SEC Says Stanford Was Running ‘Massive Ponzi Scheme’ (Update1)
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By Alison Fitzgerald and David Scheer
Feb. 27 (Bloomberg) -- R. Allen Stanford executed a “massive Ponzi scheme” in which he misappropriated billions of investor dollars and made bogus personal loans to himself, the U.S. Securities and Exchange Commission said today.
Stanford, 58, chairman of Houston-based Stanford Group Co., and James M. Davis, the firm’s chief financial officer, falsified financial statements to investors who bought $8 billion in “self-styled certificates of deposit” in Antigua-based Stanford International Bank Ltd., the SEC said in an amended complaint filed in U.S. District Court in Dallas.
“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,” the SEC said in its complaint.
The SEC on Feb. 17 filed an initial complaint against Stanford, Davis and Stanford Group chief investment officer Laura Pendergest-Holt, alleging a “massive, ongoing fraud.” U.S. Marshals secured the companies’ offices in Houston and Memphis and a federal judge froze the companies’ and Allen Stanford’s assets, appointing a receiver to account for investors’ money.
Pendergest-Holt was arrested yesterday at the firm’s Houston headquarters on a charge of obstructing the SEC probe. She was to be released today on $300,000 bail and didn’t enter a plea.
During Pendergest-Holt’s appearance today before U.S. Magistrate Judge Mary Milloy, FBI Special Agent Vanessa Walther testified the defendant signed over to a receiver an account at Credit Suisse worth as much as $160 million. Walther said the receiver for Stanford has located an additional $90 million.
Reverse Engineering
Stanford and Davis each month reverse-engineered Stanford International Bank’s statements so returns would meet a pre- determined target, the SEC said in its complaint. Pendergest-Holt facilitated the fraud by telling investors she managed the investment portfolio, the SEC said.
“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,” the SEC said.
Stanford and Davis told senior employees this month they had misappropriated investor funds and falsified the Antigua bank’s financial statements, the SEC said. The admissions were made at a meeting in Miami between Feb. 2 and Feb. 6, the agency said.
Denied Knowledge
Pendergest-Holt, who attended the Miami meeting, four days later gave SEC investigators a two-hour presentation under oath in which she denied knowledge about the majority of the bank’s assets and failed to mention Stanford and Davis had siphoned money, the regulator said.
The bank’s portfolio was invested in undocumented “loans” to Allen Stanford, private equity and over-valued real estate, the SEC said today.
About 81 percent of the company’s investments were controlled by Stanford and Davis, according to the FBI affidavit filed to support the criminal charge against Pendergest-Holt. Of that, $3 billion was invested in real estate and another $1.6 billion was the loan, the statement said.
Stanford also claimed in a December newsletter that he had made a $541 million capital infusion into the bank to help it weather the economic downturn. The affidavit said that money was actually made up of $88.5 million in real estate investments that the bank already owned.
The case is SEC v. Stanford International Bank Ltd., 09-cv- 00298, U.S. District Court, Northern District of Texas (Dallas). |
