Stanford charged; Antigua PM calls for calm

The SEC complaint filed in federal court in Dallas, Texas, said that the SIB is operated by a close circle of Stanford's family and friends. Its investment committee, responsible for the management of the bank's multi-billion dollar portfolio of assets,

ST JOHN’S, Antigua, February 18, 2009 – A United States (US) federal judge has frozen the assets of Antigua-based billionaire Sir Allen Stanford, two associates and three of his companies, as US regulators charged him with orchestrating a fraudulent, multi-billion dollar investment scheme.

The US Securities Exchange Commission (SEC), which filed the charges yesterday, has accused Sir Allen and his businesses of selling certificates of deposit (CDs), worth about US$8 billion, by promising improbably high interest rates. He has, however, not yet been arrested.

The companies affected by the judge’s order are the Antiguan-based Stanford International Bank (SIB), Houston-based broker-dealer and investment adviser Stanford Group Company (SGC), and investment adviser Stanford Capital Management. SIB chief financial officer James Davis and chief investment officer of Stanford Financial Group, Laura Pendergest-Holt, were also charged and had their assets frozen.

"We are alleging a fraud of shocking magnitude that has spread its tentacles throughout the world,” said Rose Romero, Regional Director of the SEC's Fort Worth Regional Office.

Director of the SEC's Division of Enforcement Linda Chatman Thomsen, said the Commission was moving quickly and decisively in the enforcement action “to stop this fraudulent conduct and preserve assets for investors”.

False promises made to attract investors

"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," she said.

The SEC complaint filed in federal court in Dallas, Texas, said that the SIB is operated by a close circle of Stanford's family and friends. Its investment committee, responsible for the management of the bank's multi-billion dollar portfolio of assets, is comprised of Sir Allen; his father who resides in Mexia, Texas; another Mexia resident with business experience in cattle ranching and car sales; Pendergest-Holt, who prior to joining SFG had no financial services or securities industry experience; and Davis, who was also Sir Allen’s college roommate.

The SEC has alleged that SIB sold the CDs to investors by promising improbable and unsubstantiated high interest rates.

“These rates were supposedly earned through SIB's unique investment strategy, which purportedly allowed the bank to achieve double-digit returns on its investments for the past 15 years,” it said.

According to the SEC's complaint, the defendants misrepresented to CD purchasers that their deposits were safe. Recently, as the market absorbed the news of Bernard Madoff's massive Ponzi scheme, it said, SIB attempted to calm its own investors by falsely claiming the bank had no "direct or indirect" exposure to the Madoff scheme.

The Commission has also alleged an additional scheme relating to US$1.2 billion in sales by SGC advisers of a proprietary mutual fund wrap programme, called Stanford Allocation Strategy (SAS), by using materially false historical performance data.

According to the complaint, “the false data helped SGC grow the SAS programme from less than US$10 million in 2004 to more than US$1 billion, generating fees for SGC, and ultimately Stanford, of approximately US$25 million in 2007 and 2008”.

“The fraudulent SAS performance was used to recruit registered investment advisers with significant books of business, who were then heavily incentivized to reallocate their clients' assets to SIB's CD programme,” it added.

Antiguans flock to withdraw money

There was immediate reaction to the news of the SEC charges in Antigua, where Sir Allen has citizenship and is the second largest employer, after government.

Although his Bank of Antigua (BOA) was not named in the enforcement action and is regulated by the Eastern Caribbean Central Bank (ECCB), scores of depositors converged at the financial institution to either get answers or withdraw their funds.

Many of them left empty handed, some vowing to return at the opening of business this morning.

“I want my money. I don’t know what will happen when the people from the US arrest him!” one woman shouted as bank staff at the Airport Boulevard headquarters sought to assure depositors that their money was safe.

“I just want to know my money will be there when I want it,” another customer said as he walked away from the bank.

PM says no need for panic

But Prime Minister Baldwin Spencer last night called on citizens to remain calm, even as he admitted that the developments have “profoundly serious implications for Antigua and Barbuda”.

“This is not a looming crisis. The fallout threatens catastrophic and immediate consequences. The Eastern Caribbean Central Bank is in touch with the Bank of Antigua and the government and is currently putting in place a contingency plan. Therefore, there is no need for panic,” he said.

“If ever there was a reason and a time for the Antiguan and Barbudan people to pull together in solidarity, that time is now.”

Prime Minister Spencer further urged that the situation not be made a partisan, political issue.