By DAVID LEE
DALLAS (CN) - Investors defrauded by Allen Stanford's $7 billion Ponzi scheme say in court that the fund's auditor knowingly participated in the fraud.
The Official Stanford Investors Committee filed the federal complaint against BDO USA, and related entities BDO International, BDO Global Coordination and Brussels Worldwide Services. The complaint abbreviates Stanford Group Co. as SGC.
"Despite the pervasive fraud that infected Stanford Financial Group's operations, BDO USA repeatedly issued unqualified audit opinions on its Stanford clients' annual financial statements," the complaint states. "BDO USA's audit opinions on SGC's financial statements were critical to Stanford Financial Group's success."
In March, Stanford was found guilty of one count of conspiracy to commit mail fraud, four counts of wire fraud, five counts of mail fraud, one count of conspiracy to obstruct a U.S. Securities and Exchange Commission investigation, and one count of obstruction of an SEC proceeding. He was
acquitted of one wire fraud charge.
"Allen Stanford and his co-conspirators used the promise of SIBL CDs to lure investor money into Stanford Financial Group and then stole billions of dollars in assets from Stanford Financial Group companies for their own personal benefit," the complaint states, abbreviating Stanford International Bank Ltd. certificates of deposit.
"Substantial sums of these stolen funds were used to:
(i) support the lavish lifestyles of Allen Stanford and his Ponzi insiders;
(ii) issue bogus, unsecured personal "loans" to Allen Stanford;
(iii) capitalize other entities wholly owned by Allen Stanford; and
(iv) fund investments in speculative, illiquid, and high-risk assets, including private equity holdings and massive investments in Antiguan real estate."
Investors say BDO USA provided critical services to Stanford Financial Group for over a decade, auditing the annual financial statements of Stanford Group Co., a Houston-based broker-dealer and investment adviser that recommended and sold SIBL CDs to investor.
BDO USA also allegedly audited the annual financial statements of Stanford Trust Company (Louisiana), which served as trustee and custodian to hold the SIBL CDs that SGC sold for its investors' IRA accounts. And it audited the annual financial statements of Stanford Group Holdings, a holding company for the broker-dealer arm of Stanford Financial Group, including SGC and STC, according to the complaint.
BDO allegedly played a significant role in weakening banking laws in Antigua, where SIBL was based.
When Antigua came under increased scrutiny from foreign regulators, Stanford formed a task force to rewrite the country's banking laws, according to the complaint. The task force allegedly succeeded both in weakening regulations, and in effectively eliminating SIBL's Antiguan competitors, making Stanford the
country's de facto offshore banking regulator.
"The smashing success of the Stanford task force and its misleading regulatory 'reforms' were rooted in its exclusive nine-person membership," the complaint states. "Every firm represented on the Task Force provided crucial services to Stanford Financial Group, and every individual member of the Task Force was personally appointed by Stanford himself. ... BDO USA's partners and associates comprised nearly half of the Stanford Task Force's members, more than any other firm represented on the Task Force."
The key initiative of the task force was to amend Antigua's Money Laundering Act to ensure that "fraud" and "false accounting" were not included as violations, investors say.
BDO USA allegedly had some of the most important responsibilities in completing the initiative, including reviewing and advising on Antigua's banking laws, and making recommendations to Antigua's regulatory
authorities, including procedures for supervising and examining international banks.
BDO USA's service on the task force completely undermined its independence from SFG and, and as a result, violated generally accepted auditing standards by issuing unqualified audit opinions on its Stanford clients' annual financial statements during the years that BDO USA served on the Stanford Task Force, the complaint says. Investors also accuse BDO USA's audit engagement partner, Carlos Ancira, of concealing critical, material information from his own audit engagement team.
"Ancira knew that SGC was under increasing scrutiny from the SEC years before the U.S. Government seized Stanford Financial Group in February 2009," the complaint states. "Shockingly, however, Ancira reassured SGC in a February 28, 2007 email that '[d]ue to the sensitivity of the situation,' no other members of BDO USA's audit engagement team would be told about the SEC's investigation of SGC for possible securities fraud. Furthermore,
Ancira's email permitted SGC's outside legal counsel to omit any discussion of the SEC investigation in its audit response letter."
For every year BDO USA audited SGC's annual financial statements, it failed to confirm that SGC remitted investor funds to purchase SIBL CDs and failed to properly modify its audit opinions, the complaint alleged. It also stated that BDO USA failed to properly consider and apply consolidation principles, failed in its role as a public watchdog and issued unqualified audit opinions in spite of knowing its Stanford clients "substantially" depended on SIBL CDs.
The investors seek actual and punitive damages for negligence, civil conspiracy, breach of fiduciary duty, fraud and conversion. They are represented by Guy Hohmann with Hohmann, Taube & Summers in Austin.
