another ponzi scheme of Madoff proportions?

> Billionaire Stanford's Firm Said to Face U.S. Probe of CD Sales > 2009-02-12 05:01:00.24 GMT > > > By Alison Fitzgerald > Feb. 12 (Bloomberg) -- Stanford Group Co., a Houston-based > investment firm led by billionaire R. Allen Stanford, is under > investigation by U.S. securities regulators over sales of certificates > of deposit in its affiliated offshore bank and the consistent, > above-average returns those investments pay. > Investigators from the Financial Industry Regulatory Authority > visited six Stanford Group offices last month, downloaded information > from computer hard drives and looked through files, people familiar > with the events said. Two former Stanford financial advisers were > questioned last month by the Securities and Exchange Commission, > according to the people, who declined to be identified because they > didn't want to put their current jobs at risk. > The agencies are investigating Stanford's sales of certificates of > deposit issued by its Antigua-based affiliate, Stanford International > Bank Ltd., according to the former employees. The agency has asked > former employees about the bank's stated returns on investment, > between 10.3 and 15.1 percent every year from 1995 until last year, > according to documents and annual reports on the bank's Web site. SIB > has $8.5 billion in assets and 30,000 clients, according to the site. > "That type of return ignores the business cycle," said L. > Burke Files, principal of Financial Examinations & Evaluations Inc., a > Tempe, Arizona-based financial investigation firm. "His returns fall > outside the bell curve of probability." > > 'Routine Exam' > > The visits by Finra and the SEC were part of a "routine exam," > said Brian Bertsch, a spokesman for Stanford. Finra spokesman Herb > Perone said the agency doesn't confirm or deny investigations. > Kevin Edmundson, an SEC investigator in Ft. Worth, Texas, said, "I > can't even confirm the existence of the investigation." The agency > issued subpoenas last July to at least two former Stanford employees. > The SEC has stepped up probes after being accused of failing to > heed warnings that Bernard Madoff's investment returns were too good > to be true. Madoff was arrested Dec. 11 after allegedly telling his > sons that his business was a $50 billion Ponzi scheme. The SEC has > since announced unrelated lawsuits against at least seven money > managers for allegedly inflating profits or siphoning off client > money. > Finra in November 2007 fined Stanford Group Co. $20,000 for > failing to adequately state the risks involved in the CD investments > and to disclose that an affiliation between the broker-dealer and the > bank could pose a conflict of interest. > Stanford consented to the sanctions without admitting or denying > wrongdoing, according to a file on the Finra web site. > The Stanford Financial companies, including Stanford Group, > Stanford International Bank and Stanford Trust, were founded by R. > Allen Stanford, who is their chairman. The Texas native was listed by > Forbes Magazine as the 605th-richest man in the world with an > estimated net worth of $2 billion. > > No Madoff Exposure > > Allen Stanford is a citizen of the U.S. and of Antigua & Barbuda > after being naturalized in that country 10 years ago, according to a > biography on the company's Web site. He was knighted by the Antiguan > government in 2006 and now uses the title "Sir." Stanford Group Co. > has 19 offices in the U.S. and more than $43 billion under management > or advisement, according to its Web site. > Stanford International Bank said in a Dec. 17 letter to clients, > posted on its Web site, that it didn't have any exposure to Madoff's > investment funds. > Stanford's one-year, $100,000 CD paid 4.5 percent annual yield as > of Nov. 28, according a posting the Web site yesterday. > A one-year, $10,000 CD purchased at JPMorgan Chase & Co. would earn > 1.5 percent, according to its consumer banking Web site. > Stanford International Bank describes the CDs in its disclosure > statement as traditional bank deposits. The bank says it doesn't lend > proceeds and instead invests in a mix of equities, metals, currencies > and derivatives, according to its Web site and CD disclosures. > > Returns 'Incredible' > > "Those returns are just incredible, in the sense that I don't > believe them," said Alex Dalmady, an independent financial analyst > based in Weston, Florida, who has examined Stanford's investment > strategy and published an article in VenEconomia Monthly, published by > Caracas-based economic consulting firm VenEconomia. > The company "obviously disagrees with his conclusions," > Stanford's Bertsch said. > "The most important opinion for us is that of our clients, some of > whom have been with us for over 20 years and have maintained their > confidence in Stanford International Bank through the years," he said > in an e-mail response to questions. > Dalmady and Files say the financial information published by > Stanford International Bank makes them doubt its authenticity. > > 'Subtle Clues' > > "There are just a whole lot of subtle clues at Stanford that when > you look at it tell you to run away," Files said in an interview. He > cited the consistent investment returns and the use of an > Antigua-based auditor. > Stanford International Bank lists C.A.S. Hewlett & Co., based in > St. John's, Antigua, as its auditor. The firm reports offices in > Antigua and London on its web site. No one answered the telephone > yesterday at either number. > "If you have $8 billion in assets, and you're taking deposits from > all over the world, you would really like to have someone signing > those balance sheets that someone has heard of," > Dalmady said. > Four former investment advisers interviewed by Bloomberg said the > Stanford Group offers incentives for those who steer their clients' > money into the bank CDs. The company paid a 1 percent fee to the > advisers, held contests and offered trips and bonuses of up to > $125,000, based on how much money went into Stanford International > Bank, according to the former employees and e-mails provided to > Bloomberg News. Those incentives weren't paid for investments in other > securities, they said. > > 'Carte Blanche' > > The bank said in a December report that it has a loss of $110 > million last year. The S&P 500 index fell 39 percent last year. > The bank discloses broad investment categories in marketing > materials and on its web site. In 2006, it reported that 57.4 percent > of its portfolio was in equities, 21.9 percent in Treasuries and > corporate bonds, 13 percent in metals and 7 percent in alternatives, > according to a disclosure statement related to the CD offering. The > rest was in cash, mostly dollars. > "They have carte blanche to invest in anything they want," > said Scott MacKillop, president and chief compliance officer at > Frontier Asset Management in Denver, who reviewed the CD offering > documents. "You don't really know what your risk is, and you're > getting a limited return." > > For Related News and Information: > Financial writedowns and losses: WDCI <GO> Certificate of Deposit > Rates: PGM <GO> Global financial crisis stories and video: EXTRA <GO> > Top financial news: FTOP <GO> Caribbean News: NI CARIB <GO> > > --With reporting by Michael Forsythe in Washington, David Scheer in > New York and Steven Bodzin in Caracas. Editors: Robert Simison, > William Glasgall > > To contact the reporter on this story: > Alison Fitzgerald in Washington at +1-202-624-1846 or > Afitzgerald2@bloomberg.net > > To contact the editor responsible for this story: > William Glasgall at +1-212-617-3023 > or wglasgall@ @bloomberg.net >