Allen Stanford claims amnesia, and it seems contagious

Source: Loren Steffy
Chron.com

R. Allen Stanford, accused of running a $7 billion Ponzi scheme from offices in Houston and the Caribbean island of Antigua, apparently has a new defense tactic: amnesia.

Stanford has been held without bail since his arrest in 2009. He was later beaten in prison by another inmate, then became addicted to pain killers as part of his recovery. His trial has been delayed while he is weaned off the medication, but it was expected to begin in the spring.

Standford now claims he can’t remember anything prior to his 2009 arrest, according to the Wall Street Journal. It’s an awfully convenient medical condition, but it’s hardly unique in the Stanford case.

The Texas Department of Banking, for example, also seems to have some memory loss. Back in May, I wrote about how state banking regulators, who granted Stanford’s request to establish a trust company here in 2001, had entered into an unusual arrangement with Antiguan authorities that enabled them to review the books of Stanford’s bank in Antigua.

In the more than two years since Stanford’s financial empire collapsed, investigators have complained about a lack of cooperation from Antiguan authorities, especially when it comes to details of Stanford’s bank. It’s not clear, I wrote in May, if Texas authorities ever received or even requested financial information from Stanford’s Antiguan bank.

When I asked a lawyer for the banking commission about it, she confirmed the agreement but said I would need to file an open records request if I wanted to know more. So I did.

Under the state’s open records law, I was supposed to get a response in 10 days. I didn’t, so I sent another message reminding them of the deadline. Still nothing. Finally, late last week, I got an answer — four months after my initial request.

In it, a lawyer for the banking department claims it didn’t receive my request until Sept. 13, but added that “it appears from the date noted on the request that the delivery of the request was delayed.”

The information I got back doesn’t answer the fundamental question of whether the banking department ever acted on its information-sharing agreement, or what information it received. An accompanying attorney general’s opinion found that the financial information would be considered confidential under the information-sharing pact between Texas and Antigua.

Neither the AG’s opinion nor the banking department, though, has answered the more basic question: did they ever invoke the agreement?

The trust agreement was supposed to protect investors, but it appears the state’s banking regulators, after much fanfare in establishing it, never actually used it, or if they did, they missed the warning signs. Then again, maybe delivery of the information was “delayed.”

Here’s the response to my request:

FOI Response

Here’s the documents it generated, most of which discuss the creation of the trust company and the information-sharing pact with Antigua:

Stanford TAB Documents

SEC INSPECTOR GENERAL TO INVESTIGATE STANFORD TEXAS RECEIVERSHIP

KLS Press Release & Motion to Intervene

We have learned today that SEC Inspector General David Kotz will begin an investigation of the Texas Receivership of Allen Stanford, pursuant to a request by Kachroo Legal Services, P.C.

The request by Kachroo Legal Services, P.C. to initiate an investigation attached the recently filed Motion to Intervene and Declaration based on the malfeasance and waste of the receivership which to date has consumed all collected assets, $120 million. The motion also details an inside deal between the Receiver and the Official Stanford Investor Committee which
provided a pre-approved 25% percent contingency fee to attorneys on the Committee who have not objected to any of the Receiver's fees. This is despite their role of holding the receivership accountable and on track and their right to raise and be heard on any issue in the Receivership proceedings.

The Inspector General will likely investigate the SEC's failure to appropriately oversee this Receivership. The last objection concerning overbilling by the Receiver Ralph Janvey filed by the SEC was over one and one-half years ago.

For further information please contact Kachroo Legal Services, P.C. at (617) 864-0755 or email wlugo@kachroolegal.com. For further information about Kachroo Legal Services, P.C., please review our website www.kachroolegal.com.

KLS Stanford Victims Motion to Intervene

Financier Stanford's lawsuit seeks $7.2 billion

Source: Juan A. Lozano (Washingtonexaminer)
Jailed Texas financier R. Allen Stanford has filed a lawsuit accusing prosecutors and federal agents of depriving him of his constitutional rights by using abusive law-enforcement tactics.

He is asking for $7.2 billion in damages.

The lawsuit filed Wednesday comes after Stanford was declared incompetent to stand trial on charges he bilked investors out of $7 billion in a massive Ponzi scheme.

Stanford is accusing U.S. Department of Justice prosecutors as well as two FBI agents, five U.S. Securities and Exchange Commission agents, and 15 other unnamed agents and law enforcement officials. He says they used illegal tactics to prosecute him, seize all his personal and business properties, and prevent him from defending himself in both the criminal and civil cases he is facing.

The jailed financier is accusing federal agents of using more than $51 million of his own seized money to pay for their investigation.

Stanford and three former executives of his now-defunct Houston-based Stanford Financial Group are accused of orchestrating a colossal pyramid scheme. They allegedly advised clients from 113 countries to invest more than $7 billion in certificates of deposit at the Stanford International Bank on the Caribbean island of Antigua, promising huge returns.

Stanford is also fighting an SEC lawsuit filed in Dallas that makes similar allegations. A receiver appointed in the SEC suit seized most of Stanford's assets.

"By subjecting Mr. Stanford to multiple prosecutions for the same offense, defendants have deprived him of his liberty and property," Wednesday's lawsuit says.

Kevin Callahan, a spokesman for the SEC, declined to comment on the lawsuit. A spokesman for the Justice Department did not immediately return a telephone call seeking comment. A gag order in the criminal prosecution has barred most individuals connected with the case from discussing it.

Stanford, who has been jailed in Houston since his June 2009 indictment, is being transferred to a prison medical facility for treatment of an addiction he developed while incarcerated to an anti-anxiety drug.

A federal judge last month declared that Stanford was not competent to stand trial. The judge ruled that Stanford's addiction, as well as a brain injury he suffered in a September 2009 jail fight and a major depressive order he is suffering, have left him unable to think clearly or help his attorneys prepare a legal defense.

The judge's order recommended Stanford be taken to a medical facility at the federal prison in Butner, North Carolina, where jailed financier Bernard Madoff is serving a 150-year sentence.

The Bureau of Prisons website on Thursday listed Stanford as being at a federal transfer center in Oklahoma City. Stanford's trial, which had been set to begin last month, is on hold pending his treatment.

Once considered one of the wealthiest men in the U.S. with an estimated net worth of more than $2 billion, Stanford was declared indigent and given a court-appointed attorney after he lost a separate lawsuit in which he had tried to get an insurance policy to pay for his legal fees.

Stephen Cochell, Stanford's attorney in Wednesday's civil suit, said he is not being paid. But he declined to comment further about the lawsuit, including how much help he received from the financier in preparing it.

Stanford and the executives have pleaded not guilty to various charges, including money laundering and wire and mail fraud.

Stanford's attorneys say he ran a legitimate business and didn't misuse bank funds to pay for a lavish lifestyle, as prosecutors allege.

Damming Evidence from the Report into the SEC

From a report by the SEC’s Office of the Inspector General, into why the financial body didn’t expose the alleged $7bn Ponzi scheme operated by charismatic Texan, Sir Allen Stanford, earlier.

Of note is that the SEC was ‘on to’ Stanford as early as 1997:

The OIG investigation found that the SEC’s Fort Worth office was aware since 1997 that Robert Allen Stanford was likely operating a Ponzi scheme, having come to that conclusion a mere two years after Stanford Group Company (“SGC”), Stanford’s investment adviser, registered with the SEC in 1995. We found that over the next 8 years, the SEC’s Fort Worth Examination group conducted four examinations of Stanford’s operations, finding in each examination that the CDs could not have been “legitimate,” and that it was “highly unlikely” that the returns Stanford claimed to generate could have been achieved with the purported conservative investment approach. Fort Worth examiners dutifully conducted examinations of Stanford in 1997, 1998, 2002 and 2004, concluding in each case that Stanford’s CDs were likely a Ponzi scheme or a similar fraudulent scheme. The only significant difference in the Examination group’s findings over the years was that the potential fraud grew exponentially, from $250 million to $1.5 billion.

