SEC Charges Stanford Investment Companies for $8 Billion+ Fraud

The Securities and Exchange Commission has filed civil charges against financial adviser and Texas billionaire R. Allen Stanford and other executives with three of his companies for allegedly conducting an investment fraud scheme of “shocking magnitude.”

Stanford is the chief of Stanford International Bank, a broker-dealer and investment adviser firm called Stanford Group Company, and another investment advising firm, called Stanford Capital Management. All three firms are under investigation for alleged fraudulent conduct, federal prosecutors said.

It is estimated that Stanford International Bank alone has more than 30,000 clients in 131 countries with $8.5 billion in assets. Stanford’s entire Houston-based investment group is valued at about $50 billion, officials said. The SEC said a temporary restraining order is in place, freezing the financial assets of Mr. Stanford and his three companies in hopes of returning the money to defrauded investors.

As part of the investigation, the Houston offices of Stanford Financial Group were raided on February 17, 2009 by at least 15 federal agents with the U.S. Marshals Service, according to news reports.

The SEC claims that Stanford, along with a close circle of associates, friends, and family, carried out a “massive” fraud built on fraudulent data and false promises to investors. It is estimated that Stanford and his companies defrauded investors of more than $8 billion.

Stanford is accused of violating the anti-fraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Advisers Act, and registration provisions of the Investment Company Act, prosecutors said.

Certificates of Deposit at Center of Investigation

The charges against Stanford and his holdings are centered on offerings of billions of dollars in “certificates of deposit,” which promised investors unlikely and unsubstantiated high interest rates. The companies allegedly promised that investors had earned double-digit returns on investments in the past 15 years, but those claims were unfounded, investigators said.

Stanford and his cohorts also stand accused of misrepresenting to CD purchasers that the bank re-invests client funds primarily in “liquid” financial instruments, monitors the portfolio through a team of 20-plus analysts, and is subject to yearly audits by Antiguan regulators, which is not true.

Stanford and Company Lied to Investors

As the financial markets tumbled and other financial advisers were arrested and charged with allegedly fraudulent conduct, Stanford and his group repeatedly reassured nervous investors that their money was safe and that they were not affected by the other financial scandals.

Specifically, when New York City financial adviser Bernard Madoff was arrested in December 2008 and charged with committing a $50 billion Ponzi scheme, Stanford’s investors were lied to and told their money was in no way directly or indirectly tied to those funds, according to investigators.

Separate Billion-Dollar Fraud Alleged

In addition to the $8 billion fraud involving sales of CDs, the SEC also charged Stanford in connection with a proprietary mutual fund wrap program, called Stanford Allocation Strategy. The company allegedly used falsified historical performance data to entice investors and grow the program from less than $10 million in 2004 to more than $1 billion. Fees collected on the transactions totaled approximately $25 million in 2007 and 2008, investigators said.

The fraudulent program was used to recruit registered investment advisers with significant books of business, who then funneled their clients’ assets to Stanford’s affiliated CD program, officials said.

The SEC and other agencies, including the Financial Industry Regulatory Authority, are continuing to investigate Stanford’s various financial operations.

No related posts.