As Stanford allegations fly, the SEC investigates… | FT Alphaville

As Stanford allegations fly, the SEC investigates…

He’s been hailed as the saviour of West Indies cricket and was promising to do the same for the English game. But for Sir Allen Stanford, knighted by the Antiguan authorities rather than the Queen, things are looking decidedly sticky – certainly in a financial sense.On Wednesday a spokesman for Stanford’s sprawling financial empire confirmed to Reuters that three US regulatory bodies – the SEC, the Financial Industry Regulatory Authority and the Florida Office of Financial Regulation – were all looking into the group, albeit “as part of routine examinations.”

At issue are suggestions that Stanford’s investment operation produces returns that are simply too good to be true. Says Stanford’s Brian Bertsch:

This is a rehash of old gossip and unsubstantiated allegations…The Stanford Financial Group is rigorously managed and fully compliant with all U.S. regulations.

He was responding, specifically, to allegations floated by a Venezuela-based financial analyst, Alex Dalmady, who recently published an analysis of Stanford’s affairs and whose work has now been followed up by a report in Business Week.

The controversy centres on the Stanford International Bank, based in St John’s, Antigua, an institution that claims $8.5bn in depositors’ assets. It does not operate like a standard bank. Instead, depositors are offered an attractive fixed rate of interest which SIB pays out of investment returns. It makes no loans – other than to depositors who are over-collateralized with cash on deposit.

It is the investment returns that have been questioned by Mr Dalmady. In a detailed article, entitled Duck Tales, he has compiled figures on SIB’s investment performance from the bank’s published annual and half-yearly reports which show remarkably smooth above-average returns.

SIB documents provide scant detail on how the bank has achieved these returns, other than setting out the asset allocation split each year between stocks, commodities and the like. Aligning the asset split details with SIB’s declared investment performance, Mr Dalmady expresses his incredulity that the bank could record such market-beating returns in such a regular fashion.

I really would like to know which stocks, bonds, funds and metals these folks have invested in to achieve such returns…Unfortunately, that is something they don’t reveal.

His full analysis is available here, although Stanford’s spokesman Bertsch told FT Alphaville:

We view this as the isolated opinions of one analyst in Latin America and we obviously disagree with his conclusions. The most important opinion for us is that of our clients some of whom have been with us for over 20 years and have maintained their confidence with Stanford International Bank.

In December SIB issued a letter to depositors assuring them that the bank had no funds invested with Madoff funds, reminding them that the bank was regulated by Antigua’s Financial Services Regulatory Commission and the local Ministry of Finance. This states that the bank has 30,000 clients from 131 countries who have deposited $8.5bn in assets.

It also reveals that in November the banks directors – led by Sir Allen- injected $541m into the bank, taking shareholder equity up to just over $1bn.

A full set of SIB’s published reports is available here, although the file for 2007 appears to be damaged and unreadable.

SIB’s prime client base is said to be concentrated amongst wealthy Caribbeans. But it is part of the much wider, US-based Stanford Financial Group, which claims over $50bn of assets under management. Its activities were investigated by the SEC last summer after complaints by two former employees over the sales tactics they were allegedly forced to follow, although the regulator decided to take no further action at the time.

The entity has sales affiliates across the southern US, along with offices in the Caribbean and also Geneva. Willis, the London-based insurance broker which is named as an insurance and risk manager for SIB, did not return requests for comment.

SIB has been audited by a local Antiguan firm, CAS Hewlett, the chief executive of which, Charlesworth Hewlett, died last month. A spokesman for the firm could not comment on SIB and said the auditing business was being taken over by one of Mr Hewlett’s children, currently based in Britain.

As for the man at the head of the enterprise, Sir Allen describes himself as a “fifth generation Texan” and has made an unlikely name for himself in the UK through his sports patronage, creating and funding the Stanford20/20 cricket tournament and sponsoring events in sailing, golf and polo.The sports, his company profile says, “resonate with Stanford’s high net worth client base”.

His global empire stands in stark contrast to his family’s beginnings.

Sir Allen’s grandfather, Lodis, was a barber and insurance salesman, who eventually founded Stanford Financial in Mexia, Texas, in the midst of the Great Depression. Father James made his fortune in the Houston real estate market of the 1980s.

Sir Allen himself took over Stanford Financial in 1993, after his father’s retirement, expanding the company into Latin America and the Caribbean at a time when specialist banking was still in its infancy in the area. “Antigua in the 1990s was just not a credible offshore financial centre,” noted David Marchant of the specialist publication Offshore Alert.

Sir Allen was cited as the 205th richest American, in the 2008 edition of the Forbes 400, with an estimated net worth of $2.2bn – dwarfing the GDP of Antigua and Bermuda, of which he is a citizen. He is the island’s largest private employer.

Sir Allen has lived in the Caribbean since the 1980s, spending fewer than 90 days in the United States per year for tax reasons, according to previous reports. His business interests and philanthropic activities earned him a knighthood from the Commonwealth in 2006, but also accusations of undue influence on Antiguan government policy. In early 2007, prime minister Baldwin Spencer deplored Sir Allen’s “threats, innuendos and now, downright political interference in our nation’s affairs”, according to the regional press.

As CanaNews reported at the time:

I do not subscribe to the view that any person who feels that because he has a deep pocket and is a major investor can seek to run roughshod over the leaders who have been elected by the people of Antigua and Barbuda.

Sir Allen was recommended for the knighthood by Mr Spencer’s predecessor, Lester Bird, leader of the opposition party.
The businessman’s first foray in the Caribbean was to establish an off-shore banking centre in Montserrat in 1985. That adventure ended in 1990 with a court case against the British Government, of which Montserrat is a protectorate, which had opened an investigation into Sir Allen’s operations on the island as part of a broad clampdown on offshore banks – the outcome of which was that Stanford voluntarily relinquished his Montseratt banking license.
Nor have the Texan tycoon’s sporting engagements have been without controversy.

Sir Allen made headlines last year after being caught on camera flirting with the wives and girlfriends of England’s cricket players. His colourful view of the sport has also earned him criticism from the more purist of British cricket fans, and his attempts to export the game to the US have so far proved unsuccessful.

Related links:
What’s Going On at Stanford International Bank? – Felix Salmon
Billionaire Stanford’s Firm Said to Face U.S. Probe of CD Sales – Bloomberg
Stanford and the WAGs slideshow
– The Sun