By Terri Langford
An Antiguan banking official told jurors Monday that R. Allen Stanford used his influence to manipulate the island nation's regulators and insert himself into the regulatory process.
"This would be a classic case of the rat being put in charge of the cheese," said Marian Althea Crick, who is board chairman of Antigua's Financial Services Regulatory Commission.
Crick, 59, described a series of run-ins with Stanford and his financial empire, beginning in 1998 when she was hired to be executive director of the commission's predecessor agency - which once included Stanford as a board member.
Crick said she often raised concerns about his position.
"It's a conflict of interest, inappropriate," Crick testified.
Stanford - whose businesses and charities in Antigua gave him such prominence that the nation knighted him - eventually was removed from the commission but still influenced regulators, she said.
In 2001, when the Antiguan regulator announced it was scheduling a review of the bank, Stanford contacted the agency and said he didn't want a certain auditor included in the review.
Immediately, that auditor and Crick were sent on a hastily arranged fact-finding mission about financial operations in other Caribbean countries, Crick said.
By 2002, Crick anticipated she would be fired and resigned. Her successor, Leroy King, is one of four people charged in a separate indictment from the one against Stanford.
King, accused of taking bribes to keep regulatory heat off Stanford's operations, is fighting extradition from Antigua. The other three defendants in that indictment were Stanford Group executives.
Crick returned to the Antiguan regulatory agency in 2009 after the U.S. Securities and Exchange Commission sued to force Stanford's operations into receivership and freeze its assets.
Other testimony Monday, as Stanford's trial entered its second week, concerned billions of bank assets in a mysterious portfolio known as Tier III.
Mark Collinsworth, an executive in the Memphis, Tenn., office of Stanford's international financial network, described to jurors a three-tier structure for the bank's investments.
Prosecutors allege that Stanford customers were led to believe the CDs were invested conservatively, but that the money really went into Stanford's risky business ventures and jet-setting lifestyle.
Collinsworth said he understood that Tier III contained conservative investments such as bonds and blue chip stocks, but that he had no personal knowledge of the portfolio.
He said Tier III accounted for $5.5 billion of the bank's investments in 2008, compared with about $1.5 billion for Tiers I and II combined. Tier 1 contained cash and liquid assets, he said, and Tier II contained more aggressive investments.
Collinsworth said under questioning by Stanford lawyer Ali Fazel that Stanford himself had little involvement with the Memphis office, visiting only twice in the 10 years Collinsworth worked there.
Collinsworth testified that his Memphis-based supervisor, Stanford's chief investment officer, Laura Holt, did not discuss Tier III with subordinates.
According to testimony last week, Holt once said she managed Stanford's entire portfolio. But as investigators closed in on the operation, she told associates she had no knowledge of certain investments.
Holt is one of the three executives indicted separately from Stanford and set for trial later.
Stanford's former chief financial officer, James Davis, pleaded guilty to three felony counts and will testify for the prosecution.
Collinsworth said Holt and Davis hired friends and relatives with little financial background for key positions in the office.
They included a close Davis friend with no experience in the Middle East, hired as an analyst on that region, and a Russian analyst, hired by Holt, who had been born there but left as a child and wasn't familiar with Russia's most profitable companies.
Showing posts with label regulators. Show all posts
Showing posts with label regulators. Show all posts
Tuesday, 31 January 2012
Thursday, 26 January 2012
Stanford Invented Insurance Company for Bank Depositors, Prosecutor Says
By Andrew Harris and Laurel Brubaker Calkins - Jan 25, 2012 10:43 PM GMT-0400
R. Allen Stanford failed to tell a financial adviser he hired for his first offshore bank that the insurer he selected for the institution was a company he created, a federal prosecutor said at the financier’s investment fraud trial.
Assistant U.S. Attorney William Stellmach made that claim today while questioning the adviser, Michelle Chambliess, on the first day of testimony at the federal courthouse in Houston.
Chambliess said she was one of Stanford’s first hires in 1987, at Guardian International Investment Services, a U.S.- based sibling of Stanford’s Montserrat-based Guardian International Bank Ltd. Guardian was the precursor to Stanford International Bank Ltd., the Antiguan entity at the heart of Stanford’s alleged $7 billion fraud.
Stanford told her he’d obtained insurance for the bank from a carrier called British Insurance Fund Ltd., which appeared to be an independent U.K.-based company.
“Did he ever tell you it was a shell company he had set up?” Stellmach asked.
“No,” Chambliess replied.
‘Any Difference’
“Would that have made any difference to you?” he asked.
“Absolutely,” she said. “Then there wouldn’t be insurance.”
The Guardian bank later moved to Antigua, where it was renamed. Stanford is charged with wire fraud and mail fraud, crimes that carry maximum sentences of 20 years in prison, as well as obstruction of an SEC investigation. U.S. District Judge David Hittner has said the trial may last about six weeks.
Stanford, 61, told the jury yesterday he isn’t guilty. Today, wearing a double-breasted navy suit and a light blue shirt, he occasionally pursed his lips and shook his head as he watched his ex-employees testify against him.
The bank’s offshore location made it a tax haven for depositors and removed it from U.S. regulatory oversight and the backing of the Federal Deposit Insurance Corp., Chambliess testified. Its money-market accounts and certificates of deposit offered higher rates of return than those of banks required to comply with U.S. reserve regulations and tax laws, she said.
Fired in 2002
The financial adviser said she was fired in 2002, after working for Stanford for almost 15 years, when she lost her three largest clients and her CD sales dropped. By that time, she said, she had already started circulating her resume because Stanford had told her to “do whatever you need to do” to land a client.
That advice left her “flabbergasted,” she testified.
Chambliess told the court she learned that Stanford and some of his businesses borrowed money from the bank from a disclosure in Stanford’s 1996 annual report. She said she was surprised by the loans, as Stanford had promised investors and employees that the bank didn’t make commercial loans and invested solely in high-grade liquid assets.
