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R. Allen Stanford Missing After Being Charged with $8 Billion Fraud

Feb 19, 2009 | Parker Waichman LLP

Texas billionaire R. Allen Stanford has gone missing after being accused of defrauding investors out of as much as $8 billion.  According to the Securities and Exchange Commission (SEC), Stanford's alleged fraud extended from Texas to the Caribbean and has ensnared investors from around the world.

Stanford was the founder of Stanford Financial Group, a  company purported to have assets under management in excess of $50 billion, and investment adviser Stanford Capital Management. On Tuesday, federal regulators raided the Stanford's offices in Houston, Memphis, and Tupelo, Mississippi and froze his companies' assets.  According to the SEC, the firms sold certificates of deposit issued through the Stanford International Bank in Antigua that supposedly yielded returns as high as 15 percent - substantially higher than  the going rate offered by mainstream banks.

Despite Tuesday's raids, the SEC apparently has no idea where Stanford is.  Stanford's father, 81-year-old James Stanford, said in an interview with the Houston Chronicle that he last spoke with his son last week and doesn’t know where he is. Although he is identified as “chairman emeritus” of the bank, the elder Stanford said he has little connection to the business.  Several media reports have said Stanford had attempted to leave the US. by private jet from Houston to Antigua, but the plane leasing company refused his credit card.

Where ever he might be, news of Stanford's fraud is causing chaos around the world.  According to the British newspaper, The Guardian, the prime minister of Antigua warned of "catastrophe" for his nation because of the Stanford fraud.  Depositors in Antigua, as well as other Caribbean and Latin American countries rushed to withdraw funds in Stanford bank branches, and authorities in Colombia, Panama, Peru and Venezuela began their own investigations into the Texas billionaire's financial dealings.

The SEC has filed a civil suit against Stanford and his companies, but he has not been named in any criminal charges. In addition to naming Stanford and his three companies, the SEC enforcement action also named Stanford International Bank chief financial officer James Davis and Laura Pendergest-Holt, chief investment officer of Stanford Financial Group. The SEC alleges that acting through a network of Stanford Group Company financial advisers, Stanford International Bank sold approximately $8 billion of the so-called "certificates of deposit" to investors by promising improbable and unsubstantiated high interest rates. These rates were supposedly earned through the bank's unique investment strategy, which purportedly allowed the bank to achieve double-digit returns on its investments for the past 15 years.

The SEC complaint alleges that Stanford and the other defendants claimed the investment portfolio was monitored by a team of 20-plus analysts; and was subject to yearly audits by Antiguan regulators. In reality, the portfolio was monitored by only by Stanford and Davis. The Antiguan auditor does not audit the bank’s portfolio or verify its assets.

"As we allege in our complaint, 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. "We are moving quickly and decisively in this enforcement action to stop this fraudulent conduct and preserve assets for investors."

Stanford, who lives in St. Croix, U.S. Virgin Islands, is apparently a colorful character.  According to The New York Times, he was knighted by the Antiguan Prime Minister, and often went by the moniker "Sir Allen".


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