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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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February 17, 2009 12:17 PM ET
In one of the biggest civil fraud cases ever brought, Texas financier R. Allen Stanford was accused by regulators today of masterminding an $8 billion offshore fraud and misleading investors about their exposure to Bernard Madoff’s scheme. The case is likely to raise new questions about cracks in the U.S. regulatory structure. The Securities and Exchange Commission has been investigating the case since 2007. The alleged fraud has echoes of Mr. Madoff’s alleged scheme. Like Mr. Madoff’s fund, Mr. Stanford’s bank is run by a close circle of his family and friends, and its auditor is a small local accounting firm (this one on Antigua). Mr. Stanford ran the investment portfolio with Stanford International Bank CFO James M. Davis, his college roommate, as a “black box” shielded from independent oversight, the SEC alleged. Some of the returns were identical in consecutive years. Antiguan regulators did not audit the bank’s assets, contrary to the firm’s claims, the SEC alleged. And the firm’s accountant, C.A.S. Hewlett & Co., didn’t answer the telephone when called several times by the SEC, the complaint alleged. Also similar to the Madoff case, the Stanford Group Co. investment advisers did not register with the SEC for many years, precluding potential inspection by regulators, according to the complaint. “We are alleging a fraud of shocking magnitude that has spread its tentacles throughout the world,” said Rose Romero, regional director of the SEC’s office in Forth Worth, Texas. The SEC has been investigating since 2007 and took as long as it did to bring today’s case because it ran into problems trying to obtain Mr. Stanford’s off-shore documents and admissible evidence, Ms. Romero said in an interview. Key witnesses started coming forward only at the end of last year, she said. “When we do our investigations, we search for admissible evidence—not innuendo, gossip or speculation—under rules of evidence and law that we have to adhere to, and that takes some time,” Ms. Romero said. Both Mr. Stanford and Mr. Davis refused to appear and give testimony to investigators, the complaint said. The SEC alleged Mr. Stanford’s Houston-based advisory firm and its Antigua-based Stanford International Bank sold self-styled certificates of deposit that reported inflated double-digit returns. The firms also told CD purchasers that their deposits were in liquid financial instruments when in fact much of the bank’s portfolio was invested in private equity and real estate, the SEC contended. Also, Stanford Group Co. advisers in Texas have sold $1.2 billion of a mutual-fund wrap program by using false historical performance data, the complaint alleged. The case is “one of the biggest alleged frauds” ever brought by the SEC, commission spokesman John Heine said. In addition, the bank told depositors in December that it had no exposure to the Madoff scheme. But the Commission said that at least $400,000 was invested in Meridian, a New York-based hedge fund that used Tremont Partners as its asset manager. Tremont, in turn, invested between six and eight% of the Stanford bank’s assets with Mr. Madoff’s firm, the SEC alleged. A Dec. 17 letter from the Stanford bank to depositors said, “In light of the continuing press reports regarding the hedge fund manager Bernard L. Madoff, we would like to inform you Stanford International Bank did not have any exposure to the Madoff Fund.” The letter is posted on the bank’s Web site. Stanford International Bank purports to be a bank though it makes no loans. Instead, it operates more like a hedge fund or investment fund, Ms. Romero said. The bank has said it has more than 30,000 investors, and the advisory group manages over $51 billion in assets. Most of the bank’s investors are in Latin America—including Venezuela, Colombia, Ecuador and Mexico—the United States, Canada and the United Kingdom, Ms. Romero said. U.S. District Judge Reed O’Connor yesterday entered a temporary restraining order, froze the defendants’ assets and appointed a receiver. The receiver, Dallas lawyer Ralph Janvey, and SEC officials were escorted by U.S. marshals into the firm’s Houston’s offices today to take over the enterprise, Ms. Romero said. In the last two weeks, Stanford International bank has attempted to remove over $178 million from its accounts, the complaint alleged. Efforts by Financial Week to reach Stanford International Bank spokesman Brian Bertsch were unsuccessful. “We intend to fully comply with anything issued,” Mr. Bertsch has said. Richard Razook and Carlos Loumiet, with the law firm of Hunton & Williams in Miami, were unavailable for immediate comment. Mr. Stanford is not in federal custody, Ms. Romero said.
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