Texas Financial Firm Charged With "Massive" $8B Fraud

SEC charges Texas financier with 'massive' fraud

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    NEWSLETTERS

    TK
    Sir R. Allen Stanford and three of his companies were charged with a "massive fraud" that centered around high-interest-rate CDs.

    NEW YORK -- Federal regulators on Tuesday charged Texas financier R. Allen Stanford and three of his firms with a "massive" fraud that centered around high-interest-rate certificates of deposit, and raided some of the companies' offices.

    In a complaint filed in federal court in Dallas, the Securities and Exchange Commission alleged Stanford orchestrated a fraudulent investment scheme centered on an $8 billion CD program that promised "improbable and unsubstantiated high interest rates."

    Stanford's assets, along with those of the three companies, were frozen. Stanford's firms include Antigua-based Stanford International Bank, broker-dealer Stanford Group Co. and investment adviser Stanford Capital Management, which are both based in Houston.

    The bank's chief financial officer, James Davis, and Stanford Financial Group's chief investment officer, Laura Pendergest-Holt, were also charged in the complaint.

    U.S. District Court Judge Reed O'Connor has appointed a receiver to handle the frozen assets.

    The charges come amid an investigation that has lasted more than three months and included the SEC, the Financial Industry Regulatory Authority, the U.S. brokerage industry's self-policing body, and the Florida Office of Financial Regulation. Investigators visited the Florida offices of Stanford Group last month.

    Stanford Group did not immediately return calls seeking comment.

    Alfredo Perez, a spokesman for the U.S. Marshal's Service in Houston, confirmed that agents raided Stanford's office in Houston Tuesday morning, but he did not have any other immediate comment.

    The SEC alleged Stanford and his businesses misrepresented the safety of the deposits, claiming the bank reinvested client funds in liquid financial instruments to help return profits on investments sharply higher than average rates of similar products.

    "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," Linda Chatman Thomsen, director of the SEC's division of enforcement, said in a statement.

    The SEC also accuses Stanford of running a second scheme tied to sales of a mutual fund product, which allegedly used false historical performance data to grow the program from less than $10 million in 2004 to more than $1 billion. The alleged fraud helped generate $25 million in fees for Stanford Group in 2007 and 2008, according to the SEC.

    Stanford, 58, is one of the most prominent businessmen in the Caribbean, with investment advisers around the world helping him grow a personal fortune estimated at $2.2 billion by Forbes magazine.

    His Stanford International Bank Ltd. said deposits surged from $624 million in 1999 to $8.4 billion in December. The bank is based in the twin-island Caribbean nation of Antigua and Barbuda, which has carved out a niche as a tax haven and offshore base for Internet gambling.

    Stanford has deep roots in Texas, where he graduated from Baylor University, and still speaks with a slight twang. But he travels in different circles now — knighted in 2006 by the islands' government, Stanford is known there as "Sir Allen." And last year he shook up the staid world of professional cricket by bankrolling the purse in a $20 million winner-take-all match in Antigua between England and a West Indies select team.

    The England and Wales Cricket Board said it has suspended negotiations for a new sponsorship deal amid the allegations.