By John Pacenti All Articles
Daily Business Review
The letters circulated by Stanford International Bank among would-be investors claimed deposits were insured by Lloyds of London and that the bank's employees were "first class business people."
The letters proclaimed the bank had undergone "stringent risk management review by an outside audit firm."
Stanford International Bank is now known as one of the world's largest Ponzi schemes, a $7 billion scam that is second only to the con pulled off by the former New York investment adviser and financier Bernard Madoff. The Stanford bank, which was based in Antigua and maintained a sizable footprint in Miami, went under in 2009.
So while the bank's founder and one-time billionaire, R. Allen Stanford, is serving a 110-year prison sentence for fraud, investors are looking for deep pockets to make them whole.
They hope they found it in Willis Group Holdings, the U.K.-based insurance company that provided Stanford with written endorsements. The investors are also suing Willis Group's American subsidiary based in Colorado.
Getting the litigation to stick in one jurisdiction, though, hasn't been easy. Filed in Miami-Dade Circuit Court in February, the plaintiffs' suit was transferred to U.S. District Court in Miami on June 3.
U.S. District Judge Jose E. Martinez stayed the case on June 14 after the Willis Group argued the U.S. Supreme Court is looking at the liability of insurance letters to investors in a related case against Willis Group.
Other lawsuits against Willis Group by similarly situated plaintiffs have ended up in multidistrict litigation in Dallas. One has also been stayed by a Miami federal judge.
A telephone call placed to attorney Edward Soto, a partner at Weil Gotshal & Manges in Miami who represents Willis Group, was not returned by deadline.
But in his motion to Martinez for a stay, Soto said the defendant expects the case and four others filed against Willis Group to be transferred to the U.S. Bankruptcy Court in Texas that oversees the estate of Stanford International Bank.
The plaintiffs attorney, Ervin Gonzalez, said businesses that vouch for criminal enterprises like Stanford need to be held accountable.
"If someone is going to give an endorsement ... they'd better be careful because people rely on those endorsements," said Gonzalez, a partner at Colson Hicks Eidson in Coral Gables, Fla. "They have an obligation and a duty to be accurate."
Also representing the plaintiffs is attorney Luis Delgado, a partner at Miami's Homer & Bonner.
"From in or around August 2004 through 2008, Willis provided 'safety and soundness' letters to Stanford Financial's agents on Willis letterhead and signed by a Willis executive," the lawsuit claims.
The letters misled clients into believing their deposits were safe and insured, the lawsuit states.
The 29 plaintiffs are from Uruguay, Bolivia, Colombia and Venezuela and had a combined loss of $30 million when SIB collapsed. The lawsuit states they received identical Willis Group letters with the only difference being the date and address.
Showing posts with label miami. Show all posts
Showing posts with label miami. Show all posts
Saturday, 20 July 2013
Sunday, 3 January 2010
Feds probe links between lawmakers, Allen Stanford
MIAMI — Just hours after federal agents charged banker Allen Stanford with fleecing investors of $7 billion, the disgraced financier received a message from one of Congress' most powerful members, Pete Sessions.
“I love you and believe in you,” said the e-mail sent on Feb. 17. “If you want my ear/voice — e-mail,” it said, signed “Pete.”
The message from the chair of the National Republican Congressional Committee represents one of the many ties between members of Congress and the indicted banker that have caught the attention of federal agents.
The Justice Department is investigating millions of dollars Allen Stanford and his staff contributed to lawmakers over the past decade to determine if the banker received special favors from politicians while building his spectacular offshore bank in Antigua, McClatchy Newspapers has learned.
Agents are examining campaign dollars, as well as lavish Caribbean trips funded by Stanford for politicians and their spouses, feting them with lobster dinners and caviar.
The money Stanford gave Sessions and other lawmakers was stolen from his clients while he carried out what prosecutors now say was one of the nation's largest Ponzi schemes.
Sessions, 54, a longtime House member from Dallas who met with Stanford during two trips to the Caribbean, did not respond to interview requests.
Supporters say the lawmaker, who received $44,375 from Stanford and his staff, was not assigned to any of the committees with oversight over Stanford's bank and brokerages.
His press secretary, Emily Davis, said she was unable to comment on the e-mail sent at 11:31 a.m. on the day Stanford was charged by the U.S. Securities and Exchange Commission. “I haven't seen it, so I can't verify its authenticity at this time,” she said.
Found on the servers
But the message found on Stanford's computer servers and the contributions he made to Sessions and other lawmakers — totaling $2.3 million — are now part of the government's inquiry.
Records show Stanford also doled out $5 million on lobbying since 2001, setting up his own Washington firm last year with expensive furnishings and artwork — the money plundered from his customers' accounts.
Over the years, he took on battles to protect his banking network while fending off regulators.
In 2001, he pressed successfully to kill a bill that would have exposed the flow of millions into his secretive offshore bank in Antigua.
The next year, he helped block legislation that would have drawn more government scrutiny to his bank.
While he was fighting reforms to financial secrecy and offshore banking laws, Stanford was hobnobbing with dozens of lawmakers.
Stanford hosted a wedding dinner for New York's U.S. Rep. John Sweeney at his five-star restaurant in Antigua in 2004 — toasting the couple for photographers—and staged a cocktail fundraiser for now-disgraced Ohio congressman Bob Ney at his bayfront Miami office.
“He legitimized himself by having himself vetted by powerful members of Congress,” said Steven Riger, a former vice president at Stanford's Miami brokerage. “It was all about the public's perception.”
Kent Schaffer, Stanford's court-appointed attorney, said his client never asked for special favors. “Stanford gave contributions to politicians, but there was nothing criminal behind it,” he said.
The federal investigation comes after months of criticism from victims' groups complaining that elected leaders failed to vet Stanford before accepting money from him the past 10 years. If they had, they would have discovered that the U.S. State Department in 1999 concluded that Stanford helped create a haven for money-laundering in Antigua.
Most members of Congress contacted by McClatchy Newspapers declined to discuss their ties to the banker, other than to say they have since returned the contributions.
Stanford's foray into the Washington power game began in 2001, shortly after he was allowed to open a controversial trust office in Miami.
The special office was a boon to Stanford's bank, generating millions in the sale of certificates of deposit — the money stuffed in pouches and sent on jets to his banking headquarters in Antigua.
But when a bill was created to compel offshore bankers to reveal the sources of money flowing into their banks, Stanford jumped into the fight to kill it.
The measure would have forced Stanford — who was moving millions illegally through his Miami trust office — to open his books to federal regulators.
“He wanted the complete freedom to move money offshore without any threat,” said Jack Blum, a lawyer who testified before Congress supporting the legislation. “He was cheerleading for the offshore tax havens.”
To combat the bill, Stanford launched a strategy he would use for the next eight years: He gave money to the party in power, including $40,000 to the Senate Republican Campaign Committee and $100,000 to the inaugural committee of George W. Bush, records show.
By summer of 2001, the bill was dead.
In the ensuing years, Stanford's banking empire flourished, with the Miami office generating hundreds of millions of dollars, records show.
In late 2001, Stanford confronted another threat: A bill allowing state and federal regulators to share details about fraud cases — which would have brought Stanford's brokerages under closer scrutiny — landed in the Senate Banking Committee.
Though the Senate was now controlled by Democrats, Stanford was prepared: He had given $500,000 to the Democratic Senatorial Campaign Committee in 2002 — his largest-ever contribution.
“I told him that the Democrats were going to take over, and he needed to make friends with them,” recalled his lobbyist Ben Barnes, once Texas' lieutenant governor.
Stanford also doled out $100,000 to a national lobbying group to fight the measure.
The bill, which sparked sweeping opposition from brokerages and insurers, never made it to a vote.
While he was scoring points in Washington, Stanford was squaring off for a crisis at his banking headquarters in Antigua.
In 2003, investors began questioning the legitimacy of his certificates of deposit, which generated higher returns than major U.S. banks, and articles began appearing in news magazines about money-laundering in Antigua.
In addition, Stanford was drawing the scrutiny of the SEC, which was demanding to know where his bank was investing customers' money.
A contact in Antigua
In the ensuing years, Stanford would play a dual role of staving off regulators — paying $200,000 in bribes to Antiguan banking chief Leroy King — while forging ties with members of Congress, court records show.
Those connections deepened when Stanford started hosting a series of congressional visits to Antigua.
