The receiver in accused swindler Allen Stanford's civil fraud case is suing about 200 investors for as much as $545 million they collected from certificates of deposit alleged to be at the center of a $7 billion Ponzi scheme.
The investors named in the lawsuit are said to have unfairly cashed out before the U.S. Securities and Exchange Commission filed civil charges and seized Stanford's assets and businesses in February.
"The CD proceeds the Stanford investors received from Stanford International Bank (SIB) were not, in fact, their actual principal or interest earned on the funds they invested," said the lawsuit, filed in federal court in Dallas on Monday.
"Instead, the money used to make those payments came directly from the sale of SIB CDs to other investors," the lawsuit said.
Ralph Janvey, the court-appointed lawyer charged with returning assets to Stanford investors, attempted to settle with the investors before filing the lawsuit.
Some of those investors have returned the amounts they received in excess of their principal investment in the CDs issued by SIB in Antigua, and more settlements are expected, according to the court papers.
Janvey is pursuing the claims under fraudulent transfer law and principles of unjust enrichment after a federal appeals court in New Orleans ruled last month that he could not sue the investors using a different legal claim.
Stanford faces criminal charges that he defrauded thousands of investors around the globe through CD sales. He has pleaded not guilty and is in a Houston jail awaiting trial.
Thursday, 10 December 2009
IRS Seeks Names of Stanford Investors Who May Have Hidden Accounts Overseas
U.S. officials are continuing a crackdown on Americans who evade taxes by hiding assets in offshore accounts, this time going after clients of accused Ponzi scammer Allen Stanford.
The Justice Department asked a federal court this week to let investigators seek the identities of individuals who held accounts with Stanford, the same tactic used in the UBS tax case that eventually netted access to names of 4,450 U.S. clients.
"This is another crucial step in our ongoing effort to pursue hidden offshore accounts," said IRS spokesman Frank Keith. The action, he added, "will not only help us pursue those who evade their taxes, but also aggressively identify third parties and others who assist with these illegal actions."
Papers filed in court said the IRS has reason to believe that some of Stanford's investors, now victims as Stanford stands accused of orchestrating a $7 billion fraud, may have been under-reporting income.
The Justice Department said the "IRS has evidence volunteered from a U.S. taxpayer that account statements and Form 1099s from Stanford-controlled entities did not include interest or income generated from SIB accounts or certificates of deposits."
The Justice Department is asking for permission to serve a "John Doe summons" on Ralph Janvey, the court-appointed receiver of the Stanford Group Company who took control of Stanford's books. They want Janvey to disclose the identities of Stanford's account holders so that their income disclosures can be investigated.
Janvey did not immediately return a call from ABCNews.com.
Angela Shaw, founder of the Stanford Victims Coalition that represents about 6,000 victims of the financier, told Reuters they are "shocked" with the development and don't believe the IRS will find wrongdoing.
Larges Sums of Money Need To Be Accounted For, IRS Said
Stanford is charged with fraud, conspiracy and obstruction in a 21-count indictment. He remains jailed while awaiting trial. If convicted, he faces a maximum sentence of 250 years behind bars. He surrendered to the FBI in Virginia in June and has pled not guilty to the charges.
Feds Interview Accused Fraudster's Dad
Authorities say Stanford and his alleged co-conspirators engaged in a scheme to defraud investors who purchased approximately $7 billion of CDs from the Stanford International Bank, an off-shore entity based in Antigua. Stanford and his co-defendants are accused of misusing and misappropriating most of their investment assets.
The Securities and Exchange Commission previously filed a civil complaint against alleging Stanford ran a fraud promising investors impossible returns, much like Bernard Madoff's $65 billion alleged Ponzi scheme.
The IRS and the Justice Department announced in November that over 14,700 Americans have admitted to hiding assets overseas in the UBS case, under an IRS voluntary disclosure program that allows U.S. taxpayers to come clean about secret foreign bank accounts and avoid possible persecution.
The once-secretive Swiss bank sent letters to thousands of its American customers in early October, informing them "your account with UBS appears to be within the scope of the IRS Treaty Request" and that under a new agreement between the U.S. and Switzerland, UBS would provide names and account information to U.S. authorities.
In August, the two countries signed a historic agreement to obtain information from UBS to identify information on up to 4,450 accounts. U.S. officials believe the accounts could hold up to $18 billion, and they applauded the move as a major step in lifting the shroud of Swiss banking secrecy and uncovering potentially billions of dollars stored in accounts there by wealthy U.S. account holders who could be dodging U.S. taxes.
The Justice Department asked a federal court this week to let investigators seek the identities of individuals who held accounts with Stanford, the same tactic used in the UBS tax case that eventually netted access to names of 4,450 U.S. clients.
