Disgraced banker found, served court papers

WASHINGTON - FBI agents on Thursday located disgraced billionaire banker R. Allen Stanford in Virginia, and served him with civil legal papers filed by the Securities and Exchange Commission.

FBI spokesman Richard Kolko says FBI agents, acting at the request of the SEC, served Stanford papers Thursday in Fredericksburg, Va.

Stanford is not under arrest and is not in custody.

The SEC charged Stanford and three of his companies on Tuesday with committing an $8 billion fraud that lured investors with promises of improbable and unsubstantiated high returns on certificates of deposit and other investments.

He has not been charged with any crime.

Federal law enforcement officials raided Stanford's Houston offices Tuesday, seizing assets and shutting down operations. 

Over the years, Stanford's pitch to investors was equal parts glamour and flattery.

By serving a select and wealthy clientele, employing top-flight talent and being "a privately held institution free to focus on our No. 1 priority, which is our clients," Stanford was able to earn "premium returns," his bank documents claimed.

But those profits may never have existed. Despite claiming to have made double-digit returns between 1993 and 2005, the company's annual returns hadn't reached 10 percent since 1994, according to court papers.

Runs on banks in Venezuela, Antigua
Worries about the implications of the seizure caused panicked depositors to swarm Stanford-controlled banks in Antigua and Venezuela on Wednesday. Thursday, a run on deposits in Stanford Bank SA in Venezuela forced the government to intervene to back deposits.

Venezuela's finance minister Ali Rodriguez said the Venezuela-based bank will immediately be put up for sale and there is interest in acquiring it. Details of a potential sale were unclear.

This is not the first time Stanford has attracted attention from the authorities. The jet-setting financier, who hobnobbed with lawmakers and had been knighted in the island nation of Antigua, had been under investigation by federal authorities for years, according to people familiar with the investigations and published reports. These people spoke on condition of anonymity because they were not authorized to discuss the case.

Stanford lied about his bank and its history — not just its finances — to gain investors' trust, public records show. Company documents referred to a 70-year tradition of client relationships. Yet there is no record of his bank having existed before the 1980s.

And while he told clients their money was guarded by a team of "20-plus analysts," court papers said he and James Davis, a college roommate, were the only ones familiar with the investment strategy.

The bank had been misrepresenting its performance since at least 2004, according to court papers.

The claims of inflated returns allowed the bank to plow more money into other parts of Stanford Financial Group, paying "disproportionately large commissions" to its affiliate Stanford Group Company, the documents say.

Even in 2008, a year when many stock market indexes lost around 40 percent, the company claimed losses of only 1.3 percent.

That's when Stanford's lies seem to have caught up with him — thanks in part to news about an alleged $50 billion pyramid scheme by New York financier Bernard Madoff.

The Securities and Exchange Commission's investigation of Stanford had been in the works before Madoff gave himself up in December, said a U.S. official with knowledge of the probe who spoke on condition of anonymity because he was not authorized to provide information about it.

 

But the agency stepped up enforcement efforts after embarrassing revelations that the SEC had cleared Madoff despite specific tips and multiple investigations, current and former SEC employees said. They said regional offices appeared to be fast-tracking the Stanford case and others with the potential to give the agency another black eye.

One former employee said enforcement officials had told him they were trying to recover from the negative publicity surrounding the Madoff case. The sources spoke on condition of anonymity to preserve their relationships with the agency.

 

Attorney General Eric Holder said Wednesday he could not rule out more Stanford-sized or Madoff-sized fraud scandals.

"It's hard to say. I'd like to think that those things are going to be the largest," Holder told reporters in Washington. "The department will be vigilant in the detection of that kind of fraud. That's especially true given the magnitude of the stimulus effort and the recovery effort. We want to make sure the money gets into the right hands for the right reasons."

Stanford's companies also had been under investigation by the Financial Industry Regulatory Authority, a self-regulatory body. FINRA spokeswoman Nancy Condon said the two investigations were operating in parallel "and at some point, both of us became aware of each other."

With SEC investigators and Florida regulators closing in, Stanford desperately sought to reassure employees, investors and the press that nothing was wrong. He told clients these were "routine examinations," court records show.

A Feb. 12 company e-mail told workers that "former disgruntled employees" had made complaints that could complicate an "otherwise routine examination."

And a Stanford spokesman denied there was anything unusual about a January visit to Stanford's Miami offices, telling The Associated Press, "We were informed by the three agencies that this was a routine examination."

But when one client tried to cash out a multimillion dollar deposit on Feb. 9, the bank told him the SEC had frozen the account.

Another client was told that Stanford personally had ordered a two-month moratorium on payouts, court records show.

Even after Tuesday's raid made international headlines and provoked bank runs in Antigua, some investors were still looking for answers.

At the Stanford Fiduciary Investor Services' office in a downtown Miami high-rise late Wednesday afternoon, a 64-year-old retired investor arrived in a motorcycle jacket and helmet.

The man said he had been told his account, totaling over $1 million, was being transferred to another bank. He spoke on condition of anonymity to maintain the privacy of his investments.

He said he had called for more information Wednesday, but there was no one there to pick up.

Meanwhile, Thursday's move in Venezuela followed similar action from authorities around the region. Panama regulators have taken over a Stanford affiliate there and a local arm of Stanford Financial Group halted its activities on the stock exchange in Colombia. Ecuador stopped a brokerage linked to the group from operating.

 

In Venezuela in recent days, hundreds of people lined up at the international group’s local offices hoping to recover their money. While lines at the local retail bank were much shorter, enough depositors had sought to withdraw their cash to prompt the government action.

Early on Thursday, there were no lines at one of the retail bank’s main branches in Caracas.

Many Venezuelans remember a 1994-1995 crisis that cost the country $11 billion, as half the country’s banks fell.