Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Tuesday, February 17, 2009

SEC Charges Stanford Int'l Bank with $8 Billion Fraud

On February 16, 2009, the federal district court in the Northern District of Texas, at the request of the SEC, entered a TRO against Robert Allen Stanford and three of his companies, the Antiguan-based Stanford International Bank (SIB), Houston based broker-dealer and investment adviser, Stanford Group Company (SGC) and investment adviser, Stanford Capital Management. The SEC's complaint alleges that the defendants, acting through a network of SGC financial advisers, sold approximately $8 billion of so-called “certificates of deposit” to investors by promising improbable and unsubstantiated high interest rates, supposedly earned through its unique investment strategy, which has purportedly allowed the bank to achieve double-digit returns on its investments over the past 15 years. The court’s order also extends to SIB chief financial officer James Davis, and Laura Pendergest-Holt, chief investment officer of Stanford Financial Group. The court froze all assets of the defendants until further notice, ordered that assets outside the U.S. be returned to the court’s jurisdiction, appointed a receiver to marshal the defendants’ assets and granted other relief.

According to the Complaint, the defendants have misrepresented to CD purchasers that their deposits are safe, falsely claiming that the bank re-invests client funds primarily in “liquid” financial instruments (the “portfolio”); monitors the portfolio through a team of 20-plus analysts; and is subject to yearly audits by Antiguan regulators. Recently, as the market absorbed the news of Bernard Madoff’s massive Ponzi scheme, SIB attempted to calm its own investors by falsely claiming the bank has no “direct or indirect” exposure to the Madoff scheme.

The Commission continues to seek, among other things, a permanent injunction, disgorgement of ill-gotten gains plus pre-judgment interest, and civil money penalties.

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