It began in 2003, when lawmakers including Sessions, Ney, John Sweeney, Gregory Meeks, Donald Payne, Max Sandlin and Phil Crane arrived in Antigua on a mission to “promote relations” with the Caribbean nation.
The cost of the January trip — including nights in luxury hotels and two Stanford jets for travel — came to $39,500, records show.
For four days, they gathered for talks on business in the Caribbean, trading jokes with Prime Minister Lester Bird and touring the island.
In time, the group of lawmakers, which became known as the “Caribbean Caucus,” would take 11 more trips — the costs picked up by the Inter-American Economic Council, a nonprofit funded by Stanford.
A total of $311,307 was spent on the trips to places like Montego Bay, St. Croix and Key Biscayne. “We were rolling out food, caviar, wine, lobster,” recalled Stanford's personal chef, Jonas Hagg.
During a 2004 Antiguan trip, Sweeney and his 34-year-old girlfriend were married, with Stanford hosting the ceremony and reception for the New York Republican at the famed Pavilion Restaurant.
“If it wasn't for Allen, I certainly would not be here today,” Sweeney told Stanford's newspaper, The Antigua Sun. “He has done a tremendous job of promoting and raising the awareness of Antigua in the United States, and people take notice of a man of his standing and stature in the halls of Washington.”
Photos of Stanford and caucus members were splashed in company publications and news releases. “You looked and you saw all these important people,” Riger said. “That legitimacy allowed him to go out and collect a lot of money.”
Stanford was not only funding the trips — the money looted from his customers — but also staging fundraisers.
He held an event at his office on the 21st floor of the Miami Center for Ohio house member Ney, who was later sentenced to 30 months in prison after admitting to accepting gifts and money from clients of lobbyist Jack Abramoff.
He rallied his brokers when Sessions was in a tight race with Democrat Martin Frost in Texas in 2004.
Working the phones
“He got on the speakerphone and told everyone to give to Pete Sessions,” said Riger. “He said Sessions was good for our company and we needed to give to him.”
Stanford raised $38,875 in the final weeks of the campaign for Sessions, who defeated Frost.
While he was forging ties in Washington, he was getting into deeper trouble with the SEC. By 2006, the agency had sent two confidential letters to the Antiguan government demanding information about the solvency of Stanford's bank, records show.
Both times, Stanford was aided by lead regulator King, who managed to keep the bank's finances secret while accepting thousands in bribes from Stanford — their pledge sealed in a blood oath in Stanford's airplane hangar in Antigua, according to court records and interviews.
With pressure mounting from the SEC, Stanford increased his lobbying in Washington.
In 2008, he started his own lobby firm on 14th Street and New York Avenue, spending $2.2 million — more than he spent the previous four years combined, records show.
“He was spreading his money around,” said Blum, the Washington expert on money-laundering.
“It was a way of gaining legitimacy and getting people to say, ‘Hey, I'm OK.' “
Just one month before the FBI launched a criminal probe into his banking empire, Stanford hosted a lavish gathering of powerful Washington insiders, with keynote speeches from Madeleine Albright, former secretary of state, and Paul Wolfowitz, former deputy secretary of defense.
Also co-hosting the May event: Miami lawyer Yolanda Suarez, Stanford's longtime chief of staff.
The topic: the global financial crisis, and the private sector's need to work with government.
But Stanford's own crisis was about to explode.
On Feb. 17, armed with court orders, federal agents swarmed into his offices across the country, shutting down his operations and declaring that Stanford was running a massive fraud.
In his Houston headquarters, agents found reams of company documents, electronic records and e-mails received by Stanford in his final days, including the message from Sessions.
As the scandal unfolded, members of the Caribbean Caucus began returning their contributions.
Nineteen lawmakers gave back a total of $87,800 to the court-appointed receiver as of August. Others, including Meeks, Sessions, Sandlin, Sweeney and Crane, said they turned some of the money over to charities.
In addition, Democratic House member Charlie Rangel returned $11,800 to charities, and Democratic Florida Sen. Bill Nelson $45,000 to charities, half of which came from a fundraiser at Stanford's Miami office in 2006.
“Just like a number of people, (they) started to run for cover the minute Allen was under scrutiny,” said Schaffer, Stanford's attorney.
“People he had been very close to — and never asked anything of — all of a sudden are distancing themselves. Whether he's innocent or guilty, they don't really care. They worry about how it affects their image.”
As federal agents examine Stanford's political contributions, victims' groups have criticized lawmakers for failing to vet Stanford before accepting his donations and trips.
The State Department had singled out Stanford in a 1999 report for using his influence to weaken the Antiguan banking laws, creating “one of the most attractive financial centers in the Caribbean for money launderers.”
“None of this was difficult to ascertain,” said Bill Branscum, a former U.S. Treasury agent who investigated laundering in the Caribbean. “With the position of public trust comes a consummate responsibility. They should have made it their business to figure out what was going on.”
“You've got to give (Stanford) credit — he got the best bang for his buck.”
“I love you and believe in you,” said the e-mail sent on Feb. 17. “If you want my ear/voice — e-mail,” it said, signed “Pete.”
The message from the chair of the National Republican Congressional Committee represents one of the many ties between members of Congress and the indicted banker that have caught the attention of federal agents.
The Justice Department is investigating millions of dollars Allen Stanford and his staff contributed to lawmakers over the past decade to determine if the banker received special favors from politicians while building his spectacular offshore bank in Antigua, McClatchy Newspapers has learned.
Agents are examining campaign dollars, as well as lavish Caribbean trips funded by Stanford for politicians and their spouses, feting them with lobster dinners and caviar.
The money Stanford gave Sessions and other lawmakers was stolen from his clients while he carried out what prosecutors now say was one of the nation's largest Ponzi schemes.
Sessions, 54, a longtime House member from Dallas who met with Stanford during two trips to the Caribbean, did not respond to interview requests.
Supporters say the lawmaker, who received $44,375 from Stanford and his staff, was not assigned to any of the committees with oversight over Stanford's bank and brokerages.
His press secretary, Emily Davis, said she was unable to comment on the e-mail sent at 11:31 a.m. on the day Stanford was charged by the U.S. Securities and Exchange Commission. “I haven't seen it, so I can't verify its authenticity at this time,” she said.
Found on the servers
But the message found on Stanford's computer servers and the contributions he made to Sessions and other lawmakers — totaling $2.3 million — are now part of the government's inquiry.
Records show Stanford also doled out $5 million on lobbying since 2001, setting up his own Washington firm last year with expensive furnishings and artwork — the money plundered from his customers' accounts.
Over the years, he took on battles to protect his banking network while fending off regulators.
In 2001, he pressed successfully to kill a bill that would have exposed the flow of millions into his secretive offshore bank in Antigua.
The next year, he helped block legislation that would have drawn more government scrutiny to his bank.
While he was fighting reforms to financial secrecy and offshore banking laws, Stanford was hobnobbing with dozens of lawmakers.
Stanford hosted a wedding dinner for New York's U.S. Rep. John Sweeney at his five-star restaurant in Antigua in 2004 — toasting the couple for photographers—and staged a cocktail fundraiser for now-disgraced Ohio congressman Bob Ney at his bayfront Miami office.
“He legitimized himself by having himself vetted by powerful members of Congress,” said Steven Riger, a former vice president at Stanford's Miami brokerage. “It was all about the public's perception.”
Kent Schaffer, Stanford's court-appointed attorney, said his client never asked for special favors. “Stanford gave contributions to politicians, but there was nothing criminal behind it,” he said.
The federal investigation comes after months of criticism from victims' groups complaining that elected leaders failed to vet Stanford before accepting money from him the past 10 years. If they had, they would have discovered that the U.S. State Department in 1999 concluded that Stanford helped create a haven for money-laundering in Antigua.
Most members of Congress contacted by McClatchy Newspapers declined to discuss their ties to the banker, other than to say they have since returned the contributions.
Stanford's foray into the Washington power game began in 2001, shortly after he was allowed to open a controversial trust office in Miami.
The special office was a boon to Stanford's bank, generating millions in the sale of certificates of deposit — the money stuffed in pouches and sent on jets to his banking headquarters in Antigua.
But when a bill was created to compel offshore bankers to reveal the sources of money flowing into their banks, Stanford jumped into the fight to kill it.
The measure would have forced Stanford — who was moving millions illegally through his Miami trust office — to open his books to federal regulators.