The document said the financier personally borrowed $13.5 million while two affiliated companies borrowed an additional $11 million. When she asked about the loans, Chambliess said Stanford replied that he’d guaranteed the loans with his own liquid assets “and there was no risk” it wouldn’t be repaid.
Annual Report
The ex-employee said a disclosure in the company’s 1998 annual report indicated Stanford repaid the personal loan in full, along with $480,000 interest.
She said there were no subsequent disclosures of lending to Stanford or any of his companies and that financial advisers weren’t told Stanford continued to invest depositor funds in outside ventures ranging from regional airlines to newspapers.
Employees believed “the bank’s money stayed at the bank” in the conservative, highly liquid portfolio advertised to investors, Chambliess testified.
Under questioning by defense lawyer Ali Fazel, Chambliess said the Caribbean bank was subject to different international accounting standards than what U.S. companies are required to follow.
Under the international rules, Fazel said, the bank didn’t need to disclose its loans to Stanford and his companies.
Key Theme
Fazel revisited a key defense theme with Chambliess, that none of Stanford’s investors lost money until U.S. regulators seized his operations and destroyed their value.
“Was there anybody who did not get paid their money when the CDs were due?” Fazel asked Chambliess.
“Not while I was there,” she replied.
Leonel Mejia, who Stanford hired to head a captive advertising and marketing business called Idea Advertising in 1988, testified he was asked by James Davis, chief financial officer of the securities brokerage Stanford Group Co., to alter the coverage dates of an expired copy of a British Insurance Fund document.
Mejia said he declined to do so because he believed he was tampering with a legal document. Davis asked Mejia if he’d make the changes with permission from the owner of the British insurer. When he agreed, Davis and Stanford showed him papers indicating Stanford owned the insurance company, Mejia said.
CD Rates
Mejia, an El Salvador native, also testified that Stanford purposely set his bank CD rates two to four percentage points higher than U.S. rates to attract investors willing to forgo FDIC insurance on their deposits to get a better return.
“He said that people were willing to risk their money for 2 percent, they’re greedy,” Mejia said. “It was not very respectful to his clients, in my opinion.”
Mejia also testified that Stanford and Davis changed numbers in the bank’s 1988 annual report using a handheld calculator. The bank’s auditor in Antigua signed off on the revised numbers by fax 15 minutes later.
“It took me more time to do my checkbook,” Mejia said of the auditor’s rapid approval. “I thought that was quick.”
Questioned by Fazel, Mejia said he didn’t know if Stanford and Davis were consulting with the auditor and accountants in another room when they changed the annual report numbers.
“You’re speculating and guessing about everything, aren’t you,” Fazel asked Mejia. While disagreeing with that assertion, Mejia conceded that his knowledge of Stanford’s financial empire was limited.
The case is U.S. v. Stanford, 09-cr-342, U.S. District Court, Southern District of Texas (Houston).
Assistant U.S. Attorney William Stellmach made that claim today while questioning the adviser, Michelle Chambliess, on the first day of testimony at the federal courthouse in Houston.
Chambliess said she was one of Stanford’s first hires in 1987, at Guardian International Investment Services, a U.S.- based sibling of Stanford’s Montserrat-based Guardian International Bank Ltd. Guardian was the precursor to Stanford International Bank Ltd., the Antiguan entity at the heart of Stanford’s alleged $7 billion fraud.
Stanford told her he’d obtained insurance for the bank from a carrier called British Insurance Fund Ltd., which appeared to be an independent U.K.-based company.
“Did he ever tell you it was a shell company he had set up?” Stellmach asked.
“No,” Chambliess replied.
‘Any Difference’
“Would that have made any difference to you?” he asked.
“Absolutely,” she said. “Then there wouldn’t be insurance.”
The Guardian bank later moved to Antigua, where it was renamed. Stanford is charged with wire fraud and mail fraud, crimes that carry maximum sentences of 20 years in prison, as well as obstruction of an SEC investigation. U.S. District Judge David Hittner has said the trial may last about six weeks.
Stanford, 61, told the jury yesterday he isn’t guilty. Today, wearing a double-breasted navy suit and a light blue shirt, he occasionally pursed his lips and shook his head as he watched his ex-employees testify against him.
The bank’s offshore location made it a tax haven for depositors and removed it from U.S. regulatory oversight and the backing of the Federal Deposit Insurance Corp., Chambliess testified. Its money-market accounts and certificates of deposit offered higher rates of return than those of banks required to comply with U.S. reserve regulations and tax laws, she said.
Fired in 2002
The financial adviser said she was fired in 2002, after working for Stanford for almost 15 years, when she lost her three largest clients and her CD sales dropped. By that time, she said, she had already started circulating her resume because Stanford had told her to “do whatever you need to do” to land a client.
That advice left her “flabbergasted,” she testified.
Chambliess told the court she learned that Stanford and some of his businesses borrowed money from the bank from a disclosure in Stanford’s 1996 annual report. She said she was surprised by the loans, as Stanford had promised investors and employees that the bank didn’t make commercial loans and invested solely in high-grade liquid assets.
The document said the financier personally borrowed $13.5 million while two affiliated companies borrowed an additional $11 million. When she asked about the loans, Chambliess said Stanford replied that he’d guaranteed the loans with his own liquid assets “and there was no risk” it wouldn’t be repaid.
Annual Report
The ex-employee said a disclosure in the company’s 1998 annual report indicated Stanford repaid the personal loan in full, along with $480,000 interest.
She said there were no subsequent disclosures of lending to Stanford or any of his companies and that financial advisers weren’t told Stanford continued to invest depositor funds in outside ventures ranging from regional airlines to newspapers.
Employees believed “the bank’s money stayed at the bank” in the conservative, highly liquid portfolio advertised to investors, Chambliess testified.
