In 1997, R. Allen Stanford was deeply frustrated. For much of the 10 prior years, a parade of U.S. law enforcement agencies had either looked into or investigated the activities of his offshore bank in Antigua. None of the alphabet soup of government agencies—FBI, DEA, SEC, IRS—had filed any charges against him or his Stanford International Bank, but he remained under scrutiny.
So Stanford, a Texas native who had not yet become the multibillionaire he is today, decided to fight back. Over the course of several months in 1997, Stanford wrote at least two letters to the then-U.S. ambassador to Antigua and the eastern Caribbean, in which he argued that he was nothing more than a businessman trying to earn an honest buck, say people familiar with the correspondence. In the letters, Stanford asked for a personal meeting with Ambassador Jeanette Hyde to demonstrate that his banking operation was aboveboard.
But Stanford never got that one-on-one meeting with Hyde. Sources say FBI agents urged the ambassador, who served from 1994 to 1997, not to meet with Stanford. The agents never offered much detail on the nature of the investigation.
Stanford Financial has said previously that Allen Stanford has never been involved in any improper dealings in Antigua or anywhere else.
A Person of Interest
The revelation of Stanford's unusual letter-writing campaign is all the more interesting now that the Securities & Exchange Commission has filed civil fraud charges against the financier and two of his closest deputies at Stanford Financial. The SEC action effectively halted the 58-year-old Stanford's once fast-growing financial firm, which is based in Houston but long has specialized in selling high-yielding certificates of deposit issued by its offshore banking affiliate in Antigua.
The letters also reveal that almost from the moment Stanford went into the offshore banking business he was on the radar screen of investigators from the FBI, the Drug Enforcement Administration, the Internal Revenue Service, and the SEC. A Stanford spokesman referred all questions to the SEC. A spokesman for the SEC says the pace of investigations can be slowed by foreign jurisdictions and the difficulty in "accessing books and records of institutions in offshore locations." The FBI, IRS, and DEA all declined to comment.
One person who has known Stanford for nearly two decades, but declined to be identified, says as far back as 1987 FBI agents from Houston were looking into Stanford and his bank. This person says the FBI was looking into allegations of money laundering and that the CD business was a Ponzi scheme, but the investigators "came up dry."
Back in 1987, Stanford's bank was still based in the British territory of Montserrat in the Caribbean and had $14 million in customer deposits—a far cry from the $8.5 billion the offshore bank had this past December. The bank in 1987 was called Guardian International Bank and had opened its doors for business a year earlier with about $6 million in seed money from Stanford and his father, James, who was the bank's original chairman. In 1991, after the bank relocated to Antigua following a dispute with Montserrat authorities, Stanford rebranded it with the current name and became chairman and sole shareholder.
Ponzi, or Not Ponzi?
In charging Stanford with securities fraud, the SEC did not allege that Stanford was running a Ponzi scheme, which involves taking in new money from investors to pay off withdrawals by earlier investors. Instead, the SEC accused Stanford of deceiving investors about the security of the CDs his bank was selling and the kind of assets in which customers' money was deposited. The SEC alleges it can't currently account for the roughly $8 billion that Stanford International Bank in Antigua has taken in from CD sales.
Still, the allegation that Stanford's banking business was a Ponzi scheme isn't new. In 2006, a former Stanford employee filed a private-action whistleblower lawsuit in Florida, claiming the CD business was either a "Ponzi scheme or a pyramid scheme." The lawsuit, filed by Lawrence J. De Maria, was settled on Dec. 12, 2007, for an undisclosed sum. Similarly, a former Stanford broker, in a securities industry arbitration case, claimed she was fired by Stanford in 2002 for refusing to sell the offshore bank's CDs to her largely Latin American customers because she thought the bank was a Ponzi scheme. The former employee lost the arbitration and was forced to pay back a portion of her signing bonus to Stanford.
The long list of allegations from former employees that something was amiss at Stanford has raised questions about whether the SEC took too long to take action against Stanford. But according to Stanford's own writings, it appears regulators and law enforcement agents were on his trail from the beginning. What remains a mystery is why it took this long to build a case against him.