HOUSTON/ST JOHN’S, Antigua (Reuters) – Texas billionaire Allen Stanford and three of his companies were charged with “massive” fraud on Tuesday as federal agents swooped on his U.S. headquarters.
In a civil complaint filed in federal court in Dallas, the U.S. Securities and Exchange Commission accused Stanford, a high-profile cricket promoter, and two executives of fraudulently selling $8 billion in high-yield certificates of deposit in a scheme that stretched from Texas to the Caribbean.
“We are alleging a fraud of shocking magnitude that has spread its tentacles throughout the world,” said Rose Romero, regional director of the SEC’s office in Fort Worth, Texas.
The SEC complaint named Stanford International Bank (SIB), based in Antigua with 30,000 clients in 131 countries and $8.5 billion in assets, and the group’s Houston-based broker-dealer and investment adviser units.
In all, the company claims to oversee $50 billion in assets.
The news sent shockwaves across the twin-island Caribbean nation of Antigua and Barbuda, where the prime minister warned it could be “catastrophic.”
Stanford’s assets have been frozen and a federal judge has appointed a receiver “to take possession and control of defendants’ assets for the protection of defendants’ victims.”
Early Tuesday, about 15 federal agents, some wearing U.S. marshals jackets, entered the lobby of company headquarters in the Houston Galleria area, a Reuters eyewitness said.
The company remained open for business but was “under the management of a receiver,” a sign taped to the door read. Spokesman Brian Bertsch referred press inquiries to the SEC.
Stanford, a 58-year-old Texan running the firm that his grandfather founded, has denied any wrongdoing, but his location remained a mystery. The SEC said he failed to respond to subpoenas seeking testimony and did not produce “a single document.
James Davis, a Stanford aide, and O.Y. Goswick, a board member of the Antiguan affiliate, had also been subpoenaed but failed to appear, the SEC said.
SOUGHT EMBRACE OF WASHINGTON, SPORTS
Stanford’s property holdings and celebrity associations drew comparisons with Wall Street financier Bernard Madoff, who was charged in December in a suspected $50 billion fraud.
Stanford was also expanding his political reach, opening a Washington lobbying office about two years ago after buying the Washington Research Group, a policy study unit of Charles Schwab & Co, in 2005.
Stanford spent $2.8 million on lobbying in 2008, according to records accessed through the Center for Responsive Politics, which tracks campaign contributions. His political action committee and employees donated about $2.4 million to parties and candidates for federal office since 1989.
Stanford has also played an increasing role in sports, including endorsement relationships with golfer Vijay Singh and soccer star Michael Owen, along with involvement in polo and expensive effort to rehabilitate West Indian cricket.
He was a sponsor of a world-class tennis tournament, the 2009 Sony Ericsson Open in Key Biscayne, Florida, in March.
The England and West Indies cricket boards suspended sponsorship talks with the Stanford group after the charges.
Stanford shot to prominence in international cricket after his private Twenty20 competition in the Caribbean, and the $20 million (14 million pound) game in November between England and his own team of West Indian players.
England Cricket Board Chairman Giles Clarke said his organization may utilize get-out clauses in its deal with Stanford, and he suggested the proposed quadrangular Twenty20 series in England in May was now unlikely to happen.
‘WONDERED WHERE HE GOT HIS MONEY’
The SEC said Stanford’s Antigua-based bank sold $8 billion in certificates of deposit “by promising high return rates that exceed those available through true certificates of deposits offered by traditional banks.”
Holding dual U.S.-Antiguan citizenship, Stanford lived for more than 20 years in the reef-girded island, where he owns the country’s largest newspaper, heads a local commercial bank, is the biggest private employer, its top investor and is the first American to receive a knighthood from its government.
He has homes sprinkled across the region — from Antigua to St. Croix in the U.S. Virgin Islands to Miami.
“Everybody always wondered where he got his money from,” said Odessa Haley, 28, a manager of a cafe in the island’s capital St. John’s.
Many feared the U.S. charges would revive Antigua’s image as one of the Caribbean’s most corrupt nations, which local policy makers took pains to shake off in the 1990s.
Others feared the economic fallout. “A lot of people work for him,” said Francis Cortwright, a taxi driver.
There were no signs of imminent criminal charges against Stanford, whose personal fortune was estimated by Forbes Magazine last year at $2.2 billion. A Justice Department spokesman would not confirm or deny the existence of a criminal investigation.
But Peter Henning, a professor at Wayne State University Law School in Michigan and a former federal prosecutor, said U.S. prosecutors have likely filed a sealed criminal indictment against Stanford to be unveiled at a later time.
“The amount of money involved indicates there will be criminal interest in this, as well as the number of potential victims involved,” Henning said.
Investors such as Kelly Dehay, a realtor, showed up at the office in Houston on Tuesday to ask about their funds, only to be turned away at the door.
Dehay said his Stanford broker sold him a CD held by SIB, promising returns above 8 percent. “I started planning for my retirement a long time ago,” Dehay said. “I feel very betrayed.”
The developments come as investors, politicians and regulators focus on the returns promised and provided by investment firms after the suspected Madoff scheme.
Stanford’s investment companies were exposed to losses from the alleged Madoff scheme, but falsely reassured investors otherwise, the SEC charged.
The SEC added that Stanford’s firm had sought to remove nearly $200 million from its accounts in recent weeks. It also accused Stanford of falsely telling at least one customer this month that he could not withdraw a multimillion-dollar CD because the SEC had frozen the account.
SERIES OF ALLEGATIONS
The SEC also alleged that:
— Stanford’s Antigua-based bank reported identical returns of 15.71 percent in 1995 and 1996, which the SEC called “improbable” and suspicious.
— Ninety percent of the offshore bank’s claimed investment portfolio was in a “black box” shielded from any independent oversight, and only Stanford and aide James Davis, also charged, knew details of the bulk of the portfolio.
— Stanford failed to cooperate with the SEC probe and continued to mislead investors by falsely saying the SEC had frozen accounts or the company had ordered a moratorium on CD redemptions.
— A major, unidentified clearing firm stopped processing wires to SIB for purchase of SIB-issued CDs after the clearing firm was unable to obtain information about the company’s financial condition.
— Stanford used false information to promote a mutual fund program separate from the CDs. The program grew to more than $1.2 billion from less than $10 million in 2004.
James Dunlap, an Atlanta lawyer representing about a dozen investors who bought CDs from Stanford Financial Group, said he planned to sue the firm and would likely accuse the company of breaching its contract.
Several investors have told lawyers they assumed the CDs they bought were safe short-term instruments that were insured, two lawyers said. But when an investor working with Dunlap tried to get $250,000 out of a CD that came due last week, she was told she would have to wait.
By Anna Driver and Jason Szep
(Writing by Martin Howell and Toni Reinhold in NEW YORK and Chris Baltimore in HOUSTON; Reporting by Anna Driver and Erwin Seba in HOUSTON; Simon Evans in ST. JOHN’S, Svea Herbst in BOSTON, Randall Mikkelsen in WASHINGTON, Jane Sutton in MIAMI and Karen Jacobs in ATLANTA; Editing by Gary Hill & Ian Geoghegan.)