“He wanted the complete freedom to move money offshore without any threat,” said Jack Blum, a lawyer who testified before Congress supporting the legislation. “He was cheerleading for the offshore tax havens.”
To combat the bill, Stanford launched a strategy he would use for the next eight years: He gave money to the party in power, including $40,000 to the Senate Republican Campaign Committee and $100,000 to the inaugural committee of George W. Bush, records show.
By summer of 2001, the bill was dead.
In the ensuing years, Stanford's banking empire flourished, with the Miami office generating hundreds of millions of dollars, records show.
In late 2001, Stanford confronted another threat: A bill allowing state and federal regulators to share details about fraud cases — which would have brought Stanford's brokerages under closer scrutiny — landed in the Senate Banking Committee.
Though the Senate was now controlled by Democrats, Stanford was prepared: He had given $500,000 to the Democratic Senatorial Campaign Committee in 2002 — his largest-ever contribution.
“I told him that the Democrats were going to take over, and he needed to make friends with them,” recalled his lobbyist Ben Barnes, once Texas' lieutenant governor.
Stanford also doled out $100,000 to a national lobbying group to fight the measure.
The bill, which sparked sweeping opposition from brokerages and insurers, never made it to a vote.
While he was scoring points in Washington, Stanford was squaring off for a crisis at his banking headquarters in Antigua.
In 2003, investors began questioning the legitimacy of his certificates of deposit, which generated higher returns than major U.S. banks, and articles began appearing in news magazines about money-laundering in Antigua.
In addition, Stanford was drawing the scrutiny of the SEC, which was demanding to know where his bank was investing customers' money.
A contact in Antigua
In the ensuing years, Stanford would play a dual role of staving off regulators — paying $200,000 in bribes to Antiguan banking chief Leroy King — while forging ties with members of Congress, court records show.
Those connections deepened when Stanford started hosting a series of congressional visits to Antigua.
It began in 2003, when lawmakers including Sessions, Ney, John Sweeney, Gregory Meeks, Donald Payne, Max Sandlin and Phil Crane arrived in Antigua on a mission to “promote relations” with the Caribbean nation.
The cost of the January trip — including nights in luxury hotels and two Stanford jets for travel — came to $39,500, records show.
For four days, they gathered for talks on business in the Caribbean, trading jokes with Prime Minister Lester Bird and touring the island.
In time, the group of lawmakers, which became known as the “Caribbean Caucus,” would take 11 more trips — the costs picked up by the Inter-American Economic Council, a nonprofit funded by Stanford.
A total of $311,307 was spent on the trips to places like Montego Bay, St. Croix and Key Biscayne. “We were rolling out food, caviar, wine, lobster,” recalled Stanford's personal chef, Jonas Hagg.
During a 2004 Antiguan trip, Sweeney and his 34-year-old girlfriend were married, with Stanford hosting the ceremony and reception for the New York Republican at the famed Pavilion Restaurant.
“If it wasn't for Allen, I certainly would not be here today,” Sweeney told Stanford's newspaper, The Antigua Sun. “He has done a tremendous job of promoting and raising the awareness of Antigua in the United States, and people take notice of a man of his standing and stature in the halls of Washington.”
Photos of Stanford and caucus members were splashed in company publications and news releases. “You looked and you saw all these important people,” Riger said. “That legitimacy allowed him to go out and collect a lot of money.”
Stanford was not only funding the trips — the money looted from his customers — but also staging fundraisers.
He held an event at his office on the 21st floor of the Miami Center for Ohio house member Ney, who was later sentenced to 30 months in prison after admitting to accepting gifts and money from clients of lobbyist Jack Abramoff.
He rallied his brokers when Sessions was in a tight race with Democrat Martin Frost in Texas in 2004.
Working the phones
“He got on the speakerphone and told everyone to give to Pete Sessions,” said Riger. “He said Sessions was good for our company and we needed to give to him.”
Stanford raised $38,875 in the final weeks of the campaign for Sessions, who defeated Frost.
While he was forging ties in Washington, he was getting into deeper trouble with the SEC. By 2006, the agency had sent two confidential letters to the Antiguan government demanding information about the solvency of Stanford's bank, records show.
Both times, Stanford was aided by lead regulator King, who managed to keep the bank's finances secret while accepting thousands in bribes from Stanford — their pledge sealed in a blood oath in Stanford's airplane hangar in Antigua, according to court records and interviews.
With pressure mounting from the SEC, Stanford increased his lobbying in Washington.
In 2008, he started his own lobby firm on 14th Street and New York Avenue, spending $2.2 million — more than he spent the previous four years combined, records show.
“He was spreading his money around,” said Blum, the Washington expert on money-laundering.
“It was a way of gaining legitimacy and getting people to say, ‘Hey, I'm OK.' “
Just one month before the FBI launched a criminal probe into his banking empire, Stanford hosted a lavish gathering of powerful Washington insiders, with keynote speeches from Madeleine Albright, former secretary of state, and Paul Wolfowitz, former deputy secretary of defense.
Also co-hosting the May event: Miami lawyer Yolanda Suarez, Stanford's longtime chief of staff.
The topic: the global financial crisis, and the private sector's need to work with government.
But Stanford's own crisis was about to explode.
On Feb. 17, armed with court orders, federal agents swarmed into his offices across the country, shutting down his operations and declaring that Stanford was running a massive fraud.
In his Houston headquarters, agents found reams of company documents, electronic records and e-mails received by Stanford in his final days, including the message from Sessions.
As the scandal unfolded, members of the Caribbean Caucus began returning their contributions.
Nineteen lawmakers gave back a total of $87,800 to the court-appointed receiver as of August. Others, including Meeks, Sessions, Sandlin, Sweeney and Crane, said they turned some of the money over to charities.
In addition, Democratic House member Charlie Rangel returned $11,800 to charities, and Democratic Florida Sen. Bill Nelson $45,000 to charities, half of which came from a fundraiser at Stanford's Miami office in 2006.
“Just like a number of people, (they) started to run for cover the minute Allen was under scrutiny,” said Schaffer, Stanford's attorney.
“People he had been very close to — and never asked anything of — all of a sudden are distancing themselves. Whether he's innocent or guilty, they don't really care. They worry about how it affects their image.”
As federal agents examine Stanford's political contributions, victims' groups have criticized lawmakers for failing to vet Stanford before accepting his donations and trips.
The State Department had singled out Stanford in a 1999 report for using his influence to weaken the Antiguan banking laws, creating “one of the most attractive financial centers in the Caribbean for money launderers.”
“None of this was difficult to ascertain,” said Bill Branscum, a former U.S. Treasury agent who investigated laundering in the Caribbean. “With the position of public trust comes a consummate responsibility. They should have made it their business to figure out what was going on.”
“You've got to give (Stanford) credit — he got the best bang for his buck.”
Sunday, 6 December 2009
As feds closed in, Allen Stanford scrambled to keep fraud secret, money flowing
ST. CROIX, U.S. Virgin Islands -- With federal agents mounting a probe into his offshore bank, billionaire Allen Stanford drove up a dirt road, hauling records from his headquarters to the top of a lush, tropical mountain.
As the sun set over the island, the banker stuffed the papers into a steel drum, poured gasoline over the top and sparked a fire -- the flames rising into the sky.
Months before his businesses exploded in February in a $7 billion fraud case, Stanford embarked on a mission to hide his financial records while trying to raise money to keep his banking empire alive.
He would jet off to Libya to try to convince government leaders to invest in his offshore institution.
He would even buy two Caribbean islands -- flipping the properties four times to inflate the value of the land and pump up the bank's assets.
``He was desperate,'' said Jonas Hagg, a longtime Fort Lauderdale executive chef who lived on Stanford's yacht. ``You never knew from day to day what was going to happen. He was flying by the seat of his pants.''
Details of the final days of Stanford's banking network, from court filings and interviews with a dozen staff members, offer the most complete picture so far of how he plundered his customers' accounts, pouring the money into failing stocks and botched real-estate deals.
He destroyed key records, creating gaps that continue to stymie federal agents trying to recover money for 21,500 fleeced investors.
As his financial network was collapsing, the once gregarious banker was turning into an angry employer, drinking heavily and bickering with his top officers, say staff members.
During a fight with the Antiguan government, he smashed bottles and his fists against the mahogany walls of his 112-foot yacht, Sea Eagle.
After spending nearly $20 million on two luxury estates in Miami and St. Croix -- pouring hundreds of thousands into renovations -- Stanford tore both houses to the ground within months of each other, making a one-bedroom apartment his only home.
