Texas Firm Accused of $8 Billion Fraud

HOUSTON — In Texas, Robert Allen Stanford was just another wealthy financier. But in the breezy money haven of Antigua, he was lord of an influential financial fief, decorated with a knighthood, courted by government officials and basking in the spotlight of sports and charity events on which he generously showered his fortune.
On Tuesday, his reign was thrown into turmoil as a caravan of cars and trucks carrying federal authorities pulled up to the headquarters of his company, the Stanford Group, to shut down what the regulators described as a “massive ongoing fraud” stretching from the Caribbean to Texas, and around the world.
Unknown is the status of investments in as much as $8 billion in high-yielding certificates of deposit held in the firm’s bank in Antigua, which the Securities and Exchange Commission, in a civil suit, said Mr. Stanford and two colleagues fraudulently peddled to scores of investors.
Also unknown Tuesday were the whereabouts of Mr. Stanford — or Sir Allen, as he became known after the Antiguan prime minister knighted him — whose financial activities on the tiny island had raised eyebrows among American authorities as far back as a decade ago.
Like Bernard L. Madoff, who is accused of operating a $50 billion Ponzi scheme, Mr. Stanford offered investment opportunities that sounded almost too good to be true: promises of lucrative returns on relatively safe certificates of deposit that were often more than twice the going rate offered by mainstream banks.
In fact, a substantial portion of the bank’s portfolio was in very illiquid real estate and private equity investments. The portfolio was monitored by only two individuals — Mr. Stanford and James M. Davis, a director and chief financial officer of Stanford Group and the Antigua-based bank affiliate. The Antiguan auditor does not audit the bank’s portfolio or verify its assets.While regulators are not accusing Mr. Stanford of operating a Ponzi scheme, they claim Stanford Group lulled investors into believing the C.D. purchases were safe by advertising investments in “liquid” securities that could be bought and sold easily.
Stanford Group said it could pay higher rates on the C.D.’s because of the consistently high returns it made on investor assets. And it claimed to be safe, thanks to monitoring by a team of more than 20 analysts and yearly audits of the investments by regulators in Antigua.
None of that was true, according to the S.E.C.’s complaint.
In its filing, the S.E.C. said the bank’s consistent returns — it reported identical returns of 15.71 percent in 1995 and 1996 — were “improbable, if not impossible.”
And while the size of the alleged fraud spun by Mr. Stanford and his colleagues pales in comparison to Mr. Madoff’s scheme, the revelation that Stanford Group’s returns may, in fact, have been ephemeral is likely to further erode confidence among investors who place money with investment advisers.
“I am extremely concerned. On a scale from one to 10 — infinity,” said Brett Zagone, a Houston technology saleswoman who walked up to Stanford Group’s Houston offices Tuesday to find out what had happened to the money she had invested there.
At the St. John’s branch of Stanford’s Bank of Antigua, a long line of customers waited to withdraw money as the news spread, Reuters reported.
Regulators, too, are likely to face tough questions as more is learned about Mr. Stanford’s activities. Already under fire for missing several red flags over the years in the Madoff case, regulators could face similar questions as Mr. Stanford’s offshore banking activities caught the attention of law enforcement agencies dating as far back as 1998. In its complaint, filed in Federal District Court in Dallas, the S.E.C. accused Mr. Stanford, Mr. Davis and Laura Pendergest-Holt, the chief investment officer of both organizations, with misrepresenting the safety and liquidity of the C.D.’s. The Antiguan bank and its registered broker-dealer in Houston, which sold the C.D.’s, were also named. The bank claims $8.5 billion in assets and 30,000 clients in 131 countries, and the brokerage unit operates about 30 domestic offices.
Most witnesses, including Mr. Stanford, Mr. Davis and the Antigua-based bank’s president, failed to appear to testify and did not provide any documents shedding light on the assets. Stanford Group declined to comment.
Over the years, Mr. Stanford cultivated the profile of a successful American businessman, partly by burnishing his connections with athletes. For example, the pro golfer Vijay Singh signed a deal to make the firm’s logo, the Golden Eagle, the dominant brand on his apparel and golf bag. A spokesman for Mr. Singh’s agent declined to comment.
On the tiny island of Antigua, Mr. Stanford’s presence was both large and controversial. He was viewed by many as cozying up with key politicians to win their favor. His activities there drew the eye of American law enforcement agencies in the late 1990s, when regulators were closely scrutinizing the growth of the offshore banking sector, after a couple of money-laundering scandals had hit the industry.
Around that time, Mr. Stanford had also become an adviser to Lester Bird, then Antigua’s prime minister, who formed a banking advisory board to clean up the country’s image. Mr. Stanford’s bank was the largest bank regulated by the board. The project was paid for by the Antiguan government from money lent or granted by Mr. Stanford.
“They wanted to convince us that Antigua was clean and to highlight reform efforts,” recalled Jonathan Winer, who was at the time a deputy assistant secretary of state.
In 2001, Antigua was removed from the financial watch list.
Mr. Stanford and his firm have emerged as recent contributors to various American lawmakers, focusing particularly on legislators considering bills that could change offshore banking rules. In 2008, he made $3,300 in political contributions to Representative Charles B. Rangel, a New York Democrat who has presided over legislation easing tax policies for the Virgin Islands as head of the House Ways and Means Committee.
The current S.E.C. charges stem from an inquiry opened in October 2006 after a routine exam of Stanford Group, according to Stephen J. Korotash, an associate regional director of enforcement with the agency’s Fort Worth office.
He said the S.E.C. “stood down” on its investigation at the time at the request of another federal agency, which he declined to name, but resumed the inquiry in December 2008.
Clifford Krauss reported from Houston, and Julie Creswell and Phillip L. Zweig from New York.