Feb. 17, 2009 — The Securities and Exchange Commission filed a criminal complaint in federal court Tuesday against Allen Stanford, alleging "a massive, ongoing fraud" against the billionaire financier who has bought property and made plans for large offices on St. Croix.
The SEC asked the court to freeze his company's assets. In other action Tuesday, police locked down Stanford's offices in Houston. Also named in the SEC complaint were James Davis, Laura Pendergest-Holt, Stanford International Bank and the Stanford Group Company.
For the past two years Stanford has worked to establish a foothold on St. Croix, so his fortunes could have implications for the big island.
The charges stem from Stanford International Bank in Antigua, one of his numerous banks and investment houses. SIB, founded by Stanford on Antigua 22 years ago, has had suspiciously consistent and suspiciously above-normal rates of return for at least the past 15 years, according to the SEC complaint. Reports of potential problems at the bank began surfacing in December. On Feb. 13, Brian Bertsch, director of press relations for Stanford Financial Group, confirmed to the Source that regulatory agencies had paid recent visits. (See "SEC Probes Irregularities At Stanford Bank.")
"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. "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 SEC says otherwise.
"Contrary to recent public statements by SIB, Stanford and Davis (and through them SGC) have wholly failed to cooperate with the commission's efforts to account for the $8 billion of investor funds purportedly held by SIB," reads the complaint, which is signed by SEC attorney David Reece. "In short, approximately 90 percent of SIB's claimed investment portfolio resides in a 'black box' shielded from any independent oversight."
Authorities say Stanford's recent assurances that SIB had no exposure to the Bernard Madoff massive Ponzi scheme are false, too. According to the SEC, there is at least $400,000 of Madoff exposure in the portion of SIB's known holdings. While a small proportion, the SEC complaint cites it as a disturbing verifiable falsehood.
Stanford Group stepped up the pace of removing funds from SIB recently, trying to wire $178 million out over the past two weeks, and has used the SEC investigation itself to mislead and defraud customers, "falsely telling at least one customer … his multi-million dollar SIB CD could not be redeemed because 'the SEC had frozen the account for two months,'" and telling another there was a two-month moratorium on CD redemptions, according to the SEC complaint.
On top of alleging an $8 billion fraud at SIB, the SEC accuses Stanford Group Company, another of the companies solely owned by Allen Stanford, of selling more than $1 billion in a mutual fund program using "false and misleading historical performance data." The fraud grew the fund from less than $10 million in 2004 to more than $1.2 billion today, making Stanford more than $25 million in fees, according to the SEC.
Stanford and the other parties to the complaint have been charged with an array of violations of federal securities and banking acts.
Last year Stanford held a groundbreaking for a large complex by the Henry E. Rohlsen International Airport on St. Croix. The complex was to be the base for the corporate support functions of Stanford's global network of financial-services companies, he 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 at the time he was 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.")
Gov. John deJongh Jr. is consulting with officials of the Economic Development Authority and his senior staff on any possible fallout to the territory from all this.
"Of primary concern to the governor is the potential economic impact and loss of jobs that could result from the investigation of the Stanford companies which is now being carried out by the Securities and Exchange Commission," said Government House Communications Director Jean Greaux Jr. on Tuesday in a news release from the administration.
What financial impact these events will have is not yet fully known.
Eighteen Stanford employees have lost their jobs on St. Croix and the EDA will look into the matter, Greaux said.
Business leaders are taking a cautious approach to the breaking news.
"It's premature to speculate," said Michael Dembeck, executive director of the St. Croix Chamber of Commerce, on Tuesday. "We certainly welcome the Stanford Group's investment and interest in the island. But we will have to wait and see what happens."
It is important to remember that whatever the company may or may not have done, its line employees are the first to be affected, said Omer ErSelcuk, president of Seaborne Airlines and the chamber's chairman.
"Regardless of what transpired, good people are going to be affected," he said. "My concern goes out to those people. Unfortunately, others who came before have put the SEC on the attack path very vociferously. Whether it is right or wrong, I think that is what we are seeing. But it is my hope we on St. Croix will not be painted with an ugly brush because of what may have transpired within Stanford's companies."
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