The report says pressure on SEC officials to look into certain types of fraud — in particular one’s that could be settled quickly and without much legal fuss — may have led to the scuppering of early attempts. But there was one added ‘difficulty’ in prosecuting Stanford in the late 1990s.

Stanford simply refused to cooperate:

Despite the examiners’ referral of their serious concern that SGC was part of a Ponzi scheme, the Enforcement staff did not open a matter under inquiry (“MUI”) into the Stanford case until eight months later, in May 1998, and did so only after learning that another federal agency suspected Stanford of money laundering. The OIG investigation further found the only evidence of any investigative action taken by Enforcement in connection with this MUI was a voluntary request for documents that the SEC sent SGC in May 1998. We found that after Stanford refused to voluntarily produce numerous documents relating to SGC’s referrals of investors to SIB, no further investigative steps were taken; after being opened for only three months, in August 1998, the MUI was closed.

US Widens Stanford Probe to brokers

US securities regulators have broadened their investigation into the alleged $8bn Ponzi scheme run by Allen Stanford, the Texan billionaire, to include brokerage executives who invested their clients’ money in Stanford International Bank products.

The Securities and Exchange Commission has notified Danny Bogar, former president of Stanford International Bank’s brokerage operations, and several brokers in recent months that it intends to file civil fraud charges against them in connection with the probe, according to lawyers involved in the case and a regulatory filing. The SEC declined to comment.

The move marks an expansion of the government’s probe beyond the top officers of the bank to include the army of brokers who attracted millions of dollars from investors....

Tom Taylor, a lawyer for Mr Bogar, confirmed that his client had received a Wells notice, the process the SEC uses to notify individuals that they may face civil charges. Mr Taylor said his client had no knowledge of the alleged fraud.

Mr Taylor added that he had met SEC investigators to plead his client’s case. “He certainly wasn’t privy to what was going on [at the bank],” Mr Taylor said. Mr Bogar is a brother-in-law of Mr Davis.

Patrick Cruickshank, a broker who worked in Stanford’s Austin, Texas, office from 2006 until 2009, also received a Wells notice, according to an update to his record filed with the Financial Industry Regulatory Authority the brokerage industry’s regulator. The SEC said it planned to sue him on civil charges of securities fraud and aiding the Stanford fraud, according to the filing.

A lawyer for Mr Cruickshank said his client “has done nothing wrong” and “was a victim of the Stanford fraud”.

He would say that wouldn’t he!

Brokers Face Charges

US authorities have told several brokers that they intend to file civil charges against them over the alleged $8bn Ponzi scheme at Allen Stanford's banking group



US regulators have widened their investigation into the alleged fraud at Allen Stanford's banking group, and are now looking at brokers who worked with the bank as well as the bank's top executives.

The Financial Times reported this morning that the Securities and Exchange Commission had notified several brokers, as well as the head of Stanford International Bank's brokerage operations, that it intends to file civil fraud charges against them.

Investigators allege that Stanford's banking operation was in fact an $8bn (£5bn) Ponzi scheme – an investment in which returns to investors are funded either through their own payments or through those of subsequent investors rather than any genuine investment returns.

The FT said that Danny Bogar, head of SIB's brokerage operations, had been notified of the SEC's move by means of a Wells notice, a process used to alert individuals that they might face civil charges. Bogar's lawyer said his client knew nothing about the alleged fraud.

Patrick Cruickshank, a broker who worked in Stanford's office in Austin, Texas from 2006 to 2009, also received a Wells notice, the paper said, citing US regulatory filings. His lawyer said Cruickshank had "done nothing wrong" and "was a victim of the Stanford fraud".

Until now only Stanford, four senior executives at the bank and an Antiguan regulator had been charged in connection with the scheme.

Stanford, who has been held in custody since his arrest in June 2009, denies the allegations. His trial is due to begin in January, although defence lawyers argued last week that the businessman was too heavily medicated to prepare for the proceedings.

Former chief financial officer James Davis has pleaded guilty and is co-operating with the probe. Others accused have denied wrongdoing.

SEC Did Nothing to Stop Stanford Ponzi Scheme for Years

Newly released documents detail 12 years of fits and starts at the Securities and Exchange Commission as financier Allen Stanford was allegedly running a global Ponzi scheme.

At one point, an SEC official laments in an e-mail, "Before I retire, the Commission will be trying to explain why it did nothing." The e-mail from Fort Worth, Texas, Regional Office Assistant Director Julie Preuitt was written in 2004. The agency did not move in on Stanford until 2009.

The documents are exhibits in a scathing report issued in March by SEC Inspector General H. David Kotz. His investigation found SEC staffers were aware of potential problems at the Stanford Financial Group as far back as 1997, but that the SEC's Enforcement Division repeatedly declined to take action. The agency released the exhibits Tuesday after repeated requests by CNBC under the Freedom of Information Act.

Kotz's investigation also found the SEC's former enforcement chief in Fort Worth, Spencer Barasch, repeatedly sought to represent Stanford after leaving the agency, even after being told by the SEC's ethics office that he could not.

The exhibits show Allen Stanford himself pushed for Barasch's hiring. With SEC investigators bearing down on the company in 2006, Stanford wrote in an e-mail to Chief Financial Officer James Davis and General Counsel Mauricio Alvarado, "The former SEC Dallas lawyer we spoke about in St. Croix. Get him on board asap."

SEC officials blocked Barasch from representing Stanford, but the documents show Barasch billed Stanford for work done in 2006. He sought to represent Stanford again after the SEC lawsuit in 2009, but officials again ruled he had a conflict of interest. According to a transcript released Tuesday, Kotz asked Barasch about the 2009 request, and Barasch replied, "Every lawyer in Texas and beyond is going to get rich over this case. Okay? And I hated being on the sidelines."

Barasch, who has not been charged with wrongdoing, has not responded to previous requests for a comment about any role he may have played in the Stanford affair.

The documents show Allen Stanford's attempts to exert his influence may have extended beyond the SEC. In a 2004 e-mail exchange with the subject "Stanford — Call to Federal Reserve," SEC officials contemplate the fact that someone at Stanford — the name in the e-mail is redacted — had contacted someone at the Federal Reserve, whose name is also redacted.

The SEC staffers conclude there is nothing they can do about the development, which leads Assistant Regional Director Preuitt to write, "I love this stuff. We all are confident that there is illegal activity but no easy way to prove. Before I retire, the Commission will be trying to explain why it did nothing. Until it falls apart all we can do is flag it every few years." The e-mail is dated October 25, 2004.

By then, officials in Fort Worth had been looking into issues at Stanford Financial for years. In 1997, examiners found evidence of "possible misrepresentation and misapplication of customer funds," according to one of the newly released documents. The report noted that Stanford himself had made a $19 million cash contribution to the company in 1996, and "We are concerned that the cash contribution may have come from funds invested by customers in (Stanford International Bank)."

The report was referred to the Enforcement Division, which ultimately chose not to pursue the matter. Among those who made the decision: regional enforcement chief Spencer Barasch.

The SEC released the Inspector General's report — minus the exhibits — on April 16, the same day the Commission announced a high-profile fraud suit against Goldman Sachs. That triggered charges the SEC was trying to bury the report amid the publicity surrounding the Goldman Sachs case, but a subsequent report by the Inspector General found no evidence of that.

Allen Stanford is scheduled to go on trial in January on 21 criminal counts.

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.”

