Did SEC Hide Botched Stanford Probe? I.G. Says Timing Is "Suspicious"

In the style of "Mad" magazine, it's the season of con vs. con at the Securities and Exchange Commission -- only no one's laughing.

Word on the inside is that the Commission covered up -- or at least ignored -- an investigation of billionaire R. Allen Stanford, who is awaiting trial in a Texas jail on 21 criminal charges that his Antiguan bank allegedly sold questionable certificates of deposit with "improbably high" interest rates and was running a Ponzi scheme at the same time.

"They didn't call him 'Agile Allen' for nothing," according to a source familiar with the case.

The SEC apparently wasn't nearly so agile.

A report by SEC Inspector General H. David Kotz claims the SEC was aware Stanford was running a $7 billion Ponzi scheme as far back as 1997, but waited until late 2005 to step in. The Commission filed civil charges in the case in February 2009.

Kotz noted that the Commission filed civil fraud charges against Goldman Sachs last April, on the same day it released his report critical of the Stanford investigation. The timing of the Goldman filing is "suspicious," said Kotz, who went on to suggest that the Goldman charges diverted attention from the report of the botched Stanford probe.

The inspector general said the timing of the two actions in April "strains credulity." Kotz made his suspicions public at a September 22 congressional hearing on the Stanford investigation before Senate Banking Committee.

Republican sources in Washington claimed the SEC made Goldman the poster boy for greed as a cover for the Stanford investigative foul up. These sources also suspect Goldman was sued to help boost support for the new regulatory reforms governing Wall Street's occasionally bad behavior.

Though SEC denies the Goldman announcement was a cover-up of the Stanford probe, Kotz wondered out loud if in fact the timing might have been politically motivated.

Republican speculation aside, Mr. Kotz told the committee that top officials at the SEC's Fort Worth office were "being judged on the numbers of cases they brought, so-called 'stats'," the obvious and easy cases. "Complex cases were disfavored," Mr. Kotz explained, because they were not "slam dunks." Mr. Allen's case is a rat's nest of allegations including, but hardly limited to, the purchase of a Caribbean island. In other words, it didn't add up as a "stat" or "quick hit" case.

Robert Khuzami, director of SEC's Enforcement Division, and Carlo di Florio, director of the Office of Compliance Inspections and Examinations, said they are moving to implement the reforms demanded by Mr. Kotz.

Mr. Khuzami said he was alerting what he called "rank and file" SEC inspectors that quick hits do not drive enforcement. He said the divisions are now coordinating their efforts and stepping up the pace.

So what does it take to make the SEC do the right thing? Among the suggestions by Mr. Khuzami and Mr. di Florio is to expand training programs and modernize the management structure. In addition, they added, it's time to place "seasoned investigative attorneys back on the front lines and improve examiners' risk management techniques." No one on the Senate panel bothered to ask where these "seasoned attorneys" have been hiding.

The Kotz report landed on SEC Commissioner Mary Schapiro's desk in March. The Senate hearing gave the lawmakers a chance to vent their dissatisfaction with the Commission, but it's anyone's guess if substance will come out of the Senate probe. Last year, for example, the House Financial Services Committee held hearings on the $336 billion auction rate securities scandal, but no legislation or regulations followed. When Rep. Barney Frank (D-MA) was asked about this failure, he replied, "The ('08) meltdown got in the way." It now remains to be seen if the Senate Committee can find a clear path to financial reform of the SEC's enforcement process.

The hearing produced notable contradictions. Sen. Richard Shelby (R-Ala), the committee's ranking republican, said the Bernard Madoff $65 billion Ponzi scheme had caught the SEC flatfooted though at least one part of the Commission had been aware of the Stanford case for years. Sen. Shelby was obviously unaware that there had been warnings about Madoff as far back as the late 1990s.

"I believe this should mark the beginning of our review of this troublesome episode," Sen. Shelby said, referring to Mr. Stanford. "We need to know exactly why evidence of this fraud was not more thoroughly pursued."

He added that Mr. Khuzami had brought to light "a colossal failure of the SEC."

Observers wondered why Sen. Shelby was so outraged. "Is he living on another planet?" asked one source. "Is this the first time it crossed his mind that the SEC is maybe a little slow off the mark?"

Another open question: Why was no one fired because of the incompetent handling of the Stanford affair? It seemed a rhetorical question, given that no one was fired in the wake of the Madoff scandal, which was a much larger fraud. Lawmakers also expressed concern that the head of the Fort Worth division later offered to defend Mr. Stanford before the Senate committee.

"It takes time for a culture to change," Mr. Kotz said. "It takes time to trickle down the line."

In the meantime, the investing public will just have to wait on trickle-down ethics to kick in before trust is restored.

SEC monitor: Only "slam-dunk' enforcement cases were encouraged

Inspector general says prosecutions were driven by "stats'

Securities and Exchange Commission officials tried to assure Congress last week that the SEC's examination and enforcement divisions are working together more effectively to catch and prosecute rogue advisers such as Robert Allen Stanford, who allegedly bilked clients out of $8 billion.