Under questioning by defense lawyer Ali Fazel, Chambliess said the Caribbean bank was subject to different international accounting standards than what U.S. companies are required to follow.
Under the international rules, Fazel said, the bank didn’t need to disclose its loans to Stanford and his companies.
Key Theme
Fazel revisited a key defense theme with Chambliess, that none of Stanford’s investors lost money until U.S. regulators seized his operations and destroyed their value.
“Was there anybody who did not get paid their money when the CDs were due?” Fazel asked Chambliess.
“Not while I was there,” she replied.
Leonel Mejia, who Stanford hired to head a captive advertising and marketing business called Idea Advertising in 1988, testified he was asked by James Davis, chief financial officer of the securities brokerage Stanford Group Co., to alter the coverage dates of an expired copy of a British Insurance Fund document.
Mejia said he declined to do so because he believed he was tampering with a legal document. Davis asked Mejia if he’d make the changes with permission from the owner of the British insurer. When he agreed, Davis and Stanford showed him papers indicating Stanford owned the insurance company, Mejia said.
CD Rates
Mejia, an El Salvador native, also testified that Stanford purposely set his bank CD rates two to four percentage points higher than U.S. rates to attract investors willing to forgo FDIC insurance on their deposits to get a better return.
“He said that people were willing to risk their money for 2 percent, they’re greedy,” Mejia said. “It was not very respectful to his clients, in my opinion.”
Mejia also testified that Stanford and Davis changed numbers in the bank’s 1988 annual report using a handheld calculator. The bank’s auditor in Antigua signed off on the revised numbers by fax 15 minutes later.
“It took me more time to do my checkbook,” Mejia said of the auditor’s rapid approval. “I thought that was quick.”
Questioned by Fazel, Mejia said he didn’t know if Stanford and Davis were consulting with the auditor and accountants in another room when they changed the annual report numbers.
“You’re speculating and guessing about everything, aren’t you,” Fazel asked Mejia. While disagreeing with that assertion, Mejia conceded that his knowledge of Stanford’s financial empire was limited.
The case is U.S. v. Stanford, 09-cr-342, U.S. District Court, Southern District of Texas (Houston).
Friday, 25 February 2011
Investors Cite Inattention by Regulators
Blaine Smith, of Baton Rouge, says each new revelation of inattention by state and federal regulators to the dealings of investment promoter Robert Allen Stanford intensifies the pain felt by those who lost their savings to the man.
More than $1 million of Smith’s retirement savings vanished in February 2009, when the U.S. Securities and Exchange Commission alleged that Stanford orchestrated more than $7.2 billion in frauds against more than 25,000 investors across this country and 112 others.
Two years later, the Dallas receiver appointed by a federal judge to find and recover Stanford’s assets for eventual distribution to devastated investors reports that he has only $77.1 million in unrestricted cash.
The receiver, attorney Ralph Janvey, added in his report this month that he actually recovered $188.3 million. But fees and expenses ate up $46.2 million of that total. Another $14.4 million in fees and expenses are subject to court approval for Janvey’s team of lawyers, accountants, investigators and clerical staff.
The first claim against any money that remains in the receivership after fees and expenses is that of the IRS, which wants $226 million for Stanford’s alleged unpaid taxes, penalties and interest.
Smith spent more than 20 years with Exxon and also worked as a homebuilder before Stanford’s chief financial officer, James M. Davis, of Baldwyn, Miss., pleaded guilty to fraud charges and admitted that Stanford’s investments had been a scam.
But Smith’s personal pain increased last year, when the SEC inspector general reported that some of the commission’s regulators concluded in 1997 that Stanford’s operations likely were fraudulent. The IG reported that SEC examiners in Fort Worth asked four times that Stanford be investigated for possible fraud, but their requests were ignored.
Repeatedly, people who lost savings to Stanford have asked the SEC to authorize the Securities Investor Protection Corp. to cover some of their losses. SIPC, created by Congress in 1970, is funded by the financial services industry.
SIPC spread more than $500 million among some of the thousands of people defrauded by confessed swindler Bernard Madoff. To date, however, SIPC coverage has not been extended to Stanford victims.
"Our families are being kicked to the curb in the twilight of our lives," Smith said recently.
Bills to reimburse at least some Stanford investors for some of their losses have been filed in Congress. But none has become law.
Janvey initially attempted to claw back nearly $1 billion that some lucky Stanford investors retrieved in the months before the SEC shut down the man's operations. The receiver took that action against the advice of the SEC, and the 5th U.S. Circuit Court of Appeals eventually ruled Janvey could not retrieve a dime of innocent investors' principal.
Broken investors in other countries are watching this tense tragedy play out in Congress and federal courts.
They're desperate, too. And they hope they won’t be left behind if Congress and the SEC eventually require SIPC to compensate Stanford investors in this country.
Stanford, 60, continues to deny felony charges pending against him in Houston. He continues to ask federal courts to release him from custody. His trial was postponed indefinitely last month after he was discovered to be addicted to anti-depressants. He is under treatment at the Federal Medical Center in Butner, N.C.
More than $1 million of Smith’s retirement savings vanished in February 2009, when the U.S. Securities and Exchange Commission alleged that Stanford orchestrated more than $7.2 billion in frauds against more than 25,000 investors across this country and 112 others.
Two years later, the Dallas receiver appointed by a federal judge to find and recover Stanford’s assets for eventual distribution to devastated investors reports that he has only $77.1 million in unrestricted cash.
The receiver, attorney Ralph Janvey, added in his report this month that he actually recovered $188.3 million. But fees and expenses ate up $46.2 million of that total. Another $14.4 million in fees and expenses are subject to court approval for Janvey’s team of lawyers, accountants, investigators and clerical staff.
The first claim against any money that remains in the receivership after fees and expenses is that of the IRS, which wants $226 million for Stanford’s alleged unpaid taxes, penalties and interest.