By the time federal agents shut down his operations in February, the 59-year-old banker was in Washington, D.C., on his private jet with just one suit to wear and a credit card that had already been canceled.
Stanford's efforts to hide what prosecutors are calling one of the nation's largest Ponzi schemes began just as he was losing money from his failed deals.
The initial pressure didn't come from regulators, but from a paternity case in 2007 that evolved into a fight over keeping the banker's finances secret.
Onetime girlfriend Louise Sage would demand that Stanford -- the father of her two children -- reveal his sources of income, saying he was making more than the $5 million he claimed on his taxes.
Though he managed to keep his records concealed, the case marked the beginning of a two-year battle to shield his finances from public view.
For a decade, Stanford had been secretly drawing on his bank reserves -- the money belonging to investors -- to the tune of $1.8 billion, court records show.
Because so many people were buying his prize investments -- certificates of deposit -- there was always enough money to keep his bank going.
But after diverting money into numerous real-estate developments and pet projects, including a five-star restaurant with a $4 million wine cellar, the deals began collapsing in a remarkable string of failures.
It started with his Caribbean Star Airlines, a regional carrier he purchased in 2000 with great fanfare. He boasted that the airline was going to put his offshore bank on the map, but the company was bleeding at least $1 million a year by 2007, employees said.
Then, he spent at least $10 million trying to develop his dream real-estate project, Maiden Island in Antigua -- a retreat for Stanford and other wealthy homebuyers -- but it was scuttled after years of haggling with politicians.
Despite the failures, records show that he didn't stop spending vast sums of money.
He decided to move his headquarters from Houston to St. Croix, dipping into the bank's reserves to come up with money to buy land on the island.
By 2007, he had purchased a dozen properties, including an $8.3 million mansion, complete with four pools and tennis courts. He also unveiled plans to build an eco-friendly business park with a 45,000-square-foot hangar for his world headquarters.
Then, the stock market began a painful descent in December 2007 that would take an enormous toll on his bank's investments. At the same time, the U.S. Securities and Exchange Commission was pressing for details about his bank's dealings.
With pressure mounting, Stanford began drinking heavily and fighting with employees and his 31-year-old girlfriend, Andrea Stoelker, staff members said.
``It was getting to the point where he would take it out on others,'' said Hagg. ``The feeling was you could always expect the worst.''
He began spending more time on the yacht, which he had renovated for $16 million, working the phones and firing off e-mails at all hours, employees say.
Carrie Freyn, a chef and personal assistant, said Stanford was constantly sending out new directives and changing plans. ``He was very erratic,'' she said. ``We had to just be able to roll with it.''
After hiring nine people to tend to his sprawling mountaintop estate, he ordered it torn down in 2008 -- just months after doing the same to his $10.5 million home in Miami-Dade's Gables Estates.
Employees at both estates said they were stunned. ``I kept asking the question, `Why? Why knock the houses down?' '' asked St. Croix housekeeper Hyacinth Walters. ``Nobody knew anything.''
With both estates demolished, Stanford and his girlfriend began dividing their time between the one-bedroom apartment in St. Croix and his yacht.
Though St. Croix was home, Stanford made frequent trips to Antigua, where he was trying to land one major deal he predicted would reap billions.
He proposed one of the most lavish developments in the Caribbean, a luxury enclave with private hangars and beach homes on Antigua's Guiana Island. But the government refused to approve it.
``They were not giving him permits or cooperating with him,'' said his political consultant Ben Barnes, former Texas lieutenant governor. ``Allen lost his temper.''
Staff members recall how he flew into a tirade, pounding his fists into the woodwork on his yacht and throwing bottles into the walls.
On three occasions, the boat staff had to hire the same Coral Springs craftsman to repair the cabin after Stanford's outbursts, totaling $45,000 in costs.
While Stanford was hosting his annual 20/20 Cricket Tournament on the island in October 2008 -- the $20 million in prize money skimmed from client funds -- his bank's investments were continuing to plummet.
In just one week in early October, the stock market plunged by 18 percent in a spiral that would continue through the end of the year.
Stanford's assets were set up in three groups, but records now show that only one held significant value -- and it was in serious trouble. Less than a year earlier, the fund contained $889 million, mostly in securities, and was now about to drop to $316 million.
With the market falling, the bank was hit by a problem it had never confronted: hordes of fearful investors wanting to cash out, and a steep drop in new customers.
For Stanford, this was a bad combination. With no real reserves, the bank was hopelessly dependent on fresh money to pay off old investors.
With his employees fearing for their futures, Stanford flew to Miami in October and addressed brokers at his office on Biscayne Boulevard, assuring them the company was strong.
``We've got a lot of cash,'' said Stanford, boasting of a sweeping plan to invest in local real estate.
``You can go downtown on Brickell, and you can see 10,000 condo units coming on stream in the next few months. . . . I've seen it, I've been there, I've done it. . . . this is going to be a long-term play. We're going to make a huge amount of money off it.''
He also told the group he could cure the nation's economic woes. ``I have an answer to solve all this,'' he said. ``If I was president, you give me one term, we wouldn't be in this mess. We'd be back on the road to prosperity.''
While Stanford was speaking to the brokers, he and his top lieutenants were carrying out a scheme to stem the bank's massive losses -- at least on paper, court records show.
By turning to a practice known as flipping, the group was able to inflate the value of two tiny Caribbean islands 50-fold.
From an investment of $63.5 million in May, Pelican Island and Asian Village were deeded back and forth between several companies under Stanford's control -- increasing their value to $3.2 billion in just six months.
With the fabricated profits, Stanford was able to claim he had returned the $1.8 billion he had siphoned from the bank over the years.
Meanwhile, he was moving money out of his clients' accounts just to pay operational costs, payroll and to keep up with people cashing in CDs.
Funds were so short in his main bank in Antigua -- the balance just $872,557 in October -- that bank employee Patricia Maldonado pleaded in an e-mail to CFO Jim Davis: ``When can we get some relief?'' The next day, Davis approved $6 million from an account in a Houston bank to shore up the balance.
By November 2008, as Stanford traveled the country in his private jet meeting with top officers, he demanded that no one -- including his employees -- know his whereabouts.
``We weren't supposed to speak to the airline staff, but that didn't make any sense because we had to make the food,'' said Freyn. ``We all had this underground communication.''
He began drinking before noon and continued late into the night. ``It went from one bottle a night to two and three and four,'' Freyn said.
By the end of the year, his businesses were losing $33.3 million a month in operating costs alone, records show. With dwindling cash, staff members were forced to put expenses on their personal credit cards.
By Jan. 14, 2009, the SEC was now ordering Stanford and two of his top officers, CFO Davis and chief investment officer Laura Pendergest-Holt, to talk to investigators.
That month, Freyn and others recall Stanford driving up the dirt road on Mount Welcome in St. Croix, hauling a box stuffed with documents from his office.
After dumping the papers in a steel drum, Stanford and a handyman doused the top with gas and lit the contents. ``We thought it was crazy,'' Freyn recalled. ``You don't just go up there and light a bonfire without a permit.''
The records, which included Stanford's bank and credit-card statements, were torched at the same time Davis was ordering an employee to destroy bank records in Antigua, federal court records state.
In the days that followed, Stanford scrambled to find new investors to stop the bank's bleeding as his top officers tried to fend off federal agents.
During a crucial meeting in the company hangar at Miami International Airport on Jan. 21, Stanford and others decided to send two officers to meet with federal regulators: Pendergest-Holt, 36, and bank president Juan Rodriguez-Tolentino, 46, according to court records and interviews.
The move allowed Stanford to continue selling CDs while seeking help thousands of miles away from an unlikely ally: the government of Libya.
On Jan. 25, he flew to Tripoli to ask Libyan leaders, who had already invested $138.9 million from national reserves, for more money. But in the end, nothing came.
Days later, Stanford and others met in Miami to prep the two employees for their Feb. 10 showdown with the SEC. During the Miami meeting, Davis admitted that the bank's key asset -- the flipped Caribbean real estate -- was worth a fraction of what investors were told.
Nevertheless, Stanford assured his investors on Feb. 12 in a mass e-mail that rumors of an investigation were false and that recent visits to his offices by federal agents were routine. But within a week, he was flying to Washington, D.C., to plead for help from his lobbyist, Ben Barnes.