In a hearing before the Senate Banking Committee, SEC Inspector General H. David Kotz said that the examination staff in the commission's Fort Worth, Texas, office raised red flags as early as 1997 about certificates of deposit that Mr. Stanford was offering with unusually high interest rates.

But the enforcement staff refused to pursue the matter.

“We found that senior Fort Worth officials perceived that they were being judged on the numbers of cases they brought, so-called stats, and communicated to the enforcement staff that novel or complex cases were disfavored,” Mr. Kotz said. “As a result, cases like Stanford, which were not considered "quick-hit' or "slam-dunk' cases, were not encouraged.”

Mr. Stanford's tangled web of alleged fraud included complex international dimensions, such as the purchase of part of a Caribbean island. The SEC finally filed a case against him in February 2009.

Among Mr. Kotz's recommendations to the SEC: Change the commission's mindset to ensure that potential harm to investors outweighs concerns about litigation risk in pursuing fraud cases and improve coordination between inspection and enforcement.

Robert Khuzami, director of the SEC Division of Enforcement, and Carlo di Florio, director of the Office of Compliance Inspections and Examinations, said that they are implementing reforms called for in Mr. Kotz's report.

“I am telling the rank-and-file that quick hits and numbers are not what drive the division,” Mr. Khuzami told lawmakers. “It's not the standard today, I assure you.”

Mr. di Florio and Mr. Khuzami, both of whom assumed their current positions after the Stanford case was filed, said that their divisions are working more closely.

“Both OCIE and enforcement are committed to reforms,” Mr. di Florio said.

In prepared joint testimony, Mr. Khuzami and Mr. di Florio said that they have expanded training programs, streamlined management, “put seasoned investigative attorneys back on the front lines” and improved examiners' risk management techniques.

The Stanford case is making the SEC more willing to take on big, complex cases with uncertain outcomes, according to Robert Mintz, a partner at the law firm McCarter & English.

“It was a major wake-up call to the SEC to act more like prosecutors and less like regulators, and to dig deeper and ask tougher questions as they execute their oversight,” said Mr. Mintz, a former federal prosecutor. “The message from the highest levels of the SEC is filtering down — to increase collaboration and to make sure that information about regulated entities is being shared more effectively.”

Mr. Kotz delivered his report to SEC officials in March. It was released April 16, the same day that the SEC filed a lawsuit against The Goldman Sachs Group Inc. for alleged fraud involving mortgage-backed securities.

The Senate hearing Tuesday gave lawmakers a chance to vent their frustrations with SEC lapses in policing securities markets.

Sen. Richard Shelby, R-Ala., the ranking Republican on the Senate Banking Committee, noted that unlike the $50 billion fraud perpetrated by Bernard Madoff, which caught the SEC unawares, one part of the commission had raised concerns about Mr. Stanford for years.

“I believe this should mark just the beginning of our review of this troublesome episode,” Mr. Shelby said.

“We need to know exactly why evidence of fraud was not more thoroughly pursued,” he said. “This is a colossal failure of the SEC.”

Senators on both sides of the aisle wondered why no one at the SEC had been fired in the wake of the Stanford episode and expressed dismay that the head of the Fort Worth enforcement division later tried to represent Mr. Stanford before the commission.

Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, was more generous toward the SEC, saying that “there are thousands of people in the SEC who do an incredible job every day.” But he pressed Mr. Kotz on whether the statistics-oriented approach to enforcement is undermining potentially large fraud cases in other SEC regional offices.

“To what extent were examiners frustrated across the country?” Mr. Dodd asked.

Mr. Kotz said that he wasn't aware of specific cases but that the SEC's leadership is trying to move enforcement away from a focus on statistics toward one that emphasizes impact.

“It takes time for a culture to be changed,” he said. “We need to make sure that trickles all the way down the line.”

More Charges Coming Against Allen Stanford Executives

HOUSTON, Texas, Fri. Sept. 24, 2010: Several former executives of the company founded by 60-year-old R. Allen Stanford could soon be in hot water with the Securities and Exchange Commission.

The SEC has reportedly notified several that fraud charges will be filed against them, Rose Romero, director of the Securities and Exchange Commission`s Fort Worth office, said.

The disclosure came during her appearance this week before the Senate Banking committee. Romero, however, did not say who would be targeted by the charges, or when they would be officially filed.

Accountants Mark Kuhrt and Gilberto Lopez, and Leroy King, head of the financial services regulatory commission in Antigua - where Stanford`s bank was based and where he was also a naturalized citizen –may be the individuals who will face charges related to the fraud.

Romero`s comments came as angry senators grilled her and top officials of the SEC on Wednesday, citing the agency`s delays in taking action against accused swindler Stanford despite repeated red flags about his financial firm`s operations.
Committee chairman Chris Dodd, D-Conn., described the situation as one in which `you had an examination office yelling `fire, fire, fire` and an enforcement branch yelling `no fire.`

Sen. Kay Bailey Hutchison, R-Texas, called the revelations `stunning` and said that she hoped something is being done to make sure such a lapse doesn`t happen again.
An inspector general`s report concluded that Fort Worth SEC officials harbored suspicions that Stanford was acting illegally as early as 1997, two years after his company`s broker-dealer arm, Stanford Group Co., registered with the SEC but did nothing.

