Feb. 14, 2009 — Stanford International Bank in Antigua, one of billionaire financier Allen Stanford's numerous banks and investment houses, is under investigation by the U.S. Securities and Exchange Commission and other regulatory agencies, according to numerous media reports this week.
The Associated Press said U.S. officials are looking at how the Stanford Group managed to consistently report healthy investment returns and offer higher-than-average rates on certificates of deposit with the offshore bank while other institutions suffered in the financial meltdown.
The Stanford Group disputes the suggestion of any impropriety and says they've been told the investigations are routine.
Allen Stanford, 58, has a fortune estimated to top $2.2 billion, according to Forbes' annual list of the richest 400 people in the U.S. And the Stanford Financial Group's fortunes are increasingly tied to that of the Virgin Islands.
Last year, Stanford held a groundbreaking for a large corporate complex by the Henry E. Rohlsen International Airport on St. Croix. The complex is to serve as the base for the support functions of Stanford's global network of financial services companies, Stanford said at the time. It is meant to house the business technology, compliance, finance, human resources, investment strategy and legal departments of Stanford Global Management and be the headquarters of Stanford Caribbean Investments.
Stanford said in 2008 he was also establishing his personal residence on the island and setting up the management offices for the Stanford 20/20 Cricket Tournament, Stanford Caribbean Investments and Stanford Aviation. (See: "Bigwigs Join Billionaire Stanford in St. Croix Groundbreaking.")
Alarms were raised by former employees and one outside analyst. Two former Stanford employees who are suing Stanford Financial Group for wrongful termination allege the company engaged in a variety of unethical practices, including destroying documents during an SEC investigation, and a third former employee said he raised questions about the unusually high rate of return on its investment products and was pushed out soon after, according to an article in the Feb. 11 Business Week magazine.
A January article by Florida-based financial analyst Alex Dalmady in the Venezuelan financial newsletter VenEconomy Monthly spawned reports in Bloomberg News, on Salon.com, in the Times of London and elsewhere.
Entitling his article "Duck Tales," Dalmady concluded Stanford International Bank looked suspiciously similar to the recent Bernard Madoff variation of the classic Ponzi scheme, arguing if it "quacks like a duck, if it walks like a duck and it has a bill like a duck ITS A DUCK!"
Stanford International Bank may only "look" like a duck, but Dalmady said he would like the equivalent of a DNA test to be sure.
Dalmady said the bank offered rates on CDs of 7.5 percent on a one-year deposit of at least $100,000 in fall 2007, when U.S. banks were offering just over half that percentage. Its gains on investments were consistently above average, ranging from 10 to 14 percent from 2003 to 2007.
And while the rest of the market swung up and down, Stanford International Bank's returns were too consistent for statistical probability, Dalmady wrote.
Another red flag, Dalmady said, is that the bank has had the same small Antiguan accounting firm for over a decade.
"PriceWaterhouseCoopers and KPMG have offices on the island and it's a good internal control practice to change auditors every few years, but the bank prefers to stick with its trusted firm," Dalmady wrote.
Brian Bertsch, director of press relations for Stanford Financial Group, acknowledged that regulatory agencies have paid recent visits but vigorously disputes any suggestion of any problems.
"As I've said, the three regulatory agencies have stated to us their recent visits to our office were part of a routine examination," Bertsch said Friday afternoon, commenting that such examinations occur often in the finance business as a matter of course. "As always, we have provided U.S. regulators with everything they requested and intend to cooperate fully with any finding or recommendation they may issue."
The company does not give any weight to Dalmady's analysis, he said.
"We see this report as the opinion of an isolated analyst and we obviously disagree with his conclusion," he said of Dalmady's report.
Bertsch said the accusations from former employees were groundless.
Asked why two seemingly unconnected sources would be making such similar allegations about Stanford International Bank, Bertsch repeated the comments above.
Dalmady suggests a complete audit by a more familiar name such as KPMG or Price Waterhouse, or a statement by the banks global custodian, a Credit Suisse or a Morgan Stanley that the bank in fact has $8 billion in securities under their control would settle the question, but more assurances from auditors closely tied to the management of the company would not.
When asked about Dalmady's suggestion, Bertsch said the Stanford International Bank has had a long and happy business relationship with its auditing firm, C.A.S. Hewlett & Co., that C.A.S. has been in operation for many years and has clients in both Antigua and the United Kingdom.
Stanford International Bank, like all of the Stanford companies, is solely owned by Allen Stanford, Bertsch confirmed.
It is unclear what impact, if any, all this will have on Stanford's plans on St. Croix.
Bertsch said he would look into the status of Stanford's St. Croix plans, but has not provided the information yet. However the V.I. Port Authority confirms at least that Stanford's lease is paid up and current.
"I can confirm the lease is active and paid up," said David Mapp, assistant executive director of the V.I. Port Authority. "They're always on time, and in fact they are probably our best client."
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