Smith spent more than 20 years with Exxon and also worked as a homebuilder before Stanford’s chief financial officer, James M. Davis, of Baldwyn, Miss., pleaded guilty to fraud charges and admitted that Stanford’s investments had been a scam.
But Smith’s personal pain increased last year, when the SEC inspector general reported that some of the commission’s regulators concluded in 1997 that Stanford’s operations likely were fraudulent. The IG reported that SEC examiners in Fort Worth asked four times that Stanford be investigated for possible fraud, but their requests were ignored.
Repeatedly, people who lost savings to Stanford have asked the SEC to authorize the Securities Investor Protection Corp. to cover some of their losses. SIPC, created by Congress in 1970, is funded by the financial services industry.
SIPC spread more than $500 million among some of the thousands of people defrauded by confessed swindler Bernard Madoff. To date, however, SIPC coverage has not been extended to Stanford victims.
"Our families are being kicked to the curb in the twilight of our lives," Smith said recently.
Bills to reimburse at least some Stanford investors for some of their losses have been filed in Congress. But none has become law.
Janvey initially attempted to claw back nearly $1 billion that some lucky Stanford investors retrieved in the months before the SEC shut down the man's operations. The receiver took that action against the advice of the SEC, and the 5th U.S. Circuit Court of Appeals eventually ruled Janvey could not retrieve a dime of innocent investors' principal.
Broken investors in other countries are watching this tense tragedy play out in Congress and federal courts.
They're desperate, too. And they hope they won’t be left behind if Congress and the SEC eventually require SIPC to compensate Stanford investors in this country.
Stanford, 60, continues to deny felony charges pending against him in Houston. He continues to ask federal courts to release him from custody. His trial was postponed indefinitely last month after he was discovered to be addicted to anti-depressants. He is under treatment at the Federal Medical Center in Butner, N.C.
Wednesday, 26 January 2011
Angry Investors Threaten Suit
Plaintiffs Claim Regulators Ignored Warnings of Fraud
By BILL LODGE
Advocate Staff Writer
Some of the investors alleged to have been defrauded by Texas
promoter Robert Allen Stanford say they will use a
Massachusetts lawyer to sue the federal government for
alleged failure to take timely regulatory action against him.
I believe we’re going to join this lawsuit,” said Baton Rouge
real estate investor Jason S. Graham, 39.
Graham is one of more than 1,000 residents of the Baton
Rouge, Lafayette and Covington areas who lost an estimated
combined total of more than $1 billion to Stanford’s
operations. Those estimates are by state Rep. Bodi White, RCentral,
and Baton Rouge attorney Phillip W. Preis.
We’ve waited for the last two years for our Congress people
and senators to help us,” said Graham. “It’s an absolute joke.
”
Graham already is a plaintiff in a civil lawsuit against the
people who marketed Stanford’s worthless certificates of
deposit and other investment vehicles in Louisiana.
That lawsuit and similar actions across the country, however,
were suspended more than a year ago on orders from a Dallas
federal judge.
U.S. District Judge David Godbey ruled that those lawsuits
would interfere with a court-appointed receiver’s efforts to
track down the remnants of Stanford’s assets.
But attorney Gaytri Kachroo, of Cambridge, Mass., filed a
class-action suit against the federal government in November
for alleged failure by the Securities and Exchange Commission
to protect people’s savings from New Yorker Bernard Madoff’s
admitted Ponzi scheme.
A Ponzi is an illegal investment scheme that involves few, if
any, actual investments. Early investors are paid dividends
described by Ponzi operators as profits. The money actually
comes from later investors.
The scheme collapses when promoters can no longer coax
money from newly targeted victims.
Madoff is serving a 150-year term in federal prison for bilking
billions of dollars from pension funds, mutual funds and indidual investors.
The scheme collapses when promoters can no longer coax money from newly targeted victims.
Madoff is serving 150-year term in federal prison for bilking billions of dollars from pension funds, mutual funds and individual investors.
Kachroo said she now is filing administrative law claims with
the SEC in the Stanford case in order to preserve the rights of
people in Louisiana and other states to file a class-action suit
against the commission after the Feb. 16 filing deadline. That
date will mark the second anniversary of the SEC’s action to
shut down Stanford’s worldwide operations.
In such cases, plaintiffs cannot sue the federal government
until after a federal agency has denied investors’ claims,
Kachroo said.
Kachroo said last week that she has filed with the SEC claims
by 30 Stanford investors. Another 270 claims were being
processed by her staff, she said.
SEC lawyers in Dallas and federal prosecutors in Houston
allege in court filings that Stanford operated a Ponzi scheme
that harvested at least $7.2 billion from more than 25,000
people from Baton Rouge to Bogota, from Venezuela to
Europe.
Stanford, 60, remains in federal custody in Houston, where he
faces federal fraud charges.
James M. Davis, a Baldwyn, Miss., resident who served as
Stanford’s chief financial officer, has pleaded guilty to felony
charges and admitted that Stanford’s operations were a huge
Ponzi from the beginning.
Whistleblowers ignored?
For nearly nine years before Madoff admitted that his
investment empire was a giant Ponzi, financial analyst and
certified fraud examiner Harry Markopolos had warned the
SEC that the man was a criminal.
Kachroo represented Markopolos when he testified Feb. 4,
2009, before the U.S. House of Representatives’ Committee on
Financial Services.
“Every tool, every resource, and every person (in the SEC) has
to be brought to bear in the fight against white-collar crime,”
Markopolos testified. “Government has coddled, accepted and
ignored white-collar crime for too long.
”
Markopolos added: “It is time the nation woke up and
recognized that it’s not the armed robbers or drug dealers who
cause us the most economic harm.
“It’s the white-collar criminals living in the most expensive
homes and who have the most impressive resumes who harm
us the most,” Markopolos told members of Congress. “They
steal our pensions, bankrupt our companies and destroy
thousands of jobs, ruining countless lives.
