Ex-Stanford employee warned regulators about fraud
Reuters, Fri Feb 27, 2009 1:06am GMT
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WASHINGTON (Reuters) - A former Stanford Group Company employee told broker-dealer watchdogs in 2003 that the financial services firm was engaged in fraud, about five years before U.S. securities regulators charged the firm's chairman, Allen Stanford, with an $8 billion fraud.

Leyla Basagoitia, who was fired from Stanford Group Company in 2002, told a broker-dealer arbitration panel that the firm was engaged in a Ponzi scheme, according to a document on the website of broker-dealer watchdog Financial Industry Regulatory Authority (FINRA).

In 2003, Basagoitia and the Stanford Group Company were trying to resolve a loan dispute through an arbitration forum run by a FINRA predecessor.

At the time, Basagoitia told the arbitration panel that before accepting her position at Stanford Group she emphasized that it was not her intent to allocate any of her clients' funds to Stanford Group's offshore bank, Stanford International Bank -- one of the companies named in the government's civil complaint.

She alleged that the firm was engaged in a Ponzi scheme to defraud its clients, where earlier investors are paid with money from later investors.

Basagoitia said her clients were mainly foreign nationals in Latin America and that she believed the investments to be risky in nature, unsuitable and not in the interest of her clients. She alleged that her reluctance to push the offshore bank and its products proved fatal to her employment at Stanford Group.

In the end, Basagoitia was required to pay Stanford Group Company $107,782 to resolve the loan dispute.

Last week, the Securities and Exchange Commission accused Allen Stanford, three of his companies and two executives with fraudulently selling $8 billion in high-yield certificates of deposits.

The SEC alleged that Stanford's Antigua-based bank sold the CDs by promising high return rates that exceeded those available through true certificates of deposits offered by traditional banks.

The Financial Times reported that Basagoitia warned the Securities and Exchange Commission around the same time she raised concerns at the arbitration panel run by FINRA's predecessor.

The SEC had no comment on Basagoitia. But an SEC spokesman said the agency's investigation started in the spring of 2005 based on information it developed in the course of an examination.

Calls to the lawyer representing Basagoitia in the 2003 dispute resolution were not immediately returned. Calls to FINRA were not immediately returned.

(Reporting by Rachelle Younglai; Editing by Gary Hill)

Stanford Employees Yelled "Ponzi Scheme!" 3 Years Ago
Henry Blodget|Feb. 19, 2009,
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More details are emerging about early warnings of the alleged Stanford fraud. The SEC isn't looking any better.

WSJ: Scattered complaints about Mr. Stanford's financial practices began reaching U.S. regulators in 2001, according to records of the Financial Industry Regulatory Authority, Wall Street's self-policing body, and Finra's predecessor body. Finra didn't take action until April 2007, when it issued the first of four fines totaling $70,000....

In 2005, two Venezuelans alleged in U.S. District Court in Florida that Stanford International Bank "knowingly aided and abetted ... a classic Ponzi scheme" targeting current and former residents of Venezuela. The case was settled out of court by the bank.

In 2006, former Stanford employee Lawrence J. DeMaria filed suit against Stanford in Florida state court. He alleged that the firm "was operating a 'Ponzi' or pyramid scheme, taking new money to its offshore bank, laundering the money and using the money to finance its growing brokerage business, which did not have any profits of its own." The suit was settled, said Mr. DeMaria's lawyer, who declined to comment further.

Problems began to intensify for Stanford International Bank at the end of 2007 when two top executives, Mark Tidwell and Charles Rawl, quit the bank due to concerns that Stanford was falsifying returns and lying to investors, according to sworn court statements in federal court in Dallas. In early 2008, they filed suit in Texas state court against Stanford, alleging fraud.

It was only after Madoff, apparently, that the SEC kicked its investigation into high gear, presumably in fear of further embarrassment. (And it was only after "Ponzi" reports hit the press that the regulator filed charges).

