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Texas billionaire Allen Stanford charged over 'massive' $8 billion fraud


Latest update : 2009-02-18

The Wall Street regulatory agency, the Securities and Exchange Commission, has charged Texas millionaire Allen Stanford and three of his companies with "massive ongoing fraud" for selling $8 billion in high-yield certificates of deposit.

REUTERS - U.S. authorities charged Texas billionaire Allen Stanford and three of his companies with "massive ongoing fraud" on Tuesday as federal agents swooped in on Stanford's U.S. headquarters.


In a complaint filed in federal court in Dallas, the U.S. Securities and Exchange Commission accused the cricket-loving Stanford and two other top executives at Stanford Financial Group of fraudulently selling $8 billion in high-yield certificates of deposit.


About 15 federal agents, some wearing jackets identifying them as U.S. marshals, entered the lobby of Stanford's office in the Houston Galleria area, a Reuters eyewitness said. U.S. media descended on the scene and television helicopters hovered overhead.


Stanford Financial said it remained open for business, but was "under the management of a receiver," according to a sign taped to the door of the firm's Houston office.


According to the 25-page SEC complaint, filed in U.S. District Court in Dallas, Stanford sold $8 billion in CDs "by promising high return rates that exceed those available through true certificates of deposits offered by traditional banks."


The SEC said it was seeking to freeze the assets of the company and appoint a receiver "to take possession and control of defendants' assets for the protection of defendants' victims."


The move came as investors, politicians and regulators focus on the returns promised and provided by investment firms, following an alleged $50 billion fraud by Wall Street financier Bernard Madoff.


Stanford's investment companies were exposed to losses from the alleged Ponzi scheme run by Madoff, and falsely reassured investors otherwise, the SEC charged.


The SEC outlined the Madoff link in its charges against Stanford that also said the firm sought to remove nearly $200 million from its accounts in recent weeks.


Stanford also falsely told at least one customer earlier this month that he could not withdraw a multimillion dollar certificate of deposit because the SEC had frozen the account.


"Recently, as the market absorbed the news of Bernard Madoff's massive Ponzi scheme, SIB has attempted to calm its own investors by claiming the bank has no "direct or indirect" exposure to Madoff's scheme," the SEC said. "These assurances are false."


The agency cited several misrepresentations, adding, "Perhaps most alarming is that SIB has exposure to losses from the Madoff fraud scheme, despite the bank's public assurances to the contrary."


It gave no more details, and a Stanford spokesman did not return calls seeking comment.


Series of allegations


Other SEC allegations included:


-- SIB reported identical returns of 15.71 pct in 1995 and 1996, which the SEC called "improbable" and suspicious.


-- Ninety percent of SIB's claimed investment portfolio is in a "black box" shielded from any independent oversight, and only Stanford and aide James Davis, also charged, knew details of the bulk of the portfolio.


-- Stanford failed to cooperate with the SEC's probe and continued to mislead investors by falsely saying the SEC had frozen accounts to withdrawal or the company had ordered a moratorium on CD redemptions.


-- A major, unidentified clearing firm stopped processing wires to SIB for purchase of SIB-issued CDs after the clearing firm was unable to obtain information about the company's financial condition.


-- Stanford used also false information to promote a mutual fund wrap program separate from the CDs. The program grew to more than $1.2 billion from less than $10 million in 2004.


There was no sign of imminent federal criminal charges against Stanford.


Citing policy, U.S. Justice Department spokesman Ian McCaleb, said "We cannot confirm or deny the existence of a criminal investigation at this point."


A lawyer representing about a dozen investors who bought CDs from Stanford Financial Group said he plans to sue the financial firm as early as Tuesday, and will likely allege the company breached its contract.


"I'm drafting the complaint now and we expect to file the suit in Texas state court as early as today," said James Dunlap, who is representing several investors who tried unsuccessfully to get back their investments with Stanford in recent days.


Several investors have told lawyers that they assumed the CDs they were buying were safe short-term instruments that were insured, two lawyers said. But when an investor working with Dunlap tried to get $250,000 out of a CD that came due last week, she was told she would have to wait.


The England and West Indies cricket boards suspended sponsorship negotiations with Stanford following the fraud charges.


"The England and Wales Cricket Board (ECB) and the West Indies Cricket Board (WICB) have suspended negotiations with Sir Allen Stanford and his financial corporation concerning a new sponsorship deal," the ECB said in a statement.


Stanford came to prominence in the cricket world following his private Twenty20 competition in the Caribbean and, in particular, the $20 million game in November between England and his own team made up of West Indian players.


ECB chairman Giles Clarke said his organization was considering the possibility of utilizing get-out clauses in its agreement with Stanford.


"Clearly that is a matter we would consider," he told reporters before suggesting that the proposed quadrangular Twenty20 series in England in May was now unlikely to happen.


Stanford, who has denied any wrongdoing, also has endorsement relationships with golfer Vijay Singh and England footballer Michael Owen as well as involvement in golf and polo.


In the capital of Antigua, St. John's, there were no immediate visible signs of alarm or trouble on Tuesday at the headquarters of the Antigua-based Stanford International Bank, a grand 30,000-square-foot Georgian-style building with mirrored windows atop a small hill near the airport.


Two security guards manned the large wooden front doors and patrolled the parking lot, asking a reporter to leave the property.


Staff questioned by Reuters said they were unaware of the SEC charges.


In Memphis, Tennessee, FBI agents began removing boxes of documents from a Stanford Financial Group Inc office on Tuesday, the Commercial Appeal newspaper said on its website. Stanford's Memphis office houses the company's chief financial officer, James Davis, as well as the company's charitable foundation, the newspaper said.


At Stanford Group offices in Atlanta, security guards asked a Reuters reporter to leave the building.


Date created : 2009-02-17