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Possible $8bn fraud at Stanford International Bank
  Hedgeweb - WED, FEB 18 2009
Funds & Investment Sir Allen Stanford, the billionaire Texan, was charged by US securities regulators on Tuesday over a ??massive? investment fraud through his Antigua-based offshore bank.

The Securities and Exchange Commission alleged that Stanford International Bank (SIB), based in St John??s, Antigua, and one of several companies run by Sir Allen, sold about $8bn in certificates of deposits (CDs), promising ??improbable and unsubstantiated high interest rates?.

The regulator accused SIB of falsely claiming that customers?? deposits were safe and that the bank re-invested client funds primarily in ??liquid? financial instruments. It also said the bank had falsely claimed no ??direct or indirect? exposure to the $50bn ??Ponzi???? scheme allegedly perpetrated by New York broker Bernard Madoff.

According to the SEC, the bank is managed by a close circle of Sir Allen??s family and friends who mostly have no investment or securities experience. ??Stanford and the close circle of family and friends...perpetrated a massive fraud based on false promises and fabricated historical return data to prey on investors,? said Linda Thomsen, the SEC??s enforcement director.

A day after Madoff??s arrest, Pershing LLC, the Jersey City, New Jersey-based clearing firm, told Stanford Group it would no longer process wire transfers to its Antigua affiliate, citing suspicions about its reported investment returns, according to the SEC.

In the past several weeks, as investigators sent subpoenas in an attempt to account for investor money, Stanford and Davis failed to appear for testimony or provide any documents, the agency said. Laura Pendergest-Holt, a member of Stanford International??s investment committee, couldn??t account for the funds, and nor could a former senior investment officer whom the SEC didn??t identify, the agency said. She and Davis were also named as defendants in the civil case.

Stanford Group??s alleged fraud wasn??t limited to the sale of CDs, the SEC claimed. Since 2005, Stanford Group advisers sold more than $1bn 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 $10m in 2004 to more than $1.2bn, generating fees exceeding $25m.

Since 1993, the bank has reported annual investment gains ranging from 11.5 per cent to 16.5 per cent, except last year, when it reported a loss of 1.3 per cent, according to the SEC. The numbers were at times ??strange,? hitting exactly 15.71 per cent in 1995 and 1996, the agency said. Stanford International Bank says it has 30,000 clients and $7.2bn in assets under management, according to the SEC.


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