”
Last year, SEC Inspector General David Kotz reported that
commission officials repeatedly failed to pursue whistleblower
allegations between 1997 and 2005 that Stanford was
defrauding his investors. During that same time, Kotz
reported, examiners in the SEC’s Fort Worth office called for
investigation of Stanford at least three times.
In Baton Rouge, Preis continues to pursue a civil lawsuit on
behalf of Stanford investors against the state Office of
Financial Institutions. That suit alleges that OFI officials failed
investors by ignoring warning signs that Stanford’s operations
were fraudulent.
Preis said last week he believes that suit has a chance of
success, but he asserted that Kachroo has picked too big a rival
in the Stanford and Madoff litigation.
“We don’t think the idea of pursuing a suit against the SEC has
much merit to it,” Preis said. “The chances of ever collecting
from the United States government are slim to none.
”
Katchroo said she believes ordinary people can fight City Hall
and even collect damages from the federal government in the
Stanford and Madoff tragedies.
We believe we have a fairly good chance in both cases,”
Kachroo said.
The SEC won’t talk about Kachroo’s efforts in either case.
“
"Decline comment on both,"” e-mailed SEC spokesman John J.Nester.
Stanford was scheduled for trial on his criminal charges this
month. But a federal judge in Houston postponed that trial
indefinitely after being informed that Stanford has become
addicted to painkillers while in federal custody.
By BILL LODGE
Advocate Staff Writer
Some of the investors alleged to have been defrauded by Texas
promoter Robert Allen Stanford say they will use a
Massachusetts lawyer to sue the federal government for
alleged failure to take timely regulatory action against him.
I believe we’re going to join this lawsuit,” said Baton Rouge
real estate investor Jason S. Graham, 39.
Graham is one of more than 1,000 residents of the Baton
Rouge, Lafayette and Covington areas who lost an estimated
combined total of more than $1 billion to Stanford’s
operations. Those estimates are by state Rep. Bodi White, RCentral,
and Baton Rouge attorney Phillip W. Preis.
We’ve waited for the last two years for our Congress people
and senators to help us,” said Graham. “It’s an absolute joke.
”
Graham already is a plaintiff in a civil lawsuit against the
people who marketed Stanford’s worthless certificates of
deposit and other investment vehicles in Louisiana.
That lawsuit and similar actions across the country, however,
were suspended more than a year ago on orders from a Dallas
federal judge.
U.S. District Judge David Godbey ruled that those lawsuits
would interfere with a court-appointed receiver’s efforts to
track down the remnants of Stanford’s assets.
But attorney Gaytri Kachroo, of Cambridge, Mass., filed a
class-action suit against the federal government in November
for alleged failure by the Securities and Exchange Commission
to protect people’s savings from New Yorker Bernard Madoff’s
admitted Ponzi scheme.
A Ponzi is an illegal investment scheme that involves few, if
any, actual investments. Early investors are paid dividends
described by Ponzi operators as profits. The money actually
comes from later investors.
The scheme collapses when promoters can no longer coax
money from newly targeted victims.
Madoff is serving a 150-year term in federal prison for bilking
billions of dollars from pension funds, mutual funds and indidual investors.
The scheme collapses when promoters can no longer coax money from newly targeted victims.
Madoff is serving 150-year term in federal prison for bilking billions of dollars from pension funds, mutual funds and individual investors.
Kachroo said she now is filing administrative law claims with
the SEC in the Stanford case in order to preserve the rights of
people in Louisiana and other states to file a class-action suit
against the commission after the Feb. 16 filing deadline. That
date will mark the second anniversary of the SEC’s action to
shut down Stanford’s worldwide operations.
In such cases, plaintiffs cannot sue the federal government
until after a federal agency has denied investors’ claims,
Kachroo said.
Kachroo said last week that she has filed with the SEC claims
by 30 Stanford investors. Another 270 claims were being
processed by her staff, she said.
SEC lawyers in Dallas and federal prosecutors in Houston
allege in court filings that Stanford operated a Ponzi scheme
that harvested at least $7.2 billion from more than 25,000
people from Baton Rouge to Bogota, from Venezuela to
Europe.
Stanford, 60, remains in federal custody in Houston, where he
faces federal fraud charges.
James M. Davis, a Baldwyn, Miss., resident who served as
Stanford’s chief financial officer, has pleaded guilty to felony
charges and admitted that Stanford’s operations were a huge
Ponzi from the beginning.
Whistleblowers ignored?
For nearly nine years before Madoff admitted that his
investment empire was a giant Ponzi, financial analyst and
certified fraud examiner Harry Markopolos had warned the
SEC that the man was a criminal.
Kachroo represented Markopolos when he testified Feb. 4,
2009, before the U.S. House of Representatives’ Committee on
Financial Services.
“Every tool, every resource, and every person (in the SEC) has
to be brought to bear in the fight against white-collar crime,”
Markopolos testified. “Government has coddled, accepted and
ignored white-collar crime for too long.
”
Markopolos added: “It is time the nation woke up and
recognized that it’s not the armed robbers or drug dealers who
cause us the most economic harm.
“It’s the white-collar criminals living in the most expensive
homes and who have the most impressive resumes who harm
us the most,” Markopolos told members of Congress. “They
steal our pensions, bankrupt our companies and destroy
thousands of jobs, ruining countless lives.
”
Last year, SEC Inspector General David Kotz reported that
commission officials repeatedly failed to pursue whistleblower
allegations between 1997 and 2005 that Stanford was
defrauding his investors. During that same time, Kotz
reported, examiners in the SEC’s Fort Worth office called for
investigation of Stanford at least three times.
In Baton Rouge, Preis continues to pursue a civil lawsuit on
behalf of Stanford investors against the state Office of
Financial Institutions. That suit alleges that OFI officials failed
investors by ignoring warning signs that Stanford’s operations
were fraudulent.