The new charges disclosed by Romero would add to those filed against the company`s head honcho, the Texas-born, Antigua-based Stanford, his chief investment officer Laura Pendergest-Holt and James Davis, the former chief financial officer of Houston-based Stanford Financial Group. Davis pleaded guilty last month to charges including fraud while Pendergest-Holt has pleaded not guilty to allegations of fraud and conspiracy to commit money-laundering.

Stanford, the former flamboyant billionaire and cricket mogul has pleaded not guilty to 21 counts of fraud, money laundering and obstruction. He faces up to 375 years in jail if convicted. A trial date has not yet been set for him.

The scheme involved the sale of Certificates of Deposit (CDs) offering unheard-of returns.

Stanford Victims Fraud are trying to make contact with “BIG AL”

Members of the Stanford Victims Fraud are trying to make contact with “BIG AL” who used to post on the old website. If anyone knows how we can get in touch please post a comment or a link for me.

Senators probe inaction against Stanford

WASHINGTON — Angry senators grilled top officials of the Securities and Exchange Commission on Wednesday, citing the agency's delays in taking action against accused swindler R. Allen Stanford despite repeated red flags about his financial firm's operations.

Lawmakers sharply questioned Rose Romero, the director of the SEC's Fort Worth regional office, and Robert Khuzami, the agency's national enforcement director, about a report from the agency's independent inspector general.

It found that the Fort Worth compliance office decided at least four times not to act on findings by SEC staffers that Stanford appeared to be operating a Ponzi scheme.

Committee chairman Chris Dodd, D-Conn., described the situation as one in which "you had an examination office yelling 'fire, fire, fire' and an enforcement branch yelling 'no fire.'"

Sen. Kay Bailey Hutchison, R-Texas, called the revelations "stunning" and said that she hoped something is being done to make sure such a lapse doesn't happen again.

Stanford, 60, and three other executives of Houston-based Stanford Financial Group are accused in federal indictments of running a $7 billion investment fraud scheme using certificates of deposit issued by a Stanford bank on the Caribbean island of Antigua.

Stanford is being held without bail in Houston as a flight risk. He has denied wrongdoing and is scheduled for trial in January. The others will be tried separately and are free on bail.

The inspector general's report concluded that Fort Worth SEC officials harbored suspicions that Stanford was acting illegally as early as 1997, two years after his company's broker-dealer arm, Stanford Group Co., registered with the SEC.

Over the next eight years, the compliance branch of the Fort Worth office conducted four separate examinations of Stanford's investments and reported each time that the high returns and low volatility were "highly unlikely" and inconsistent with a "legitimate" fund.

All four times, Fort Worth's enforcement team chose not to act on the findings. The enforcement team first opened a formal investigation into Stanford's company in 2005.

The SEC filed a civil fraud suit in February 2009 against Stanford and his companies, which were placed in receivership. A federal grand jury handed down the criminal indictments four months later.

In testimony Wednesday, SEC Inspector General H. David Kotz blamed the agency's culture, saying senior SEC officials thought they were being judged by the number of cases they processed, not on the number of investors affected or the size of the fraud.

As a result, Kotz said, the Fort Worth office focused on cases considered "quick hits" or "slam dunks." Complicated cases such as Stanford's were put off or handed to state securities boards.

Romero, who joined the Fort Worth office in 2006, expressed regret that the SEC had not acted more quickly to limit investor losses.

Khuzami, the top SEC enforcement official in Washington, said the SEC believed that it had not gathered enough evidence at the time of the earlier warnings. He said losing in court would have given Stanford "a Good Housekeeping seal of approval" to call his investments safe because a judge had rejected the SEC's claim. But Khuzami conceded, "We did not pursue the evidence as hard as we should have."

Cassie Wilkinson, a Houston resident who lost her savings when Stanford's companies were placed into receivership, attended the hearing with other Stanford investors. She called the SEC's testimony an effort to "cover their backsides" and said it needs a "housecleaning."

"There were obviously people who did not do their jobs, and no one has been fired. Investors have lost $7 billion. That seems wrong," she said.

Federal authorities are considering whether to prosecute a former securities regulator in Fort Worth who repeatedly quashed investigations of R. Allen

WASHINGTON – Federal authorities are considering whether to prosecute a former securities regulator in Fort Worth who repeatedly quashed investigations of R. Allen Stanford's offshore banking empire.

Securities and Exchange Commission Inspector General David Kotz reported earlier this year that Spencer C. Barasch had “a significant role” in decisions not to formally investigate Stanford, who the SEC has since accused of running an $8 billion Ponzi scheme.

Kotz told lawmakers Wednesday that his office has “had discussions with criminal authorities about whether there would be any criminal action arising because of that.”

Kotz's report, issued earlier this year, also said that Barasch later represented Stanford despite ethics laws against doing so.

Under questioning from Sen. Jim Bunning, R-Ky., Kotz said he'd learned the SEC would ask the State Bar of Texas to investigate Barasch for disciplinary violations.

“If you don't get the Justice Department involved in this, shame on you as the inspector general,” Bunning said. "That, to me, is criminal negligence. And the sooner they get him before a U.S. court, the better I will like it."

