CaribWorldNews, NEW YORK, NY, Weds. Feb. 18, 2009: Now that the Securities and Exchange Commission has filed formal charges against financial adviser and Texas billionaire Robert Allen Stanford, what exactly happens next?
For one thing, Stanford, a top political donor and largely celebrated by many Caribbean nationals in the region and the U.S., has to be officially arrested and charged. As of last night, Stanford’s whereabouts were not immediately known and his spokesman was not talking. He could be anywhere, as he has many homes from St. Croix, to Antigua and Miami.
The SEC, which claimed that Stanford in Bernie Madoff fashion, perpetrated an $8 billion investment fraud, for its part said it was still trying to find the Texas-born businessman late yesterday and did not know whether he had been served with court papers or not.
The SEC has so far not indicted Stanford. Also still to be arrested are Stanford International Bank’s Chief Financial Officer James Davis and Stanford Financial Group’s Chief Investment Officer Laura Pendergest-Holt, both of whom are charged in the SEC complaint filed in Dallas Court Tuesday.
None of the three have shown up so far, though the SEC lawyers have asked that they be brought up on civil penalties charges and immediately surrender their passports.
Stanford and three of his companies – the Antiguan-based Stanford International Bank (SIB), Houston-based broker-dealer and investment adviser Stanford Group Company (SGC), and investment adviser Stanford Capital Management, (SBC), are charged with orchestrating a fraudulent, multi-billion dollar investment scheme centering on an $8 billion CD program, the SEC said.
`We are alleging a fraud of shocking magnitude that has spread its tentacles throughout the world,` said Rose Romero, Regional Director of the SEC’s Fort Worth Regional Office, over four hours to Houston, where the sprawling Stanford Financial headquarters are located.
The SEC complaint alleges that acting through a network of the Stanford Group of Companies, financial advisers sold approximately $8 billion of so-called `certificates of deposit` to investors by promising improbable and unsubstantiated high interest rates. These rates were supposedly earned through SIB’s unique investment strategy, which purportedly allowed the bank to achieve double-digit returns on its investments for the past 15 years.
The SEC also claimed the three misrepresented to CD purchasers that their deposits were safe, falsely claiming that the bank re-invests 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.
And as the market absorbed the news of Madoff’s massive Ponzi scheme, the Stanford Investment Bank, based in Antigua, attempted to calm its own investors by falsely claiming the bank has no `direct or indirect` exposure to the scheme.
According to the SEC’s complaint, SIB is operated by a close circle of Stanford’s family and friends. SIB’s investment committee, responsible for the management of the bank’s multi-billion dollar portfolio of assets, is comprised of Stanford; Stanford’s father who resides in Mexia, Texas; another Mexia resident with business experience in cattle ranching and car sales; Pendergest-Holt, who prior to joining Stanford Financial Group had no financial services or securities industry experience; and Davis, who was Stanford’s college roommate.
The SEC’s complaint also alleges an additional scheme relating to $1.2 billion in sales by SGC advisers of a proprietary mutual fund wrap program, called Stanford Allocation Strategy , by using materially false historical performance data. According to the complaint, the false data helped SGC grow the SAS program from less than $10 million in 2004 to more than $1 billion, generating fees for SGC (and ultimately Stanford) of approximately $25 million in 2007 and 2008. The fraudulent SAS performance was used to recruit registered investment advisers with significant books of business, who were then heavily incentivized to reallocate their clients’ assets to SIB’s CD program.
The SEC’s complaint charges violations of the anti-fraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Advisers Act, and registration provisions of the Investment Company Act.
The SEC has so far gotten U.S. District Judge Reed O’Connor to enter a temporary restraining order, freeze the defendants’ assets, and appointed a receiver to marshal those assets.
They also want the Court to order the three to submit an accounting detailing all of their assets and all funds or other assets received from investors and from one another within 10 days after the ruling.
And for the Court to order the three to be restrained `from destroying, removing, mutilating, altering, concealing, or disposing of, in any manner, any of their books and records or documents relating to the complaint.
Securities Industry Attorney, Bill Singer, says while he suspects Stanford and the other accused may be arrested and indicted soon, he`s unsure of the length of time such a case will move to possible conviction.
`The wheels of justice grind slowly in these types of cases,` Singer told CWNN Tuesday, while accusing the Antigua Financial Services Regulatory Commission of `sleeping late and turning off the alarm clock.`
`The Antigua FSRC is entitled to explain its actions,` he said. `It may well believe that Stanford was not under its jurisdiction as only the bank was technically domiciled there and the other entities operated in the U.S. and subject largely to U.S. oversight. On the other hand, we will also need to know whether Antiguan regulators knew of reason to sound the alarm but chose not to — and if that is the case, why?`
Jamaica-born general counsel Sheldon Ellis, however, says he sees the case as more `an injunctive relief than a complaint for criminal sanctions.`
`The current financial crisis will lead the SEC to do something like this,` said Ellis to CWNN. `It’s all geared to preventing a Madoff scheme but this is different since they’re not enough information presented so far to claim it is a crime. They have a lot of investigation to do since so far it seems more based on failure to disclose information.`
Asked what would be the scenario if Stanford is arrested, Ellis, who has been practicing in Washington, D.C. for 15 years, said the U.S.-born national who has dual-citizenship would first have to be arrested on U.S. soil since the SEC has jurisdiction over his assets but not his person.
He said, however, if they do arrest him and if there are criminal charges leveled, then Stanford`s passport can be seized and he can be placed under house arrest following a request for a tremendous bail bond.
`This could go on for a while … some 6 months to a year based on nature of case,` added the attorney. `It is hard to give a time limit. I would assume they would want to make absolutely sure they have all evidence. They have a lot of investigation to do but if investors want their money they can get then to cooperate or if Mr. Stanford wants to disclose everything and say he has nothing to hide.`
`There could be a culpable defense,` added Ellis. – By CWNN Staff Writer