Investigation of the SEC’s Response to Concerns Regarding Robert Allen Stanford’s Alleged Ponzi Scheme

SEC OIG Report Stanford April 2010[1]

SEC's regional offices present managerial problems, become an obstacle to reform

For nearly a decade, Julie Preuitt told her colleagues at the Securities and Exchange Commission's Fort Worth office that she had found problems at a fabulously successful investment firm in Houston, saying its unmatched returns were probably the result of fraud.

But officials in the agency's enforcement division weren't interested in complex cases, just quick-hit lawsuits that would make the regional office look active, according to a review by the SEC inspector general. They brushed off her warnings about the Houston enterprise run by R. Allen Stanford -- only much later exposing it as one of the largest scams ever: an $8 billion Ponzi scheme.

So Preuitt was dismayed in 2007 when the Fort Worth office decided to extend what she feared was the same quick-hit approach to other work. Her complaints centered on a new method of inspecting financial firms that she protested was motivated only by a desire to boost the office's exam statistics. Preuitt was also essentially demoted after vocalizing her complaints, according to a second report by the inspector general.

The introduction of the new inspections, dubbed raves, followed by Preuitt's reassignment, opened a rift between Fort Worth managers and staff that continues today, undercutting the effort by SEC leaders in Washington to rebuild the agency and promote coordination after years of setbacks, according to current and former SEC officials and internal agency documents, including three separate reports by the SEC's inspector general.

Managing the SEC's 11 regional offices has long posed a difficult challenge. Breakdowns in coordination among the New York, Boston and Washington offices, for example, helped Bernard Madoff get away with his Ponzi scheme for years.

These failures are among various agency shortcomings documented over recent years in internal reviews and media reports. The accounts have in part blamed an agency culture that favored easy cases over difficult ones, as well as a deadening bureaucracy and a workload that has overwhelmed the staff.

The Fort Worth office investigates alleged wrongdoing by public companies and financial firms in Texas, Oklahoma and Arkansas and conducts periodic reviews, or "exams," of financial companies. The region is home to some of the country's largest public companies, and most financial firms have major offices there.

Fort Worth's fumbling of the Stanford fraud investigation was discussed in an inspector general's report published two months ago. But its findings that the office failed to act on credible concerns about Stanford -- potentially costing investors more than a billion dollars -- only hinted at broader problems within the office.

Tensions in Fort Worth escalated in 2006 after Preuitt, an assistant regional director for exams, was beaten out by her colleague, Kimberly Garber, for the job of overseeing the office's exams of financial companies. Soon after, Garber told the staff she was interested in boosting the number of exams the office conducted, and later decided to introduce a new half-day exam for brokerage companies that sold investments to customers or traded on their behalf. In these exams, SEC officials would interview management and review company policies for complying with securities rules, but did not examine company records. The end result was a page-long summary.

Several lower-ranking officials, including Preuitt and her deputy, Joel Sauer, protested the new type of review, according to agency documents and current and former officials. Preuitt and Sauer said that the rapid-fire exams were an artificial way of boosting the number of exams the Fort Worth office conducted, were cursory at best and duplicated work being done by other regulators.

Garber decided to proceed with the exams. Preuitt protested vocally and repeatedly, contacting agency officials in Washington to complain about the raves. But agency officials in Washington let them proceed in the hope of spotting more cases of financial fraud, according to SEC spokesman John Nester.

Her superiors -- Rose Romero, head of the Fort Worth office, and Garber -- considered Preuitt antagonistic in the way she voiced her objections. They took action against her, removing Preuitt, a 16-year veteran, from the exam program and placing her in a job with far fewer responsibilities, according to the inspector general's report.

The inspector general said the way Preuitt raised her concerns could be proper grounds for disciplinary action, but not the substance. He concluded that "the connection between [Preuitt's] complaints about program functions and the personnel actions against her" was "inappropriate."

"It's bad whenever you take someone who's got experience and knows what they're doing and kind of put them on the sidelines," said Hugh Wright, a 28-year SEC veteran who formerly ran the examination and enforcement programs in Fort Worth.

Garber and Romero declined to be interviewed for this story. They said Nester spoke on their behalf.

After Preuitt was reassigned, Sauer wrote to Christopher Cox, the SEC's chairman at the time, to raise concerns about the situation and, more broadly, about Garber's management.

In the letter, Sauer also complained about a trip Garber had arranged for her staff to visit state regulators in Kansas. She'd had the team stay in Baldwin City, well outside Topeka, at a turn-of-the-century bed and breakfast called Three Sisters Inn. The inn was owned by Garber's brother and sister-in-law.

In a later review, the SEC's top ethics lawyer concluded that Garber violated the agency's rules by using her public office for private gain of her relatives, the inspector general reported. Nester said "appropriate action was taken" in connection with the Kansas trip but provided no details.

Sauer's letter of concern was forwarded to Romero; Sauer was told by Washington officials that Romero would work on the issues he raised.

But Sauer's supervisors, Romero and Garber, took disciplinary action against him and issued a letter of reprimand for insubordinate behavior, the inspector general found. Sauer quit in 2008. "I am proud of my work at the SEC and the work of the [Fort Worth] examination staff. I will let my record of 13 years of service to the SEC and Texas State Securities Board speak for itself," Sauer said in a statement.

Nester said senior officials in the office had "acted appropriately" by taking the guidance of the SEC's human resources department before taking action against Preuitt and Sauer. Preuitt did not respond to phone calls seeking comment.


Current and former Fort Worth SEC officials said the clash between Preuitt and Garber kicked off a period of ill will between managers and their staff. One official said there was "a lack of trust," saying many front-line examiners disagreed with how Garber treated staff and how she has run the exam program

In Washington, SEC chairman Mary Schapiro and her team have espoused a different approach. They suspended rave inspections across the whole agency, in favor of programs to verify assets claimed by investment companies in the wake of the large number of Ponzi schemes disclosed in the past two years.

Stanford "Pirate of the Caribbean"

In 1985, when Stanford first became interested in the Caribbean, the hottest new home for offshore banks was the tiny island of Montserrat, a British colony with a smoking volcano (that, in 1995, obliterated half the island) and barely 12,000 jittery residents. A notorious Beverly Hills broker named Jerome Schneider later convicted of fraud had discovered the colony's porous financial regulations and begun selling banking licenses; of Montserrat's 350 so-called instabanks, at least 200 arrived via Schneider.

By most accounts, it was a stunningly sleazy climate in which to operate. The vast majority of the Montserrat instabanks existed only on paper; their owners scarcely if ever visited the island. Scores of these banks would later be probed by British and U.S. authorities. One, Zurich Overseas Bank, whose owners would be indicted for fraud in Detroit, operated out of the Chez Nous tavern in the Montserrat town of Plymouth. Almost every bank in Montserrat was operated illegally, says David Marchant, editor of OffshoreAlert, a newsletter that covers offshore banking. They were all shell banks, and they were all pretty much involved in fraud. They were all the same: certificate-of-deposit frauds, money-laundering. The fact that Stanford had a banking license in Montserrat is all you needed to know about his credibility. It wasn't like most of the banks were good and you had a few bad eggs. The only reason you opened a bank in Montserrat was to commit fraud.

Stanford's new Guardian International Bank, however, was sharply different from other Montserrat banks. Rather than avoid the island itself, Stanford actually opened a bank building and hired local women to staff it. (The building and all its contents, alas, were destroyed by Hurricane Hugo in 1989.) The island facilities were augmented by a sales office in Miami and another in Houston, where Stanford worked with a small group including his college roommate James Davis, who would go on to become Stanford Financial's C.F.O. But what also distinguished Guardian from other Montserrat banks was how Stanford constructed a mythos to establish his credibility. He began telling customers the company had been founded by his grandfather Lodis B. Stanford (a barber turned insurance agent) in Mexia in 1932 and, once he renamed the bank Stanford International, he hung a photo of the gray-haired old man in the lobby.