Everything's obvious in hindsight, and the SEC says that there were jurisdictional problems here. But still... Multiple former employees were alleging fraud and the bank was managing billions. Isn't that enough to kick the investigation up to high-priority? "Jurisdictional" problems? For a company doing business in the U.S.?

Stanford Bank's VERY Independent Board of Directors
Henry Blodget|Feb. 20, 2009, 5:41 AM|2
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Nothing like aggressive board oversight to minimize the possibility of 'massive, ongoing fraud':

WSJ: The Mexia (Texas) branch is where Stanford Financial began as a business. It no longer plays a role in the firm, (Sir Allen's dad) James Stanford said.

Stanford bank board member O.Y. Goswick lives nearby and is a family friend. Mr. Goswick had a stroke in 2000 and "can't string seven words together," said son Richard Goswick, also of Mexia. There was talk of removing him from the board at one point, according to Richard Goswick and James Stanford, but because he was a family friend he remained, and kept getting paychecks for being on the board.

O.Y. Goswick also received an SEC subpoena to be deposed, and his son Thursday was trying to obtain a doctor's affidavit explaining his father's medical condition.

Sir Allen's dad, James Stanford, is also on the board:

WSJ: James Stanford said he hasn't physically attended a board meeting for years, but sometimes listens in on a conference call to the meetings. He bristled at the suggestion that his son's operations weren't overseen by experienced financial people.

"Where do you get financial experience? If you live and pay your bills I call that financial experience," he said. James Stanford said he has no money invested in the Antigua bank.

SEC Charges Texas Financier With $8 Billion "Massive Ongoing Fraud"
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Robert Allen Stanford, 58, of Houston, Texas and the billionaire chairman of Stanford Group Company, has been charged by the Securities & Exchange Commission in a civil suit, of defrauding investors about the level of risk and liquidity associated with as much as $8 billion in certificate of deposit investments. Two executives of the company, James Davis, CFO and Laura Pendergest-Holt, chief investment officer, have been charged along with Stanford. Stanford Group operates out of Houston and Antigua, where Stanford's offshore banking operation is located. In addition to Stanford Group, Stanford International Bank, Ltd. of Antigua and Stanford Capital Management, LLC, were named in the complaint. Stanford has not yet been detained and his whereabouts are not known at this point.

Receivership Order
Temporary Restraining Order
Stanford’s First Investment-Banking Deal Sparked 2005 Lawsuit

February 18, 2009
Texas Firm Accused of $8 Billion Fraud
By CLIFFORD KRAUSS, PHILLIP L. ZWEIG and JULIE CRESWELL
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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.

Bystanders pulled into Stanford financial mess
By Svea Herbst-Bayliss, Reuters, Fri Feb 20, 2009 10:13pm GMT

BOSTON (Reuters) - As financial markets stumbled this week, Trent Rosenthal wanted to trade in stocks. But he made a horrific discovery -- thousands of dollars in his brokerage account were frozen thanks to Stanford Group Company.

On Friday, Rosenthal became the first person to file a lawsuit asking a federal judge to dissolve an order freezing assets that put him and thousands of others into financial limbo this week, court documents show.

Rosenthal, a Houston-based lawyer, is representing himself in the matter.

The suit was filed in the Northern District of Texas Forth Worth Division four days after U.S. officials charged Stanford with having run a "massive, ongoing fraud" and a federal judge in Texas froze the company's assets.

"The market is fluctuating and I would like to be able to be in control of my financial destiny," Rosenthal said in an interview, adding "This is customer property not Stanford Group Company property."

Rosenthal's suit illustrates the wide reach Stanford's purported fraud is having and how it is affecting even investors who never relied on the Texas-company's investment advisers for advice.

Rosenthal said his frozen brokerage account is valued between $50,000 and $100,000 and said it holds two securities that are publicly traded on the New York Stock Exchange. He was exasperated that Sir Allen Stanford, the company's head, is free to move around after having been charged with fraud while his own money is locked up.

"I'm upset because I'm entangled in a fraud even though I had not bought any CDs issued by Stanford or other securities that the Securities and Exchange Commission are probing now," Rosenthal said.

