Stanford, Others Indicted on Fraud Charges

Texas billionaire R. Allen Stanford was indicted Friday, June 19, on charges he orchestrated a $7 billion fraud over allegedly bogus certificates of deposit, a day after federal agents arrested him in Virginia. The Securities & Exchange Commission also filed additional civil charges against Stanford on Friday.

Stanford appeared Friday afternoon in federal court in Richmond, Va., where a judge ordered him returned to Texas. He will remain in custody until a detention hearing can be held in Houston. If convicted of all charges in the 21-count indictment, Stanford could face as much as 250 years in prison, officials said.

A grand jury has been investigating Stanford—who has said in several interviews that he expected to be indicted—since the SEC filed civil fraud charges against him in February.

An amended complaint filed by the SEC on June 19 accused Stanford and his finance chief, James M. Davis—who is not listed as a defendant in the criminal indictment—of conducting a "massive Ponzi scheme" in which early investors were paid returns from money put in by later investors. Davis promised in April to cooperate with federal investigators. Also charged in the indictment were three other executives of Stanford companies and a regulatory official in Antigua, where Stanford's offshore bank was based.

A Sevenfold Inflation of Bank Assets?

Dick DeGuerin, Stanford's lawyer, said in a written statement that Stanford was "confident that a fair jury will find him not guilty of any criminal wrongdoing."

In February, SEC regulators charged Stanford, 59, with misleading investors about the security of high-yielding certificates of deposit sold by the Antigua bank he controls. That outfit, Stanford International Bank, is at the heart of Stanford's empire and purported to have more than $8 billion in assets. The charges were later amended to allege that Stanford operated an illegal Ponzi scheme, paying old investors with cash from new ones. Regulators in Antigua have seized the bank.

The criminal indictment describes how Stanford and his associates falsified company transactions to increase the purported value of Stanford bank assets from about $1.2 billion in 2001 to about $8.5 billion at the end of 2008. Among those transactions was a "round trip" real estate deal through which the value of some Antiguan real estate was artificially inflated from $63.5 million to $3.2 billion, according to the indictment. The indictment also alleges that Stanford paid "thousands of dollars" to Leroy King, the chief executive officer of Antigua's Financial Services Regulatory Commission, to thwart investigations.

Conspiracy and Fraud Charges

Through the Antiguan-based bank, Stanford sold certificates of deposit that were marketed as ultra-safe investments with higher than normal rates. The indictment alleges, however, that the $8 billion of investments were anything but safe. Stanford put 9% of the money into cash. A further 10%, the Justice Dept. claims, was placed with outside money managers. Of the remainder, $4.8 billion was put into "'island properties,' the value of which had been grossly overstated," and toward personal loans to Allen Stanford, the indictment alleges.

The others indicted on conspiracy and fraud charges were Stanford executives Laura Pendergest-Holt, Gilberto Lopez, and Mark Kuhrt, along with King, the Antiguan official. Pendergest-Holt had previously been charged with obstruction.

Jeff Tillotson, who represents Pendergest-Holt, chief investment officer of Stanford's parent company, said, "We obviously deny that our client has committed any crime." He has said she was "set up" by Stanford.

A separate indictment unsealed in Florida accused another Stanford worker, Bruce Perraud, of destroying records important to the investigation.

"Enough Outrage" in Houston

In a statement released by the Justice Dept., Lanny A. Breuer, Assistant Attorney General of the Criminal Division, said: "The Department of Justice will vigorously root out and expose financial crimes that wreak havoc on innocent investors."

Robert Khuzami, the SEC's enforcement director, said investigators have built "an impressive criminal case from the rubble of this massive fraud."

In Houston, where the Stanford Financial Group is based, the arrest was a long time coming. "I know dozens of people who had money invested with Stanford," says George Ball, chairman of Sanders Morris Harris Group (SMHG), a Houston-based independent brokerage and wealth manager. "There's enough outrage that Stanford will spend a lot of time in jail."

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