From the beginning, little about Stanford International was what it seemed. A rare glimpse of its early years comes from one of the bank's first employees, a person I'll call Maria, whose job in Houston included assembling its first marketing brochures. I remember the bank in Montserrat, Maria says. It had two stories, with three or four African-American ladies and one white lady, this really pretty girl, maybe 17 or 18. They had all these computers, but the power was not even switched on. The computers didn't even work.

In those early days on Montserrat, Stanford attracted depositors, as he would throughout his career, by placing advertisements, some featuring attractive young women, in Latin-American newspapers. Far more alluring than the women, however, were the interest rates Stanford promised: two percentage points above American bank rates. That was what Allen always said, Two points more, Maria says. He told me, It is unbelievable. People are so stupid, they will risk all their money, give it to someone they don't even know, for two points. One day he grabbed the calculator on my desk, ran the numbers for two points on a million dollars: it was $20,000 a year. He said it was just unbelievable what people would do for just two points more.

By 1988, Stanford had acquired his first three run-down Houston apartment complexes possibly using depositors' money as the bank's deposits began to skyrocket. By the end of 1989, Stanford claimed an astounding $55.5 million in accounts. By November 1990 the number hit $100 million. Even inside the bank, this kind of growth raised eyebrows. Nobody knew if the numbers were true, Maria says. If you asked Allen how he [managed to pay higher interest rates], he always said exactly the same thing he says now: It's only two points; our organization is very lean. We don't pay taxes in Montserrat. Nobody believed that. But he paid very well. So the questions stopped.

I was suspicious when we did the first annual report, Maria continues. We used to do the work at night, when everybody was already gone. It was weird. You could see they were playing with the numbers and changing them right there in front of me. Jim [Davis] would come back to my office and look at the numbers, then go back to Allen, who would come in and say, Fine, let's just put this number down. They were just making things up. Personally, I was hoping we could make enough money to cover up everything. But it just got worse and worse. Stanford, however, seemed without a care. He and his wife moved into a pink hacienda-style house in the northern suburb of Kingwood.

Then came trouble. According to David Marchant, it all began when an American computer programmer, hired to update another Montserrat bank's systems, complained to local authorities that his boss appeared to be transferring deposits into his personal account. A Scotland Yard man named Dick Marston was summoned to investigate; Marston brought in the F.B.I. A probe Marston expected to take a few weeks turned into a massive investigation that lasted years. By 1989 more than a hundred banks were under scrutiny by British and American agents for every conceivable financial crime.

Stanford's operation, by then one of the larger Montserrat banks, quickly became a target. Where, Marston wondered, were all those deposits coming from? Colombian drug money was flooding into banks across the region, and there were persistent rumors that this was the source of Stanford's growth. Marston called in an expert from the Office of the Comptroller of the Currency. As a onetime F.B.I. agent involved in the Montserrat probe recalls, The O.C.C. guy went down there, stood across from the Stanford office for maybe several hours, came back and said, Yep, that's a money-laundering operation. Marston goes, How can you tell from just standing across the street? The guy goes, I'm telling you, it is. Then, a little later, we got fairly detailed intelligence that they were indeed laundering for major Colombian drug traffickers. I remember very clearly that, when the governor [of Montserrat] heard this, we had to literally peel the guy off the ceiling. The Montserrat authorities were already tossing dozens of shady banks out of the colony when the government revoked Stanford's license, in May 1991.

It was a crushing blow. Allen disappeared for six or eight months after that, Maria says. For a long period nobody saw him. He would call in at one in the morning, and he always said he was working on this big deal, it would save everything. For once, Stanford was true to his word. In time he found a new home for Stanford Financial, one where fungible banking regulations would prove ideal for his ambitions:
Antigua.

Island Hopping

An American vacationer who wants only to sip rum punches on its legendary pink-sand beaches may not realize or care that Antigua was long host to one of the Caribbean's most corrupt governments, under the two Bird administrations. A militant trade unionist with little formal education, Vere Bird led Antigua to independence in 1981 and for years ran the two-island country officially named Antigua and Barbuda as a personal fiefdom amid constant allegations of criminal activities. One of his sons was behind a scheme to sell Israeli weapons to Colombian drug traffickers. Another was arrested at V. C. Bird International Airport with 25 pounds of cocaine in his luggage. Another son, Lester Bird, eventually took control of the government, in 1994, as the U.S. began voicing concerns that the island was becoming not only a money-laundering center but also a haven for Russian organized crime.

Such was the Antiguan milieu when Allen Stanford introduced himself to the Birds, around 1990. He wanted to buy the local Bank of Antigua, on the verge of bankruptcy, and the Birds were happy to broker its sale to him. Soon after, Stanford opened a second Antiguan bank, a new incarnation of Stanford Financial, which he operated much as before, opening a bank building, hiring locals to staff it, and advertising high interest rates in Latin-American newspapers. From the outset Stanford worked diligently to forge a partnership with the Birds. He provided the money to build cricket fields and a hospital, a vast multicolored complex overlooking the capital of Saint John's. In 1995, Stanford went a step further, loaning the government several million dollars to cover salaries and pension contributions. The loans grew over the years. By the late 1990s, Stanford owned the Antigua Sun, one of the island's two daily newspapers, and when two editors protested Stanford's suppression of an article criticizing Lester Bird during the 1999 elections, he fired them. (Both sued successfully.)

Stanford became Lester's go-to guy, says Winston Derrick, publisher of the competing Daily Observer. When Lester needed a hospital, he turned to Stanford. When Lester needed anything, he turned to Stanford.

Stanford Financial boomed in its new home. By 1994 it claimed $350 million in assets, enough for Stanford, in the following years, to buy a Venezuelan bank and start a conventional broker-dealer operation in Houston; he eventually opened a corporate headquarters near Houston's Galleria mall. Later, branches were added in Panama, Peru, Ecuador, and Mexico.

From the outset, U.S. authorities kept tabs on Stanford. The Internal Revenue Service sued Stanford and his wife for failing to file their 1990 return, and sought more than $420,000 in back taxes; 19 years later, the I.R.S. is claiming they owe over $226 million for returns from 1999 to 2003. After the money-laundering allegations on Montserrat, the F.B.I. too has kept a keen eye on Stanford, more or less nonstop, for more than 20 years.

In terms of his notoriety, once that kind of information started coming in, he was known to a lot of folks in law enforcement, says a former F.B.I. agent who investigated Stanford. He stayed very prominently on the radar for years still is. There was a series of investigations. Obviously none of them ever ended in indictments. But we're talking various F.B.I. field divisions, with multiple agents, then multiple agencies, over 10 to 12 years.

Throughout Stanford's first decade on Antigua, the focus of U.S. investigators remained largely, perhaps exclusively, money-laundering. Questions of whether the bank was swindling investors wouldn't arise for years. If you were in the metaphoric bushes outside Stanford anytime in the last 20 years, notes one U.S. security consultant, you would literally have been bumping into team after team of U.S. government agencies, shouting at each other to get out of the way, you know, Be quiet, Stanford will hear you. Those agencies would include the F.B.I., [U.S.] Customs, and the S.E.C. From everything I hear, there was endless interagency conflict over what to do and how serious this guy was.

The authorities' inability to mount a criminal case against Stanford not to mention everyone's inability to sniff out fraud has left many, inside and outside the government, outraged. Clients would come to us and go, Oh, this guy is offering such great rates, he's never been in trouble, should we go with him? says the C.E.O. of one private-security firm. And then you reach into your sources and they say, Stop, run, avoid this guy like the plague. He's hot hot with the government. Well Jesus, we're just private investigators, and we knew the guy was bad. Where was the government? Why didn't anyone hang a sign on this guy?

