just when you thought Certif of Deposit were safe

kec01February 18, 2009

Feb. 18 (Bloomberg) -- R. Allen Stanford, accused by federal regulators of a "massive, ongoing fraud" at his Houston investment firm, cultivated his image by shuttling politicians in corporate jets and spending money on cricket, polo and golf.

The 58-year-old head of Stanford Group Co., who grew up in Mexia, Texas and graduated from Baylor University, began using the title "Sir" in 2006 after being knighted by the leaders of Antigua & Barbuda, his adoptive country. The banker began building a fortune by investing in Texan real estate following the 1980s savings-and-loan crisis, according to his companys Web site.

StanfordÂs sales force used leather-bound marketing brochures and trips to his Antigua headquarters to convince investors to entrust their money to Stanford International Bank Ltd. The institution claims 30,000 clients and $7.2 billion in assets under management, according to a Securities and Exchange Commission complaint filed in Dallas yesterday.

"IÂm upset with myself because it didnÂt pass the gut check," said Peter Comer, a software salesman in Austin, Texas, who estimated that about 10 percent of his investments are in Stanford International Bank certificates of deposit.

"I got assurances from my brokers," Comer said in an interview yesterday. "Their job is to do the gut check."

Stanford, his investment firm and the bank were sued by the SEC over the sale of $8 billion of the bank certificates. The SEC accused the banker and his companies of running a "massive, ongoing fraud" by making false claims to investors about investment strategy and returns.

"I can assure you this company is well positioned, with the right products to be successful even in this environment," Allen Stanford wrote in a letter to clients dated Feb. 11. Company spokesman Brian Bertsch referred press inquiries to the SEC.

Restraining Order

U.S. District Judge Reed OÂConnor signed a temporary restraining order yesterday in Dallas federal court to freeze the Stanford companies assets and property.

The SEC complaint said the bank made "improbable, if not impossible" claims about its ability to generate "safe" returns of more than 10 percent, while misleading investors about exposure to Bernard MadoffÂs alleged Ponzi scheme.

Stanford, who last year was named the 605th wealthiest person in the world by Forbes magazine, has six planes registered with the Federal Aviation Administration, according to the agencyÂs Web site.

He used his aircraft to build relationships with politicians, sponsoring trips for members of Congress to the Caribbean to talk about economic development through a nonprofit group called the Inter-American Economic Council, according to congressional disclosures and the organizationÂs Web site.

Ritz-Carlton

In a 2006 trip, four Democratic congressmen flew in a Stanford jets to JamaicaÂs Montego Bay to stay in a Ritz-Carlton hotel for meetings with Jamaican leaders, the disclosures showed.

Former House Majority Leader Tom DeLayÂs committees paid for flights on StanfordÂs jets at least 16 times from 2003 through 2006, according to DeLayÂs financial disclosures.

Stanford has donated $16,200 to politicians and political action committees since 2000, according to Federal Election Commission records. He gave $4,200 to DeLay, a Texas Republican, and $3,000 to Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat.

DeLayÂs attorney, Dick DeGuerin, said he could not immediately reach the former congressman for comment. Dodd spokeswoman Kate Szostak didnÂt immediately respond to telephone and e-mail requests for comment.

Rangel Donations

Stanford also donated $2,300 to House Ways & Means Committee Chairman Charles Rangel in 2008, and a total of $10,800 over five years, according to the Center for Responsive Politics and a Rangel spokesman.

"Chairman Rangel knew Mr. Stanford as a businessman in the Caribbean," the spokesman, who asked not to be identified, said in an e-mailed statement. "Given the nature of the charges filed against Mr. Stanford, Chairman Rangel will donate $10,800 from his political committee to charity."

The bankerÂs Stanford Development Group owns a 7,000 square- foot, 14-room Mediterranean-style house in Houston. The whitewashed home is appraised on the Harris County Appraisal DistrictÂs 2008 property-tax rolls at $2.5 million.

Flowers and palm trees set off the property on a quiet street in the Tanglewood neighborhood about a mile from Stanford GroupÂs office. Inside the house on Feb. 14, a white standard poodle barked and no one answered the door. A woman who arrived in a silver Range Rover declined to speak to a reporter before leaving immediately.