In Barnes' office, he huddled with white-collar criminal lawyer James Sharp. ``He was very worried,'' Barnes said.
But there was nothing Stanford could do: After federal agents met with Pendergest-Holt, they concluded that the banker's operation was a massive fraud.
On the morning of Feb. 17, agents shut down his companies, including 36 offices across the United States, and filed one of the nation's largest civil fraud suits against Stanford, Pendergest-Holt, Davis and other top lieutenants.
Cut off from his money, Stanford had nowhere to go: His apartments were seized, his jets grounded and his yacht impounded.
In the days to follow, more than 1,000 employees were laid off and his properties were taken over by the court-appointed receiver.
``We were stunned,'' Freyn said. ``I mean, they came in and shut down the office in St. Croix. They let people take out their belongings and told them to go in and take out your stuff because the feds are going to come in.''
Since then, Stanford, Pendergest-Holt, Davis and three others have been indicted on money-laundering and fraud charges. Davis, 61, has pleaded guilty and awaits sentencing, while Stanford is being held without bond in a federal facility in Texas.
With Stanford awaiting trial next year, federal agents are still trying to trace all of his movements during the final days.
Though agents say they have accounted for much of the money that flowed through his banking network, $1 billion is still missing, they say.
The inner workings of the bank were ``a closely guarded secret known only to Stanford, Davis and a few others,'' wrote an investigative accountant in a report.
The records that exist today ``do not begin to tell the story of what happened to all of the proceeds.''
As the sun set over the island, the banker stuffed the papers into a steel drum, poured gasoline over the top and sparked a fire -- the flames rising into the sky.
Months before his businesses exploded in February in a $7 billion fraud case, Stanford embarked on a mission to hide his financial records while trying to raise money to keep his banking empire alive.
He would jet off to Libya to try to convince government leaders to invest in his offshore institution.
He would even buy two Caribbean islands -- flipping the properties four times to inflate the value of the land and pump up the bank's assets.
``He was desperate,'' said Jonas Hagg, a longtime Fort Lauderdale executive chef who lived on Stanford's yacht. ``You never knew from day to day what was going to happen. He was flying by the seat of his pants.''
Details of the final days of Stanford's banking network, from court filings and interviews with a dozen staff members, offer the most complete picture so far of how he plundered his customers' accounts, pouring the money into failing stocks and botched real-estate deals.
He destroyed key records, creating gaps that continue to stymie federal agents trying to recover money for 21,500 fleeced investors.
As his financial network was collapsing, the once gregarious banker was turning into an angry employer, drinking heavily and bickering with his top officers, say staff members.
During a fight with the Antiguan government, he smashed bottles and his fists against the mahogany walls of his 112-foot yacht, Sea Eagle.
After spending nearly $20 million on two luxury estates in Miami and St. Croix -- pouring hundreds of thousands into renovations -- Stanford tore both houses to the ground within months of each other, making a one-bedroom apartment his only home.
By the time federal agents shut down his operations in February, the 59-year-old banker was in Washington, D.C., on his private jet with just one suit to wear and a credit card that had already been canceled.
Stanford's efforts to hide what prosecutors are calling one of the nation's largest Ponzi schemes began just as he was losing money from his failed deals.
The initial pressure didn't come from regulators, but from a paternity case in 2007 that evolved into a fight over keeping the banker's finances secret.
Onetime girlfriend Louise Sage would demand that Stanford -- the father of her two children -- reveal his sources of income, saying he was making more than the $5 million he claimed on his taxes.
Though he managed to keep his records concealed, the case marked the beginning of a two-year battle to shield his finances from public view.
For a decade, Stanford had been secretly drawing on his bank reserves -- the money belonging to investors -- to the tune of $1.8 billion, court records show.
Because so many people were buying his prize investments -- certificates of deposit -- there was always enough money to keep his bank going.
But after diverting money into numerous real-estate developments and pet projects, including a five-star restaurant with a $4 million wine cellar, the deals began collapsing in a remarkable string of failures.
It started with his Caribbean Star Airlines, a regional carrier he purchased in 2000 with great fanfare. He boasted that the airline was going to put his offshore bank on the map, but the company was bleeding at least $1 million a year by 2007, employees said.
Then, he spent at least $10 million trying to develop his dream real-estate project, Maiden Island in Antigua -- a retreat for Stanford and other wealthy homebuyers -- but it was scuttled after years of haggling with politicians.
Despite the failures, records show that he didn't stop spending vast sums of money.
He decided to move his headquarters from Houston to St. Croix, dipping into the bank's reserves to come up with money to buy land on the island.
By 2007, he had purchased a dozen properties, including an $8.3 million mansion, complete with four pools and tennis courts. He also unveiled plans to build an eco-friendly business park with a 45,000-square-foot hangar for his world headquarters.
Then, the stock market began a painful descent in December 2007 that would take an enormous toll on his bank's investments. At the same time, the U.S. Securities and Exchange Commission was pressing for details about his bank's dealings.
With pressure mounting, Stanford began drinking heavily and fighting with employees and his 31-year-old girlfriend, Andrea Stoelker, staff members said.
``It was getting to the point where he would take it out on others,'' said Hagg. ``The feeling was you could always expect the worst.''
He began spending more time on the yacht, which he had renovated for $16 million, working the phones and firing off e-mails at all hours, employees say.
Carrie Freyn, a chef and personal assistant, said Stanford was constantly sending out new directives and changing plans. ``He was very erratic,'' she said. ``We had to just be able to roll with it.''
After hiring nine people to tend to his sprawling mountaintop estate, he ordered it torn down in 2008 -- just months after doing the same to his $10.5 million home in Miami-Dade's Gables Estates.
Employees at both estates said they were stunned. ``I kept asking the question, `Why? Why knock the houses down?' '' asked St. Croix housekeeper Hyacinth Walters. ``Nobody knew anything.''
With both estates demolished, Stanford and his girlfriend began dividing their time between the one-bedroom apartment in St. Croix and his yacht.
Though St. Croix was home, Stanford made frequent trips to Antigua, where he was trying to land one major deal he predicted would reap billions.
He proposed one of the most lavish developments in the Caribbean, a luxury enclave with private hangars and beach homes on Antigua's Guiana Island. But the government refused to approve it.
``They were not giving him permits or cooperating with him,'' said his political consultant Ben Barnes, former Texas lieutenant governor. ``Allen lost his temper.''
Staff members recall how he flew into a tirade, pounding his fists into the woodwork on his yacht and throwing bottles into the walls.
On three occasions, the boat staff had to hire the same Coral Springs craftsman to repair the cabin after Stanford's outbursts, totaling $45,000 in costs.
While Stanford was hosting his annual 20/20 Cricket Tournament on the island in October 2008 -- the $20 million in prize money skimmed from client funds -- his bank's investments were continuing to plummet.
In just one week in early October, the stock market plunged by 18 percent in a spiral that would continue through the end of the year.
Stanford's assets were set up in three groups, but records now show that only one held significant value -- and it was in serious trouble. Less than a year earlier, the fund contained $889 million, mostly in securities, and was now about to drop to $316 million.
With the market falling, the bank was hit by a problem it had never confronted: hordes of fearful investors wanting to cash out, and a steep drop in new customers.
For Stanford, this was a bad combination. With no real reserves, the bank was hopelessly dependent on fresh money to pay off old investors.
With his employees fearing for their futures, Stanford flew to Miami in October and addressed brokers at his office on Biscayne Boulevard, assuring them the company was strong.
``We've got a lot of cash,'' said Stanford, boasting of a sweeping plan to invest in local real estate.
``You can go downtown on Brickell, and you can see 10,000 condo units coming on stream in the next few months. . . . I've seen it, I've been there, I've done it. . . . this is going to be a long-term play. We're going to make a huge amount of money off it.''
He also told the group he could cure the nation's economic woes. ``I have an answer to solve all this,'' he said. ``If I was president, you give me one term, we wouldn't be in this mess. We'd be back on the road to prosperity.''
While Stanford was speaking to the brokers, he and his top lieutenants were carrying out a scheme to stem the bank's massive losses -- at least on paper, court records show.
By turning to a practice known as flipping, the group was able to inflate the value of two tiny Caribbean islands 50-fold.
From an investment of $63.5 million in May, Pelican Island and Asian Village were deeded back and forth between several companies under Stanford's control -- increasing their value to $3.2 billion in just six months.
With the fabricated profits, Stanford was able to claim he had returned the $1.8 billion he had siphoned from the bank over the years.
