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Texas Money Manager R. Allen Stanford Charged In Massive Fraud Scheme

First there was Bernie Madoff, now Texas financier Robert Allen Stanford is making a name for himself by running an alleged $8 billion fraud scheme. On Feb. 17, the Securities and Exchange Commission (SEC) filed a civil lawsuit against Stanford and three of his companies on charges of orchestrating a fraudulent, multibillion-dollar investment scam that involved an $8 billion certificates-of-deposit program.

Stanford’s companies include Antiguan-based Stanford International Bank (SIB), Houston-based broker-dealer and investment adviser Stanford Group Company (SGC), and investment adviser Stanford Capital Management. The SEC also charged SIB chief financial officer James Davis, as well as Laura Pendergest-Holt, chief investment officer of Stanford Financial Group (SFG), in the enforcement action. 

According to the SEC’s complaint, Stanford lured investors with promises of big returns on certificates of deposit but instead poured money into illiquid real estate and private equity investments. The complaint also alleges Stanford used false historical performance data to add $1.2 billion in revenues to a “proprietary mutual fund wrap program” called Stanford Allocation Strategy.

On Feb. 17, federal authorities raided Stanford Financial Group’s offices in Houston. A sign outside the office now reads: “Under management of receiver.” Currently, Stanford’s whereabouts are unknown. Many believe the money manager may be hiding out in Antigua.

Stanford International Bank is operated by a small group of family and long-time friends, according to a Feb. 17 article by Forbes. The firm’s investment committee, which oversees the bank’s portfolio, is made up of Stanford; his father, James Stanford; Pendergest-Holt, who, the SEC says, had no financial services experience prior to joining Stanford Financial Group; and James Davis, Stanford’s college roommate.

In 2008, SIB promised clients 12-month certificates of deposit paying interest rates of 4.5%. That rate represented a 3.5% premium over two-year U.S. Treasury bonds (which were paying just below 1%). In June of 2005, SIB was offering CDs paying 7.45%.

According to the SEC’s complaint, SIB showed a 1.3% loss on its investments last year while the S&P 500 declined nearly 40%.

The parallels between Madoff and Stanford are uncanny. Like Madoff, Stanford’s fraud appears to have global implications, reaching from the Texas to Caribbean and around the world.  Stanford also lived a lavish lifestyle. Known as “Sir Allen” after being knighted by Antigua’s prime minister, the Texas financier owned private jets and spent millions on sport sponsorships and charities.

Also like Madoff, Stanford offered too-good-to-be-true investment opportunities. Law enforcement agencies questioned his investing strategies as far back as 1998 but, just like the Madoff case, nothing was done until it became too late.

Our securities lawyers are actively involved in advising individual and institutional investors in evaluating their legal options when confronted investment losses.

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