By Monica Rhor and Devlin Barrett
Saturday, February 28, 2009
The Securities and Exchange Commission yesterday amended its civil complaint against Texas billionaire R. Allen Stanford to accuse him of conducting a "massive Ponzi scheme" through companies he controlled.
Stanford, chairman of the Stanford Group, and James M. Davis, the firm's chief financial officer, misappropriated billions of dollars of investors' money and falsified the bank's financial statements to conceal the fraud, the agency said in the complaint filed in federal court in Dallas.
The SEC on Feb. 17 brought civil charges against Stanford, Davis and Laura Pendergest-Holt, the firm's chief investment officer. In an $8 billion investment fraud, investors were lied to about the safety of investments sold by the banks including Antigua-based Stanford International Bank as certificates of deposit and were promised unrealistically high rates of return, the SEC alleged.
Pendergest-Holt appeared in federal court yesterday after her arrest Thursday on charges that she obstructed the SEC's investigation of the Stanford scandal by lying about her knowledge of the firm's activities and by omitting key details.
During a court hearing, Pendergest-Holt was painted alternately as the scapegoat and as one of the few people who knows where millions of dollars stolen from investors are hidden.
The chief investment officer of troubled Stanford Financial Group was forced to borrow money from her attorney, Dan Cogdell, to post bond to cover her $300,000 bail and avoid spending the weekend in jail. She must wear an ankle monitor as she heads to Dallas for more hearings in her case.
Adding a new dynamic to the scandal, the regulators now say the fraud was a Ponzi scheme, in which early investors are paid returns from money put in by later investors.
Investigators allege that Stanford and Davis diverted at least $1.6 billion of investors' money through personal loans to Stanford. Stanford and Davis also invested an undetermined amount of customer funds in speculative, unprofitable private businesses, some of which they controlled, the SEC said in the new complaint.
The regulators also say that Stanford faked historical data on other investments, which he then used to lure in more investors for the certificates of deposit.
Pendergest-Holt "facilitated" the alleged scheme by misrepresenting to investors that she managed the bank's multibillion-dollar investment portfolio and employed a large team of analysts to monitor it, the SEC said in the filing.
Cogdell said that his client was "set up" by Stanford and Davis.
The SEC froze the assets of three of Stanford's companies. FBI agents served Stanford with legal papers last week, and he was ordered to surrender his passport. He has not been charged with a crime.