UPDATE: Investors from as far as Columbia are converging on Antigua to try and reclaim their funds from billionaire money manager R. Allen Stanford, according to the Wall Street Journal.
In the wake of the SEC's misstep in failing to investigate Bernie Madoff despite repeated warnings from a whistle blower, federal regulators are taking seriously allegations of fraud by 58-year-old Texas billionaire R. Allen Stanford.
The Securities and Exchange Commission, the Financial Industry Regulatory Authority and the Federal Bureau of Investigations are pouncing on the eccentric money man, pulling records and interviewing employees regarding alleged fraud involving his Stanford International Bank. The Antigua-based bank claims to have $8.5 billion in assets and some 30,000 investors.
Sir Stanford--he was the first American to receive knighthood from the government of Antigua and is infamous for his efforts to revive West Indian cricket--has managed to report shockingly consistent returns for years. Even in 2008, when Wall Street was hit across the board, he managed to make a 6% profit on his portfolio.
The return is even more impressive, notes Felix Salmon, given that Stanford International Bank is a bank that doesn't make loans:
"SIB, it turns out, is a very peculiar fish indeed: it offers extremely high interest rates on its deposits -- on the order of 7.5% for a one-year CD. It then takes that money and, rather than lending it out at a higher rate still, invests it in stocks and hedge funds and commodities and the like."
Russ Dallen, who used to head the Venezuela business of Oppenheimer & Co. in Caracas, remembers clients moving money from his company to Stanford, wooed by promises for "14 percent on savings, guaranteed."
"We were just gobsmacked because guaranteeing those kinds of returns is just not possible," said Dallen.
And get this:
Stanford owns more than 10 percent stakes in three firms trading below $2 per share on the Bulletin Board or Pink Sheets: eLandia International Inc, a Coral Gables, Florida technology company; Forefront Holdings Inc, a Brentwood, Tennessee provider of golf supplies; and Health Systems Solutions Inc, a New York technology and services company.
"These were not exactly blue chip companies," said Bob Parrish, an accountant in Longboat Key, Florida, whose clients pulled roughly $500,000 out of Stanford last year.
The SEC was alerted to Stanford last year when two former company employees, Charles Rawl and Mark Tidwell, told regulators that they suspected Stanford was engaged in illegal practices related to selling the CDs and other securities.
In an internal memo obtained by Bloomberg, Stanford blamed the investigations on former disgruntled employees: "We are all aware that former disgruntled employees have gone to the regulators questioning our work and our processes," he said in the email. "This could have compounded an otherwise routine examination."
The investigations come in the wake of the SEC's failed bid to heed warnings that Madoff's investments were too good to be true. Since the $50 billion ponzi scheme was revealed, the SEC has announced lawsuits against at least seven other money managers.
It's not the first time Stanford has been in trouble with the law. In the 1980s, the US Tax Court found that Stanford, who claims he is a distant relative of the founder of Stanford University--the school denies this--along with his wife, Susan, under reported their 1990 federal taxes by $423,531.36.
The Huffington Post intends to dig deeper into this story, and we need your help.
If you have invested with Stanford or know about the bank's business practices, we want to hear from you. Have you tried to get your money back and been rebuffed? What have you been told about the bank's portfolio? How long have you been invested with him? Email your insights to submissions Stanford@huffingtonpost.com
If you know Stanford personally, tell us about him. Email your insights to submissions Stanford@huffingtonpost.com