Stanford Financial Group has “Liquidity Crisis,” Official Says; Not Worth Billions as Previously Thought

Flamboyant Texas billionaire Allen Stanford boasted to potential investors and others that his Stanford Financial Group empire was worth billions, but officials now investigating the massive case of investment fraud against the company are finding otherwise.

The lawyer appointed to oversee operation of Stanford’s holdings during a Securities and Exchange Commission investigation into alleged wrongdoing has told a federal judge that the company is in fact in dire financial straits.

Ralph Janvey, the Dallas attorney appointed as receiver of Stanford’s holdings, told U.S. District Judge David Godbey “there is a liquidity crisis in this company.” Apparently, Stanford has millions of dollars in unpaid bills. In his first comments since taking over amid the financial investigation in February 2009, Janvey said he does not expect to find billions of dollars of assets in Stanford Financial.

The value of Stanford’s investment and banking holdings had previously been estimated at about $51 billion. The fact that Stanford’s holdings are not worth as much as had been reported means that it is likely that millions, rather than billions, of dollars in stolen investor funds will likely be recovered, according to Janvey.

SEC Charges Filed

Stanford and two of his top employees have been charged in a civil SEC complaint with orchestrating an $8 billion investment fraud involving the sale of certificates of deposit in Stanford International Bank, which promised unrealistically high rates of return. Thousands of Stanford clients, including some prominent professional athletes, lost billions of dollars in the investments, according to investigators.

Stanford has not been arrested and no criminal charges have been filed against him. However, Chief Financial Officer Laura Pendergest-Holt has been arrested and charged with interfering with the federal investigation into the alleged financial fraud. Pendergest-Holt later posted $300,000 bond and was released from custody pending trial on the charges.

Another Stanford employee, Chief Financial Officer James Davis, has refused to cooperate in the federal investigation, officials said.

Relief From Seized Accounts May Come Soon

In a rare bit of good news for some Stanford investors who had their bank and investment accounts frozen as investigators probed the fraud allegations, Janvey said some accounts may be released by March 16, 2009. Janvey hopes to unfreeze some accounts valued under $100,000 and held by Stanford’s clearing firms unfrozen on that date, but said larger accounts and those held by Stanford employees and directors would still be frozen.

Also, thousands of Stanford Financial employees who missed a paycheck during the investigation should get paid soon, he said.

Among the high-profile clients who had investments and other accounts linked to Stanford frozen during the investigation were New York Yankees Johnny Damon and Xavier Nady. The players said some of their accounts were frozen, leaving them unable to complete real estate transactions or even pick up a dinner tab despite being paid millions each season.

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