Alleged $8 Billion CD Fraud Latest in Rash of Ponzi Busts


Alleged $8 Billion CD Fraud Latest in Rash of Ponzi Busts

The Securities and Exchange Commission filed charges today against high-flying Houston-based financier R. Allen Stanford for orchestrating what it calls a multibillion-dollar investment fraud of “shocking magnitude.”

The complaint says Stanford perpetrated a “massive fraud based on false promises and fabricated historical return data to prey on investors.” The alleged fraud centers on an $8 billion certificate-of-deposit program.

In the past few weeks, Stanford, who operates Antigua-based Stanford International Bank, and his companies had fallen under the eye of the FBI, the SEC and other regulatory bodies.

The complaint says Stanford Bank has more than 30,000 clients in 131 countries and $7.2 billion in assets. It says the company’s larger group, Stanford Financial Group, is a privately held entity with $50 billion “under advisement.”

The SEC action also charged the bank’s chief financial officer, James Davis, as well as Laura Pendergest-Holt, chief investment officer of Stanford Financial Group. A temporary restraining order entered by U.S. District Court Judge Reed O’Connor froze Stanford’s assets, and a receiver has been appointed to marshal them.

The SEC’s outgoing enforcement chief, Linda Thomsen, said Stanford promised “improbable and unsubstantiated high interest rates” allegedly earned through a unique investment strategy. The bank purportedly achieved double-digit returns on its investments during the past 15 years.

“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 Thomsen. “We are moving quickly and decisively in this enforcement action to stop this fraudulent conduct and preserve assets for investors.”

The SEC’s regional director in Fort Worth, Rose Romero, said, “We are alleging a fraud of shocking magnitude that has spread its tentacles throughout the world.”

Hedge-fund and Ponzi scams continue as frauds du jour. Not counting Stanford’s alleged crime, seven new hedge-fund or Ponzi scams have been busted since Jan. 1, totaling some $814 million lost by more than 2,100 investors, according to the Commodity Futures Trading Commission . This does not include financial transgressions such as penny-stock swindles, insider trading, foreign bribery or general market manipulation.

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