Stanford Bank Cuts Financing As FBI Moves In

Stanford’s Bank Cuts Financing as U.S. Probes Related Broker
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By Alison Fitzgerald

Feb. 16 (Bloomberg) -- R. Allen Stanford’s offshore lender, Stanford International Bank Ltd., hasn’t been able to complete the financing of two transactions involving U.S. companies in which it owns shares, according to regulatory filings.

The Antigua-based bank, whose affiliated brokerage firm in Houston is under investigation by U.S. securities regulators, according to people familiar with the matter, was released from its obligation to lend Elandia International Inc. $28 million, a filing dated Feb. 6 said.

SIB agreed to cancel 16.14 million common shares that it owned in the telecommunications company. They were worth $18.6 million on Feb. 4, the last day they were traded on the Nasdaq Stock Market before the announcement.

“Since entering into the Credit Agreement, we have performed our obligations and we have not been in default,” Elandia said in a form 8-K filed with the Securities and Exchange Commission. Calls to Elandia’s Coral Gables, Florida headquarters and to the contact listed on its press release went unanswered yesterday.

Brian Bertsch, a spokesman for Stanford, declined to comment yesterday.

Stanford agreed to accept 1.78 million convertible preferred shares in exchange for canceling a $12 million loan it had already made to the company, the filing said.

Last week, SIB failed to provide funding for Health System Solutions Inc. to buy Emageon Inc., a medical-technology company.

The bank is the principal shareholder of Tampa, Florida- based Health Systems Solutions, which sells medical software. Birmingham, Alabama-based Emageon on Feb. 13 received $9 million that the lender put in escrow in case the agreement fell through, according to a press release.

SEC Investigation

Stanford Group Co., an affiliate of the bank, is under investigation by the SEC and Financial Industry Regulatory Authority, according to people familiar with the matter who declined to be identified because they didn’t want to put their jobs at risk.

Stanford’s operations are also being probed by the FBI, the Wall Street Journal reported, without citing anyone.

Securities regulators are examining Stanford Group’s sales of certificates of deposit issued by SIB and the consistent, above-average returns those investments paid, the people said.

‘Disgruntled Employees’

“We are all aware that former disgruntled employees have gone to the regulators questioning our work and our processes,” Stanford, 58, said last week in an e-mail to staff members that was obtained by Bloomberg News. “This could have compounded an otherwise routine examination.”

Investigators from Finra visited six Stanford Group offices last month, downloaded information from computer hard drives and looked through files, the people said.

“Regulatory officers have conveyed to us these visits are part of their routine examinations,” Stanford said in his e-mail message. He repeated that assertion in a letter to clients dated Feb. 11 and obtained by Bloomberg. least two former Stanford employees.

The U.S. investigation of Stanford’s securities firm intensified after the arrest in December arrest in New York of Bernard L. Madoff, who allegedly confessed to running a $50 billion Ponzi scheme in which early investors were paid with money from later participants.

The SEC has stepped up probes after being accused of failing to heed criticiscm that Madoff’s investment returns were too good to be true. The agency has since announced unrelated lawsuits against at least seven money managers for allegedly inflating profits or siphoning off client money.

4.5 Percent

Stanford International Bank describes its CDs, which paid 4.5 percent interest on a $100,000, one-year investment as traditional bank deposits, according to a disclosure statement. The bank doesn’t lend the proceeds and instead invests in a mix of equities, metals, currencies and derivatives, according to its Web site and disclosure documents for the certificates provided to Bloomberg by a former Stanford Group adviser.

A one-year, $100,000 CD issued by the bank paid a 4.5 percent annual yield as of Nov. 28, according a posting on the lender’s Web site yesterday. A one-year, $10,000 CD purchased at JPMorgan Chase & Co. would earn 1.75 percent, according to its consumer banking Web site.

In 2006, SIB reported that 57.4 percent of its portfolio was in equities, 21.9 percent in Treasuries and corporate bonds, 13 percent in metals and 7 percent in alternatives, according to a disclosure statement related to the CD offering. The rest was in cash, mostly U.S. dollars.

Gold Trader

The bank owns stakes in publicly traded U.S. companies including Dallas-based DGSE Inc., a gold and silver-trading firm in Dallas, and Springfield, Tennessee-based golf-equipment marketer Forefront Holdings Inc., according to regulatory filings.

DSGE is also a jewelry wholesaler whose businesses include the Dallas Gold and Silver Exchange and an online precious-metals business. Stanford International Bank held 6.7 million, or 30 percent of the shares, as of June 27. The shares fell 74 percent in the last year.

SIB held 750,000 shares, or 31 percent of Forefront Holdings when the company filed with the SEC on August 12 to deregister its common stock. The company, which lost $3.3 million in the first quarter of 2008, announced in August the opening of a distribution center in Baldwyn, Mississippi, the hometown of James Davis, Stanford Group’s chief financial officer, and Chief Investment Officer Laura Pendergest.

On Dec. 15, Forefront said it was opening an 11,500 square- foot corporate headquarters in Brentwood, Tennessee.

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To contact the reporter on this story: Alison Fitzgerald in Washington at afitzgerald2@bloomberg.net

Last Updated: February 16, 2009 00:01 EST