Officials at Barasch's law firm, Andrews Kurth, couldn't immediately be reached for comment.

Kotz delivered his testimony during a hearing of the Senate Banking Committee that examined how the SEC's Fort Worth office missed several opportunities to stop Stanford's alleged scheme before it grew larger.

SEC officials said they would implement all of Kotz's recommendations, including increasing coordination between the SEC's examiners and enforcement staff.

The inspector general's report said that SEC examiners in Fort Worth suspected as early as 1997 that Stanford was probably operating a massive Ponzi scheme through certificates of deposit marketed to Americans and investors in other countries.

However, the Fort Worth enforcement staff didn't formally investigate those concerns until 2006, by which time the amount invested in Stanford's CDs had grown much larger.

In Feb. 2009, the SEC accused Stanford and three of his firms of fraud and other securities violations for operating a “massive Ponzi scheme” estimated at $8 billion. The Justice Department also has filed criminal charges against an Antiguan banking regulator who allegedly conspired with Stanford to obstruct SEC investigations over the years.

Rose Romero, the director of the SEC's Fort Worth division, told lawmakers Wednesday that the SEC has notified other Stanford executives and financial advisers “that we intend to recommend fraud charges against them.”

The CIA, Banking Scams, and R. Allen Stanford

In a scandal-plagued era such as ours, scarred by murderous wars, occupations and corruption that would make a Roman emperor blush, accused crooks have names; even juiced ones like R. Allen Stanford.

Last year, when a federal court in Texas handed down indictments charging Stanford International Bank (SIB) and its officers with "orchestrating a fraudulent, multibillion dollar investment scheme," I wondered: was there more to the story?


Indeed there was.

Once described by fawning media as a "flamboyant Texan" and "philanthropist," Stanford was founder and sole shareholder of a global banking empire once conservatively valued at $50 billion.

According to the federal indictment, "Sir Allen," as he was dubbed by a corrupt former minister of Antigua, ran a massive Ponzi scheme camouflaged as a bank that sold some $7 billion in self-styled "certificates of deposit" and $1.2 billion in mutual funds.

Operated from behind a façade of well-appointed offices and with a jet-set lifestyle to match, the Stanford grift may have been impressive but it was a scam from the get-go. Lured by "high rates that exceed those available through true certificates of deposits offered by traditional banks," thousands lost their shirts.

Those high rates were a lie and the bank's "unique investment strategy" about as legitimate as a penny-stock fraud or advance fee scam on the internet. Of the $8 billion hoovered up by the banker and his cronies, only about $500 million have been recovered.

Facing the prospect of years in prison, The Miami Herald reported that SIB's chief financial officer James Davis, once Stanford's college roommate and originally charged in the indictment, copped a plea to save his own neck.

Davis told the Justice Department that "his boss had been stealing from investors for decades while paying bribes to regulators and even performing blood oaths never to reveal his secrets."

Talk about a wise guy!

And with connections and generous pay-outs to U.S. politicians going back more than a decade, 65% of which went to Democrats including our "change" president, Allen Stanford was plugged-in.

Evidence also suggests he may have gotten an assist covering his tracks from regulators and U.S. secret state agencies, including the CIA.

SEC Stand Down

Allen Stanford did business the American way; he swindled depositors and then siphoned-off the proceeds into a spider's web of offshore accounts.

The indictment charges "it was part of the conspiracy that Stanford ... and others would cause the movement of millions of dollars of fraudulently obtained investors' funds from and among bank accounts located in the Southern District of Texas and elsewhere in the United States to various bank accounts located outside of the United States ... in order to exercise exclusive control over the investors' funds."

Auditors learned that funds were moved through Stanford-controlled accounts to offshore banks, including HSBC in London, Bank Julius Baer in Zurich and eight others; banks which have figured in past money laundering or tax-avoidance scandals. None have been charged with an offense in connection with the affair.

In all, 28 numbered accounts were listed by prosecutors, veritable black holes that escaped scrutiny; that is if regulators in Washington were minding the store, which they weren't.

Years earlier, SEC investigators at the commission's Ft. Worth office uncovered evidence of wrongdoing. According to an explosive report by the SEC's Office of the Inspector General, Ft. Worth examiners launched a series of probes in 1997, 1998, 2002 and 2004 exploring SIB practices but their diligence was sabotaged by high-level officials.

That report, Investigation of the SEC's Response to Concerns Regarding Robert Allen Stanford's Alleged Ponzi Scheme, Case No. OIG-526, March 31, 2010, paints a damning picture of the regulatory process.

The inspector general states: "While the Fort Worth Examination group made multiple efforts after each examination to convince the Fort Worth Enforcement program ('Enforcement') to open and conduct an investigation of Stanford, no meaningful effort was made by Enforcement to investigate the potential fraud or to bring an action to attempt to stop it until late 2005."

Last month, the Fort Worth Star-Telegram reported that staff members, who spoke on condition of anonymity because they feared management retaliation, told the newspaper that higher-ups wanted "tools to do away with people who have a dissenting opinion."

Senior managers called the probes a "goat screw" and ordered them killed.

