Corporate & Securities Law

SNSFE Investigating Fraudulent $8 Billion CD Investment Program Perpetrated By Robert Allen Stanford and His Affiliated Companies

By James Eccleston

The Securities and Exchange Commission has charged Robert Allen Stanford and three of his companies for orchestrating a fraudulent, multi-billion dollar investment scheme centering on an $8 billion CD program.

Stanford's companies include Antiguan-based Stanford International Bank, Houston-based broker-dealer and investment adviser Stanford Group Company, and investment adviser Stanford Capital Management.  The SEC also charged Stanford International Bank chief financial officer James Davis as well as Laura Pendergest-Holt, chief investment officer of Stanford Financial Group, in the enforcement action.

"As we allege in our complaint, Stanford and the close circle of family and friends with whom he runs his businesses perpetrated a massive fraud based on false promises and fabricated historical return data to prey on investors," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement.  "We are moving quickly and decisively in this enforcement action to stop this fraudulent conduct and preserve assets for investors."

The SEC's complaint, filed in federal court in Dallas, alleges that acting through a network of Stanford Group Company financial advisers, Stanford International Bank sold approximately $8 billion of so-called "certificates of deposit" to investors by promising improbable and unsubstantiated high interest rates.  These rates were supposedly earned through Stanford International Bank's unique investment strategy, which purportedly allowed the bank to achieve double-digit returns on its investments for the past 15 years.

The SEC's complaint also alleges an additional scheme relating to $1.2 billion in sales by Stanford Group Company advisers of a proprietary mutual fund wrap program, called Stanford Allocation Strategy by using materially false historical performance data.  According to the complaint, the false data helped Stanford Group Company grow the Stanford Allocation Strategy program from less than $10 million in 2004 to more than $1 billion, generating fees of approximately $25 million in 2007 and 2008.  The fraudulent performance was used to recruit registered investment advisers with significant books of business, who were then heavily incentivized to reallocate their clients' assets to the CD program.

SNSFE attorneys are investigating this massive fraud and welcome any comments or information.

Source:  SEC Press Release Feb. 17, 2009

Full post as published by FinancialCounsel on February 18, 2009 (boomark / email).