In October 2002, a Mexico-based accountant sent a letter to the US Securities and Exchange Commission expressing his concerns about his mother’s investments with the Stanford Financial Group.

The man’s  mother had invested all of her family’s  money in high-yielding certificates of deposit at the Antigua-based Stanford International Bank.

“Please look at this bank and investigate if anything is honest and correct,” he wrote, before going on to detail his “questions and doubts.”

The accountant wondered whether the certificates of deposit were in fact insured, as Stanford representatives assured his mother. “Is the bank in Antigua truly covered by insurance of the United States Government?”

He wondered how it was “possible and secure” that SIB offered interest rates of more than 9 per cent, compared with 4 per cent at Citibank.

He questioned SIB’s use of an Antiguan auditor – CAS Hewlett – of which no one had ever heard, “and not a good United States Accounting company?”

He included with the letter a copy of SIB’s financial statements, and noted, as a relatively unknown Venezuelan financial analyst would more than six years later:

In December of 1999 the bank had a lot of investments in foreign currencies and stocks. In all the world many stocks and foreign currencies came down in 2000. If a lot of money was in investments that came down, how did the bank make money to pay the interest and all of the very high expenses I imagine it has?

The letter is just one of hundreds of pages of documents – emails, faxes and hand-written letters – obtained by Fox Business Network from the SEC under the Freedom of Information Act.

The paper trail shows that long before Alex Dalmady made waves in the blogosphere with his damning analysis of the Stanford Financial Group, ordinary investors had been petitioning the SEC to investigate the activities of the group and its eponymous chairman, Sir Allen Stanford.

Nor was the letter the first written complaint to the SEC.  In December 2001, a client of the group emailed the OIEA – the SEC’s Office of Investor Education and Assistance – complaining that he had been “over charged for services”, and that there was a “lack of communication” from the group.

The OIEA forwarded the complaint to the Group, but cautioned the investor that “in many cases, the firm denies wrong doing, and it comes down to one person’s word against another’s. In that case, we cannot do anything more to help resolve the complaint.”

Two months later, in February, an unidentified person “providing consultancy services to an Antigua company” emailed the SEC because s/he had “become very concerned about the unusual activities of the Stanford Financial Group, a Texas based organisation, operating through subsidiaries on the island.”

Other concerned parties sent the SEC copies of Economist articles that had questioned Sir Allen’s activities in Antigua; more than a few forwarded the bank’s obtuse financial statements.

Several noted the fact that in those days, Sir Allen sat on the Antiguan regulatory board – in effect, regulating himself.

Another particularly damning letter, submitted  to the National Association of Securities Dealers in September 2003, declared outright that Stanford Financial was operating a “massive Ponzi scheme” – the very phrase that the SEC would use in the complaint it lodged against Sir Allen and his operations in February 2009.

The letter writer, who described himself as “an insider who does not wish to remain silent, but also fears for his own personal safety and that of his family” alleged:

Stanford Financial is the subject of a lingering corporate fraud scandal perpetuated as a “massive Ponzi scheme” that will destroy the life savings of many, damage the reputation of all associated parties, ridicule securities and banking authorities, and shame the United States of America.

The offshore bank has never been audited by a large reputable accounting firm, and Stanford has never shown verifiable portfolio appraisals. The banks portfolio is invested primarily in high risk securities, which is not congruent with the true nature of safe CD investments promised to clients.

Unbelievable returns of the portfolio, non verifiable portfolio appraisals, non prudent investment strategies, information from insiders, and lavish expense management styles suggest the portfolio is deeply underwater.

If true, returns and expenses are being paid out of clients’ monies, and by the size of the portfolio, this would be one of the largest Ponzi schemes ever discovered.

An SEC spokesman had declined to discuss the individual correspondence, but provided the following response in an email (emphasis ours):

the same questions raised in the correspondence were raised by SEC staff in earlier and subsequent reviews of Stanford Group Company and its role in the sale of CDs issued by an Antiguan bank. In those inquiries, the SEC staff sought to determine the nature of the offshore CDs and their purported returns.

The SEC was unable to obtain detailed information about the offshore CDs in part because of complicating factors involving jurisdiction, including whether CDs issued by a foreign bank are securities covered by the federal securities laws, whether the CDs were covered by U.S. banking laws, and the application of Antiguan laws governing confidentiality

Based on information obtained through a 2004 examination of the firm’s U.S. sales activities, which continued into 2005, the SEC initiated an enforcement investigation in the spring of 2005, and has been actively investigating this matter ever since, in cooperation with other federal agencies. Notwithstanding the significant regulatory obstacles presented in this case, the SEC ultimately was able to obtain critical evidence that allowed it to bring emergency enforcement action in the courts to halt the sales of the CDs and seek the return of funds to investors

For the Mexican account and his mother – who if still alive, would now be well into her 80s – it might be a case of too little, too late.

This entry was posted by Stacy-Marie Ishmael on Wednesday, May 6th, 2009 at 20:03 and is filed under Capital markets, People. Tagged with Sir Allen Stanford, Stanford International Bank. Edit this entry.