Texas-Sized Fraud Spreads To 131 Countries - KFDA - NewsChannel 10 / Amarillo News, Weather, Sports

Texas-Sized Fraud Spreads To 131 Countries

(CBS/AP) The alleged rip-off by billionaire banker R. Allen Stanford has investors scrambling. No one's sure where he is today, but investors want to know if they'll ever see their money again.

As federal agents pressed their fraud investigation, nervous customers swarmed Stanford-related banks in Venezuela and Antigua demanding their money. The flamboyant 58-year-old Texas billionaire is accused of bilking 50,000 investors spread through 131 countries, reports CBS News correspondent Bob Orr.

Federal law enforcement officials raided Stanford's Houston offices Tuesday, seizing assets and shutting down operations. The action followed civil charges that Stanford had promised clients unrealistic returns on $8 billion in certificates of deposit and committed other financial fraud.

Stanford has not yet been charged with a crime, and while his whereabouts is unknown, he is not technically a fugitive. But his lavish lifestyle - his sprawling financial empire includes six airplanes, offices around the world, and homes in Antigua and the Virgin Islands - has officials worried he may try to hide.

Officials say Stanford's high-profile lifestyle has been part of his appeal. He's hobnobbed with politicians, funneling $1.7 million dollars to various campaigns since 2000.

He's shelled out big money to sponsor sporting events, athletes and charities. Last November Stanford flaunted his wealth (and his brand name) when he posed with the $20 million prize he posted for a Caribbean cricket tournament.

Now, he's in hiding, leaving his customers worried they'll never see their money - and his own father wondering what went wrong.

"It's very saddening and heartbreaking at my age, it hurts," said James Stanford.

Sources tell CBS News that criminal charges are not imminent. But with this case coming on the heels of the Bernard Madoff scandal, there's strong pressure on Justice Department to make Stanford pay.

The Securities and Exchange Commission's investigation of Stanford had been in the works before the New York financier Madoff gave himself up in December, said a U.S. official with knowledge of the probe who spoke to the Associated Press on condition of anonymity because he was not authorized to provide information about it.

But the agency stepped up enforcement efforts after embarrassing revelations that the SEC had cleared Madoff despite specific tips and multiple investigations, current and former SEC employees said. They said regional offices appeared to be fast-tracking the Stanford case and others with the potential to give the agency another black eye.

One former employee said enforcement officials had told him they were trying to recover from the negative publicity surrounding the Madoff case. The sources spoke on condition of anonymity to preserve their relationships with the agency.

SEC officials did not return calls seeking comment.

Stanford's companies also had been under investigation by the Financial Industry Regulatory Authority, a self-regulatory body. FINRA spokeswoman Nancy Condon said the two investigations were operating in parallel "and at some point, both of us became aware of each other."

Equal Parts Glamour And Flattery

Stanford's pitch to potential investors was, it turned out, built on lies.

By serving a select and wealthy clientele, employing top-flight talent and being "a privately held institution free to focus on our No. 1 priority, which is our clients," Stanford was able to earn "premium returns," his bank documents claimed.

But those profits may never have existed. Despite claiming to have made double-digit returns between 1993 and 2005, the company's annual returns hadn't reached 10 percent since 1994, according to court papers.

Stanford also lied about his bank and its history - not just its finances - to gain investors' trust, public records show. Company documents referred to a 70-year tradition of client relationships. Yet there is no record of his bank having existed before the 1980s.

And while he told clients their money was guarded by a team of "20-plus analysts," court papers said he and James Davis, a college roommate, were the only ones familiar with the investment strategy.

The bank had been misrepresenting its performance since at least 2004, according to court papers.

The claims of inflated returns allowed the bank to plow more money into other parts of Stanford Financial Group, paying "disproportionately large commissions" to its affiliate Stanford Group Company, the documents say.

Even in 2008, a year when many stock market indexes lost around 40 percent, the company claimed losses of only 1.3 percent.

That's when Stanford's lies seem to have caught up with him - thanks in part to news about an alleged $50 billion pyramid scheme by Madoff.

With SEC investigators and Florida regulators closing in, Stanford desperately sought to reassure employees, investors and the press that nothing was wrong. He told clients these were "routine examinations," court records show.

A Feb. 12 company e-mail told workers that "former disgruntled employees" had made complaints that could complicate an "otherwise routine examination."

And a Stanford spokesman denied there was anything unusual about a January visit to Stanford's Miami offices, telling The Associated Press, "We were informed by the three agencies that this was a routine examination."

But when one client tried to cash out a multimillion dollar deposit on Feb. 9, the bank told him the SEC had frozen the account.

Another client was told that Stanford personally had ordered a two-month moratorium on payouts, court records show.

Even after Tuesday's raid made international headlines and provoked bank runs in Antigua, some investors were still looking for answers.

At the Stanford Fiduciary Investor Services' office in a downtown Miami high-rise late Wednesday afternoon, a 64-year-old retired investor arrived in a motorcycle jacket and helmet.

The man said he had been told his account, totaling over $1 million, was being transferred to another bank. He spoke on condition of anonymity to maintain the privacy of his investments.

He said he had called for more information Wednesday, but there was no one there to pick up.

Whistleblower Saw Warning Signs Years Ago

Mark Tidwell, a former senior vice president at Stanford Financial, said he saw warning signs three years ago. Appearing on CBS' The Early Show, Tidwell said that as far back as 2005, "There was a pattern developing" of published returns not matching what his clients were receiving. "It began in May of '05, and Summer of '06 there were a couple events that took place that got us concerned," he said.

But Tidwell told anchor Harry Smith that when he confronted company officers about SEC inquiries, "They told us everything was
fine. They said that this was part of a routine inquiry that we shouldn't be worried about it, that we should reassure our customers that everything was okay."

Tidwell said that some fines were levied on Stanford, but for very low sums: $10,000 to $20,000. "That seemed to go along with the things that they were telling us - it was such a small fine that, obviously, it couldn't have been, you know, that big of a deal."

Tidwell and another Stanford investor left the company about a year ago, taking many of their clients with them (who are, given the troubles facing Stanford investors, very grateful.)They are suing Stanford for wrong termination. Stanford is now countersuing the two.

Kelly DeHay and Rod Danielson are two investors who put their money into Stanford, based on the advice of a conservative financial adviser who had joined Stanford. Detailing their experience with the Stanford Financial Group on The Early Show, DeHay said, "We had a lot of faith, and we had a lot of confidence. And most importantly, we had a lot of trust in him."

Danielson said that his initial investments were in CDs in the middle of 2006, and that the returns promised were not exorbitant. "At that point the rate that they quoted us was 8.25%, which at that time U.S. banks were paying somewhere in the order of 6%."

Danielson also said that while Stanford's banks were not regulated by U.S. authorities, they had higher reserve margins than any U.S. bank. "It was really safe," he said.

"Everything seemed reasonable," said DeHay. "This was just another tool, another vehicle."

Now those vehicles are frozen; DeHay and Danielson have both been told they cannot withdraw their deposits for two months. "It's a little horrifying," said DeHay, "especially after hearing Mark this morning say that there were issues back in 2006; it sounds like it was before we became investors. And I'm just hoping our financial adviser did not do this to us for a fee and a recurring fee each year."

"I mean, ironically, we thought these CDs were the safest thing in our portfolio when we were seeing mutual funds and stocks going south," Danielson told Smith.
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