"This is another crucial step in our ongoing effort to pursue hidden offshore accounts," said IRS spokesman Frank Keith. The action, he added, "will not only help us pursue those who evade their taxes, but also aggressively identify third parties and others who assist with these illegal actions."
Papers filed in court said the IRS has reason to believe that some of Stanford's investors, now victims as Stanford stands accused of orchestrating a $7 billion fraud, may have been under-reporting income.
The Justice Department said the "IRS has evidence volunteered from a U.S. taxpayer that account statements and Form 1099s from Stanford-controlled entities did not include interest or income generated from SIB accounts or certificates of deposits."
The Justice Department is asking for permission to serve a "John Doe summons" on Ralph Janvey, the court-appointed receiver of the Stanford Group Company who took control of Stanford's books. They want Janvey to disclose the identities of Stanford's account holders so that their income disclosures can be investigated.
Janvey did not immediately return a call from ABCNews.com.
Angela Shaw, founder of the Stanford Victims Coalition that represents about 6,000 victims of the financier, told Reuters they are "shocked" with the development and don't believe the IRS will find wrongdoing.
Larges Sums of Money Need To Be Accounted For, IRS Said
Stanford is charged with fraud, conspiracy and obstruction in a 21-count indictment. He remains jailed while awaiting trial. If convicted, he faces a maximum sentence of 250 years behind bars. He surrendered to the FBI in Virginia in June and has pled not guilty to the charges.
Feds Interview Accused Fraudster's Dad
Authorities say Stanford and his alleged co-conspirators engaged in a scheme to defraud investors who purchased approximately $7 billion of CDs from the Stanford International Bank, an off-shore entity based in Antigua. Stanford and his co-defendants are accused of misusing and misappropriating most of their investment assets.
The Securities and Exchange Commission previously filed a civil complaint against alleging Stanford ran a fraud promising investors impossible returns, much like Bernard Madoff's $65 billion alleged Ponzi scheme.
The IRS and the Justice Department announced in November that over 14,700 Americans have admitted to hiding assets overseas in the UBS case, under an IRS voluntary disclosure program that allows U.S. taxpayers to come clean about secret foreign bank accounts and avoid possible persecution.
The once-secretive Swiss bank sent letters to thousands of its American customers in early October, informing them "your account with UBS appears to be within the scope of the IRS Treaty Request" and that under a new agreement between the U.S. and Switzerland, UBS would provide names and account information to U.S. authorities.
In August, the two countries signed a historic agreement to obtain information from UBS to identify information on up to 4,450 accounts. U.S. officials believe the accounts could hold up to $18 billion, and they applauded the move as a major step in lifting the shroud of Swiss banking secrecy and uncovering potentially billions of dollars stored in accounts there by wealthy U.S. account holders who could be dodging U.S. taxes.
IRS and DOJ Aim to Identify Stanford Clients
The Justice Department has filed papers seeking a federal court order to authorize the IRS to serve a “John Doe summons” on Ralph Janvey, the court-appointed receiver of accused fraudster R. Allen Stanford’s investment companies, in an effort to identify Stanford’s clients.
The John Doe summons requires Janvey to identify U.S. taxpayers who hold foreign accounts at Stanford’s Antigua-based financial companies, including Stanford Group Company, Stanford Trust Company and Stanford International Bank.
On Feb. 16, 2009, the Securities and Exchange Commission accused Stanford of a fraudulent $7 billion investment scheme. As a result, the federal district court in Dallas appointed Janvey to take possession and control of Stanford’s books and records, as well as those of his related entities. On June 19, 2009, a federal grand jury indicted Stanford for mail, wire and securities fraud.
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According to the papers filed in court by Justice Department Tax Division attorneys, the IRS does not know the identities nor the financial investment information of U.S. taxpayers with the offshore accounts, and the IRS could not readily acquire it other than through a John Doe summons. The IRS also used John Doe summonses to ferret out the identities of U.S.-based clients of the Swiss bank UBS.
According to the declaration of IRS Revenue Agent Daniel Reeves filed in support of the petition, the IRS has evidence volunteered from a U.S. taxpayer that account statements and Form 1099s from Stanford-controlled entities did not include interest or income generated from Stanford bank accounts or certificates of deposit.
According to the Reeves declaration, evidence available to the IRS suggests that many of the persons in the John Doe class may have been under-reporting income, evading income taxes or otherwise violating U.S. tax laws. The aggregate amount of the resulting taxes that should have been reported and paid to the U.S. Treasury is unknown.
With information from the John Doe summons, the IRS hopes to inspect each taxpayer's income tax return to determine if there are any understatements or misstatements of income.
In addition, the IRS can determine if Stanford’s U.S. taxpayer clients filed "Reports of Foreign Bank and Financial Accounts," also known as FBARs. Any U.S. taxpayer who has a financial interest in or signature or other authority over any foreign financial account (including bank, securities, or other types of financial accounts) must file an FBAR if the aggregate value of the financial accounts exceeds $10,000 at any time during a calendar year.
