Authorities Had Texan in Sights In Prior Probes

By Zachary A. Goldfarb
Washington Post Staff Writer
Thursday, February 19, 2009

When federal agents descended on R. Allen Stanford's U.S. headquarters in Houston on Jan. 12 with concerns about his firm's investment portfolio, it was the latest in a series of investigations into the Texas businessman, now accused of orchestrating a $9.2 billion fraud, according to interviews and court documents.

This investigation follows earlier government probes into Stanford's payment of federal taxes and his offshore businesses, and fines levied by securities regulators on his firms. In the 1990s, the FBI and other federal agencies launched multiple investigations into suspected money laundering at Stanford's offshore banks but could not come up with evidence to charge him, according to a former federal law enforcement official.

Several of these investigations have been largely overlooked in the flurry of reports about Stanford's latest difficulties with federal authorities.

On Tuesday, the Securities and Exchange Commission charged Stanford, three companies under his control and two associates with fraud after an on-site investigation into his operations, which largely involved selling certificates of deposit through Antigua-based Stanford International Bank. The probe found that Stanford, operating through a web of firms based in Houston and the Caribbean, lied to customers about how their money was invested and how the firms' investment portfolios had performed.

It was not the first time Stanford's firms had gotten the attention of securities regulators. In recent years, Stanford Group has paid tens of thousands of dollars in fines related to the information it provided about the risks of certificates of deposit, its capital levels and its research methods, according to a report by the Financial Industry Regulatory Authority.

As customers lined up outside the banks tied to Stanford in Antigua and elsewhere yesterday to make claims, the news of Stanford's alleged fraud made waves in Washington. Lawmakers whose campaigns had benefited from Stanford's largesse or who had flown on his private jets moved to distance themselves from him. Stanford could not be reached for comment, and the SEC said it did not know where he was.

Also unclear yesterday was when the SEC began its investigation into Stanford's businesses. An SEC official in Fort Worth told the New York Times this week that the investigation had begun in October 2006. SEC spokesman John Nester said he could not confirm that date. The Fort Worth official said that sometime after the investigation began, the SEC "stood down" at the request of another federal agency. Nester said the official didn't express himself clearly.

Nester said the investigation depended on cooperation with criminal authorities who have different tools and techniques at their disposal. "The pace of the investigation was also determined by its complexities, including whether the products were in our jurisdiction, and difficulty in accessing records and documents in offshore institutions in foreign jurisdictions," Nester said.

In early January, SEC investigators began interviewing employees at Stanford Financial Group, the Houston company through which Stanford International Bank sold CDs. Investigators learned that the bank had experienced about $500 million in client redemptions in a short period and was rushing to liquidate assets, according to court documents

The investigators discovered that the bank had invested many of its assets in private equity and real estate, which are hard to sell on short notice, according to the documents. The SEC says this contradicted the bank's promise to customers that their deposits were invested in assets that could be easily sold, which didn't include "illiquid" private equity and real estate holdings.

As the investigators dug deeper into Stanford's web of operations, they faced roadblocks. They were told by bank employees they didn't have jurisdiction to access records of the bank and couldn't see relevant documents, according to court records.

The SEC subpoenaed Allen Stanford and several associates about the bank's investments. They didn't comply, according to court documents.

On Feb. 6, Stanford imposed a two-month moratorium on clients redeeming CDs, the SEC said. However, at least one Stanford employee told a client it was the SEC that froze redemptions, the agency said. In the past two weeks, Stanford moved to liquidate $178 million of its assets, court documents show.

On Tuesday, a federal judge in Dallas froze the assets of Allen Stanford, several associates and his companies. Federal agents raided two Houston office buildings and assigned a receiver in charge of getting money back to customers. There was no word on when or if clients will be able to recoup their money.

The SEC case is not the first legal trouble for Allen Stanford. He is currently negotiating with the Internal Revenue Service to settle a claim that he didn't pay tens of millions in taxes at Stanford International Bank in 2000 and 2001, according to a person familiar with the matter, who spoke on condition of anonymity because he was not authorized to discuss it.

In the 1990s, federal authorities, including the FBI and customs agency, investigated his operations in Antigua and previously on the Caribbean island of Montserrat over suspicions of laundering money from South America and Mexico, according to a former federal law-enforcement official with knowledge of the investigations. But investigators did not find any evidence to bring a case against him, the official said.

In Washington, the news of the alleged fraud caused discomfort for many politicians, whom Stanford showered with campaign cash and lobbying dollars. Stanford's companies spent nearly $5 million over the past nine years on lobbyists, who worked on issues related to offshore banking and taxes.

Stanford and his employees gave more than $2 million to lawmakers and their political committees. Stanford gave to both Republicans and Democrats. President Obama received $4,600 in campaign contributions for his presidential campaign.

Sen. John Cornyn (R-Tex.) took $7,400 worth of trips to Antigua and Barbuda sponsored by Stanford. Asked about the senator's relationship with Stanford, a Cornyn spokesman said, "There was really no relationship to speak of, other than that of representative/constituent."

Sen. John McCain (R-Ariz.), who received $28,000 from Stanford and his associates, is donating the money to charity, a spokeswoman said. Rep. Charles B. Rangel (D-N.Y.) is donating $11,000 in political contributions to charity. Sen. Christopher J. Dodd (D-Conn.) received $27,500. A spokesman said Dodd would donate the cash to charity.

Former House Majority leader Tom DeLay (R-Tex.) used Stanford's private jet at least 14 times from 2003 to 2006. But Delay's lawyer, Dick DeGuerin, said DeLay "paid for every penny of it on his campaign account" and that Stanford didn't have anything to do with the renting of the jet.

Research editor Lucy Shackelford and researcher Madonna Lebling contributed to this report.

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