Financier Charged With $9.2 Bbillion Fraud

Financier charged with $9.2 billion fraud
SEC alleges Robert Allen Stanford orchestrated a scheme centered on an $8 billion CD program.
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By Julianne Pepitone, CNNMoney.com contributing writer
Last Updated: February 17, 2009: 2:37 PM ET


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NEW YORK (CNNMoney.com) -- The Securities and Exchange Commission said Tuesday that it has charged financier R. Allen Stanford and three of his companies with orchestrating an $8 billion investment fraud.

The SEC's complaint alleges that the fraud centered on a CD program in which Stanford International Bank promised "improbable and unsubstantiated high interest rates."

SIB, based in Antigua, allegedly acted through a network of Stanford Group Company financial advisers to sell approximately $8 billion of "certificates of deposit" to investors.

The bank boasted a unique investment strategy that it said allowed it to receive double-digit returns on its investments for the past 15 years, the SEC said.

"We are alleging a fraud of shocking magnitude that has spread its tentacles throughout the world," Rose Romero, director of the SEC's Fort Worth regional office, said in the statement.

The SEC also charged SIB chief financial officer James Davis and Laura Pendergest-Holt, chief investment officer of Stanford Financial Group. The third company named in the complaint is investment adviser Stanford Capital Management.

According to the release, U.S. District Judge Reed O'Connor issued a temporary restraining order, and froze the defendants' assets.

Early Tuesday, CNBC reported federal marshals were seen entering the offices of Stanford Financial Group in Houston. Reuters reported an eyewitness saw a sign taped to the window stating the company is now "under the management of a receiver."

SEC alleges false financial claims
According to the SEC's complaint, filed in federal court in Dallas, the defendants told CD purchasers that their deposits were safe, falsely claiming that the bank re-invests client funds primarily in the portfolio; monitors the portfolio through a team of more than 20 analysts; and is subject to yearly audits by Antiguan regulators.

Amid the news of Bernard Madoff's massive Ponzi scheme, SIB falsely claimed the bank has no "direct or indirect" exposure to the Madoff scheme, the statement said.

Stanford's inner circle
According to the SEC's complaint, a close circle of Stanford's family and friends operates SIB.

Its investment committee, responsible for managing the bank's multi-billion dollar portfolio of assets, includes Stanford; Stanford's father, who lives in Mexia, Tex.; another Mexia resident with business experience in cattle ranching and car sales; Pendergest-Holt, who had no financial or securities experience prior to joining SFG; and Davis, Stanford's college roommate.

SIB's Web site claims its network has $51 billion in deposits and assets under management or advisement, with more than 70,000 clients in 140 countries.

$20 million cricket match
In September, Forbes named Stanford No. 205 in its 400 Richest Americans article. He's used some of his billions to spark interest in cricket.

In 2006, he founded the Stanford 20/20 Tournament, a single-elimination knockout cricket competition held in Antigua featuring 20 teams from several Caribbean territories competing for $1 million.

Stanford topped that in 2008 with the "Stanford Super Series," in which four teams competed for $20 million - the largest team prize for a single sporting match, according to the series Web site.

An additional scheme
The SEC's complaint alleged an additional scheme relating to $1.2 billion in sales. SGC advisers are accused of using materially false historical performance data to create a mutual fund program called Stanford Allocation Strategy, the release said.

According to the complaint, the false data helped grow the program from less than $10 million in 2004 to more than $1 billion, generating SGC - and ultimately, Stanford - about $25 million in 2007 and 2008.

That fraudulent performance helped recruit registered investment advisers, who were then given heavy incentives to move their clients' assets to SIB's CD program, the release said.

Stanford Financial Group could not immediately be reached for comment.

First Published: February 17, 2009: 1:49 PM ET

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