According to the Reeves declaration, a large number of FBARs may not have been filed by U.S. owners of the offshore Stanford certificates of deposit.
The John Doe summons requires Janvey to identify U.S. taxpayers who hold foreign accounts at Stanford’s Antigua-based financial companies, including Stanford Group Company, Stanford Trust Company and Stanford International Bank.
On Feb. 16, 2009, the Securities and Exchange Commission accused Stanford of a fraudulent $7 billion investment scheme. As a result, the federal district court in Dallas appointed Janvey to take possession and control of Stanford’s books and records, as well as those of his related entities. On June 19, 2009, a federal grand jury indicted Stanford for mail, wire and securities fraud.
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According to the papers filed in court by Justice Department Tax Division attorneys, the IRS does not know the identities nor the financial investment information of U.S. taxpayers with the offshore accounts, and the IRS could not readily acquire it other than through a John Doe summons. The IRS also used John Doe summonses to ferret out the identities of U.S.-based clients of the Swiss bank UBS.
According to the declaration of IRS Revenue Agent Daniel Reeves filed in support of the petition, the IRS has evidence volunteered from a U.S. taxpayer that account statements and Form 1099s from Stanford-controlled entities did not include interest or income generated from Stanford bank accounts or certificates of deposit.
According to the Reeves declaration, evidence available to the IRS suggests that many of the persons in the John Doe class may have been under-reporting income, evading income taxes or otherwise violating U.S. tax laws. The aggregate amount of the resulting taxes that should have been reported and paid to the U.S. Treasury is unknown.
With information from the John Doe summons, the IRS hopes to inspect each taxpayer's income tax return to determine if there are any understatements or misstatements of income.
In addition, the IRS can determine if Stanford’s U.S. taxpayer clients filed "Reports of Foreign Bank and Financial Accounts," also known as FBARs. Any U.S. taxpayer who has a financial interest in or signature or other authority over any foreign financial account (including bank, securities, or other types of financial accounts) must file an FBAR if the aggregate value of the financial accounts exceeds $10,000 at any time during a calendar year.
According to the Reeves declaration, a large number of FBARs may not have been filed by U.S. owners of the offshore Stanford certificates of deposit.
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.''
Wednesday, 2 December 2009
Senators Introduce Stanford Investment Fraud Resolution
Antigua government taken over more than 250 acres of Standford's property
U.S. Senator Richard Shelby (R-AL), ranking Republican on the Committee on Banking, Housing and Urban Affairs, along with Senators Vitter (R-LA), Hutchison (R-TX), Cochran (R-MS), Cornyn (R-TX), Isakson (R-GA), Wicker (R-MS), and Shaheen (D-NH), introduced a resolution expressing the sense of the Senate that the Secretary of the Treasury should direct the United States Executive Directors to the International Monetary Fund and the World Bank to use the voice and vote of the United States to oppose making any loans to the Government of Antigua and Barbuda until that Government cooperates with the United States and compensates the victims of the Stanford Financial Group fraud.
Allen Stanford is known to have had close ties with the Government of Antigua and Barbuda, and is alleged, among other things, to have loaned that government at least $85,000,000, which presumably came from Stanford investor funds. The Government of Antigua and Barbuda is refusing to cooperate with the U.S. receiver in charge of gathering the assets of the Stanford Financial Group and distributing them to victims of the fraud. Despite this lack of cooperation in providing recourse to investors in the Stanford Financial Group, the Government of Antigua and Barbuda is currently seeking loans from the IMF and World Bank, both of which receive significant funding from the United States Government.
“The Ponzi scheme perpetrated by Allen Stanford cheated thousands of people, many of them in the United States, out of their investments,” Shelby said. “It is essential that to the extent possible these victims get their money back. It is absurd that the Government of Antigua and Barbuda is standing in the way of helping victims, while also holding out its hand for funding. This resolution makes clear that the United States will not accept such behavior.”
“It’s unbelievable that a government so intertwined in the allegations against Mr. Stanford has the audacity to ask for money from the IMF and World Bank. Not only was one of Antigua’s regulators allegedly a part of Mr. Stanford’s ponzi scheme, but the Antiguan government has taken over more than 250 acres of Stanford’s property and they have refused to work with the US court appointed receiver. Antigua shouldn’t see a dime of money from the US, IMF or World Bank until the victims of this fraud have first been helped,” said Vitter.
"I urge the U.S. Treasury Secretary to work with the International Monetary Fund to seek cooperation from Antigua and Barbuda in order to compensate the victims of the Stanford Financial Group fraud," Senator Kay Bailey Hutchison said.
