Investors with the Stanford Group may have been duped. Yesterday, the Securities and Exchange Commission accused the Stanford Group founder of running a massive, ongoing fraud. The SEC complains about two separate areas of deceit. The first area deals with high-interest-rate certificates of deposit. The SEC’s civil suit accused Stanford International Bank of touting “improbable, if not impossible” returns while selling CDs to investors for more than a decade. When the Stanford Group sold the CDs through a network of financial advisers, it told clients their funds would be placed mainly in easily sellable financial instruments, monitored by more than 20 analysts and audited by regulators on the Caribbean nation of Antigua, the SEC said. Turns out, that was not the case. Instead, the “vast majority” of the portfolio was managed by Allen Stanford and the Antigua subsidiary’s chief financial officer, James Davis, according to the regulator. A “substantial” part of the portfolio was invested in private equity and real estate, it said. Stanford Group’s alleged fraud evidently was not limited to the sale of high yielding CDs. Since 2005, Stanford Group advisers sold more than $1 billion of a proprietary mutual fund “wrap program,” named Stanford Allocation Strategy, “by using materially false and misleading historical performance data,” according to the SEC complaint. The allegedly false data helped the program grow from less than $10 million in 2004 to more than $1.2 billion, generating fees exceeding $25 million. The allegations by the SEC come after an investigation that has lasted more than three months and included the SEC, the Financial Industry Regulatory Authority, the U.S. brokerage industry’s self-policing body, and the Florida Office of Financial Regulation. Investigators visited the Florida offices of Stanford Group last month.
“We are alleging a fraud of shocking magnitude that has spread its tentacles throughout the world,” commented Rose Romero, Regional Director of the SEC’s Fort Worth Regional Office. “As we allege in our complaint, Stanford and the close circle of family and friends with whom he runs his businesses perpetrated a massive fraud based on false promises and fabricated historical return data to prey on investors,” added Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement.
Currently law firms, including ours, are investigating these allegations of fraud against Stanford. If you were an investor with the Stanford Group and invested in their Certificates of Deposit or the Stanford Allocation Strategy, contact an attorney to learn more about your rights.
Richard J. Arsenault, 2011
