Federal securities regulators on Tuesday charged Texas financier Robert Allen Stanford and three of his companies with a "massive ongoing fraud" involving about $8 billion in certificates of deposit that drew thousands of investors with improbably high rates of return.
The allegations, the latest in a string of alleged financial scams uncovered amid the global recession, named Stanford, 58, his Antigua-based Stanford International Bank, and a pair of related U.S companies.
Also charged were James Davis, the bank's CFO and a longtime Stanford friend, and Laura Pendergest-Holt, the bank's chief investment officer.
U.S. District Judge Reed O'Connor in Dallas approved a temporary restraining order, froze the defendants' assets and appointed a financial receiver. Swarms of investigators gathered records at Stanford's Houston office headquarters after the ruling.
"We are alleging a fraud of shocking magnitude that has spread its tentacles throughout the world," said Rose Romero, the SEC's Fort Worth regional director.
Stanford firm spokesman Brian Bertsch referred questions to Romero. The SEC says Stanford's whereabouts are unknown.
Stanford International Bank is part of what an SEC complaint described as a "web of affiliated companies" created by Stanford, a cricket enthusiast listed on last year's Forbes 400 list as having a $2.2 billion fortune.
The bank grew rapidly by touting an investment strategy that purportedly enabled it to achieve double-digit returns over the past 15 years. As a result, the bank offered purported certificate of deposit rates double those at conventional banks.
While the SEC called the bank's claims "improbable and unsubstantiated," the touted returns prompted $6.7 billion in CD sales to 50,000 customers by the end of 2007, the SEC charged in a court complaint.
Regulators accused the defendants of misrepresenting the CDs as safe by claiming the funds were invested in diversified liquid assets monitored by more than 20 analysts and audited by Antiguan authorities. But most of the money was invested in illiquid real estate and equities, Stanford and Davis were the only ones with full access, and Antigua never audited the bank, the SEC charged.
In one sign of the actual lack of safety, the SEC said the bank suffered at least $400,000 in indirect investment losses to the massive Ponzi scheme allegedly engineered by disgraced New York financier Bernard Madoff.
Atlanta lawyer James Dunlap is looking into potential investor suits. Dunlap said he was "swamped" with calls from investors around the world.