Did Stanford Keep Two Sets of Books?

Did disgraced financier R. Allen Stanford keep two sets of books at his controversial offshore bank in Antigua?

That appears to be the preliminary finding of the British firm tapped by authorities in the island nation to liquidate Stanford International Bank. Representatives for the liquidator, Vantis Business Recovery Services, made the somewhat startling announcement during a court proceeding in Antigua on Apr. 13.

The judge, upon hearing the news about the two sets of bank records, asked Vantis to come back to court with some evidence to bolster its claim. Vantis did that on Apr. 15, submitting a lengthy series of spreadsheets that purportedly showed the bank's investments in two accounts at Société Générale (SOGN) totaling $370 million. But last summer, Stanford bank told Antigua regulators that it had about $1.33 billion deposited with SocGen. A source provided BusinessWeek with a portion of the filing Vantis submitted to the court in Antigua.

Of course, a $1 billion difference is much more than a simple rounding error. The big discrepancy raises lots of questions about just how much money is left at the bank and will be available to the roughly 20,000 investors who purchased high-yielding certificates of deposit from Stanford's firm. It also raises a question about whether Stanford and his associates provided Antigua regulators with inflated numbers to make the bank look more successful than it really was—in a bid to impress regulators and investors.

"Insufficient" Assets

Vantis' Nigel Hamilton-Smith, who is heading up the liquidation of Stanford's bank, could not be reached for a comment on his firm's filing with the Antigua court. But in a press release on Apr. 16, Hamilton-Smith said: "It is also now apparent that the assets of SIB are insufficient to meet the level of liabilities."

Or, in plain English, the alleged $8 billion the bank claimed to have taken in from investors may not exist.

Some investors are worried, in light of the latest disclosure, whether they'll ever get their money back. Edward Davis Jr., a Miami attorney who represents a group of investors that has sunk about $250 million into Stanford CDs, says he wants the Antiguan court to appoint a committee of investors and other creditors to work alongside Vantis in pursuing the bank's assets.

"People have been wiped out by this fraud," says Davis, who specializes in recovering assets for victims of financial frauds. "The proper focus of this investigation should be on how the assets of [Stanford bank] can be recovered in a speedy, cost-effective manner for the benefit of the creditor depositors."

The documents submitted by Vantis to the court reveal other details about Stanford's operation.

The Antigua bank, according to the documents, kept most of its money and investments in accounts with SocGen and Credit Suisse (CS). Other financial institutions that were repositories for Stanford bank's holdings include Canada's Toronto Dominion (TD), Switzerland's Banque Franck, Axia Financial, and the now-bankrupt Lehman Brothers investment firm. Other accounts were allegedly held with Refco, a brokerage that went bust in another major fraud in 2005, and two mysterious sounding entities listed only as "Medieval" and "VCH." There is some speculation that VCH may be an abbreviation for Stanford Venture Capital Holdings, an investment operation run by Stanford.

Liquidator Disagreement

The Antiguan court ordered Vantis to begin liquidating the bank after rejecting an effort by a group of investors to replace the firm with a team of liquidators from PricewaterhouseCoopers. The investors had argued that PwC has more experience in winding up financial institutions that are the victims of an apparent fraud. The Antiguan judge similarly turned away an attempt by Ralph Janvey, the Dallas attorney overseeing the liquidation of Stanford's operation in the U.S., to oust Vantis. Janvey was appointed the receiver for Stanford Financial Group in the U.S., after the Securities & Exchange Commission filed civil fraud charges against Stanford on Feb. 19.

Meanwhile, Stanford's defense attorney, Dick DeGuerin, says he isn't aware of the Vantis allegation. For the moment, DeGuerin is more focused filing a motion in federal court seeking to lift a freeze on Stanford's assets so the 59-year-old Texas native has the money to mount a legal defense. Stanford's assets in the U.S. have been frozen ever since the SEC sued him. DeGuerin is trying to free up Stanford's money in anticipation of federal prosecutors filing criminal charges against his client.

DeGuerin has insisted his client did nothing wrong, but fully expects prosecutors to charge him by the end of the month.