Update: 2/17 – US Marshalls Raid Houston Office

 

SAN FRANCISCO (MarketWatch) — The Securities and Exchange Commission said Tuesday it charged billionaire Robert Allen Stanford and three of his companies with defrauding investors in an alleged $8 billion scheme involving certificates of deposit.

Stanford’s Antigua-based bank, Stanford International Bank, sold roughly $8 billion of certificates of deposit to investors through a network of financial advisers by promising “improbable and unsubstantiated” high interest rates, the regulator said in a statement.

Stanford Financial is very prominent here in Miami so I want to be sure everyone sees this article from Business Week.

Financier R. Allen Stanford makes investors an enticing offer: He sells supposedly super-safe certificates of deposit with interest rates more than twice the market average. His firm says it generates the impressive returns by investing the CD money largely in corporate stocks, real estate, hedge funds, and precious metals.

But skeptical federal and state regulators are now taking a hard look at Stanford’s operation—especially those CDs, whose underlying investments seem questionable. Over the past 12 months, the stock market and hedge funds have lost huge amounts of value even as Houston-based Stanford Financial Group continued to pay out above-average returns and claimed to have boosted the assets it oversees by 30%, to more than $50 billion.

BusinessWeek has learned that the Securities & Exchange Commission, the Florida Office of Financial Regulation, and the Financial Industry Regulatory Authority, a major private-sector oversight body, are all investigating Stanford Financial. The probes focus on the high-yield CDs and the investment strategy behind them. According to people close to the investigations, the three agencies are also looking at how Stanford Financial could afford to give employees large bonuses, luxury cars, and expensive vacations. Selling CDs typically is a low-margin business.

I interviewed at Stanford back in 2003, but I didn’t pursue it. My concern at the time was that they were very vague about exactly how the offshore bank generated its returns. Although I didn’t expect to utilize the offshore bank much because my clientele is primarily in the US, something about it just made me uncomfortable.

I want to emphasize that I know nothing about the validity of this article. It may be that Stanford is just a great investor and has been able to produce the incredibly consistent returns they claim. And it may be that they are just protecting their proprietary investment model by refusing to say exactly how they generated those returns. And it could be that they pay high commissions to their salespeople because they are just generous employers. And it could be that there’s still enough left over after paying those commissions to fund Mr. Stanford’s high profile lifestyle. And it could be that Mr. Stanford didn’t mean to imply that he was related to that Stanford. Yes, anything is possible. Individuals can decide for themselves the probabilities.

Update: 2/17