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VOL. 124 | NO. 81 | Monday, April 27, 2009

Stanford Receiver Details Finding

By Andy Meek

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The court-appointed receiver who’s been working to untangle the complicated financial web of the Stanford Financial group of companies last week gave a detailed look into what he’s done so far and why.

The status report Dallas attorney Ralph Janvey filed in the Texas court where a sprawling federal case is unfolding against Stanford provides new details about the motivations, goals and progress of Janvey’s efforts. Janvey was appointed as Stanford’s receiver in February shortly after the U.S. Securities and Exchange Commission filed a civil suit claiming the Stanford business empire was built on secrets, deception and a multibillion-dollar investment fraud.

Fighting back

Details of Janvey’s efforts come at the same time Stanford’s Chairman Allen Stanford, a billionaire Texan with a towering physique and a penchant for the game of cricket, has begun to raise his media profile. In an interview he gave to The New York Times, Stanford told the paper he can’t use any of the credit cards in his wallet, his bank accounts are frozen and he’s been locked out of his apartment on the island of St. Croix.

Far from pulling his punches in light of a looming criminal indictment, Stanford in the interview also blasted the SEC for “squandering” the assets of the assorted Stanford companies. He also called Janvey a “jerk” whose aides “can’t find their rear end from a hole in the ground,” according to The Times.

Stanford filed a sharply worded memorandum this month in the Texas court answering some of the charges against him. He said the Stanford receiver has seized all of his money, important records, most of his clothing and personal possessions.

The Stanford companies “provided service to thousands of valued clients,” his memo reads. “They employed thousands of honest, hard-working people. Stanford’s companies were real companies with real assets, real profits and real employees serving real clients.”

CD dealing

Meanwhile, Janvey’s report last week attempts to shed light on some of the things he has found.

He writes, for example, that Stanford’s operation consisted of more than 100 companies spread across the globe, with locations spanning 15 U.S. states and 13 countries in Europe, the Caribbean, Canada and Latin America.

Partly based on the work of a forensic accountant, the Stanford receiver believes the purpose of the combined Stanford operation was simple: bring in outside money through the sale of CDs issued by Stanford’s offshore bank. And to do that, brokers were paid handsomely through a compensation structure that made the whole enterprise unsustainable without the money generated from CD sales, according to the receiver.

“To the outside world … these financial businesses appeared to be independently viable,” reads the receiver’s status report. “The receiver believes, however, based on his investigation to date, that the principle purpose and focus of most of the combined operations was to attract and funnel outside investor funds into the Stanford companies through the sale of the CDs issued by Stanford’s offshore entity (Stanford International Bank).

“Once CD funds entered the Stanford companies, they were dispersed to Allen Stanford or to other Stanford-owned entities or used to purchase private equity and other investments, to pay CD redemptions and interest or to pay expenses and obligations.”

Following the trail

The receiver appears to believe Stanford’s far-flung operation – which included a now-shuttered Memphis office – arguably owed its continued existence to money brought into the organization via the CD sales. The Stanford empire had a strong Memphis connection, with an investment brokerage office here as well as offices at one time for both Stanford’s chief financial officer James Davis and chief investment officer Laura Pendergest-Holt, both of whom were named in the SEC complaint.

As of Feb. 22, the receiver’s data show about $7.2 billion worth of CDs were outstanding and in the hands of approximately 21,500 holders around the world. But much of the cash received from CD sales apparently cannot be found.

The receiver also has asked the accounting firm of Ernst & Young to compile balance sheets for Stanford’s companies because the receiver states almost all non-cash assets listed on Stanford’s Dec. 31 balance sheets are substantially overstated.

“Preliminary analysis of Stanford’s available financial records indicates that a very substantial amount of cash received upon sale of (the bank’s) CDs over the last few years … cannot be accounted for,” the receiver’s report reads. “Some of this cash may have been spent in ways that are not reflected in any of the available financial records … such as cash that may have been loaned to Allen Stanford or distributed to him as sole shareholder and then spent on personal consumption by him.

“This preliminary analysis suggests that the aggregate amount of such unaccounted-for cash may be in the range of $1 billion.”

RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 23 23 1,365
MORTGAGES 21 21 1,068
FORECLOSURE NOTICES 6 6 196
BUILDING PERMITS 117 117 3,173
BANKRUPTCIES 42 42 795
BUSINESS LICENSES 2 2 331
UTILITY CONNECTIONS 0 0 0
MARRIAGE LICENSES 0 0 0