Preis said last week he believes that suit has a chance of
success, but he asserted that Kachroo has picked too big a rival
in the Stanford and Madoff litigation.
“We don’t think the idea of pursuing a suit against the SEC has
much merit to it,” Preis said. “The chances of ever collecting
from the United States government are slim to none.
”
Katchroo said she believes ordinary people can fight City Hall
and even collect damages from the federal government in the
Stanford and Madoff tragedies.
We believe we have a fairly good chance in both cases,”
Kachroo said.
The SEC won’t talk about Kachroo’s efforts in either case.
“
"Decline comment on both,"” e-mailed SEC spokesman John J.Nester.
Stanford was scheduled for trial on his criminal charges this
month. But a federal judge in Houston postponed that trial
indefinitely after being informed that Stanford has become
addicted to painkillers while in federal custody.
Wednesday, 24 February 2010
Watchdog Blasts Private Financial Regulators
In a letter sent today to Congress' banking and finance committees, a leading government watchdog has urged House and Senate lawmakers to crack down on the financial-services industry's internal "private self-regulatory organizations," or SROs, a less understood but problematic player in the global financial meltdown. Put simply, an SRO is a regulator within, say, the securities industry tasked with protecting investors, but is often led, in a glaring conflict of interest, by the very same people that regulator is supposed to be overseeing. If that sounds dubious, well, that's because it is. And as the Project on Government Oversight (POGO) contends in its letter, one prominent SRO, the Financial Industry Regulatory Authority (FINRA), has an "abysmal track record," so much that POGO openly questions "whether FINRA can ever be an effective regulator given its cozy relationship with the securities industry."
Despite FINRA's stated commitment to "putting investors first," a look at the regulator's record in the past few calamitous years casts doubt on that claim. FINRA, the POGO letter states, neglected to step in and regulate firms like Lehman Brothers, Bear Stearns, and Merrill Lynch that all collapsed under FINRA's watch, while also failing to spot the massive, multibillion-dollar Ponzi schemes run by Bernie Madoff and Allen Stanford. In Stanford's case, POGO found, an internal FINRA review discovered the regulator missed Stanford's scheme on several occasions; and with Madoff, the private regulator claimed it wasn't at fault for letting the biggest Ponzi scheme in history slip by even though experts said Madoff was under FINRA's purview.
Then again, when you look at FINRA's leadership, it's hardly surprising the regulator failed to spot the likes of Madoff and Merrill, Stanford and Bear Stearns. As POGO's letter says, conflicts of interests are rife within FINRA, to wit: FINRA chairman and CEO Richard Ketchum is a Citigroup alum; the regulator's executive overseeing member regulation came from Charles Schwab; and another executive in charge of enforcement is a former partner at a top law firm representing major financial institutions. Not to mention FINRA's ties to Madoff and Stanford—Shana Madoff, Bernie's niece, was on FINRA's compliance advisory committee until the firm went under, and two top level staffers for Allen Stanford served on other FINRA committees. "FINRA's numerous failures," POGO writes, "should hardly come as a surprise given the incestuous relationship between SROs and the financial services industry."
Yet despite these criticisms, FINRA's Ketchum wants more power for his organization, like overseeing investment advisers as well as securities brokers. Thus the purpose of POGO's letter today is to urge Congress not to let that power grab happen, and even more to encourage House and Senate lawmakers to curtail FINRA's authority. "Effective, independent, and efficient government regulation is the only proper way to safely oversee our markets," the letter concludes. "Our economy is too important to be left in the hands of the very financial industry that brought us to the brink of collapse."
Despite FINRA's stated commitment to "putting investors first," a look at the regulator's record in the past few calamitous years casts doubt on that claim. FINRA, the POGO letter states, neglected to step in and regulate firms like Lehman Brothers, Bear Stearns, and Merrill Lynch that all collapsed under FINRA's watch, while also failing to spot the massive, multibillion-dollar Ponzi schemes run by Bernie Madoff and Allen Stanford. In Stanford's case, POGO found, an internal FINRA review discovered the regulator missed Stanford's scheme on several occasions; and with Madoff, the private regulator claimed it wasn't at fault for letting the biggest Ponzi scheme in history slip by even though experts said Madoff was under FINRA's purview.
Then again, when you look at FINRA's leadership, it's hardly surprising the regulator failed to spot the likes of Madoff and Merrill, Stanford and Bear Stearns. As POGO's letter says, conflicts of interests are rife within FINRA, to wit: FINRA chairman and CEO Richard Ketchum is a Citigroup alum; the regulator's executive overseeing member regulation came from Charles Schwab; and another executive in charge of enforcement is a former partner at a top law firm representing major financial institutions. Not to mention FINRA's ties to Madoff and Stanford—Shana Madoff, Bernie's niece, was on FINRA's compliance advisory committee until the firm went under, and two top level staffers for Allen Stanford served on other FINRA committees. "FINRA's numerous failures," POGO writes, "should hardly come as a surprise given the incestuous relationship between SROs and the financial services industry."
Yet despite these criticisms, FINRA's Ketchum wants more power for his organization, like overseeing investment advisers as well as securities brokers. Thus the purpose of POGO's letter today is to urge Congress not to let that power grab happen, and even more to encourage House and Senate lawmakers to curtail FINRA's authority. "Effective, independent, and efficient government regulation is the only proper way to safely oversee our markets," the letter concludes. "Our economy is too important to be left in the hands of the very financial industry that brought us to the brink of collapse."
Sunday, 17 January 2010
Stanford Receiver, SEC Ask Judge to Put Investor Suits on Hold
Allen Stanford's receiver and U.S. regulators asked a federal judge to temporarily stop all lawsuits by investors against their former financial advisers at Stanford Group Co. and other Stanford-related entities.
