Update - 02/18/2009
According to the U.S. Securities and Exchange Commission (“SEC”) on February 16, 2009, the Honorable Judge Reed O’Connor, a federal judge in the Northern District of Texas, in response to the SEC's application for emergency preliminary relief, entered a temporary restraining order against Robert Allen Stanford and three of his companies, the Antiguan-based Stanford International Bank (SIB), Houston based broker-dealer and investment adviser, Stanford Group Company (SGC) and investment adviser, Stanford Capital Management. The court’s order also extends to SIB chief financial officer James Davis, and Laura Pendergest-Holt, chief investment officer of Stanford Financial Group. The temporary restraining order restrains the defendants from violating certain antifraud provisions of the federal securities laws, as well as provisions of the Investment Company and Investment Adviser Acts. Also, Judge O’Connor froze all assets of the defendants until further notice, ordered that assets outside the U.S. be returned to the court’s jurisdiction, appointed a receiver to marshal the defendants’ assets and granted other relief.

The SEC's complaint, filed in federal court in Dallas, alleges that the defendants have committed an $8 billion fraud and violated or aided and abetted violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Advisers Act of 1940, and Section 7(d) of the Investment Company Act of 1940. The complaint alleges that acting through a network of SGC financial advisers, SIB has sold approximately $8 billion of so-called “certificates of deposit” to investors by promising improbable and unsubstantiated high interest rates, supposedly earned through its unique investment strategy, which has purportedly allowed the bank to achieve double-digit returns on its investments over the past 15 years. According to the Complaint, the defendants have misrepresented to CD purchasers that their deposits are safe, falsely claiming that the bank re-invests client funds primarily in “liquid” financial instruments (the “portfolio”); monitors the portfolio through a team of 20-plus analysts; and is subject to yearly audits by Antiguan regulators. Recently, as the market absorbed the news of Bernard Madoff’s massive Ponzi scheme, SIB attempted to calm its own investors by falsely claiming the bank has no “direct or indirect” exposure to the Madoff scheme.

The SEC continues to seek, among other things, a permanent injunction, disgorgement of ill-gotten gains plus pre-judgment interest, and civil money penalties.

Case - 02/17/2009

Federal authorities charged prominent Texas businessman and billionaire R. Allen Stanford and three of his companies with carrying out a massive, ongoing fraud involving the sale of $8 billion in certificates of deposit, one of the largest alleged financial frauds in U.S. history. The U.S. Securities and Exchange Commission (“SEC”) said in a complaint that R. Allen Stanford and two colleagues allegedly lied to customers about how their money was being invested and how the firms' investment portfolios had performed in the past.

CDs (Certificates of deposits) are popular savings products, promising fixed-returns to investors, who usually agree to deposit their money for a set period of time. On its Web site, Stanford says the product, known as Stanford Allocation Strategies, aims to reduce volatility throughout the investment cycle. The SEC said that Stanford International Bank, working through a network of Stanford Group advisers, promised improbable, if not impossible returns to investors, often many percentage points higher than what rivals offered. The firms told customers their deposits were safe, invested in easily sellable securities, while in fact, so the SEC, the funds were invested in real estate and private equity holdings. The SEC alleges that the firms also falsely told customers that investments were monitored by more than 20 research analysts and subject to yearly audits by Antiguan regulators, while most of the investments were actually managed only by Allen Stanford and Davis. More recently, the firms falsely told customers that its funds had no exposure to the Madoff case, the SEC said, when executives knew of $400,000 tied to Madoff and the bank told clients its investment portfolio lost just 1.3 percent in 2008, although the Standard & Poor’s 500 plummeted 39 percent. “Stanford International Bank goes to great lengths to prevent any true independent examination of those portfolios,” the SEC’s complaint states.

In addition to Stanford, the SEC complaint charged Antigua-based Stanford International Bank and two affiliates in Houston, Stanford Group and Stanford Capital Management. Also charged were executives James M. Davis, Stanford International Bank's chief financial officer, and Laura Pendergast-Holt, chief investment officer of Stanford Financial Group. Stanford, which says it has more than 30,000 investors and $8.5 billion in assets, has not cooperated with investigators, so the SEC, which asked a federal judge in North Texas to freeze the defendants' assets. “Contrary to recent public statement by Stanford International Bank, Stanford and Davis have wholly failed to cooperate with the commission’s efforts to account for the $8 billion of investor funds purportedly held by Stanford International Bank.” About 90 percent of this portfolio is in a “black box” that is shielded from independent oversight, according to the complaint. The U.S. District Judge Reed O'Connor entered the temporary restraining order, froze the defendants' assets and appointed a receiver to marshal the assets, according to the SEC.

Today, federal authorities also reportedly entered the firm's office buildings in Houston According to an the eyewitness about 15 people, some wearing jackets identifying them as U.S. marshals, entered the lobby of Stanford's office in the Houston Galleria area.

The SEC also alleged that Stanford Group used false and misleading historical performance data to lure more than $1 billion in investments into a mutual fund investment program. Meanwhile depositors from as far away as Colombia have reportedly begun arriving in the island nation of Antigua, seeking to withdraw their money from an offshore bank under investigation by U.S. state and federal authorities. Mr. Stanford reportedly said in a conference call to employees Tuesday there would be a temporary moratorium of two months on early redemptions for CDs, according to one Stanford financial adviser who has worked at the firm for about five years. A depositor from Columbia, who said she has hundreds of thousands of dollars tied up in Stanford certificates of deposit, reportedly said after her arriving in Antigua that this is not a vacation, I'm here to calm my nerves, and that she is waiting to withdraw her money after a representative in Colombia told her he submitted the withdrawal request Friday and that it would take five days to process. Another depositor in Houston reportedly said he tried to redeem his CDs worth roughly $500,000 Friday morning after reading newspaper articles about the investigation and his advisor told him he couldn't redeem them for two months. He said that “[his] fear is that some investors are being allowed to redeem CDs while others are not.. One Austin, Texas-based depositor said he called his advisers Feb. 12 and was told he could not cash out his CDs. Another customer in Houston, who said he has more than $2 million in Stanford CDs, said a representative told him on Feb. 11 that he’d have to wait until the maturity date to get his money back.

Allen Stanford, with citizenship in the United States and Antigua & Barbuda, is one of the world's richest men (No. 205), with an estimated worth of $2 billion, according to Forbes Magazine 2008. Stanford Group has more than $43 billion under management or advisement, according to the firm's Web site. He became the first American to be knighted by the British Commonwealth nation in a 2006 ceremony that was attended by Prince Edward, son of Queen Elizabeth, according to the firm's Web site. Stanford's grandfather, Lodis, founded the first Stanford company in Mexia in 1932, in the midst of the Great Depression. Stanford made his first fortune in Houston, when he bought real estate in the early 1980s. He went on to expand the family business, which now oversees roughly $50 billion in assets for clients in 140 countries. Stanford, is a major donor to St. Jude Children's Research Hospital and a sponsor of cricket tournaments, including a $20 million showpiece match. He also has sponsored professional golf, polo, tennis and sailing events.