbursement of the victims they failed to protect? I still want to know what agency had enough clout to call off the investigation. Keep after them.

Posted by John | Report as abusive

A class action against the SEC citing dereliction of duty? Is that in the realms of the possible for those caught up by that scumbag post 2003?

Posted by otto | Report as abusive

To be fair, how many letters like that does the SEC receive that turn out to be false? If it becomes policy that one anonymous letter triggers a full investigation, I predict they will start getting tons of them regarding any company that has competitors.

Posted by Tom | Report as abusive

The point is, Tom, that a glance at Stanford’s reported financials would have shown that all the allegations checked out in full. Most crank letters are pretty obvious, while this letter was full of substance — with attachments and everything.

Posted by Felix Salmon | Report as abusive

Insider’s letter to the SEC is powerful and well written but the information in it could be gleaned from just a 5 minute look at Stanford International Bank’s annual reports. The incompetence over the years shown by the SEC and the Antiguan regulators is staggering, with OR without the benefit of hindsight. They must be held to account.

Posted by Mark | Report as abusive

I’d like to know if someone at the SEC was bribed to “lose” that letter so that even an initial investigation would be prevented.

Posted by glf | Report as abusive

A class action against the SEC!!!

Posted by Robert | Report as abusive

I agree with a class action against the SEC!!!

Posted by Robert | Report as abusive

Dear Felix – thanks for sticking with this story. I read another article where the SEC used the ‘lack of jurisdiction’ defence for this case. If you look at the attached weblink, you will see a press release about a regulatory agreement between the Texas banking authority and Antigua concerning international banks dated 2001.
You can see the press release at: s/2001/07-27-01.htm

Please read it and keep going with the story. The smell gets worse.

Posted by Sarah | Report as abusive

All financial advisors who peddle any type of CD’s, securities or financial advise should, by law, be required to post a bond. The companies that they represent should have a background check posted on a website so that people can see what the companies are about and their financial worth.
No more pie in the sky scams. You would not buy a used car without a test ride. Bottom line is DO NOT trust your financial advisor.

Posted by Charles Landrem | Report as abusive

Does anyone know where we to get the rest of the 237 pages?

Posted by CG | Report as abusive

Dear CG – if you’re referring to the agreement, you can participate in more discussion in the forum of the Stanford Victim’s Coalition. If you are a victim of this situation and are not yet a member, please go to website. It’s free to join the coalition of US and international investors. Otherwise, you can request a copy of the agreement from the Texas Banking Authority.

Posted by Sarah | Report as abusive

As A Stanford Victim I would love to see The SEC taken to court and GIVE US OUR MONEY BACK! 32 years of hard work-gone in one night.UNACCEPTABLE. Good Ole’ USA! Work hard and broke-don’t work and get PAID!

Posted by murphy m buell | Report as abusive

My wife and I are victims of the Stanford situation. First of all, thank you for caring enough to publish your article in support of the victims. We have saved all our lives to one day be able to retire. Based on Stanford projects, this was to be the year. We purchased land and started construction on our retirement home in late 2008. We are now 40% complete on the house and have had to stop construction due to the Stanfors issue. We are now faced with an outstanding construction loan of approximately $300,000 and no way top pay it. WE are trying to sell the it but the realtors is saying it’s going to be extremely difficult to sell a 40% complete house in today’s market. The bank is telling us we need to payoff the loan. Our assets are all frozen (International bank as well as brokerage accounts here in the states)by the SEC. We are facing the possibility of losing everything if we are not able to get funds relesaed.
We heard that the SEC had sufficient information to take receivership in 2006 and possibly earlier but they were told to step down by the FBI. Meanwhile the SEC alloweed Stanford to continue selling the CD’s a\nd the investors”frailing in the wind”, losing thousands of dollars just so ther FBI could investigate Stanford on some money laundering scheme. “THAT IS NOT RIGHT AND SOMETHING NEEDS TO BE DONE ABOUT THIS”.

Posted by Byron Ratliff | Report as abusive

See previous comments. I got cut off before I was able to complete my comments.
We have heard that there may have been some politicians who had knowledge of the Stanford situation but turned the other way and allowed it to continue. If this is true, it needs to be brought to the attention of the American people and these politicians brought to justice.
It seems that the SEC and FBI have liability in this matter due to their “non-response”. To my knowledged, they still have not officially brought charges against and proven anything against Allen Stanford.

Posted by Byron Ratliff | Report as abusive

Dear Sir,

I am writing to you concerning the ongoing situation with Allen Stanford and the collapse of Stanford International Bank.

I am one of the depositors with Sib that has lost everything I worked hard to scrimp and save over a period of more than 40 years. Because of the freezing of Stanford’s companies I am now left penniless and reduced to having to beg from friends and neighbours.

I have just watched a trailer from a documentary on BBC Panorama, this is the link for you to watch it. m

After watching this I was shocked and horrified to realise that the DEA, and therefore the Bush administration and the United States Government knew about Allen Stanford and had serious reasons to believe that he was acting illegally as far back as 1990. The US chose to do nothing about his behaviour and illegal activities because they wanted to use him to help them find information about Drug Barons and money laundering. In fact the DEA encouraged him to continue to operate, knowing he was perpetrating a crime. The SEC, who were investigating him were called off and Allen Stanford was allowed – with the blessing of the DEA and the US government – to continue to defraud thousands of honest, hardworking, law abiding citizens of not just the USA, but the UK, Antigua and hundreds of other countries.

In law, if a person or party has knowledge of a crime that is being committed and that party stands by and allows the crime to take place and does nothing about it, then they are also guilty of perpetrating that crime. Your government now stands accused of being a willing and knowing participant in the crime carried out by Allen Stanford against the thousands of depositors, who like me have lost everything.

I feel that it is no coincidence that the “protection” being offered to Allen Stanford was taken away so soon after the Bush administration was removed from office and President Obama took over in the White House. Mr Obama strikes me as a genuine, honest, caring man and I would like to believe that if he did have any knowledge of what was happening with Stanford, he decide that he would not be party to such a web of deceit. The SEC was therefore given the go ahead to move in and close Stanford down. If this is correct, it happened too late for thousands of depositors and lives have been ruined.

The DEA, and your Government have been complicit in this crime and as such, your Government now need to step up to the plate, take responsibility for their lack of judgement and make sure that very single depositor that has lost money with Allen Stanford is repaid in full. This is the very least that can be expected from the USA and President Obama. This scandal will not go away until you have done that, and it will leave a stain on the Presidency of Mr Obama. If he does accept that his Country has an obligation to act and recompense the depositors he will continue to be seen as an honest, genuine, caring President. If he chooses to turn his back on me and the other depositors, he will be seen as no better than Allen Stanford.

I would like to ask if the present government thinks the sacrifice of all the thousands of depositors was worth it to catch a few drug lords and acquire bits of information about money laundering? The depositors seem to be viewed as collateral damage and sacrificial lambs, which were given no consideration by your government. The eyes of the world are on President Obama and how he behaves during his new term in office. I trust he will realise how wronged we the depositors have been and takes the necessary steps to right this wrong.

Yours sincerely,

Catherine Burnell
(Depositor at Stanford International Bank, and Patsy to the DEA and the US Government)