“There have now been more than 50 cases filed in state and federal courts that somehow relate to the sale of Stanford CDs or the receivership,’’ Kevin Sadler, an attorney for receiver Ralph Janvey, said today in a filing made jointly with the U.S. Securities and Exchange Commission.
Responding to investors’ document requests to support those lawsuits “will consume more and more’’ of the dwindling assets the receiver could use to repay all investors allegedly swindled by the Texas financier, Sadler said in the filing in federal court in Dallas.
Stanford investors have sued their former financial advisers and the clearinghouse and trust company that serviced their accounts in an attempt to recover some of the estimated $7 billion lost through what prosecutors claim was a Ponzi scheme involving certificates of deposit sold by Antigua-based Stanford International Bank Ltd.
In court filings, investors’ lawyers have urged the judge to allow the suits, which the receiver and regulators want to delay until Stanford’s criminal and SEC cases are completed. The investors claim their lawsuits are their best hope of generating significant recovery by tapping insurance coverage for the brokers and other entities before deadlines for filing such claims.
“There have now been more than 50 cases filed in state and federal courts that somehow relate to the sale of Stanford CDs or the receivership,’’ Kevin Sadler, an attorney for receiver Ralph Janvey, said today in a filing made jointly with the U.S. Securities and Exchange Commission.
Responding to investors’ document requests to support those lawsuits “will consume more and more’’ of the dwindling assets the receiver could use to repay all investors allegedly swindled by the Texas financier, Sadler said in the filing in federal court in Dallas.
Stanford investors have sued their former financial advisers and the clearinghouse and trust company that serviced their accounts in an attempt to recover some of the estimated $7 billion lost through what prosecutors claim was a Ponzi scheme involving certificates of deposit sold by Antigua-based Stanford International Bank Ltd.
In court filings, investors’ lawyers have urged the judge to allow the suits, which the receiver and regulators want to delay until Stanford’s criminal and SEC cases are completed. The investors claim their lawsuits are their best hope of generating significant recovery by tapping insurance coverage for the brokers and other entities before deadlines for filing such claims.
Friday, 8 January 2010
Stanford Clients to Get Back Gold Coins, Bullion, Judge Rules
R. Allen Stanford’s gold customers will regain possession of $21.2 million in coins and bullion seized 11 months ago from the company’s Houston headquarters when federal regulators raided the offices on suspicions the financier was running a $7 billion Ponzi scheme.
Investors had urged U.S. District Judge David Godbey, who is overseeing the U.S. Securities and Exchange Commission’s fraud lawsuit against Stanford in Dallas, to release their gold as prices for the metal reached an all-time high during 2009.
“Coins and bullion that have been individually marked and stored for 147 Stanford Coin and Bullion customers” will be returned to their owners, Godbey said in yesterday’s order. Gold that had been paid for in full and not delivered to another 70 customers will also be released, Godbey ruled.
Stanford, several of his top executives and three of his companies were sued by the SEC in February for allegedly paying early investors by taking money from later investors in more than $7 billion of certificates of deposit sold by Antigua-based Stanford International Bank Ltd. Regulators won a court order freezing Stanford’s corporate and personal assets until the case is resolved.
Stanford, who denies all wrongdoing, is in jail awaiting trial on 21 criminal counts that mirror the civil allegations.
Stanford’s Vault
Ralph Janvey, the court-appointed receiver marshalling Stanford’s assets to repay investors, didn’t oppose the return of coins and bullion that were stored in individually labeled boxes in Stanford’s vault. Those customers argued that Stanford held their gold as a courtesy and that the company had no ownership interest in their gold.
Godbey deferred ruling on whether the receiver should return about $500,000 in cash collected from gold customers whose orders weren’t filled. The judge ruled that Janvey needn’t hand over about $1 million in coins and bullion to customers who hadn’t finished paying for their purchases when regulators seized Stanford’s operations.
Janvey got permission to liquidate about $1.8 million in coins and bullion in the division’s unsold inventory. Gold for immediate delivery was trading at $1,122.85 an ounce yesterday.
Separately, Stanford’s criminal-defense lawyers yesterday asked the U.S. Court of Appeals in New Orleans to overturn last month’s lower-court ruling denying his request to be released on bail. Stanford is on the verge of “a complete nervous breakdown” because of his incarceration, his lawyers said.
Investors had urged U.S. District Judge David Godbey, who is overseeing the U.S. Securities and Exchange Commission’s fraud lawsuit against Stanford in Dallas, to release their gold as prices for the metal reached an all-time high during 2009.
“Coins and bullion that have been individually marked and stored for 147 Stanford Coin and Bullion customers” will be returned to their owners, Godbey said in yesterday’s order. Gold that had been paid for in full and not delivered to another 70 customers will also be released, Godbey ruled.
Stanford, several of his top executives and three of his companies were sued by the SEC in February for allegedly paying early investors by taking money from later investors in more than $7 billion of certificates of deposit sold by Antigua-based Stanford International Bank Ltd. Regulators won a court order freezing Stanford’s corporate and personal assets until the case is resolved.
Stanford, who denies all wrongdoing, is in jail awaiting trial on 21 criminal counts that mirror the civil allegations.
Stanford’s Vault
Ralph Janvey, the court-appointed receiver marshalling Stanford’s assets to repay investors, didn’t oppose the return of coins and bullion that were stored in individually labeled boxes in Stanford’s vault. Those customers argued that Stanford held their gold as a courtesy and that the company had no ownership interest in their gold.
Godbey deferred ruling on whether the receiver should return about $500,000 in cash collected from gold customers whose orders weren’t filled. The judge ruled that Janvey needn’t hand over about $1 million in coins and bullion to customers who hadn’t finished paying for their purchases when regulators seized Stanford’s operations.
Janvey got permission to liquidate about $1.8 million in coins and bullion in the division’s unsold inventory. Gold for immediate delivery was trading at $1,122.85 an ounce yesterday.
