SEC Charges Stanford International Bank & Companies in Multi-Billion Dollar Investment Scheme

Washington, D.C. The Securities and Exchange Commission charged Robert Allen Stanford and three of his companies for orchestrating a fraudulent, multi-billion dollar investment scheme centering on an $8 billion CD program. Stanfords companies include Antiguan-based Stanford International Bank (SIB), Houston-based broker-dealer and investment adviser Stanford Group Company (SGC), and investment adviser Stanford Capital Management. The SEC also charged SIB chief financial officer James Davis as well as Laura Pendergest-Holt, chief investment officer of Stanford Financial Group (SFG), in the enforcement action. Pursuant to the SECs request for emergency relief for the benefit of defrauded investors, U.S. District Judge Reed OConnor entered a temporary restraining order, froze the defendants assets, and appointed a receiver to marshal those assets. The SECs complaint, filed in federal court in Dallas, alleges that acting through a network of SGC financial advisers, SIB has sold approximately $8 billion of so-called certificates of deposit to investors by promising improbable and unsubstantiated high interest rates. These rates were supposedly earned through SIBs unique investment strategy, which purportedly allowed the bank to achieve double-digit returns on its investments for the past 15 years. According to the SECs complaint, the defendants have misrepresented to CD purchasers that their deposits are safe, falsely claiming that the bank re-invests client funds primarily in liquid financial instruments (the portfolio); monitors the portfolio through a team of 20-plus analysts; and is subject to yearly audits by Antiguan regulators. Recently, as the market absorbed the news of Bernard Madoffs massive Ponzi scheme, SIB attempted to calm its own investors by falsely claiming the bank has no direct or indirect exposure to the Madoff scheme. According to the SECs complaint, SIB is operated by a close circle of Stanfords family and friends. SIBs investment committee, responsible for the management of the banks multi-billion dollar portfolio of assets, is comprised of Stanford; Stanfords 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 Stanfords college roommate. The SECs complaint also alleges an additional scheme relating to $1.2 billion in sales by SGC advisers of a proprietary mutual fund wrap program, called Stanford Allocation Strategy (SAS), by using materially false historical performance data. According to the complaint, the false data helped SGC grow the SAS program from less than $10 million in 2004 to more than $1 billion, generating fees for SGC (and ultimately Stanford) of approximately $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 SIBs CD program. The SECs complaint charges violations of the anti-fraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Advisers Act, and registration provisions of the Investment Company Act. In addition to emergency and interim relief that has been obtained, the SEC seeks a final judgment permanently enjoining the defendants from future violations of the relevant provisions of the federal securities laws and ordering them to pay financial penalties and disgorgement of ill-gotten gains with prejudgment interest. The Commission acknowledges the assistance and cooperation of the Financial Industry Regulatory Authority (FINRA) in connection with this matter. FINRA independently developed information through its examination and investigative processes that contributed significantly to the filing of this enforcement action. The SECs investigation is continuing.