Saturday, February 28, 2009

executed a massive Ponzi scheme

From Alphaville:

[The Stanford Series] From “investment fraud” to “massive Ponzi scheme”

The SEC has amended its complaint against R. Allen Stanford, Laura Pendergast-Holt and James Davies.

Here’s a summary of the allegations, emphasis FT Alphaville’s:
1. For at least a decade, R. Allen Stanford and James M. Davis, through companies they control, including Stanford International Bank, Ltd. (”SIB”) and its affiliated Houston-based investment advisers, Stanford Group Company (”SGC”) and Stanford Capital Management (”SCM”), executed a massive Ponzi scheme. In carrying out the scheme, Stanford and Davis misappropriated billions of dollars of investor funds and falsified SIB’s financial statements in an effort to conceal their fraudulent conduct.

2. Laura Pendergest-Holt, the chief investment officer of Stanford Financial Group (”SFG”) and a member of SIB’s investment committee, facilitated the fraudulent scheme by misrepresenting to investors that she managed SIB’s multi-billion investment portfolio of assets and employed a sizeable team of analysts to monitor the portfolio.

3. By year-end 2008, SIB had sold approximately $8 billion of self-styled “certificates of deposits” (the “CD”) by touting: (i) the bank’s safety and security; (ii) consistent, double-digit returns on the bank’s investment portfolio; and (iii) high return rates on the CD that greatly exceeded those offered by commercial banks in the United States.

4. Contrary to SIB’s public statements, Stanford and Davis, by February 2009, had misappropriated at least $1.6 billion of investor money through bogus personal loans to Stanford and “invested” an undetermined amount of investor funds in speculative, unprofitable private businesses controlled by Stanford.

5. In an effort to conceal their fraudulent conduct and maintain the flow of investor money into SIB’s coffers, Stanford and Davis fabricated the performance of the bank’s investment portfolio. Each month, Stanford and Davis decided on a pre-determined return on investment for SIB’s portfolio. Using this pre-determined number, SIB’s internal accountants reverse-engineered the bank’s financial statements to report investment income that the bank did not actually earn. SIB’s financial statements, which were approved and signed by Stanford and Davis, bore no relationship to the actual performance of the bank’s investment portfolio.

6. In addition to sales of the CD, SGC and SCM advisers, since 2004, have sold more than $1 billion of a proprietary mutual fund wrap program, called Stanford Allocation Strategy (”SAS”), using materially false and misleading historical performance data. The false data enabled SGC/SCM to grow the SAS program from less than $10 million in 2004 to over $1.2 billion in 2009 and generate fees for SGC/SCM (and ultimately Stanford) in excess of $25 million. The fraudulent SAS performance results were also used to recruit registered financial advisers with significant books of business, who were then heavily incentivized to re-allocate their clients’ assets to SIB’s CD program.

7. By engaging in the conduct described in this Complaint, Defendants directly or indirectly, singly or in concert, have engaged, and unless enjoined and restrained, will again engage in transactions acts, practices, and courses of business that constitute violations of Section 17(a) of the Securities Act of 1933 (”Securities Act”) [15 U.S.C. §§ 77q(a)], and Section 10(b) of the Securities Exchange Act of 1934 (”Exchange Act”) [15 U.S.C. § 78j(b)], and Exchange Act Rule 10b-5 [17 C.F.R. § 240.10b-5] or, in the alternative, have aided and abetted such violations. In addition, through their conduct described herein, Stanford, SGC, and SCM have violated Section 206(1) and (2) of the Investment Advisers Act of 1940 (”Adviser’s Act”) [15 U.S.C. §§ 80b-6(1) and 80b-6(2)] and Davis and Pendergest-Holt have aided and abetted such violations. Finally, through their actions, SIB and SGC have violated Section 7(d) of the Investment Company Act of 1940 (”Investment Company Act”) [15 U.S.C. § 80a-7(d)].

(HT the ever-vigilant Joanna Chung)


Don the libertarian Democrat Feb 28 20:31
"executed a massive Ponzi scheme"

Actually, you could tell that it was a Ponzi Scheme because it involved so much money and so long a time. Ponzi Schemes are the safest and most remunerative way to commit fraud, since they mirror shrewd investments for so long, and keep authorities from trying to horn in on a bunch of rich investors, all of whom have teams of lawyers. I'm just puzzled by the poor flight strategies.

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