Meanwhile, he was moving money out of his clients' accounts just to pay operational costs, payroll and to keep up with people cashing in CDs.
Funds were so short in his main bank in Antigua -- the balance just $872,557 in October -- that bank employee Patricia Maldonado pleaded in an e-mail to CFO Jim Davis: ``When can we get some relief?'' The next day, Davis approved $6 million from an account in a Houston bank to shore up the balance.
By November 2008, as Stanford traveled the country in his private jet meeting with top officers, he demanded that no one -- including his employees -- know his whereabouts.
``We weren't supposed to speak to the airline staff, but that didn't make any sense because we had to make the food,'' said Freyn. ``We all had this underground communication.''
He began drinking before noon and continued late into the night. ``It went from one bottle a night to two and three and four,'' Freyn said.
By the end of the year, his businesses were losing $33.3 million a month in operating costs alone, records show. With dwindling cash, staff members were forced to put expenses on their personal credit cards.
By Jan. 14, 2009, the SEC was now ordering Stanford and two of his top officers, CFO Davis and chief investment officer Laura Pendergest-Holt, to talk to investigators.
That month, Freyn and others recall Stanford driving up the dirt road on Mount Welcome in St. Croix, hauling a box stuffed with documents from his office.
After dumping the papers in a steel drum, Stanford and a handyman doused the top with gas and lit the contents. ``We thought it was crazy,'' Freyn recalled. ``You don't just go up there and light a bonfire without a permit.''
The records, which included Stanford's bank and credit-card statements, were torched at the same time Davis was ordering an employee to destroy bank records in Antigua, federal court records state.
In the days that followed, Stanford scrambled to find new investors to stop the bank's bleeding as his top officers tried to fend off federal agents.
During a crucial meeting in the company hangar at Miami International Airport on Jan. 21, Stanford and others decided to send two officers to meet with federal regulators: Pendergest-Holt, 36, and bank president Juan Rodriguez-Tolentino, 46, according to court records and interviews.
The move allowed Stanford to continue selling CDs while seeking help thousands of miles away from an unlikely ally: the government of Libya.
On Jan. 25, he flew to Tripoli to ask Libyan leaders, who had already invested $138.9 million from national reserves, for more money. But in the end, nothing came.
Days later, Stanford and others met in Miami to prep the two employees for their Feb. 10 showdown with the SEC. During the Miami meeting, Davis admitted that the bank's key asset -- the flipped Caribbean real estate -- was worth a fraction of what investors were told.
Nevertheless, Stanford assured his investors on Feb. 12 in a mass e-mail that rumors of an investigation were false and that recent visits to his offices by federal agents were routine. But within a week, he was flying to Washington, D.C., to plead for help from his lobbyist, Ben Barnes.
In Barnes' office, he huddled with white-collar criminal lawyer James Sharp. ``He was very worried,'' Barnes said.
But there was nothing Stanford could do: After federal agents met with Pendergest-Holt, they concluded that the banker's operation was a massive fraud.
On the morning of Feb. 17, agents shut down his companies, including 36 offices across the United States, and filed one of the nation's largest civil fraud suits against Stanford, Pendergest-Holt, Davis and other top lieutenants.
Cut off from his money, Stanford had nowhere to go: His apartments were seized, his jets grounded and his yacht impounded.
In the days to follow, more than 1,000 employees were laid off and his properties were taken over by the court-appointed receiver.
``We were stunned,'' Freyn said. ``I mean, they came in and shut down the office in St. Croix. They let people take out their belongings and told them to go in and take out your stuff because the feds are going to come in.''
Since then, Stanford, Pendergest-Holt, Davis and three others have been indicted on money-laundering and fraud charges. Davis, 61, has pleaded guilty and awaits sentencing, while Stanford is being held without bond in a federal facility in Texas.
With Stanford awaiting trial next year, federal agents are still trying to trace all of his movements during the final days.
Though agents say they have accounted for much of the money that flowed through his banking network, $1 billion is still missing, they say.
The inner workings of the bank were ``a closely guarded secret known only to Stanford, Davis and a few others,'' wrote an investigative accountant in a report.
The records that exist today ``do not begin to tell the story of what happened to all of the proceeds.''
Tuesday, 3 November 2009
Miami's ex-DEA chief could escape charge in Allen Stanford case
In a blow to prosecutors, a federal judge Monday called for the dismissal of an obstruction charge against Miami's former DEA chief in the Allen Stanford bank fraud case.
Two months after one of Miami's most celebrated drug cops was charged in the Allen Stanford financial scandal, a federal magistrate is recommending that one of the key charges be thrown out.
Judge Robin Rosenbaum said prosecutors failed to prove Tom Raffanello -- head of security for Stanford's worldwide enterprise -- interfered with a federal investigation by ordering the destruction of reams of company documents.
The former Drug Enforcement Administration chief, who left the agency to join Stanford's security force in 2004, was charged with ordering the shredding of records just days after federal agents shut down Stanford's empire in a massive fraud case in February.
Though prosecutors said Raffanello defied a court order by destroying the documents, Rosenbaum said the government failed to show he impeded the U.S. Securities and Exchange Commission's probe.
The magistrate fell short of rejecting the entire case, however, saying prosecutors were able to show the former drug cop destroyed records in the course of a federal investigation. Her recommendation will be taken up by presiding Judge William Zloch later this month.
The charges over the destruction of the records -- including sensitive background checks on employees and investors -- are just part of the government's case against Stanford, who prosecutors say orchestrated a $7 billion Ponzi scheme.
Raffanello's attorney, Richard Sharpstein, said he was pleased with Rosenbaum's recommendation.
``We hope Judge Zloch not only agrees with Judge Rosenbaum, but throws out the entire case,'' he said.
Lead prosecutor Paul Pelletier could not be reached on Monday. However, prosecutors have argued in prior hearings that Raffanello and co-defendant Bruce Perraud were aware of a judge's order to preserve all company documents when they called a shredding truck to the company's Fort Lauderdale security bunker on February 25.
Federal agents have been scrambling to trace billions of dollars that flowed through Stanford's Antiguan bank over the past decade.
Ruling mostly on technical grounds, Rosenbaum said the order to preserve the records was for the court-appointed receiver and not the SEC. ``[The indictment] does not assert that defendants knew that when they allegedly obstructed the receiver's investigation, they were also interfering with the SEC's proceeding,'' Rosenbaum wrote.
She also threw out a portion of a conspiracy count relating to the obstruction charge. A trial on the remaining counts is tentatively set for January.
Two months after one of Miami's most celebrated drug cops was charged in the Allen Stanford financial scandal, a federal magistrate is recommending that one of the key charges be thrown out.
Judge Robin Rosenbaum said prosecutors failed to prove Tom Raffanello -- head of security for Stanford's worldwide enterprise -- interfered with a federal investigation by ordering the destruction of reams of company documents.
The former Drug Enforcement Administration chief, who left the agency to join Stanford's security force in 2004, was charged with ordering the shredding of records just days after federal agents shut down Stanford's empire in a massive fraud case in February.
Though prosecutors said Raffanello defied a court order by destroying the documents, Rosenbaum said the government failed to show he impeded the U.S. Securities and Exchange Commission's probe.
The magistrate fell short of rejecting the entire case, however, saying prosecutors were able to show the former drug cop destroyed records in the course of a federal investigation. Her recommendation will be taken up by presiding Judge William Zloch later this month.
The charges over the destruction of the records -- including sensitive background checks on employees and investors -- are just part of the government's case against Stanford, who prosecutors say orchestrated a $7 billion Ponzi scheme.
Raffanello's attorney, Richard Sharpstein, said he was pleased with Rosenbaum's recommendation.
``We hope Judge Zloch not only agrees with Judge Rosenbaum, but throws out the entire case,'' he said.
Lead prosecutor Paul Pelletier could not be reached on Monday. However, prosecutors have argued in prior hearings that Raffanello and co-defendant Bruce Perraud were aware of a judge's order to preserve all company documents when they called a shredding truck to the company's Fort Lauderdale security bunker on February 25.
Federal agents have been scrambling to trace billions of dollars that flowed through Stanford's Antiguan bank over the past decade.
Ruling mostly on technical grounds, Rosenbaum said the order to preserve the records was for the court-appointed receiver and not the SEC. ``[The indictment] does not assert that defendants knew that when they allegedly obstructed the receiver's investigation, they were also interfering with the SEC's proceeding,'' Rosenbaum wrote.
