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VOL. 124 | NO. 34 | Thursday, February 19, 2009

Details Emerge in Stanford Fraud Case

By Andy Meek

Print | Front Page | Email this story | Email reporter | Comments ()
SEC COMPLAINT: Click on the image above to read the complete complaint filed by the SEC against Stanford Financial.

Word of the $50 billion Ponzi scheme perpetrated by a New York businessman was still a hot topic in the investment community when a note to depositors appeared on Stanford International Bank’s Web site.

“Dear depositor: In light of the continuing press reports regarding the hedge fund manager Bernard L. Madoff, we would like to inform you Stanford International Bank did not have any exposure to the Madoff Fund,” the Dec. 17 note reads.

But the Antigua-based bank’s assertion turned out to be a sham, like many other aspects of the Stanford group’s business operations, according to a complaint filed Tuesday by the U.S. Securities and Exchange Commission. A multi-agency federal investigation was already swirling around the Stanford companies in December and focused especially on some of its Memphis-based players.

‘Shocking magnitude’

The Madoff-related claim may represent one of the Stanford group’s final attempts to soothe investors as rumors began to portend something ominous for the Houston company’s business interests. Even so, roughly two months after insisting the company’s assets had been untainted by the Madoff fraud, FBI officials and other law enforcement personnel descended on Stanford’s U.S. offices in more than one city, including Memphis, seizing records and charging its top players with fraud.

Not only was the Madoff assertion not correct in that note to depositors, but buried in the lengthy SEC complaint against Stanford chairman R. Allen Stanford and two of his Memphis-based executives is this allegation: The Stanford executives knew it was not correct. Stanford and the others are charged with an $8 billion securities fraud.

On Dec. 15, a weekly inter-office report that usually was sent to Stanford himself, the company’s Memphis-based chief financial officer James Davis and chief investment officer Laura Pendergest-Holt, confirmed the exposure to the Madoff funds. But Stanford’s banking unit still told customers there was no Madoff exposure.

The company apparently lost an estimated $400,000 through its dealings with Madoff, according to the SEC, an amount that is only a drop in the bucket compared to the $8 billion worth of certificates of deposit Stanford and the other executives are charged with selling.

The SEC’s complaint alleges that most of the Stanford banking unit’s investment portfolio – which was purportedly monitored from Memphis – resided in a metaphorical “black box.” Only two people possessed the “key” to that box: Stanford and Davis, colleagues whose friendship dates back to the 1970s when they were roommates at Baylor University in Waco, Texas, according to The Houston Chronicle.

In a statement released by Rose Romero, regional director of the SEC’s Fort Worth Regional Office, the Stanford scandal is described as a “fraud of shocking magnitude that has spread its tentacles throughout the world.”

Many-armed disaster

Memphis stands out prominently in the company’s narrative.

Regulators are focusing their probe on three main Stanford offices, according to BusinessWeek: Memphis, Houston and Tupelo, Miss. Callers to Stanford’s East Memphis office in The Crescent Center are greeted with a message that says, in part, “Our offices are temporarily closed until further notice.”

Stanford executives – including the chairman himself, a colorful Texas billionaire – worked hard to support a wide variety of civic institutions in Memphis.

In 2005, Stanford Financial Group was the lead investor for an $11 million round of financing for the Memphis medical device manufacturer Luminetx. Stanford is a corporate sponsor of the National Civil Rights Museum, a benefactor to causes such as the Greater Memphis Arts Council and a major supporter of St. Jude Children’s Research Hospital.

Stanford signed on in 2007 as the major sponsor of the Stanford St. Jude Championship golf tournament, which has raised more than $19 million for the hospital since 1970.

In the most recent edition of the Stanford Eagle, the company’s in-house magazine, former ALSAC chief executive officer John P. Moses is quoted as saying Stanford exemplifies “leadership and compassion.” ALSAC (American Lebanese

Syrian Associated Charities) is St. Jude’s fundraising arm.

In the summer of 2008, the Stanford chairman was given ALSAC’s Michael F. Tamer award, which honors people who have shown a strong commitment to the Memphis hospital, according to St. Jude information.

Through the Stanford companies’ employee political action committee, Stanford also has been a major political donor to a broad spectrum of elected leaders, including figures in Memphis and throughout Tennessee.

In 2008, the Stanford Financial Group Company Employee PAC donated $2,000 to U.S. Sen. Lamar Alexander, R-Tenn., $1,000 to U.S. Rep. Marsha Blackburn, R-Tenn., $1,000 to U.S. Rep. Steve Cohen, D-Tenn., $5,000 to U.S. Sen. Roger Wicker, R-Miss., and $2,500 to U.S. Rep. John Tanner, D-Tenn.

State Sen. Paul Stanley, R-Germantown, has worked in Stanford’s Memphis office as a wealth management adviser for more than three years. He told reporters Tuesday he was “dumbfounded” by this week’s news.



RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 0 133 1,342
MORTGAGES 0 131 1,047
FORECLOSURE NOTICES 20 39 190
BUILDING PERMITS 0 305 3,056
BANKRUPTCIES 17 135 753
BUSINESS LICENSES 0 53 329
UTILITY CONNECTIONS 0 0 0
MARRIAGE LICENSES 0 0 0