Catch Me If You Can

One reason was Stanford's defenses. He became known for suing anyone, even journalists, who suggested Stanford Financial was anything but legitimate. In 1996, when a writer for Caribbean Week portrayed the company as a money-launderer, Stanford sued and won a front-page retraction. No critic was too small to ignore. He once sued a Catholic-school principal in New York after the man, active in Antiguan politics, termed him a neo-colonialist.

Behind the scenes, Stanford was even more aggressive. As the company grew, he became renowned within law-enforcement circles for aggressive counter-intelligence. Stanford's security chief was a former head of the F.B.I.'s Miami office. But his greatest asset may have been a top security firm, Kroll Associates, whose Miami office worked with Stanford for years. Stanford was spending millions of dollars a year trying to figure out who was looking at him, and aggressively combating whoever it was, recalls the former F.B.I. agent. Kroll was essentially running a propaganda campaign in defense of Stanford's good name. They beat on me many times: Hey, you got this all wrong, he's not a money-launderer, he's a great guy, leave him alone.

Kroll's role in defending Stanford's reputation, in both law-enforcement circles and the wider banking community, was an example of a controversial practice known within the private-security world as reputational self due diligence, that is, vouching for a client's good name. It is, by all accounts, an exceedingly lucrative business. What Kroll would do, says a former Kroll executive, was put together a very detailed description of the bank, what it does, look over its balance sheet, the origin of the deposits, and produce this really thick report that says, This bank complies with the [U.S.] guidelines for combating money-laundering, and you, Bank A, should feel free to work with them. It is controversial, even inside the firm. Kroll is considered how to say this nicely well, they're willing to take more controversial clients for this type of service.

Kroll can confirm that it has provided routine professional services to various businesses related to Allen Stanford, the company said in a statement issued to VANITY FAIR. All such work was provided consistent with Kroll's reputation, internal controls, and its history of working with law enforcement. Suggestions to the contrary are incorrect. Confidentiality restrictions prevent any further comment on those assignments.

Kroll's work for Stanford dates back at least a decade, to the moment when U.S. concerns about the company finally burst into the open. That happened in 1999, when a Drug Enforcement Administration probe revealed that members of Mexico's vicious Jurez cartel had deposited more than $3 million in accounts at Stanford. The bank froze the accounts, while the Bird government announced formation of a committee to rewrite its anti-money-laundering laws. To the U.S. government's dismay, Stanford himself was named to the committee. Another member was Thomas Cash, a former D.E.A. chief for Florida and the Caribbean who headed Kroll's Miami office and, former associates say, was long Kroll's liaison with Stanford. The committee produced a set of new regulations that appeared to weaken Antigua's banking laws rather than strengthen them.

The State Department howled, complaining that the Antiguan government has effectively ceded oversight of its offshore section to an offshore banker and his minions. When the Bird government shrugged, the U.S. Treasury officially designated Antigua a money-laundering risk, just the second such warning ever issued against a sovereign country.

Under intense pressure, the Bird administration backed off and, after negotiations with U.S. authorities, tightened the island's laws. At the same time, according to a State Department cable obtained by The Philadelphia Inquirer, unnamed Stanford allies seized a sheaf of Antiguan banking records. It appears that the U.S. offshore banker [Stanford] is taking advantage of loopholes & to seize the initiative and protect himself from any future inquiries or investigations, noted the cable, which labeled the incident Filegate, Antiguan style. The high-powered legal and investigative guns from the U.S. are likely being tasked with cleansing the files to make sure there is nothing in them that could damage or implicate the American offshore banker.

Having survived his first dustup with U.S. authorities, Stanford apparently realized he could use friends in Washington. Some of these new friends may have been inside the D.E.A.; a BBC broadcast in May claimed that Stanford became a D.E.A. informant. But his best friends were in politics. His political giving began about the time that a sweeping anti-money-laundering bill was introduced to Congress, around 2000. Stanford began donating large sums to a number of senators, including Minority Leader Tom Daschle, in an apparent effort to block it; in a later study, the public-interest group Public Citizen judged that Stanford's donations were probably crucial to the bill's eventual defeat in the Senate. Stanford's giving grew from there.

In 2002, his company gave $800,000 to the Democratic Senatorial Campaign Committee, the vice-chairman of which was Florida senator Bill Nelson, who received $45,900. In all, Stanford spent nearly $5 million lobbying Congress between 1999 and 2008 and dished out $2.4 million to federal candidates. He also sponsored dozens of free fact-finding trips to Antigua and other Caribbean islands for politicians and their staffs on his fleet of jets. Former Republican House majority leader Tom DeLay, of Texas, among the largest recipients of Stanford's largesse, flew 11 times on Stanford's jets, according to The Dallas Morning News.

Empire Building

What remains of Stanford's Antiguan empire today is a series of mostly empty buildings that line the periphery of the island's airport; in fact, the first half-dozen structures a visitor encounters, even the airport parking lot, are Stanford's.

Turn right at the airport traffic circle and you see the offices of his newspaper, the Antigua Sun. To the left is the Stanford Cricket Ground, an expanse of grass lined with grandstands, video screens, and Stanford's restaurant, the Sticky Wicket, guarded by a statue of a cricket player. Looming over the traffic circle is Stanford International Bank itself, an immense building, engulfed in colorful tropical gardens; people working for a court-appointed receiver can be seen wandering in and out of its great mahogany front doors. Next door is another Stanford restaurant, the Pavilion, which features an 8,000-bottle wine cellar. Just up the street, past the observation tower and the botanical gardens, is a long, low plantation-style building, Stanford Trust. Across the way is the Bank of Antigua. The entire development has the just-built look and feel of a middle-class Miami subdivision.

By the early 2000s, Stanford's wealth, power, and visibility were all on the rise. As his company grew, Stanford became a distant, sometimes mercurial executive, a figure most employees saw only at official functions. You would wait for hours to see him, recalls an executive, one of 15 who reported directly to the boss. If you got called for a 10-o'clock-in-the-morning meeting, it might be 1 o'clock in the morning by the time you got to see him. Time didn't matter. He demanded respect too. [Every meeting was] basically a table of yes-men. His wish was our command.

In Antigua, Stanford had become a polarizing figure. Many on the island, citing the gifts and money he had given the government, adored him. But others viewed him as a sharp-elbowed Yankee imperialist, a view propagated by opposition politicians during the hard-fought 2004 election in which Lester Bird was tossed out of office; Bird's replacement, Baldwin Spencer, termed Stanford haughty, arrogant, and obnoxious.

Yet Stanford's power endured, in large part because of the financial hammerlock he held on the government. By 2004 its debt to Stanford had grown to $87 million nearly half its annual tax revenues. And in return for being allowed to put up the new buildings of an airport complex and purchase 19-acre Maiden Island (where he planned to build a new home), plus another islet, he supplied money to build a new national library and an education complex.

As his fortune grew, however, he began spending more time in South Florida he seldom visited the Houston headquarters, former employees say where in October 2003 he paid $10.5 million for a 57-room mansion, called Tyecliffe Castle, on the Coral Gables waterfront. It was there that, according to the Daily Mail investigation and various court filings, Stanford secreted one of the women some inside his company began calling the outside wives.

By most accounts, there were at least three of them. The first was apparently a woman with the same name as his wife, Susan, whom he had dated in Houston. She lives today in a Dallas suburb with her and Stanford's 17-year-old son. A second woman, Beki Reeves-Stanford, lives in South Florida with their two teenage children. The third is Louise Sage, who lives in Kent, England. Stanford has two younger children with her. Their relationship became public when she sued for financial support.

With his wife, Stanford has a daughter, now in her 20s. According to reports, he and his wife separated in 1999; Susan filed for divorce in 2007. The case is pending. Stanford's current girlfriend is a former cocktail waitress, at one of his Antiguan restaurants.

