Probe of Stanford Began at Least 3 Years Ago
Saturday, February 21, 2009
A range of federal agencies, including the Securities and Exchange Commission, FBI, IRS and banking regulators, have been investigating allegations of fraud and possibly other illegal activity at R. Allen Stanford's companies for at least two years, according to people familiar with the matter.
The SEC this week filed a civil complaint against Stanford alleging that he and two of his associates committed a $9.2 billion financial fraud. The Department of Justice is considering filing criminal charges against him, either for fraud or other charges, a person familiar with the matter said. Operating through a network of companies bearing his name and based in Houston and the Caribbean island of Antigua, Stanford is accused of misleading customers about how their money was being invested and other misdeeds.
The SEC's investigation, dating back at least three years, faced challenges because customers' assets were held in accounts in Antigua. Antiguan authorities did not fully cooperate with the investigation, according to people familiar with the matter who spoke on condition of anonymity because they were not authorized to disclose details of an ongoing investigation. The SEC brought in the help of the FBI, which has enforcement tools unavailable to the SEC including the ability to wiretap and send in agents undercover, according to people familiar with the matter. It wasn't clear how those tools were used in the Stanford investigation.
The case intensified in December for a number of reasons, according to interviews and court documents. People familiar with the matter said that after it was disclosed that Bernard L. Madoff was allegedly running a $50 billion Ponzi scheme, more detailed information came to the SEC about potential fraud at Stanford's companies. It wasn't clear what that information was. In addition, the declining stock market and growing client redemptions were forcing Stanford to liquidate assets fast.
Separately, an investigation by the Financial Industry Regulatory Authority had been launched last summer after two employees of a Stanford company filed a lawsuit against the firm alleging irregularities, according to people familiar with the matter. FINRA previously had fined Stanford's companies $70,000 for a variety of securities violations.
On Thursday, FBI agents, working at the behest of the SEC, located Stanford about 40 miles south of Washington in Stafford and served him with civil papers outside his girlfriend's house there. His girlfriend had previously lived in a Miami house with him, according to public records. Stanford arrived in Washington this week. The couple was staying at a home that public records indicate belongs to a relative of the girlfriend. Stanford agreed to turn in his passport to authorities, the SEC said.
The FBI is exploring bringing other charges against Stanford, according to people familiar with the matter. Previously, he faced multiple investigations by the FBI into suspected money laundering at offshore banks, but the agency did not have enough evidence to charge him, according to a former federal law enforcement official.
The SEC is also continuing its investigation into the alleged fraud, people familiar with the matter said.
Stanford was trying yesterday to recruit a lawyer and had approached criminal defense attorney Brendan Sullivan of the Washington firm of Williams & Connolly, but had to resolve issues over payment because a judge has frozen his assets, according to people familiar with the matter. Stanford hasn't been charged criminally.
The residence in the Stafford subdivision of Heather Hills where Stanford apparently had been staying was staked out by reporters and photographers yesterday. He wasn't spotted yesterday by the media. It wasn't clear why he had come to the Washington area.
Investors might not get their cash back for a while, said Dallas attorney Ralph S. Janvey, the court-appointed receiver in charge of returning money to Stanford's customers. "For the foreseeable future, customers cannot use their accounts to make payments because transfers out of these accounts are frozen until the Receiver is able to verify there are no legal or equitable claims against those accounts," Janvey said in a statement.
Regulators in Central and South America, where Stanford's products were popular, moved to freeze accounts in their countries linked to him. Banking authorities in Antigua seized control of his operations on the Caribbean island.
In early January, SEC investigators began interviewing employees at Stanford Financial Group, the Houston company through which Stanford International Bank sold certificates of deposit. Investigators learned that clients had tried to redeem $500 million in a short period and that the bank 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 operations, they faced roadblocks. They were told by bank employees that they didn't have jurisdiction to access records of the bank and couldn't see relevant documents, according to court records.
On Tuesday, a federal judge in Dallas froze the assets of Stanford, several associates and his companies.