Tuesday, February 17, 2009

Another Madoff? Stanford Financial Accused of "Massive Fraud"

Company sponsors Memphis' St. Jude golf tournament

Posted By on Tue, Feb 17, 2009 at 4:00 AM

"The bigger they are the harder they fall," is how one Memphian characterized Stanford Financial's billionaire founder R. Allen Stanford, patron of the Stanford St. Jude golf tournament and other civic causes.

On Tuesday, FBI agents visited Stanford's Memphis office in the Crescent Center and hauled away boxes of documents. And in Dallas, the Securities Exchange Commission accused Stanford of a "massive ongoing fraud" involving the sale of some $8 billion of certificates of deposit with exceptionally high interest rates.

Stanford Financial Group has a big Memphis presence since opening an office here in 1999. Its chief financial officer is James M. Davis, a native of Baldwyn, Mississippi, about 75 miles from Memphis.

In addition to the golf tournament, which Stanford has sponsored since 2007 when it replaced FedEx as title sponsor, the company's name is on the concert hall at the Cannon Center for the Performing Arts. Stanford is also a patron of the Memphis Brooks Museum. The Stanford Global Foundation is the company’s community investment program and is based in Memphis.

The golf tournament is a huge marketing opportunity for Stanford to showcase its various business lines to customers around the world. Davis plays in the tournament's pro-am event and Stanford hosts a lavish party. In a statement faxed to news organizations Tuesday, Kevin Krisle, executive director of the Stanford St. Jude Championship, said, "Our goals and objectives have not changed. We remain busy planning for and excited about hosting the 52nd edition of the PGA Tour event in Memphis this June."

The SEC statement reads in part: "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," said Linda Chatman Thomsen, director of the SEC's Division of Enforcement. "We are moving quickly and decisively in this enforcement action to stop this fraudulent conduct and preserve assets for investors."

Rose Romero, regional director of the SEC's Forth Worth Regional Office, added, "We are alleging a fraud of shocking magnitude that has spread its tentacles throughout the world."

Stories of Stanford's personal flamboyance and large contributions have swirled for years, but they picked up steam in recent weeks after skeptical stories appeared on the Internet and then in The New York Times and The Wall Street Journal.

On Tuesday, the Times reported that the SEC accused Stanford, Davis, and another employee with misrepresenting the safety and liquidity of uninsured certificates of deposit yielding as much as 8 percent interest. The Journal, meanwhile, reported that depositors were flocking to Stanford's offshore bank in Antigua to try to withdraw their money, only to learn that processing withdrawals could take several days.

Stanford's problems come on the heels of the Bernie Madoff scandal, in which wealthy investors around the world lost billions of dollars in a Ponzi scheme. The Times reported that the SEC called Stanford Financial's investment returns "improbable, if not impossible." Stanford International Bank, a division of the company, claims $8.5 billion in assets and 30,000 clients in 131 countries. Its main offices are in Houston.

The FBI in Memphis did not immediately return calls seeking comment on the investigation here.

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