Stanford Financial, meanwhile, remained nearly as productive as its founder, topping $3 billion in deposits in 2004. Over time the company grew into a high-pressure marketing powerhouse in which employees worked in groups with colorful names such as Money Machine, Superstars, and the Deal Hunters. Stanford offered several financial products, but its mainstay remained the high-rate C.D.'s sold out of its Antiguan bank. According to The Wall Street Journal, Stanford salesmen earned commissions of 1 percent for every dollar they brought in, a rate so rich some brokers called it bank crack it was that addictive. Top producers might also win a luxury BMW sedan.

He sort of burned through countries, notes an investigator working for Stanford's court-appointed receiver. If you look at the internals, early on the money was coming from Brazil and Venezuela. Billions from Venezuela. Then Peru, Ecuador. You know, you can only get so many investors in one country to put in so much money before people start asking questions. So from there he moved to trying to capture money in Panama, then the U.S., which was difficult, and then Mexico. That's where he was at the very end.

Stanford Financial's drive to capture American depositors shifted into high gear in 2004. Between 2004 and 2007, the bank expanded its U.S. branches from 6 to more than 25, opening offices in Denver, San Francisco, and Boston, as well as in southern cities, such as Little Rock and Baton Rouge; a second headquarters of sorts was established, in Memphis, close to the northern-Mississippi home of Stanford's chief financial officer, Jim Davis. Prospective investors were often ushered through the hushed mahogany-and-marble corridors at the Houston headquarters, where they were led into the Lodis Room named for Stanford's barber grandfather for a promotional film, then plied with champagne and cigars in the executive dining room. The wealthiest prospects might be flown to Antigua aboard one of Stanford's six private jets, put up for a few nights at the luxurious Jumby Bay resort, and, if they were lucky, get to meet Stanford himself.

Bit by bit, Stanford Financial emerged from its shadowy Caribbean origins. To popularize the brand, Stanford began throwing money into the usual kinds of corporate philanthropy and naming opportunities. He sponsored the pro golfer Vijay Singh, along with two tournaments. There were Stanford banners in the Miami Heat's arena, a Stanford Field at the International Polo Club Palm Beach, plus millions given to hospitals, theaters, and museums, mostly in Memphis, Miami, and Houston. When it came to sports marketing, though, Stanford's passion was cricket, especially a fast-moving new version of the game called Twenty20 that can be played in hours instead of days.

In 2005, after completing his Antiguan cricket ground, Stanford announced a pan-Caribbean tournament. The hidebound cricket world, centered in England and India, snickered, but Stanford would not be deterred. He unveiled his own team, the Superstars, and, in a 2008 media event whose Texas-style audacity stunned the cricket community, challenged the English team to a match by landing a black Stanford Financial helicopter on London's most hallowed field, Lord's. He jumped out, promptly chest-bumped a British official, and thrust forward a Plexiglas box containing the match's prize: $20 million in cash. Stanford's Superstars won the big match, but the affair did little to ingratiate the Texan with the cricket establishment.

What kept attracting depositors, though, wasn't Stanford's publicity stunts. It was his profits. The first serious questions about Stanford's performance came as it began to hire dozens of veteran American brokers to staff its new American offices. One of those with suspicions was Lawrence DeMaria, a former New York Times reporter who, after enduring a six-hour grilling by an investigator from Kroll Associates, had been hired to supervise internal publications and write speeches for Stanford himself. DeMaria's bullshit antennae, as he terms it, rose not long after he joined the company.

I kept getting vibes throughout the company that nobody knew where the money was coming from or where it was going, he says today. When I would ask about how the company made its money, not just the principals but the investment-banking divisions, the research department, I would get no answers. [Everyone] said they didn't know.... When I asked the investment people, they said, We can't tell you, but believe us we have computers. & Eventually DeMaria was fired. He sued and settled.

DeMaria's concerns were hardly unique. The executive who reported directly to Stanford recalls a talk with another executive in charge of the Antiguan bank: I remember once having a conversation about how they make such great money. He said, You know, good investments, things like that. He told me right away it was not drug money. That it once had been drug money. But, you know, Oh they found out about it, paid a penalty, they would never do that again, right? [And he] told me it was not a Ponzi scheme. Everything was legit.

Still, the rumors persisted, especially among the new American hires. In Miami, a broker named Charles Hazlett asked too many pointed questions, including several of Stanford's 31-year-old chief investment officer, Laura Pendergest-Holt, and found himself dismissed; he too sued and won a settlement. In Houston, a pair of new Stanford brokers, Charles Rawl and Mark Tidwell, asked still more questions, and resigned just as they were dismissed. They eventually sued; their complaint reportedly triggered interest within the S.E.C.'s Fort Worth office, but for some reason the investigation went nowhere.

But it wasn't just U.S. brokers who raised questions. The most senior whistle-blower may have been Gonzalo Tirado, the longtime head of Stanford's Venezuelan bank, the company's largest outpost. After Tirado resigned, in 2005, he and the bank engaged in a hail of litigation, much of it centered on compensation matters. An investigator in Miami told me Tirado came to believe Stanford was engaged in criminal acts and alerted regulators in Venezuela and the U.S. In an e-mail exchange, Tirado confirms this, but declines to elaborate, noting, I had more than three years telling the authorities in Venezuela and USA about his lack of loyalty and ethics.

Stanford Financial, however, easily weathered what few financial investigations it confronted. The S.E.C. and another agency began probes in 2005 and identified several technical infractions, but the probes neither received much attention in the press nor did anything to slow Stanford's growth. Buoyed by the U.S. economic boom, its assets roughly doubled between 2004 and 2008, to $8 billion.

In 2008 a magazine called World Finance named Stanford its Man of the Year. He was added to the University of Houston business school's Circle of Honor and spoke to a commencement class on the importance of ethics. So, CNBC correspondent Carl Quintanilla asked Stanford in May 2008, is it fun being a billionaire?

Well, uh, yes, he replied. Yes, I have to say it is fun.

The fun, alas, was almost over.

Overdue Diligence

One day last October, a 48-year-old independent financial analyst, Alex Dalmady, sitting in his office in South Florida, took a call from a friend. The friend, whom Dalmady refers to as Roberto, had much of his savings invested in Stanford C.D.'s, and in the wake of the financial meltdown, he asked Dalmady, as a favor, to examine the bank's financials and see if his money was safe. So when I went over to the bank's Web site, I was stunned, Dalmady recalls in a blog item. First, it looked so simple, so unsophisticated. The language used wasn't quite right. The explanation Stanford offered for its returns, Dalmady felt, made no sense; no one could achieve market returns like that year after year, and no reputable commercial bank would try. It was far too risky. As he later described it on his blog, Dalmady immediately called his friend and said, Roberto, take your money out YESTERDAY!

Once his friend was safe, Dalmady found himself returning to the Stanford Web site. In the interim, the Madoff scandal had hit, and his curiosity soon turned to suspicion. It became obvious, Dalmady wrote. No one was looking at stuff like this. The S.E.C. had its head up its butt. So I dug deeper and put some numbers on a spreadsheet took me about 30 minutes. It just got worse. Where was the portfolio? What were they invested in? [Twenty percent plus] returns on their hedge funds? No way. Outperforming the S&P in stocks? No way. With 30 percent deposit growth [i.e., money constantly coming in]? No way.

Stanford Financial, Dalmady judged, had to be a fraud. He decided to write up his conclusions in an article and offered it to an old friend who edited a Venezuelan financial magazine called Veneconomy, which published it at the end of January. At first, the piece caused little stir. Titled Duck Tales, it was front-loaded with complex financial analysis; Stanford Financial wasn't even mentioned until page 4. But on February 9, a financial blog called the Devil's Excrement republished it, at which point it was picked up by a popular Latin-American blog, the snarky Inca Kola News. The Inca Kola item, in turn, immediately became the focus of intense interest.

