Feb. 20 (Bloomberg) -- Two days after being accused of massive fraud, billionaire R. Allen Stanford surfaced in a Virginia community about 50 miles south of Washington.

Federal Bureau of Investigation agents were waiting yesterday at a residence in the Fredericksburg area when Stanford’s car pulled up, according to a person familiar with what transpired. The FBI then served him court papers. He was described as cooperative and cordial.

Stanford, 58, accused by the U.S. Securities and Exchange Commission this week of running a “massive, ongoing fraud,” was served with papers related to an SEC civil filing against him and the Stanford Financial Group. Stanford, whose whereabouts were unknown to the SEC earlier in the week, was found with an unidentified woman.

The SEC sued Stanford and two aides on Feb. 17, accusing them of misleading investors about $8 billion in certificates of deposit in Antigua-based Stanford International Bank.

The FBI is investigating the fraud allegation, a person familiar with the case said this week. That investigation is separate from the bureau’s encounter with Stanford yesterday.

No criminal charges have been filed against Stanford or his codefendants in the SEC case: Stanford’s Chief Financial Officer James M. Davis and Laura Pendergest-Holt, chief investment officer of the Stanford Financial Group. Federal marshals shut down the Houston office of Stanford Group Co., an investment firm, on Feb. 17.

Surrendering Passports

Stanford and his codefendants surrendered their passports following a federal judge’s order this week, said Kevin Callahan, an SEC spokesman. The order also requires them to refrain from traveling outside the U.S. until the court can hear the SEC’s request for a preliminary injunction.

The judge agreed to freeze the company’s assets and appoint a receiver to account for investor money. The receiver, Dallas lawyer Ralph Janvey, yesterday asked a judge to include the assets of two more Stanford entities, which hold title to the corporate headquarters building, to its case.

Pendergest-Holt, who last night was at her childhood home in Baldwyn, Mississippi, was preparing to travel to Houston to work with the company’s receiver.

She declined to talk about the Stanford Group and referred questions to her lawyer, Brent Baker of Parsons Behle & Latimer in Salt Lake City.

“We intend to abide by our legal responsibilities,” Baker, a former SEC lawyer, said. “We are willing to fulfill anything that is required to provide information.”

Gathering Evidence

The Justice Department will take as much time as it needs to gather evidence if it intends to bring criminal charges, said E. Lawrence Barcella, a Washington-based white-collar criminal defense lawyer who was a federal prosecutor.

Stanford International Bank reported “improbable, if not impossible” returns, the SEC said in its complaint.

The SEC has been investigating Stanford Group since at least last summer. The inquiry intensified after the December arrest of New York money manager Bernard Madoff, who allegedly confessed to masterminding a $50 billion fraud in which early investors were promised steady returns and paid with money from later participants.

Stanford Group, selling the certificates of deposit through a network of financial advisers, told clients their funds would be placed mainly in easily sellable financial instruments, monitored by more than 20 analysts and audited by regulators on the Caribbean nation of Antigua, the SEC said.

Private Equity

Instead, the “vast majority” of the portfolio was managed by Allen Stanford and Davis, according to the SEC. A “substantial” part of the portfolio was invested in private equity and real estate, it said.

Investors all over the world have been left wondering if their CDs are now worthless as news reports on the alleged scheme have multiplied.

Local law enforcement officials near Fredericksburg referred questions about Stanford to the FBI. The Free Lance-Star, a newspaper in Fredericksburg, yesterday posted a picture of Stanford on its Web site along with a message to readers saying, “If you’ve seen this guy, let us know.”

Pershing LLC, the Jersey City, New Jersey-based clearing firm that handled Stanford accounts, told clients today that they couldn’t retrieve their money even if it was invested in assets other than the Antigua bank CDs.

“The assets held at Pershing have been frozen at the request of the receiver,” Pershing spokeswoman Barbara Gallo said. “No funds or securities may leave the accounts without the receiver’s approval.”

Trent Rosenthal, who identified himself as a customer of Stanford Group and an account holder at Pershing, today filed a motion in U.S. District Court in Fort Worth, Texas, seeking access to his account.

To contact the reporters on this story: Justin Blum in Washington at jblum4@bloomberg.net; Alison Fitzgerald in Washington at afitzgerald2@bloomberg.net

Last Updated: February 20, 2009 16:01 EST