Stanford, 5 Associates Charged With Running $7 Billion Ponzi Scheme

By Zachary A. Goldfarb and Anita Kumar
Washington Post Staff Writers
Saturday, June 20, 2009

Texas businessman R. Allen Stanford, who boasted on television last September that "it's fun to be a billionaire," appeared in leg irons in U.S. District Court in Richmond yesterday after federal prosecutors unveiled criminal charges against him.

Stanford's wealth and success were largely a mirage, said prosecutors, who alleged that he was as the mastermind of a $7 billion financial fraud that devastated investors in the United States and Latin America.

Stanford, 59, surrendered to FBI agents at his girlfriend's house in Fredericksburg, Va., Thursday night. A judge refused to release him and ordered marshals to transfer him to Houston for further proceedings.

Several months ago, the Securities and Exchange Commission charged that Stanford's operation was a Ponzi scheme -- second in size only to the Bernard Madoff fraud that broke in December. The federal indictment showed how Stanford allegedly enriched himself while fooling investigators long suspicious of his business.

Houston-based Stanford Financial Group promised customers safe savings accounts at Stanford International Bank in Antigua, where they could earn attractive returns. Instead, the indictment alleges, Stanford took advantage of those funds, even awarding himself $1.6 billion in personal loans.

He later allegedly paid $100,000 in bribes to one of Antigua's top financial regulators, Leroy King. King allegedly attempted to wave the SEC off its investigation, writing in one memo that an examination of Stanford's bank "concluded just five months ago confirmed [its] compliance with all areas of depositor safety and solvency, as well as other applicable laws and regulations."

Dick DeGuerin, Stanford's attorney, said his client would fight the allegations and blamed the breakdown at his company on the SEC. "He is confident that a fair jury will find him not guilty of criminal wrongdoing," DeGuerin said in a statement. "The present insolvency of the Stanford Companies was caused by the SEC heavy-handed actions, which have destroyed and continue to destroy . . . the interests of investors."

The SEC alleges that up to 30,000 investors -- including elderly people living off investment returns -- were defrauded, including several thousand in the United States. Prosecutors said it was unlikely those investors will be fully paid back.

Stanford, who had a knack for the grandiose, was a celebrity throughout much of Latin America. He was knighted by Antigua in 2006, gaining the title "Sir," and sponsored international cricket tournaments and local charities. He sparred with Stanford University over his claim that he shared ancestry with the school's founder.

Those tendencies extended to his fraud, the government alleged. The indictment charges that King gave confidential information about an SEC inquiry to Stanford, which enabled him to deceive the SEC about the bank's finances and the level of oversight conducted by Antiguan authorities.

The bribes to King were not only in the form of cash. He also used Stanford's private planes and accepted tickets to the Super Bowl, according to a separate SEC complaint.

The criminal indictment charges that Stanford and associates told investors that his bank's assets grew to $8.5 billion last year from $1.2 billion in 2001. In reality, $5 billion of those assets included loans to Stanford and real estate that had been artificially inflated in value, according to the indictment.

In outlining its case, the Justice Department filed criminal charges against King and several of Stanford's employees, including Laura Pendergest-Holt, the chief investment officer; Gilberto Lopez, the chief accounting officer; and Mark Kuhrt, the global controller.

They are charged with one count of conspiracy to commit mail, wire and securities fraud; seven counts of wire fraud; 10 counts of mail fraud; and one count of conspiracy to commit money laundering. Stanford, Pendergest-Holt and King also face charges of conspiring to obstruct an SEC proceeding.

James M. Davis, the company's chief financial officer, faces separate criminal charges, including conspiracy to commit mail, wire and securities fraud; mail fraud; and conspiracy to obstruct an SEC investigation. Another employee, Bruce Perraud, was charged with destruction of records related to a federal investigation.

Prosecutors have "worked tirelessly to build an impressive criminal case from the rubble of this massive fraud," said Robert Khuzami, SEC enforcement director, at a news conference in Washington.

An attorney for Davis said his client was cooperating with the investigation.

"He realizes that a lot of good people have been hurt by what happened at Stanford Financial. And at Allen Stanford's trial, the jury and the entire world will see that the orchestrated and prime beneficiary of the Stanford fraud was Sir Allen Stanford himself," said the attorney, David Finn.

Lopez and Kuhrt were still obtaining attorneys. It could not be determined who was representing King or Perraud. A lawyer for Pendergest-Holt did not respond to an e-mail or phone call.

Goldfarb reported from Washington; Kumar from Richmond.

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