So far today, a post on the blog read, this humble blog has had several visits from major newswires, three visits from the US Federal Reserve and one from the SEC, all using [the terms] Alex Dalmady, Stanford, Madoff etc as keyword entries. Not to mention all those people from an island called Antigua and plenty from a company called Stanford Eagle in Houston. Hi guys, having a nice day?

Subpoenas were already on the way. As an e-mail from a Stanford lawyer, included in court materials, explained, the agency wanted to confirm that the bank is real, the CDs are real, that the money is actually invested as described in our documents, and that client funds in the CDs are safe and secure. Both Stanford andJim Davis declined to be interviewed by the S.E.C. Instead, they sent in their chief investment officer, tall, willowy Pendergest-Holt, a Davis protge he had met at his rural Mississippi church. She would testify together with a team from Stanford International Bank.

At a prep meeting of Stanford executives, on February 4, according to materials filed in a Dallas federal court, Pendergest-Holt sat down in a Miami conference room to explain to one of the firm's outside attorneys just how Stanford operated. Its assets, she said, were divided into three tiers. Tier I, about 10 percent of assets, was held in cash. Tier II, another 10 percent, was invested in mutual funds managed by outside firms; these holdings, Pendergest-Holt said, had fallen to $350 million from $850 million since just last June.

But it was the super-secret Tier III that most interested the S.E.C. Tier III held about 80 percent of Stanford Financial's assets, roughly $7 billion; its contents and day-to-day management appear to have been handled only by Stanford, Davis, and Pendergest-Holt. At the Miami meeting, Davis, who was also present, handed Pendergest-Holt a data drive that broke down Tier III's contents in detail. She showed it to the group. According to these numbers, Tier III at that moment was composed of $3 billion in real estate, a $1.6 billion loan to shareholder Allen Stanford and nothing else.

The shortfall came to nearly $2.5 billion. The bank executives in the room, who had never peered inside Tier III, were aghast. When the meeting reconvened the next day, Stanford appeared. Two of the bank executives said they had no choice but to report this new information to the S.E.C. According to court materials, Stanford flew into a rage and pounded on the conference table.

The assets are there! he shouted.

On the third day things got stranger yet. Before Pendergest-Holt could even begin talking, another executive started to cry. If you are going to go through more information I didn't know, he sniffed, I don't want to be here, and I'm going to the authorities. One of the lawyers suggested they pray. Stanford, however, was unmoved. He insisted the bank still had $850 million more in assets than liabilities. For the first time, though, the group in the room could see their emperor had no clothes. A few hours later, the outside attorney walked into a Stanford man's office and said, The party is over.

On February 10, Pendergest-Holt began giving sworn testimony to attorneys in the S.E.C.'s Fort Worth office. She played dumb. Asked whom she consulted with to prepare, she failed to mention either Davis or Stanford. I have been to Antigua, she said. I have reviewed statements and looked through, gosh, other issues. Time and again she insisted she knew nothing about Tier III. I can state it as many ways as you would like me to, she said. I don't know about Tier III, other than what I've already shared with you in about 20 different ways. There was a second interview a week later. If I knew anything about Tier III, I'd tell you, she said. God's honest truth.

Within hours there were runs on the Stanford branches in Antigua and Venezuela, and throughout Latin America long lines of worried people sweated in the tropical heat. Most will probably never see their money again; one investigator told me he believes maybe $1 billion out of Stanford's $8 billion in assets might eventually be recovered.

If Stanford Financial was in fact a Ponzi scheme, it is strikingly similar to Bernie Madoff's. As with Madoff's operation, only a handful of people appear to have known what was going on. Stanford's auditor, like Madoff's, was tiny, in this case a 14-person accounting firm in Antigua; its owner has recently died. Stanford's seven-member board was composed entirely of insiders, including Stanford's father and one of his elderly chums, disabled by a stroke. That such a scheme could grow so enormous, and last for so many years, is a devastating indictment of worldwide banking regulation. It took Alex Dalmady maybe two hours on the Internet to glean the amazing truth. It's not clear anyone in Washington ever seriously tried.

Allen Stanford declined to be interviewed for this article. But in an April publicity blitz clearly designed to head off his looming indictment, he told a number of interviewers, including ABC's Brian Ross, that his company was never a Ponzi scheme. If any money was missing, Stanford insisted, it was all Jim Davis's fault. (Davis is cooperating with the S.E.C. investigation and plans to enter in plea talks with government officials.) When Ross asked about comparisons to Madoff, Stanford began to tear up.

Bullshit, that's bullshit, he said. It makes me madder than hell and touches the core of my soul.

Stanford, who remains in seclusion in Houston, didn't display the first bit of guilt or remorse. Instead, he said he felt persecuted. I'm the maverick rich Texan that they can put the moose head on the wall and that's the only reason they went after me, Stanford told Ross. I'm fighting for my survival and for my integrity. It's a fight, one suspects, that Allen Stanford should, and almost certainly will, lose.

From the Executive Summary of the SEC Inspector General’s Report of Investigation on the Allen Stanford debacle

Finally, the OIG investigation revealed that the former head of Enforcement in Fort Worth, who played a significant role in numerous decisions by the Fort Worth office to deny investigations of Stanford, sought to represent Stanford on three separate occasions after he left the SEC, and represented Stanford briefly in 2006 before he was informed by the SEC Ethics Office that it was improper to do so.

This former head of Enforcement in Fort Worth was responsible for: (1) in 1998, deciding to close a MUI opened regarding Stanford after the 1997 broker-dealer examination; (2) in 2002, deciding to forward the [redacted] complaint letter to the TSSB and deciding not respond to the [redacted] complaint or investigate the issues it raised; (3) in 2002, deciding not to act on the Examination staff’s referral of Stanford for investigation after its investment adviser examination; (4) in 2003, participation in a decision not to investigate Stanford after receiving [Confidential Source]’s complaint letter comparing Stanford’s operations to the [redacted] fraud; (5) in 2003, participating in a decision not to investigate Stanford after receiving the complaint letter from an anonymous insider alleging that Stanford was engaged in a “massive Ponzi scheme;” and (6) in 2005, informing senior Examination staff after a presentation was made on Stanford at a quarterly summit meeting that Stanford was not a matter they planned to investigate.

Yet, in June 2005, a mere two months after leaving the SEC, this former head of the Enforcement in Fort Worth e-mailed the SEC Ethics Office that he had been “approached about representing [Stanford] . . . in connection with (what appears to be) a preliminary inquiry by the Fort Worth office.” He further stated, “I am not aware of any conflicts and I do not remember any matters pending on Stanford while I was at the commission.”

After the SEC Ethics Office denied his request in June 2005, in September 2006, Stanford retained this former head of Enforcement in Fort Worth to assist with inquiries Stanford was receiving from regulatory authorities, including the SEC. He met with Stanford Financial Group’s General Counsel in Stanford’s Miami office and billed Stanford for his time. Following the meeting, he billed 6.5 hours to Stanford on October 4, 2006, for, inter alia, “review[ing] documentation received from company about SEC and NASD inquiries.” On October 12, 2006, he billed Stanford 0.7 hours for a “[t]elephone conference with [Stanford Financial Group’s General Counsel] regarding status of SEC and NASD matters.” In late November 2006, he called his former subordinate, the Assistant Director who was working on the Stanford matter in Fort Worth, who asked him during the conversation, “[C]an you work on this?” and who in fact told him, “I’m not sure you’re able to work on this.” Near the time of this call, he belatedly sought permission from the SEC’s Ethics Office to represent Stanford. The SEC Ethics office replied that he could not represent Stanford for the same reasons given a year earlier and he discontinued his representation.