Lapel Pins

StanfordÂs Houston headquarters occupies a three-story building and nine floors of a tower across the street that also houses the Galleria Mall shopping complex, home to Louis Vuitton and Giorgio Armani boutiques.

Employees are required to wear lapel pins with the Stanford logo, according to three former financial advisers interviewed by Bloomberg.

Stanford said on his companyÂs Web site that his firm was started more than 70 years ago by his grandfather. U.S. court records show that his offshore bank was formed in 1985 on the Caribbean island of Montserrat and moved to Antigua in 1990.

In 1999, Stanford Financial tried to take over Antiguan International Business Corp., which regulated offshore companies on the island, said Jonathan Winer, then a deputy U.S. assistant secretary of state.

State Department cables sent from the U.S. Embassy and provided to Bloomberg described a "power grab" and criticized the StanfordÂs companyÂs hiring of U.S. consultants to revise AntiguaÂs offshore-banking rules.

ÂHired GunsÂ

"The high-powered legal and investigative hired guns from the U.S. are likely being tasked with cleansing the files to make sure there is nothing in them that could damage or implicate the American offshore banker," one cable read, without mentioning Stanford by name.

The U.S. advised financial institutions to be suspicious of transactions with Antiguan banks, a notice lifted in August 2001 after the country took steps to fight money laundering. The alert didnÂt specifically mention StanfordÂs bank or any others.

The banker claimed in a 2001 magazine article published by his company to be related through his great-great-great grandfather to Leland Stanford, the founder of Stanford University.

Stanford University filed a trademark infringement case against Allen Stanford last year, claiming Stanford Financial Group Co. is using the schoolÂs name "in a way that creates public confusion" and is "injurious," Patrick Dunkley, a lawyer for the institution, said in an interview.

ÂNo EvidenceÂ

William Murphy, the bankerÂs lawyer, didnÂt immediately return a call seeking comment. "There is no evidence showing use" of any of the trademarks the university claims Stanford Financial Group is infringing, the companyÂs lawyers said in court documents.

A hearing for the case is scheduled for March 20 in San Francisco federal court.

StanfordÂs promotion of cricket led him to land in a helicopter at LordÂs Cricket Ground in London last June to announce an annual Twenty20 series of matches between EnglandÂs national team and the Stanford Superstars, a team of West Indies players, for a winner-takes-all prize of $20 million.

$1 Million

The game, played in November at the Stanford Cricket Ground, near StanfordÂs home in Antigua, was won by the West Indies team. The 11 players collected $1 million each. The rest was distributed among substitutes and the West Indies Cricket Board, the sportÂs governing body in the region.

The England and Wales Cricket Board said yesterday it "suspended negotiations with Sir Allen Stanford and his financial corporation concerning a new sponsorship deal."

Stanford Group also sponsors the Stanford St. Jude Championship, a PGA tour golf tournament in Memphis, Tennessee, and Stanford Field, a polo competition at the International Polo Club in Palm Beach, Florida.

PGA golfer Vijay Singh signed an endorsement deal with Stanford in 2007, according to the companyÂs Web site.

To contact the reporter on this story: Alison Fitzgerald in Washington at Afitzgerald2@bloomberg.net;

Last Updated: February 18, 2009 00:01 EST

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seattlemike

And I used to laugh whenever I read stories about people who kept their money in their mattress! Who's got the last laugh now?

    Bookmark   February 18, 2009 at 11:48AM
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western_pa_luann

"just when you thought Certif of Deposit were safe"

They are safe... in an FDIC bank.

    Bookmark   February 18, 2009 at 11:58AM
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jkom51

Guess it costs more to buy Republicans than to buy Democrats, LOL!

    Bookmark   February 18, 2009 at 11:59AM
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joyfulguy

"Buy" ...

... or "lease"???

o j

    Bookmark   February 20, 2009 at 1:37AM
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kec01

But one gets higher rates of interest in Sanford banks!!!! I have a sneaking suspicion that FDIC insurance wasn't the first thing on these investor's minds when they made their deposits.

    Bookmark   February 20, 2009 at 5:55AM
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