She also threw out a portion of a conspiracy count relating to the obstruction charge. A trial on the remaining counts is tentatively set for January.
Sunday, 13 September 2009
Former agent goes to court on Stanford-related charge
A former top federal drug agent appeared handcuffed in a Fort Lauderdale, Fla., federal court today, a day after he was indicted on charges related to the Stanford Financial Group fraud case.
Thomas Raffanello, who was Stanford Financial's global security director, is accused of conspiracy, destroying records and impeding a probe by the U.S. Securities and Exchange Commission into the operations of Stanford Financial, founded by Texas native R. Allen Stanford—who also faces criminal charges.
Raffanello is the former head of the U.S. Drug Enforcement Administration's Miami office.
Magistrate Robin Rosenbaum set bail at $100,000 and set Raffanello's arraignment for next Friday. .
Raffanello, 61, is the second Stanford executive to be charged in Florida by prosecutors and federal securities regulators who accuse Stanford and others of bilking investors out of more than $7 billion through a scheme involving bogus certificates of deposit.
Thursday's three-count indictment accuses Raffanello, 61, and Bruce Perraud, 42, of helping to shred documents at Stanford Financial's office in Fort Lauderdale. Their lawyers have said the men only destroyed documents after giving investigators electronic duplicates.
R. Allen Stanford, who also denies wrongdoing, is being held without bail in a Conroe jail awaiting trial on a 19-count indictment by a federal grand jury in Houston. That indictment also named three other company executives and a banking regulator in the Caribbean island nation of Antigua and Barbuda.
Another company executive was charged separately, pleaded guilty and is cooperating with prosecutors.
Thomas Raffanello, who was Stanford Financial's global security director, is accused of conspiracy, destroying records and impeding a probe by the U.S. Securities and Exchange Commission into the operations of Stanford Financial, founded by Texas native R. Allen Stanford—who also faces criminal charges.
Raffanello is the former head of the U.S. Drug Enforcement Administration's Miami office.
Magistrate Robin Rosenbaum set bail at $100,000 and set Raffanello's arraignment for next Friday. .
Raffanello, 61, is the second Stanford executive to be charged in Florida by prosecutors and federal securities regulators who accuse Stanford and others of bilking investors out of more than $7 billion through a scheme involving bogus certificates of deposit.
Thursday's three-count indictment accuses Raffanello, 61, and Bruce Perraud, 42, of helping to shred documents at Stanford Financial's office in Fort Lauderdale. Their lawyers have said the men only destroyed documents after giving investigators electronic duplicates.
R. Allen Stanford, who also denies wrongdoing, is being held without bail in a Conroe jail awaiting trial on a 19-count indictment by a federal grand jury in Houston. That indictment also named three other company executives and a banking regulator in the Caribbean island nation of Antigua and Barbuda.
Another company executive was charged separately, pleaded guilty and is cooperating with prosecutors.
Sunday, 9 August 2009
Florida regulators failed to stop Stanford's Miami operation
As Ecuadorean officials investigated questionable dealings from Allen Stanford's Miami office, Florida officials took no action.
Desperate to prop up Allen Stanford's financial empire, his Miami brokers jetted to South America with a sales pitch they said would deliver gold to investors: Invest in the Miami bank and reap spectacular returns.
There was just one catch: Stanford didn't have a bank in Miami.
When regulators in Ecuador caught wind of the scheme in 2005, they banned Stanford's employees from selling their prime investments and threatened legal action.
But in Florida, where Stanford's operation was rooted, regulators weren't even watching.
Florida investigators, in fact, were among the slowest in responding to the massive fraud that prosecutors say fleeced $7 billion from investors around the world -- most of the money now missing.
The crisis in Ecuador revealed major breakdowns in Florida's enforcement system at a time the Miami office was generating hundreds of millions a year for Stanford's questionable ventures, The Miami Herald found.
It exposed the office's heated campaign to recruit new clients -- and raise millions -- while breaking state banking laws.
And it shook the foundation of Stanford's financial network years before it was shut down by federal agents.
For years, brokers from the Miami office flew to Ecuador, cutting deals and sending the money to Stanford's Antiguan bank -- the records later shredded at the Miami office.
``They were breaking our laws,'' said Diego Garcés, a lead agent for the Ecuador agency that investigated the case.
The Miami center opened under a special arrangement with Florida regulators in 1998 as a foreign trust representative office -- the only one of its kind.
Because the unit was allowed to operate without any regulation -- including fraud checks -- there was no crackdown in Florida, records show.
By the time the criminal case broke open this year -- including Stanford's arrest in June -- the Miami office had generated nearly $1 billion.
Like many of Stanford's offices, the Miami center excelled in the sale of Stanford Group Company's key investment: certificates of deposit.
But to maintain the lucrative returns promised on the CDs, as much as 2 percent over competitors, Stanford needed a constant stream of money from new investors to pay off the earlier ones.
In 2005, he turned to the Miami office -- a luxury highrise adorned with expensive artwork -- to target new markets in South America.
Stanford had brokerages in South America, but there was an advantage with the Miami office: Agents promised customers the security of investing with a U.S. business.
Because Miami operated without oversight, employees were free to move in and out of countries to sell CDs without disclosing anything to regulators.
``They could do whatever they wanted to do,'' said Gonzalo Tirado, 39, president of Stanford's Venezuelan office. ``There was an astounding lack of controls.''
The sales blitz sparked cut-throat competition among the Stanford offices, prompting a flurry of angry phone calls between office managers.
``They terrorized customers,'' Tirado said. ``They told them, `Look, if you have your money in Venezuela, the government is going to know about it. If you have it in Miami, that's not going to happen.' ''
Miami brokers swept into Ecuador at least a dozen times in 2005, said Norta Llana, the Miami office administrator.
The battle with regulators in Ecuador started when officials got hold of one of Stanford's mailings. The letter not only boasted of the glowing returns on Stanford's CDs, but claimed the Miami office was a bank.
``They went crazy,'' said Steven Riger, 63, a vice president at the Miami office.
The letter said Stanford was the second largest bank in Ecuador -- a totally false claim.
Ecuador eventually banned Stanford brokers from selling CDs -- the main source of Stanford's income -- and expansion plans in Peru and Colombia were halted.
Word began to spread among regulators in other South American countries about Stanford's problems, Tirado said.
In the ensuing investigation, agents found the mailing was not only misleading, but Miami employees jetting to Ecuador were routinely breaking the law by taking deposits and leaving the country without reporting anything.
The probe sparked tense negotiations between Stanford's advisors and Ecuadorean regulators.
Riger, the former Stanford Miami executive, said several of Stanford's top brokers pleaded with him to find a way to keep the Ecuadorean business afloat.
``They were really shook up about this,'' Riger said. ``They were trying to save a book of business in Ecuador.''
While Ecuador's banking agency investigated Stanford, a second agency found the existing brokerages in Ecuador were reaping illegal commissions.
In December 2005, that agency imposed a $2,628 fine and declared most of Stanford's business practices illegal.
Garcés, the Ecuadorean agent, said Stanford's lawyers appealed the decision by the Superintendencia de Companias, but the order was upheld.
Despite the ban on CD sales, the Miami office continued to bombard residents with mailings and e-mails pushing the sales, said Santiago Noboa, a regulator who investigated Stanford.
``We couldn't stop the letters,'' he said.
In addition, the mailings -- sent to other South American countries -- spurred outrage in Stanford's foreign offices.
Tirado, who was dismissed by Stanford in a bitter employment dispute in late 2005, said he was alarmed because Miami brokers were not checking the backgrounds of customers.
He described a heated conversation with Miami office director Nelson Ramirez: ``I called Nelson and told him, `Don't do that, grow only by referral. You don't know who you're sending mail to. Be careful. If you open an account for a politically exposed person or money launderer, you will get in trouble.' ''
Ramirez did not respond to repeated requests for an interview.
Eventually, regulators let Stanford resume his business in Ecuador without further sanctions while Colombia let Stanford open his brokerage the following year.
Throughout the crisis, the company dodged U.S. regulators.
Under federal law, firms that get into trouble selling securities overseas must report the problems on their regulatory records. But Stanford's brokerage failed to disclose the crackdown, and the Miami office -- running without any regulatory controls -- did not have to file anything. ``It was a black hole,'' said Mark Raymond, a Miami lawyer representing investors.