The OIG investigation "found that the former head of Enforcement in Fort Worth, who played a significant role in multiple decisions over the years to quash investigations of Stanford, sought to represent Stanford on three separate occasions after he left the Commission, and in fact represented Stanford briefly in 2006 before he was informed by the SEC Ethics Office that it was improper to do so." (emphasis added)

In Florida, The Miami Herald revealed that state regulators did the SEC one better and gave the bank carte blanche to operate secretly, moving "vast amounts of money offshore--without reporting a penny to regulators."

The arrangement between the bank and the Florida Office of Financial Regulation was so brazen, that Stanford's company "was allowed to sell hundreds of millions in bank notes without allowing regulators to check for fraud."

And once those suspect instruments were sold, the Herald reported that "employees shredded records of the trust agreements and CD purchases once the original documents were sent to Antigua, state records show."

A sweet deal if you can get it, or have powerful friends who might wish to avoid messy inquiries touching upon sensitive matters.

The New York Times reported last year that current charges "stem from an inquiry opened in October 2006," that is, nearly a decade "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."

Korotash told the Times that the SEC "stood down" its investigation "at the request of another federal agency, which he declined to name."

According to BusinessWeek, in 2006 the Bush administration "bestowed on his intelligence czar ... broad authority, in the name of national security" to excuse companies from "their normal accounting and securities-disclosure obligations" if such disclosures revealed "certain top-secret defense projects."

At the time, William McLucas, the Securities and Exchange Commission's former enforcement chief told the publication that the ability to conceal financial information from regulators under the rubric of "national security" could lead some companies "to play fast and loose with their numbers."

The former official said, "it could be that you have a bunch of books and records out there that no one knows about."

In response to media reports, congressman Dennis Kucinich (D-OH), wrote a letter to SEC Chair Mary Schapiro last year, demanding documents, and answers, why the SEC suspended investigations of the "Stanford Group under pressure from another unidentified federal agency."

The Ohio congressman said, "if this is true ... our subcommittee will demand that the SEC reveal the name of that agency which told it not to enforce federal laws which protect investors."

Neither documents nor answers were forthcoming.

Cynics might see something untoward here, but I think it's all just a coincidence, like drug planes bought with bundles of cash laundered through American banks.

Drug Probes Killed

In 1986 during the Iran-Contra period, Allen Stanford's Guardian International Bank set up shop on the sleepy Caribbean isle of Montserrat (pop. 5,870).

It didn't take long before the bank came under scrutiny. Guardian was the subject of a joint Scotland Yard-FBI investigation "into so-called 'brass-plate' banks," The Independent disclosed.

According to reporters David Connett and Stephen Foley, the bank "was suspected of laundering drug money from the notorious Medellin and Cali drug cartels run by Pablo Escobar and the Orejuela brothers."

During the Iran-Contra scandal, congressional investigators and journalists scrutinized links between Colombian drug traffickers and the CIA's Nicaraguan Contra army.

By 1986, evidence began to emerge that top Contra officials and the Agency enjoyed cosy ties with both Escobar and the Orejuela brothers. Under pressure from the Reagan administration however, both Congress and corporate media deep-sixed the story as the affair was covered-up.

A decade later, largely as a result of outrage generated by the late Gary Webb's Dark Alliance series, a memorandum of understanding between Reagan's Justice Department and the Agency entered the public record. That 1982 memo legally freed the CIA from reporting drug smuggling by their assets.

Former FBI agent Ross Gaffney who led the Guardian probe, told Connett and Foley that "we suspected that Stanford's bank was involved in money laundering." But before that investigation could be developed, Stanford suddenly pulled up stakes and "voluntarily surrendered his Montserrat banking licence and left the island."

Gaffney said that even after Guardian closed, the FBI "continued to take an interest in Stanford and set up a second inquiry into that bank after receiving intelligence that it continued to launder money for the Medellin and Cali cartels."

The former federal agent told The Independent, "We had hard intelligence about what he was doing and we began to develop it" but the investigation died or more likely, killed, by officials higher-up the food chain.

After leaving Montserrat, Stanford trained his sights on Antigua and Barbuda and developed a close relationship with former prime minister Lester Bird.

"Under the Bird family leadership" Connett and Foley reported, "the island was widely regarded as one of the most corrupt in the Caribbean, with well-documented links to arms and drug smuggling and money laundering."

According to The Independent, "in 1990, Israeli automatic weapons ordered by Mr Bird's brother Vere turned up in the hands of a notorious Colombian drug trafficker."

Despite suspicions, it appears that Stanford was golden as far as the feds were concerned; just another guy with an endless supply of "get-out-of-jail-free" cards.

One reason Stanford operated with impunity, the BBC informs us, is that he "may have been a US government informer."

DEA documents seen by BBC's investigative unit Panorama, suggest that "drug money [was] originally paid in to Stanford International Bank by agents acting for a feared Mexican drug lord known as the 'Lord of the Heavens'."

Confidential DEA sources believe that Stanford turned over "details of money-laundering from Latin American clients from Colombia, Mexico, Venezuela and Ecuador," thus "effectively guaranteeing himself a decade's worth of 'protection' from the authorities, especially the SEC."