And he is not alone. A sense of urgency is spreading among other clients whose brokerage accounts are also frozen.

One retiree, who asked not to be identified, said he needs the money that is currently frozen to pay for rent and groceries.

"The next big issue will be getting the non-CD, legitimate securities released and we are very nervous about that," said Randy Pulman, a partner at law firm Pulman, Cappuccio and Pullen, who also has clients whose brokerages are frozen.

Securities and cash owned by Rosenthal and other Stanford brokerage customers are held in custody at Pershing LLC, a unit of the Bank of New York Mellon Corp which is one of the world's biggest custodial banks.

"Until further notice Stanford's clients' brokerage accounts held at Pershing have been frozen on request of the receiver and no funds or securities may leave the brokerage accounts without the receiver's approval," Pershing spokesman Michael Geller said.

But some Stanford brokerage account holders, who have called Pershing's New Jersey offices for assistance, say they are frustrated that they were told to contact the receiver where they say no one was available to speak to them in person.

The receiver in the Stanford case told investors on Friday they could contact their brokers to sell stock in their account, but they could not transfer assets to another firm.

Cash and securities in customer accounts with third party, independent clearing brokers remain frozen for the foreseeable future, the receiver said in a news release.

"All of us have been unfairly singled out in this mess," said Rosenthal, who moved his brokerage account to Stanford several years ago.

"I came over when my broker moved from Wachovia to Stanford and they really courted me," Rosenthal said, remembering "They supported a lot of charities and that was certainly important to me." Stanford has donated money to a cancer hospital, art museum as well as libraries and schools, according to their corporate reports.

Now Rosenthal hopes a judge will act quickly on his motion. "The order freezing assets has far reaching consequences and I hope to get an answer soon."

(with additional reporting by Anna Driver and Chris Baltimore in Houston; Editing by Bernard Orr)

Local Stanford office closes during probe
By Richard M. Barron, Staff Writer, News-Record
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The Greensboro office of the Stanford Financial Group — an investment company whose owner has been accused of managing an $8 billion securities fraud — has been temporarily closed by the government receiver appointed to take over the company.

A white paper sign on the office doors says “We are temporarily closed. The company is still in operation but under the management of a receiver.”

The office manages investments for about 100 high-wealth individuals. “Less than two handfuls” of those people had invested in the high-yield certificates of deposit at the heart of the Securities and Exchange Commission’s investigation, said a source who is well-informed about the local office but asked to remain anonymous because of the continuing investigation.

The source said that a couple of local Stanford employees invested in the program, which offered high interest returns on what it represented as safe investments.

The SEC says the investments were not safe, and that company owner R. Allen Stanford personally put the money in risky real estate and other volatile securities.

In a complaint filed in federal court in Dallas, the SEC alleged that billionaire Stanford orchestrated a fraudulent investment scheme centered on an $8 billion CD program that promised “improbable and unsubstantiated high interest rates.”

Stanford’s assets, along with those of the three companies, were frozen. Stanford’s firms include Antigua-based Stanford International Bank, broker-dealer Stanford Group and investment adviser Stanford Capital Management, which are both based in Houston.

The company has three investment offices in North Carolina: Greensboro, Charlotte and Asheville.

The only information available to investors is on the Stanford Financial Group Receivership Web site — www.stanfordfinancialreceivership.com.

Because many investors were not invested in the alleged fraudulent accounts, they own stocks and securities that are only managed, not created, by Stanford companies.

“The Receiver understands that the freeze implemented under the Order can cause inconvenience and in some cases hardship,” according to the Web site. “The Receiver and his advisors are making a concerted effort to identify accounts that are not subject to the Order, or can be released.”

Here is what investors can expect:

* The receiver, Ralph S. Janvey, is building a list of all company assets.
* The receiver is compiling a list of claims against those assets.
* The receiver will prepare a plan to return money for the claims.

The receiver said this will take place as soon as possible.

To contact that group, e-mail info@stanfordfinancialreceivership.com.
Contact Richard M. Barron at 373-7371 or richard. barron@news-record.com

Report on Major Embezzlements