In February 2009, immediately after the SEC sued Stanford, this same former head of Enforcement in Fort Worth contacted the SEC Ethics Office a third time about representing Stanford in connection with the SEC matter – this time to defend Stanford against the lawsuit filed by the SEC. An SEC Ethics official testified that he could not recall another occasion in which a former SEC employee contacted his office on three separate occasions trying to represent a client in the same matter. After the SEC Ethics Office informed him for a third time that he could not represent Stanford, the former head of Enforcement in Fort Worth became upset with the decision, arguing that the matter pending in 2009 “was new and was different and unrelated to the matter that had occurred before he left.” When asked why he was so insistent on representing Stanford, he replied, “Every lawyer in Texas and beyond is going to get rich over this case. Okay? And I hated being on the sidelines.”

The OIG investigation found that the former head of Enforcement in Fort Worth’s representation of Stanford appeared to violate state bar rules that prohibit a former government employee from working on matters in which that individual participated as a government employee. Accordingly, we are referring this Report of Investigation to the Commission’s Ethics Counsel for referral to the Office of Bar Counsel for the District of Columbia and the Chief Disciplinary Counsel for the State Bar of Texas, the states in which he is admitted to practice law.

SEC aware of Stanford Ponzi scheme since 1997

The Robert Allen Stanford alleged Ponzi scheme and its impact on middle class investors still isn’t getting the media attention it deserves. Last week, a blistering report on the incompetence of the Securities and Exchange Commission was buried by the Goldman Sachs fraud charges; both were released Friday.

The Inspector General for the SEC issued a detailed 159-page report, dated March 31, concluding that the agency’s Fort Worth office knew the Texas businessman was operating a Ponzi scheme in 1997. The Stanford Victims Coalition, a group that represents former Stanford investors, was quick to accuse the agency of trying to “minimize the revelation of the truth” by releasing the IG’s report on the same day it announced fraud charges against investment bank Goldman Sachs.

The IG’s report was requested by Republican U.S. Sen. David Vitter.

Among the most damning findings was the warning issued by a retiring assistant district administrator for the Fort Worth examination program in 1997 to the branch chief: “Keep an eye on these people [Stanford] because it looks like a Ponzi scheme to me, and some day it’s going to blow up.”

It was not the examiners, but rather the enforcement division, that dropped the ball. Fort Worth examiners repeatedly conducted examinations of Stanford in 1997, 1998, 2002 and 2004, concluding each time that Stanford’s CDs were likely a Ponzi scheme. “The only significant difference in the Examination group’s findings over the years was that the potential fraud grew exponentially, from $250 million to $1.5 billion,” according to the report. However, “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.”

The report also noted that the former head of the SEC’s enforcement office in Fort Worth impeded investigations into Stanford’s operations for years. Spencer Barasch repeatedly decided “to quash the matter,” the report reads. Later, when the SEC began investigating, “Barasch repeatedly attempted to represent Stanford in connection with the investigation he had blocked for seven years.” Barasch is now a partner at the law firm Andrews Kurth LLP. Andrews Kurth managing partner Bob Jewell said Barasch did not violate any ethics laws and will remain with the firm, Dow Jones reported. However, because Barasch’s representation of Stanford appears to have violated state bar rules that prohibit a former government employee from working on matters in which he participated as a government employee, Inspector General H. David Kotz referred the findings of his investigation to the SEC’s ethics counsel for referral to the bar counsel offices in the two states Barasch is admitted to practice law.

Additionally, the IG noted that SEC enforcement officials also ignored a number of warnings from insiders at Stanford’s operations. The report notes that a letter was forwarded to the SEC in October 2003 by the National Association of Securities Dealers warning that Stanford’s businesses “WILL DESTROY THE LIFE SAVINGS OF MANY.”

After the initial red flags, it would be another eight years, 2005, before a serious effort to expose the alleged fraud was launched. And another several years before the SEC stopped it. In February 2009 the SEC shut down Stanford’s operations.

It is estimated that about $1 billion was invested in the CDs in Louisiana. The flamboyant Texas billionaire remains in jail facing charges of operating a $7 billion Ponzi scheme.

In the conclusion of the report, the IG noted:

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. As a result, cases like Stanford, which were not considered “quick-hit” or “slam-dunk” cases, were not encouraged.

The OIG’s findings during this investigation raise significant concerns about how decisions were made within the SEC’s Division of Enforcement with regard to the Stanford matter. We are providing this Report of Investigation (“ROI”) to the Chairman of the SEC with the recommendation that the Chairman carefully review its findings and share with Enforcement management the portions of this ROI that relate to the performance failures by those employees who still work at the SEC, so that appropriate action (which may include performance-based action, if applicable) is taken, on an employee-by-employee basis, to ensure that future decisions about when to open an investigation and when to recommend that the Commission take action are made in a more appropriate manner.

REPORT OF SEC INVESTIGATION

REPORT OF INVESTIGATION
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
OFFICE OF INSPECTOR GENERAL
Case No. OIG-526

http://www.sec.gov/news/studies/2010/oig-526.pdf

Investors Want Aid From Stanford-Linked Congressman

A group of investors in Allen Stanford's alleged Ponzi scheme are demanding a powerful Texas congressman give them the same kind of support he showed Stanford when regulators shut down the alleged scam in February.

The Miami Herald reported Sunday that on February 17, the day the Securities and Exchange Commission charged Stanford with a massive fraud, Republican Congressman Pete Sessions wrote an e-mail to Stanford saying, "I love you and believe in you. If you want my ear/voice—e-mail."


The Herald says the Justice Department has launched a "sweeping" investigation into Stanford's ties to Sessions and other lawmakers from both parties. A Justice Department spokeswoman declined to comment to CNBC about the report, because it is "an ongoing case."

But the Stanford Victims Coalition, which claims to represent some 28,000 investors, is seizing on the report to demand Sessions come to their aid.

"While Congressman Sessions was writing that email to Allen Stanford on that fateful day in February," writes Coalition founder Angela Shaw in a letter to Sessions' office, "panic struck the lives of Stanford investors as they feared the worst—that their retirement plans, their children's' college savings, their life's savings would never be recovered."

Shaw, who lives in Sessions' Dallas Congressional District, notes that Sessions has been supportive of the Stanford investors in the past, including signing a letter from 48 members of Congress to SEC Chairwoman Mary Schapiro earlier this year seeking coverage for the investors under the Securities Investor Protection Act.



Now, armed with Sessions' e-mail to Stanford, Shaw is demanding the Congressman step up his fight for the coverage, which would allow the investors to collect as much as $500,000 in insurance proceeds from the Securities Investor Protection Corporation, which, so far, has refused to cover the Stanford investors.

"I implore Congressman Sessions to do the right thing and help Stanford victims obtain SIPC coverage," Shaw writes, adding, "We need the kind of genuine support he showed Allen Stanford in February."

Sessions, the Chairman of the Republican Congressional Campaign Committee, was among a bipartisan group of lawmakers who came to be known as the "Caribbean Caucus" as a result of their frequent trips to the region--trips funded by a Stanford-backed non-profit organization. He has received $44,375 in campaign contributions from Stanford and members of his staff, according to the Miami Herald.

Sessions' press secretary, Emily Davis, has defended the Congressman, saying in a statement to Politico this week that "Allen Stanford had everyone fooled," and insisting Sessions has worked to ensure that investors get justice.

As for the e-mail, Davis says while it "cannot be authenticated, Congressman Sessions believes that its contents represent language he would use to communicate with a person in crisis to encourage right decisions and prevent further tragedy."

The statement appears to ring hollow with the Victims Coalition. In her letter to Sessions' office, Shaw notes, "his reputation is on the line—along with our financial futures."