Highlights of the SEC Complaint Against Stanford

The SEC complaint against Stanford is quite astonishing. Here are some of the highlights, which include a slew of outright lies and even an investment with Bernie Madoff.

• Impossibly, Stanford’s portfolio managed to rack up identical 15.71% back-to-back returns in 1995 and 1996 — which implies that this fraud has been going on for at least 13 years.
• Stanford, and his CFO James Davis, have "wholly failed to cooperate with the Commission’s efforts to account

  for the $8 billion of investor funds purportedly held by" Stanford International Bank.

• Stanford told at least one customer that the SEC was freezing the CDs, rather than Stanford itself.
• Stanford’s public statements about its investments "are false":

A substantial portion of the bank’s portfolio was

placed in illiquid investments, such as real estate and private equity. Further, the vast majority

SIB’s multi-billion dollar investment portfolio was not monitored by a team of analysts, but rather

by two people – Allen Stanford and James Davis.

• "SIB has exposure to losses from the Madoff

  fraud scheme despite the bank’s public assurances to the contrary": Stanford invested money with Tremont Partners, which in turn invested more than 6% of that money with Madoff. One analyst came up with an estimate of $400,000 in Madoff losses.

• "Since 2005, SGC

  advisers have sold more than $1 billion ofa proprietary mutual fund wrap program, called Stanford

  Allocation Strategy, by using materially false and misleading historical performance data."

• Both Stanford and Davis "refused to appear

  and give testimony in the investigation."

• "Tier 3" assets of SIB — "unknown assets under the apparent control of Stanford and Davis" — accounted for 81% of the Bank’s investment portfolio as of December 2008.
• Stanford’s senior investment officer did what he was told by Laura Pendergest-Holt, the CIO:

The SIO followed Pendergest’s instructions, misrepresenting that

a team of 20-plus analysts monitored the bank’s investment portfolio. In so doing, the SIO never

disclosed to investors that the analysts only monitor approximately 10% of SIB’s money. In fact,

Pendergest-Holt trained the SIO "not to divulge too much" about oversight of the Bank’s

portfolio because that information ”wouldn’t leave an investor with a lot of confidence."

• "SIB’s accountant, C.A.S. Hewlett & Co., a small local accounting firm in

  Antigua, is responsible forauditing the multi-billion dollar SID’s investment portfolio. The

  Commission attempted several times to contact Hewlett by telephone. No one ever answered the

  phone."

• "SCM,

  with the benefit ofhindsight, picked mutual funds that performed extremely well during years

  1999 through 2004, and presented the back-tested performance ofthose top-performing funds to

  potential clients as ifthey were actual returns earned by the SAS program."

• In any case, the performance claims were simply false: "(e.g., a claimed return of 18.04% in 2000, when actual SAS investors lost as much as 7.5%)."

The only thing missing here is any indication of how much money Stanford really has. If he’s really a billionaire, then maybe all his personal cash can be put towards making his depositors whole. But I suspect that if you have a Stanford CD, you’ll end up with pennies on the dollar. Or maybe a really nice new home in Antigua.