"We were convinced that Stanford's bank attracted millions of narco-dollars," sources told Panorama, "but it was very difficult to get the evidence to nail him."

"The word is" BBC reported, "that Stanford has been a confidential informer for the DEA since '99."

Snitch or not, this raises intriguing questions.

Was Stanford's bank a black hole which U.S. intelligence agencies could exploit, in the interest of "national security" mind you, and therefore exempt from "normal disclosure obligations" as BusinessWeek averred?

If this were so, then even if Stanford were an informant he could have continued to launder drug money and profit nicely; such gentleman's agreements are not without precedent.

One need only glance at internal U.S. government documents released by the National Security Archive, documents which revealed the Cali cartel's close collaboration with corrupt Colombian police, neofascist paramilitaries and the CIA when Medellín drug lord Pablo Escobar was run to ground.

Pointedly, was Stanford's banking empire another in a long line of institutional channels that drug cartels and the CIA could both profit from?

Banks, Drugs and Covert Operations

Across the decades, historians, investigative journalists and researchers have uncovered strong evidence that various banks have served as virtual cut-outs for CIA covert operations.

Readers need only recall illegal activities by institutions as diverse as Paul Helliwell's Castle Bank and Trust in the Bahamas, Frank Nugan and Michael Hand's Nugan Hand Bank in Sydney and the Cayman Islands, or the far-flung empire of Agha Hasan Abedi's Bank and Credit and Commerce International.

Separated in time and geography, what all three banks had in common was their close proximity to international drug trafficking networks and the CIA, particularly in areas of acute interest to U.S. policy planners. Did Stanford International Bank have a similar arrangement with the Agency?

When the scandal finally broke, the Houston Chronicle reported that authorities had been "looking for ties to organized drug cartels and money laundering, going back at least a decade."

In the late 1990s, court documents revealed that "operatives of the Juarez cartel began opening accounts at Stanford's Antigua-based bank," laundering profits amassed by the Amado Carrillo Fuentes organization, the late "Lord of the Heavens" referred to in the BBC report.

The Chronicle notes that Fuentes' representatives "used Stanford International Bank to open 10 accounts and deposit $3 million." We should bear in mind however, these represent only known accounts. Were there others? Federal and state investigators have said that there were.

After authorities determined the accounts were held by a notorious drug cartel, Stanford turned over the $3 million. Yet despite hard evidence of criminal wrongdoing, federal officials told the Chronicle that "any alleged Stanford connection to drug cartels and their money could lie buried in the paperwork gathered for the Security and Exchange Commission's civil inquiry."

One might even say rather conveniently.

During the same period, Texas state securities regulators uncovered more evidence of money laundering by Stanford entities. But because it involved offshore banks, they "referred it" to the FBI and SEC.

Texas Securities Commissioner Denise Voigt Crawford told a Senate Finance Committee last year, "Why it took 10 years for the feds to move on it, I cannot answer."

Miffed by government foot-dragging, Crawford added, "We worked with the FBI and the SEC and basically gave them the case. We told them what we'd seen and they were going to run with it."

But that investigation died on the vine.

Echoing similar themes, The Observer disclosed an FBI source close to the investigation confirmed that the Bureau "was looking at links to international drug gangs as part of the huge investigation into Stanford's banking activities."

The Observer reported that Mexican authorities seized one of Stanford's private jets in connection with alleged links to the Gulf cartel and said that "cheques found inside the plane were linked to the cartel, which is one of the most violent criminal organisations in the world."

DEA sources told the London newspaper "there may well have been a trail connecting his Mexican affairs to narco-trafficking interests." However, a second DEA official told The Observer, "I think we'll find that any possible drug-related trail and SEC priorities are not all in the same frame."

A curious statement considering the billions of dollars in fraudulent activities alleged against the bank, some of which may have been derived from laundering drug money.

One would assume that evidence of serious wrongdoing would be motive enough to take a hard look at the allegations and not concoct a fairy tale that these charges lie "buried in the paperwork"!

A U.S. drug enforcement official told The Observer, "Any major US interest seeking to avoid fully disclosed investments would have to go to pretty careful lengths to avoid encountering cartel interests."

"Anyone seeking to conceal or launder money would find it in safe and lucrative hands were they to forge alliances with, rather than skirt, the cartels," The Observer noted, and would "find them accommodating in terms of remuneration." The official hastened to add, it's "nothing anyone will confirm for Stanford right now."

The question is: why?

A Full-Service Bank

One possible answer may revolve around charges that SIB's Venezuela branch was a conduit for laundered CIA funds.

If true, then the Agency would be dead set against trial disclosures that revealed the bank had been involved in laundering drug money, particularly if narcotics syndicates are playing a role in U.S. destabilization efforts there.

Months before Stanford's empire collapsed, Venezuela's socialist government launched a raid on SIB offices in Caracas.

The Daily Telegraph reported that "Sir Allen Stanford, the Texan billionaire ... is now at the centre of an international spying row."

The conservative British newspaper disclosed that "officials from Venezuelan military intelligence raided a branch of his offshore bank over claims that its employees were paid by the CIA to spy on the south American country."

Although corporate media in the U.S. dismissed Venezuelan allegations as propaganda, questions persist.