“Instead of stonewalling efforts to recover assets linked to the scam perpetrated by Allen Stanford and his firm, the government of Antigua and Barbuda should join U.S. and international organizations in trying to find some measure of justice for victims. Government officials in Antigua and Barbuda must understand that their lack of cooperation is unacceptable,” said U.S. Senator Thad Cochran.
“Allen Stanford’s investment schemes devastated countless Texans. The IMF should not loan money to Antigua unless Antigua agrees to cooperate in reimbursing these innocent investors to the fullest extent possible,” said Senator Cornyn.
“Allen Stanford bilked billions of dollars from innocent Americans through his ponzi scheme, and the laws of Antigua shielded the Stanford Financial Group while it operated,” said Senator Isakson. “As long as the Government of Antigua and Barbuda holds assets of Stanford that are not available to the U.S. receiver, it should not receive any funding from the U.S. or the IMF and World Bank. The injured American families deserve no less.”
“Thousands of people have been victimized by the Stanford Ponzi scheme, including many who lost their life savings,” Wicker said. “The cooperation of the Antigua government is essential to helping the victims of this fraud, but this assistance has been consistently denied. It is completely unacceptable for Antigua to receive any loan from the IMF and the World Bank, both of which receive significant funding from U.S. taxpayers. The American government needs to let it be known that this lack of cooperation is not acceptable. This resolution will send that message.”
U.S. Senator Richard Shelby (R-AL), ranking Republican on the Committee on Banking, Housing and Urban Affairs, along with Senators Vitter (R-LA), Hutchison (R-TX), Cochran (R-MS), Cornyn (R-TX), Isakson (R-GA), Wicker (R-MS), and Shaheen (D-NH), introduced a resolution expressing the sense of the Senate that the Secretary of the Treasury should direct the United States Executive Directors to the International Monetary Fund and the World Bank to use the voice and vote of the United States to oppose making any loans to the Government of Antigua and Barbuda until that Government cooperates with the United States and compensates the victims of the Stanford Financial Group fraud.
Allen Stanford is known to have had close ties with the Government of Antigua and Barbuda, and is alleged, among other things, to have loaned that government at least $85,000,000, which presumably came from Stanford investor funds. The Government of Antigua and Barbuda is refusing to cooperate with the U.S. receiver in charge of gathering the assets of the Stanford Financial Group and distributing them to victims of the fraud. Despite this lack of cooperation in providing recourse to investors in the Stanford Financial Group, the Government of Antigua and Barbuda is currently seeking loans from the IMF and World Bank, both of which receive significant funding from the United States Government.
“The Ponzi scheme perpetrated by Allen Stanford cheated thousands of people, many of them in the United States, out of their investments,” Shelby said. “It is essential that to the extent possible these victims get their money back. It is absurd that the Government of Antigua and Barbuda is standing in the way of helping victims, while also holding out its hand for funding. This resolution makes clear that the United States will not accept such behavior.”
“It’s unbelievable that a government so intertwined in the allegations against Mr. Stanford has the audacity to ask for money from the IMF and World Bank. Not only was one of Antigua’s regulators allegedly a part of Mr. Stanford’s ponzi scheme, but the Antiguan government has taken over more than 250 acres of Stanford’s property and they have refused to work with the US court appointed receiver. Antigua shouldn’t see a dime of money from the US, IMF or World Bank until the victims of this fraud have first been helped,” said Vitter.
"I urge the U.S. Treasury Secretary to work with the International Monetary Fund to seek cooperation from Antigua and Barbuda in order to compensate the victims of the Stanford Financial Group fraud," Senator Kay Bailey Hutchison said.
“Instead of stonewalling efforts to recover assets linked to the scam perpetrated by Allen Stanford and his firm, the government of Antigua and Barbuda should join U.S. and international organizations in trying to find some measure of justice for victims. Government officials in Antigua and Barbuda must understand that their lack of cooperation is unacceptable,” said U.S. Senator Thad Cochran.
“Allen Stanford’s investment schemes devastated countless Texans. The IMF should not loan money to Antigua unless Antigua agrees to cooperate in reimbursing these innocent investors to the fullest extent possible,” said Senator Cornyn.
“Allen Stanford bilked billions of dollars from innocent Americans through his ponzi scheme, and the laws of Antigua shielded the Stanford Financial Group while it operated,” said Senator Isakson. “As long as the Government of Antigua and Barbuda holds assets of Stanford that are not available to the U.S. receiver, it should not receive any funding from the U.S. or the IMF and World Bank. The injured American families deserve no less.”
“Thousands of people have been victimized by the Stanford Ponzi scheme, including many who lost their life savings,” Wicker said. “The cooperation of the Antigua government is essential to helping the victims of this fraud, but this assistance has been consistently denied. It is completely unacceptable for Antigua to receive any loan from the IMF and the World Bank, both of which receive significant funding from U.S. taxpayers. The American government needs to let it be known that this lack of cooperation is not acceptable. This resolution will send that message.”