Separately, Stanford’s criminal-defense lawyers yesterday asked the U.S. Court of Appeals in New Orleans to overturn last month’s lower-court ruling denying his request to be released on bail. Stanford is on the verge of “a complete nervous breakdown” because of his incarceration, his lawyers said.
Saturday, 3 October 2009
Finra messed up, what a shock
The report by Finra on its failure to detect the alleged Ponzi scheme at Allen Stanford’s offshore bank is no shock.
Finra makes the SEC look like an agressive regulator. And this should give anyone reason to pause when you consider that Mary Schaprio, the current Securities and Exchange Commission chairman, most recently headed-up Finra.
Schaprio tells us her mission is to beef-up the SEC’s enforcement procedures in the wake of its own failings on Stanford and more significantly its botched investigation–or non-investigation–of Bernard Madoff. Why didn’t she first do this when she was at Finra?
The report outling Finra’s missteps notes regulators failed to follow-up on claims made by former Stanford brokers that the CDs the firm’s offshore bank in Antigua was selling were either bogus or “too good to be true.” Going as far back as 2004, a number of brokers raised this claim in arbitration disputes they had with Stanford.
Late last year, after Madoff was arrested, I began investigating allegations that Stanford’s financial empire was a Ponzi scheme. I did this while I was still working at BusinessWeek and early on I came across a few arbitration cases in which brokers had alleged the returns Stanford CDs seemed too good to be true.
Soon after Stanford was charged by the SEC with civil fraud, a source pointed me to an old lawsuit filed in Florida state court where a former employee also claimed the operation was a Ponzi scheme.
All of of these legal filings were either in the public record or in Finra files, yet it appears the level of communication between Finra’s arbitration unit and its enforcement operation is poor. This has been a long standing complaint from brokers, investors and securities lawyers and it needs to be fixed.
The inability of one side of an organization to talk to another can be damaging to a business. It’s no less damaging for a regulatory agency. But when regulators don’t communicate, innocent investors get hurt.
Finra makes the SEC look like an agressive regulator. And this should give anyone reason to pause when you consider that Mary Schaprio, the current Securities and Exchange Commission chairman, most recently headed-up Finra.
Schaprio tells us her mission is to beef-up the SEC’s enforcement procedures in the wake of its own failings on Stanford and more significantly its botched investigation–or non-investigation–of Bernard Madoff. Why didn’t she first do this when she was at Finra?
The report outling Finra’s missteps notes regulators failed to follow-up on claims made by former Stanford brokers that the CDs the firm’s offshore bank in Antigua was selling were either bogus or “too good to be true.” Going as far back as 2004, a number of brokers raised this claim in arbitration disputes they had with Stanford.
Late last year, after Madoff was arrested, I began investigating allegations that Stanford’s financial empire was a Ponzi scheme. I did this while I was still working at BusinessWeek and early on I came across a few arbitration cases in which brokers had alleged the returns Stanford CDs seemed too good to be true.
Soon after Stanford was charged by the SEC with civil fraud, a source pointed me to an old lawsuit filed in Florida state court where a former employee also claimed the operation was a Ponzi scheme.
All of of these legal filings were either in the public record or in Finra files, yet it appears the level of communication between Finra’s arbitration unit and its enforcement operation is poor. This has been a long standing complaint from brokers, investors and securities lawyers and it needs to be fixed.
The inability of one side of an organization to talk to another can be damaging to a business. It’s no less damaging for a regulatory agency. But when regulators don’t communicate, innocent investors get hurt.
Friday, 2 October 2009
Finra Missed Chances to Catch Stanford and Madoff, Report Says
The Financial Industry Regulatory Authority didn’t fully probe transactions at Bernard Madoff’s firm and repeatedly failed to investigate tips about R. Allen Stanford’s alleged $7 billion fraud, an internal report said.
The staff of the U.S. brokerage industry’s main regulator is “not adequately trained” on its investigative authority, and the Washington-based regulator lacks procedures to escalate matters to senior management or special investigators “based on the gravity and substance of the fraud allegations,” according to a report posted on Finra’s Web site today.
The findings follow a series of reports by Securities and Exchange Commission Inspector General H. David Kotz, which faulted the SEC’s oversight of Madoff over 16 years and examined the agency’s attempts to investigate Stanford. In the Stanford case, Kotz concluded that the SEC was hampered by jurisdictional limits and Stanford’s refusal to cooperate.
“As regulators, we owe it to investors -- especially those harmed by recent scandals -- to develop a better, more comprehensive, response to fraud,” Finra Chief Executive Officer Richard Ketchum said in a statement. “I am committed to taking the lessons from the report’s findings to make Finra even stronger.”
Finra said it will create a new Office of Fraud Detection and Market Intelligence to ensure that staff with expertise in fraud detection respond rapidly to suspected scams.
The staff of the U.S. brokerage industry’s main regulator is “not adequately trained” on its investigative authority, and the Washington-based regulator lacks procedures to escalate matters to senior management or special investigators “based on the gravity and substance of the fraud allegations,” according to a report posted on Finra’s Web site today.
The findings follow a series of reports by Securities and Exchange Commission Inspector General H. David Kotz, which faulted the SEC’s oversight of Madoff over 16 years and examined the agency’s attempts to investigate Stanford. In the Stanford case, Kotz concluded that the SEC was hampered by jurisdictional limits and Stanford’s refusal to cooperate.
“As regulators, we owe it to investors -- especially those harmed by recent scandals -- to develop a better, more comprehensive, response to fraud,” Finra Chief Executive Officer Richard Ketchum said in a statement. “I am committed to taking the lessons from the report’s findings to make Finra even stronger.”
Finra said it will create a new Office of Fraud Detection and Market Intelligence to ensure that staff with expertise in fraud detection respond rapidly to suspected scams.
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.''