While on a charm offensive before his arrest last year, Stanford gave an interview to CNBC's Scott Cohn. When asked about claims that his bank may have been a cut-out for the Agency, this curious exchange took place:

Cohn: "You just by nature of your position and where you were got to know a lot of people in Latin America, in Africa, in Europe, around the world, and it strikes me that somebody in your position would be useful to the authorities in the US trying to find out what was going on there, what was going on in places like Venezuela. Can you tell me about any sort of role you played that way, were you helpful to the authorities in the US?"

Stanford: "Are you talking about the CIA?"

Cohn: "Well, you tell me."

Stanford: "I'm not going to talk about that."

Cohn: "Why not?"

Stanford: "I'm just not going to talk about that."

Cohn: "Well, I mean, am I--is my premise correct that someone in your position would be helpful to those who wanted to know what was going on?"

Stanford: "I really don't have anything to add to that that would be of any value."

Stanford's reticence is certainly understandable, considering Frank Hand's fate 30 years ago.

During a similar scandal when the CIA-linked Nugan Hand bank collapsed amid charges of fraud and drug money laundering, the chief executive turned up dead in his Mercedes with a shot to the head.

Despite evidence uncovered by investigations going back to the 1980s, drug money laundering charges or any reference to Agency activities will not figure in the Justice Department's case when Stanford goes on trial in January.

As ABC News delicately put it, SEC action against Stanford "may have complicated the federal drug case."

Underscoring the federal government's reluctance to explore this dark corner of Allen Stanford's career, it might do well to keep in mind what one airline executive told investigative journalist Daniel Hopsicker during his probe into the 9/11 attacks.

"Sometimes when things don't make business sense, its because they do make sense...just in some other way."

Replies to Letter Coming in

Replies are starting to come in, we have had a reply from David Cameron's office and the letter is being passed on to the Treasury.
Now is when we desperately need as many of you as possible to start sending out emails and printing and posting copies of the letter.
Send the letter to newspapers, journalists, financial organisations, as well as your MEP's and MP's.

Numbers count so please try and support all the hard work that has been put into this letter.

THE ROLE OF HSBC IN THE STANFORD BANK FRAUD

The following letter is being sent to the British and European MP's and MEP's by the Stanford Victims Coalition European Group.

I would urge all Europeans to write similar letters to their MP's, Prime ministers, newspapers and anyone else who will listen. The role of HSBC in Stanford's massive fraud must be brought to the Public's attention, and the bank forced to tell Stanford's victims where the money was sent and WHY they failed in their duty of care as a Correspondent Bank.

Dear Mr .........

THE ROLE OF HSBC IN THE STANFORD BANK FRAUD

I am writing to you as one of the thousand British and European Investors who lost their life savings and retirement funds following the collapse of Stanford International Bank (SIB) based in Antigua.

As you may be aware, Allen Stanford has been accused by the US Securities and Exchange Commission of running a massive Ponzi scheme. Moreover he used the British banking system as the conduit for all European deposits. HSBC in London acted as the correspondent bank. Most people around the world are aware of HSBC. Their willingness to act as correspondent gave Stanford an aura of respectability.

Stanford provided deposit instructions indicating that customers could make deposits in Antigua based SIB by wiring funds to HSBC in London. HSBC were aware of these instructions, and expressly agreed with Stanford to receive wire deposits for further transfer to SIB in Antigua. Further, these instructions specifically included a SWIFT code, purportedly for SIB in Antigua.

Depositors in SIB throughout Europe wired funds to HSBC with the intent that such funds would be transferred to SIB in Antigua for deposit in their accounts. HSBC conveyed to depositors in SIB that funds transmitted to HSBC were being deposited in Antigua, and being entrusted to a legitimate banking institution.

It has been determined by the receivers’ forensic accountants that all, or substantially all, of the funds never reached Antigua, but were redirected by HSBC, in concert with and/or at the direction of Stanford, to other Stanford controlled bank accounts in Toronto, Canada; Houston, Texas; and elsewhere. The funds were then distributed to other Stanford entities; “invested” in Allen Stanford’s private ventures; used to fund his lavish lifestyle; or paid out to earlier investors to perpetuate the fraudulent scheme.


Based upon its longstanding correspondent banking relationship with Stanford, HSBC knew, or should have known, that Stanford was conducting an illegal and fraudulent scheme, and that depositors were being deceived into believing their funds were being deposited in a legitimate banking institution in Antigua.

Furthermore, HSBC have refused to divulge the ultimate destination of the funds without a UK Court Order, and the Financial Services Ombudsman is powerless to investigate.

The UK Money Laundering Regulations, introduced throughout the EEA in 2007, and which were passed into British law as Statutory Instrument 2007 number 2157, state:-

1)A credit institution (“the correspondent”) which has or proposes to have a correspondent banking relationship with a respondent institution (“the respondent”) from a non-EEA state must—(a) gather sufficient information about the respondent to understand fully the nature of its business; (b) determine from publicly-available information the reputation of the respondent and the quality of its supervision.

