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VOL. 124 | NO. 37 | Tuesday, February 24, 2009

Scope of Stanford Scandal Vast, Deep

By Andy Meek

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OFF COURSE: R. Allen Stanford walks on the pitch during a November cricket tournament in St. John’s, Antigua. The scope of Stanford’s alleged fraud against investors appears to be far-flung. -- AP PHOTO/ANDRES LEIGHTON

When the U.S. Securities and Exchange Commission filed a complaint in federal court last week accusing Stanford Financial Group of defrauding billions from investors, the case was assigned to U.S. District Judge Sam Lindsay.

Lindsay immediately appointed a receiver who froze the company’s assets and began a thorough study of the books. Then Lindsay stepped down from the case, three days after it landed in his lap.

He signed an order Friday recusing himself from the case after learning he has a relative with, as he put it in his order, “substantial holdings managed by (the) Stanford Group.”

“As litigation progresses, the relative’s conduct and holdings are likely to be affected by and subject to further orders of the court,” wrote Lindsay, a judge for the U.S. District Court’s Northern Texas Division.

That abrupt shuffling of the presiding judge over the SEC’s complaint against Stanford reflects the depth and reach of what the federal agency described as a “massive, ongoing fraud” allegedly perpetrated by a colorful Texas billionaire with the help of two company executives.

Sticky situation

R. Allen Stanford, the chairman of the Stanford group of companies, is the focus of a mix of charges that include lying about his companies’ investment plans and inflating the results of their investment products.

Memphis, where the company operated an investment brokerage office, was an important nexus in Stanford’s banking and investment empire. Stanford’s charitable foundation also is based here, and Stanford’s chief financial officer James Davis – a college roommate – had an office in East Memphis’ Crescent Center.

Laura Pendergest-Holt – Stanford’s chief investment officer – worked in Memphis from the mid-1990s through 2007. She supervised a group of analysts spread from Memphis to Tupelo, Miss., to St. Croix in the U. S. Virgin Islands.

Davis and Pendergest-Holt were charged along with Stanford in last week’s SEC complaint. Davis could not be reached for comment, and Pendergest-Holt’s Utah lawyer did not respond by press time to a request for comment.

Most of the investment portfolio of Stanford’s Antigua-based banking unit was purportedly monitored from Memphis. The bank operated on a Caribbean island where Stanford also owned restaurants to which deep-pocketed customers of his bank were flown for expensive meals and private meetings.

One such Antigua restaurant is the Sticky Wicket, where patrons can enjoy items such as $70 eight-ounce grilled Atlantic salmon and a $55 Antigua lobster salad. Stanford’s senior investment officer described such first-class treatment for bank customers in testimony he gave to the SEC.

“They would do, like, lunch at the Sticky Wicket, typically, after the presentation in the morning,” Stanford senior investment officer Michael Zarich said in his SEC testimony, which the agency included with the complaint it filed in Texas last week. “And then I think it varies. Some people want to golf and snorkel, and they would do like a tour of the island and then go back to their hotels.”

‘The big pockets’

The Antigua bank thus gave Stanford an international reach that is the reason the company’s account holders include everyone from the unnamed relative of the Texas judge to two outfielders for the New York Yankees. Baseball players Johnny Damon and Xavier Nady are among the Stanford customers whose accounts have been frozen, according to Reuters.

Much still remains unknown. What has emerged so far in court records, news reports and individual accounts about Stanford is a tale of outsized wealth and a rip-roaring financial services company allegedly built on secrets known only to Stanford and Davis, according to the SEC.

Uncovering the details of what exactly went on inside Stanford’s offices in Memphis and elsewhere is complicated by a company that projected an aura of wealth and respectability. Memphis fashion designer Pat Kerr Tigrett even held a reception for Stanford in her Memphis home in recent years. She is the founder of the Blues Ball, a charity event to support Memphis music, sponsored by Stanford.

Guests at Tigrett’s reception included Memphis Mayor Willie Herenton and FedEx founder Frederick W. Smith, according to news accounts of the event.

A prominent figure in Memphis’ commercial real estate community told The Daily News that Stanford rode a golden wave when it entered the city. The company has operated in The Crescent Center since the late 1990s.

“When they came to Memphis, they were immediately seen as the big pockets,” he said.

Grants and sponsorships for Memphis causes, charities and civic organizations flowed freely, touching entities like the National Civil Rights Museum, St. Jude Children’s Research Hospital and Playhouse on the Square, among many others.

Jackie Nichols, the executive producer of Playhouse on the Square, received a $25,000 award from Stanford Financial Group in 2005 in partnership with the Greater Memphis Arts Council. And Stanford signed on in 2007 as the major sponsor of the Stanford St. Jude Championship golf tournament, which has raised more than $21 million for the hospital since 1970.

Frozen solid

Stanford’s employees were caught as much by surprise as were its legion of investors around the world when federal officials raided some of the company’s U.S. offices last week, hauled off stacks of records and froze Stanford’s assets. Customers are informed on the Web site of Stanford’s receiver that brokers don’t know any more at the moment than they do.

A wealth management adviser who works for Stanford in Memphis told The Daily News he could not discuss any details under instructions from the Texas court but that he is focused on protecting his clients’ interests.

Dallas attorney Ralph Janvey, the court-appointed receiver who has taken over Stanford’s assets, is overseeing a complex process for which he is depending on a variety of financial experts, international law firms and forensic accountants, among other people. He is leading the effort to, per the SEC’s request, secure Stanford’s major centers of operation, preserve the company’s assets and sift through claims against those assets.

In short, customers with money in a Stanford brokerage account apparently won’t be able to get at it for a while.

“For the foreseeable future, customers cannot use their accounts to make payments because transfers out of these accounts are frozen until the receiver is able to verify there are no legal or equitable claims against those accounts,” reads a notice on the Stanford receiver’s Web site, stanfordfinancialreceivership.com, which is being used as the main source of communication about the process.

RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 85 305 21,577
MORTGAGES 62 223 16,417
FORECLOSURE NOTICES 0 17 1,504
BUILDING PERMITS 0 571 42,491
BANKRUPTCIES 34 138 6,717
BUSINESS LICENSES 40 72 3,169
UTILITY CONNECTIONS 0 0 0
MARRIAGE LICENSES 0 0 0