Several securities lawyers said such disclosures often spark investigations by regulators in this country.
But nothing happened in Florida.
Linda Charity, acting commissioner of Florida's Office of Financial Regulation, said the state's authority was restricted by the agreement it struck with Stanford a decade ago. ``We really couldn't do anything,'' she said.
But under the law, state agents are empowered to probe any company they believe is violating banking and securities statutes.
During a key visit by Florida examiners in 2005 -- while Stanford was under investigation in Ecuador -- agents found employees shipping checks to Antigua, marked as deposits, and shredding the records left behind. No investigations were launched.
Under Florida statute 655, only licensed companies can take deposits, and anyone violating the law is subject to a felony charge.
``The state had the right to go in there,'' Raymond said. ``As soon as it saw what was going on, it should have issued a subpoena.''
Charity said the state began probing the office after a 2007 visit turned up ``red flags,'' but her agency took no enforcement action. She declined to give details of the visit.
Jonathan Winer, a former U.S. deputy assistant secretary of state, said the breakdowns began when Florida struck the deal with Stanford in 1998.
Once in charge of money laundering investigations in the Caribbean, Winer said he remembers when the agreement was reached.
``At the time, I was totally perplexed. I wasn't in the business of questioning state regulators. I presumed they knew what they were doing,'' he said. ``I am disgusted that the state of Florida let this happen.''
Raymond said the events in Ecuador offer a stark contrast in regulatory actions. ``Their regulators did what we didn't do,'' he said. ``We supposedly are the gem of banking regulatory systems, but in the end, we dropped the ball.''
Desperate to prop up Allen Stanford's financial empire, his Miami brokers jetted to South America with a sales pitch they said would deliver gold to investors: Invest in the Miami bank and reap spectacular returns.
There was just one catch: Stanford didn't have a bank in Miami.
When regulators in Ecuador caught wind of the scheme in 2005, they banned Stanford's employees from selling their prime investments and threatened legal action.
But in Florida, where Stanford's operation was rooted, regulators weren't even watching.
Florida investigators, in fact, were among the slowest in responding to the massive fraud that prosecutors say fleeced $7 billion from investors around the world -- most of the money now missing.
The crisis in Ecuador revealed major breakdowns in Florida's enforcement system at a time the Miami office was generating hundreds of millions a year for Stanford's questionable ventures, The Miami Herald found.
It exposed the office's heated campaign to recruit new clients -- and raise millions -- while breaking state banking laws.
And it shook the foundation of Stanford's financial network years before it was shut down by federal agents.
For years, brokers from the Miami office flew to Ecuador, cutting deals and sending the money to Stanford's Antiguan bank -- the records later shredded at the Miami office.
``They were breaking our laws,'' said Diego Garcés, a lead agent for the Ecuador agency that investigated the case.
The Miami center opened under a special arrangement with Florida regulators in 1998 as a foreign trust representative office -- the only one of its kind.
Because the unit was allowed to operate without any regulation -- including fraud checks -- there was no crackdown in Florida, records show.
By the time the criminal case broke open this year -- including Stanford's arrest in June -- the Miami office had generated nearly $1 billion.
Like many of Stanford's offices, the Miami center excelled in the sale of Stanford Group Company's key investment: certificates of deposit.
But to maintain the lucrative returns promised on the CDs, as much as 2 percent over competitors, Stanford needed a constant stream of money from new investors to pay off the earlier ones.
In 2005, he turned to the Miami office -- a luxury highrise adorned with expensive artwork -- to target new markets in South America.
Stanford had brokerages in South America, but there was an advantage with the Miami office: Agents promised customers the security of investing with a U.S. business.
Because Miami operated without oversight, employees were free to move in and out of countries to sell CDs without disclosing anything to regulators.
``They could do whatever they wanted to do,'' said Gonzalo Tirado, 39, president of Stanford's Venezuelan office. ``There was an astounding lack of controls.''
The sales blitz sparked cut-throat competition among the Stanford offices, prompting a flurry of angry phone calls between office managers.
``They terrorized customers,'' Tirado said. ``They told them, `Look, if you have your money in Venezuela, the government is going to know about it. If you have it in Miami, that's not going to happen.' ''
Miami brokers swept into Ecuador at least a dozen times in 2005, said Norta Llana, the Miami office administrator.
The battle with regulators in Ecuador started when officials got hold of one of Stanford's mailings. The letter not only boasted of the glowing returns on Stanford's CDs, but claimed the Miami office was a bank.
``They went crazy,'' said Steven Riger, 63, a vice president at the Miami office.
The letter said Stanford was the second largest bank in Ecuador -- a totally false claim.
Ecuador eventually banned Stanford brokers from selling CDs -- the main source of Stanford's income -- and expansion plans in Peru and Colombia were halted.
Word began to spread among regulators in other South American countries about Stanford's problems, Tirado said.
In the ensuing investigation, agents found the mailing was not only misleading, but Miami employees jetting to Ecuador were routinely breaking the law by taking deposits and leaving the country without reporting anything.
The probe sparked tense negotiations between Stanford's advisors and Ecuadorean regulators.
Riger, the former Stanford Miami executive, said several of Stanford's top brokers pleaded with him to find a way to keep the Ecuadorean business afloat.
``They were really shook up about this,'' Riger said. ``They were trying to save a book of business in Ecuador.''
While Ecuador's banking agency investigated Stanford, a second agency found the existing brokerages in Ecuador were reaping illegal commissions.
In December 2005, that agency imposed a $2,628 fine and declared most of Stanford's business practices illegal.
Garcés, the Ecuadorean agent, said Stanford's lawyers appealed the decision by the Superintendencia de Companias, but the order was upheld.
Despite the ban on CD sales, the Miami office continued to bombard residents with mailings and e-mails pushing the sales, said Santiago Noboa, a regulator who investigated Stanford.
``We couldn't stop the letters,'' he said.
In addition, the mailings -- sent to other South American countries -- spurred outrage in Stanford's foreign offices.
Tirado, who was dismissed by Stanford in a bitter employment dispute in late 2005, said he was alarmed because Miami brokers were not checking the backgrounds of customers.
He described a heated conversation with Miami office director Nelson Ramirez: ``I called Nelson and told him, `Don't do that, grow only by referral. You don't know who you're sending mail to. Be careful. If you open an account for a politically exposed person or money launderer, you will get in trouble.' ''
Ramirez did not respond to repeated requests for an interview.
Eventually, regulators let Stanford resume his business in Ecuador without further sanctions while Colombia let Stanford open his brokerage the following year.
Throughout the crisis, the company dodged U.S. regulators.
Under federal law, firms that get into trouble selling securities overseas must report the problems on their regulatory records. But Stanford's brokerage failed to disclose the crackdown, and the Miami office -- running without any regulatory controls -- did not have to file anything. ``It was a black hole,'' said Mark Raymond, a Miami lawyer representing investors.
Several securities lawyers said such disclosures often spark investigations by regulators in this country.
But nothing happened in Florida.
Linda Charity, acting commissioner of Florida's Office of Financial Regulation, said the state's authority was restricted by the agreement it struck with Stanford a decade ago. ``We really couldn't do anything,'' she said.
But under the law, state agents are empowered to probe any company they believe is violating banking and securities statutes.
During a key visit by Florida examiners in 2005 -- while Stanford was under investigation in Ecuador -- agents found employees shipping checks to Antigua, marked as deposits, and shredding the records left behind. No investigations were launched.
Under Florida statute 655, only licensed companies can take deposits, and anyone violating the law is subject to a felony charge.
``The state had the right to go in there,'' Raymond said. ``As soon as it saw what was going on, it should have issued a subpoena.''
Charity said the state began probing the office after a 2007 visit turned up ``red flags,'' but her agency took no enforcement action. She declined to give details of the visit.
Jonathan Winer, a former U.S. deputy assistant secretary of state, said the breakdowns began when Florida struck the deal with Stanford in 1998.
Once in charge of money laundering investigations in the Caribbean, Winer said he remembers when the agreement was reached.
``At the time, I was totally perplexed. I wasn't in the business of questioning state regulators. I presumed they knew what they were doing,'' he said. ``I am disgusted that the state of Florida let this happen.''
Raymond said the events in Ecuador offer a stark contrast in regulatory actions. ``Their regulators did what we didn't do,'' he said. ``We supposedly are the gem of banking regulatory systems, but in the end, we dropped the ball.''