SEC alleges billion-dollar fraud in high-yield ‘CD’ sales
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The Securities and Exchange Commission today accused Houston money manager R. Allen Stanford of operating a ‘massive’ fraud involving sales of uninsured certificates of deposit.
With the stock market continuing to meltdown, the allegations are yet another blow to investor confidence: Many of Stanford’s clients must have figured they were playing it safe in what the SEC now labels ‘so-called’ CDs.
‘Stanford and the close circle of family and friends with whom he runs his businesses perpetrated a massive fraud based on false promises and fabricated historical return data to prey on investors,’ said Linda Chatman Thomsen, the SEC’s enforcement chief.
The SEC’s civil complaint alleges that Stanford, via his network of financial advisers at Stanford Group Co., has over the years sold approximately $8 billion of ‘so-called certificates of deposit’ to investors by ‘promising improbable and unsubstantiated high interest rates.’ The CDs were issued by Antigua-based Stanford International Bank.
The SEC said Stanford misrepresented to CD purchasers ‘that their deposits are safe, falsely claiming that the bank reinvests client funds primarily in ‘liquid’ financial instruments [the portfolio]; monitors the portfolio through a team of 20-plus analysts; and is subject to yearly audits by Antiguan regulators.’ In fact, the proceeds were largely invested in illiquid investments including private-equity deals and real estate, the SEC said.
What’s more, ‘Recently, as the market absorbed the news of Bernard Madoff‘s massive Ponzi scheme, Stanford attempted to calm its own investors by falsely claiming the bank has no ‘direct or indirect’ exposure to the Madoff scheme,’ the SEC said.
From Bloomberg News:
The SEC has asked former employees about the bank’s stated returns on investment, between 10.3% and 15.1% every year from 1995 until last year, according to documents and annual reports on the bank’s Web site. SIB says it has $7.2 billion in assets and 30,000 clients, according to the SEC. Investigators from the Financial Industry Regulatory Authority visited six Stanford Group offices in January, downloaded information from computer hard drives and looked through files, people familiar with the events said. The people declined to be identified because they didn’t want to put their current jobs at risk. ‘Regulatory officers have conveyed to us these visits are part of their routine examinations,’ Allen Stanford said in a Feb. 11 letter to clients and an e-mail message to the company’s employees obtained by Bloomberg. Stanford said in a Feb. 12 e-mail to his employees that he’d ‘fight with every breath to continue to uphold our good name’ in the face of the investigations.
-- Tom Petruno