In 1991 HM Treasury requested Allen Stanford surrender the banking licence of his earlier Guardian International Bank, then situated on Montserrat, for alleged money-laundering activities. Later, sanctions were imposed on Antigua following Stanford’s attempt to rewrite the Country’s banking regulatory laws. Stanford was repeatedly fined by FINRA for violations of the US Banking Code, and was made to hand over $3million of laundered Mexican drug money to the DEA. When determining his ‘reputation’ prior to agreeing to act as correspondent, HSBC would have been aware of all of this.

2)A credit institution must not enter into, or continue, a correspondent banking relationship with a shell bank….A “shell bank” means a credit institution, or an institution engaged in equivalent activities, incorporated in a jurisdiction in which it has no physical presence involving meaningful decision-making and management, and which is not part of a financial conglomerate or third-country financial conglomerate.

In the course of their investigation into SIB, the receiver has stated that, in his opinion no meaningful decision making or management was undertaken in Antigua. Hence, as defined in these regulations, SIB is a ‘shell’ bank. It would have been clear to HSBC that the management of SIB was not from Antigua, yet they continued to act as correspondent.

In 2002, The Wolfsberg Group, of which HSBC is a member, published its Principles for Correspondent Banking. In these Principles, ‘Higher Risk; correspondents are defined under; ‘Customer Risk,’ specifically, private offshore banks such as SIB; and ‘Country Risk,’ in particular, Countries such as Antigua, which have a history of sanctions, corruption, and inadequate anti-money laundering regulations. Under the Principles, such correspondents are required to be subject to even higher levels of due diligence, and those correspondents associated with shell banks, or where the results of the due diligence produce significant uncertainties that cannot be resolved, are to be specifically avoided.

The UK and EU Regulations, and the recommendations of the Wolfsburg Group are just a few of the guidelines that HSBC chose to ignore. Had they abided by the Basel II Accords, the Financial Action Task Force (FATF) Recommendations, or even the recognised Know Your Client (KYC) list of advice given to banks, it ought to have been very clear that Allen Stanford was perpetrating a fraud of enormous proportions with a clear aim of defrauding thousands of innocent victims of their money. The red flags are there, yet they went unheeded. HSBC had an obligation to report the Red Flags, and a duty of care that could have safeguarded many depositors from losing their life savings. It is clearly stated in the Basel II report that if a bank fails to deliver funds to the requested account, and account holders consequently lose money, then the bank has to make good those losses.

Whilst many of the subtleties of the Stanford scandal have only recently entered the public domain, HSBC as one of the worlds leading banks, has a wealth of industry knowledge, and considerable resources to undertake detailed due diligence. Their willingness to act as correspondent, not only gave Stanford a veneer of respectability, but enabled him to extend and perpetuate the fraud throughout Europe.

Prior to, and during, their establishment of a correspondent banking relationship with Stanford, HSBC gathered sufficient information concerning Stanford to understand Stanford’s business and, as a result, knew, or should have known, that Stanford was conducting a fraudulent scheme, and that it was both inappropriate, and illegal, for HSBC to continue to act as correspondent Bank.

HSBC must be made to answer why they failed in so many areas to abide by the regulations governing their correspondent relationship with Stanford; why

They chose not to report what was happening to the deposits they so willingly transferred; and must be held accountable that those funds were not delivered to the specified accounts.

Your help and assistance in this matter is requested to help the innocent victims who have suffered as a result of HSBC’s lack of care and due diligence, resulting in the loss of their life savings totalling £150 Million.

Whilst writing this letter, I have today learned that HSBC Chairman, Stephen Green, is to become the UK Minister of Trade. You can imagine my dismay.

I look forward to hearing what action you intend to take and how you can help all of the European victims in this fraud.

FSRC Report Sent to DPP

The Director of Public Prosecutions (DPP) has a copy of the report conducted into the Financial Services Regulatory Commission (FSRC) following fraud charges against Texan investor Allen Stanford and an extradition request for former FSRC head Leroy King.

The contents of the report have so far been kept secret. However, it is expected that the report would shed some light on the FSRC's operations up to late 2008, before the US Securities Exchange Commission indicted Stanford and King to answer fraud and bribery charges in the United States on fraud charges laid by US authorities..

The US alleges that Stanford operated a massive Ponzi scheme, while King was lax in his supervision of the offshore Stanford International Bank.

The DPP will have to decide whether any criminal charges will be laid. In a statement on March 19, the Antiguan government said: "It is alleged that, by failing to properly regulate SIBL, Leroy King, the former Administrator of the FSRC, facilitated Stanford's Ponzi Scheme for personal gain."

King was sent home following the indictment. The government asserted that "There is neither now nor was there any collusion between Stanford and the Spencer administration."

An investigation was commissioned to identify any systemic failures or breaches in operational procedures within the FSRC and in its examinations of offshore financial institutions. It was conducted by a group of international experts, whose findings, according to the government, "were that Antigua & Barbuda's international finance laws and regulations, of themselves, could not be faulted."

King, who served as administrator and chief executive officer of the FSRC, has been accused by US authorities of accepting bribes from Stanford to falsify audits of the SIB. Both Stanford and King have protested their innocence.

While Stanford is in jail awaiting trial, King is awaiting the outcome of his extradition hearing