Source: Business Week

Financier Robert Allen Stanford makes investors an enticing offer: He sells supposedly super-safe certificates of deposit with interest rates more than twice the market average. His firm says it generates those impressive returns by investing the CD money largely in corporate stocks, real estate, hedge funds, and precious metals.

State and federal regulators are now taking a hard look at Stanford's operation and CDs, whose underlying investments look shaky. Over the past 12 months those categories lost huge value, even as Stanford Financial Group continued to pay out above-average returns and boosted assets by 30% to more than $50 billion.

BusinessWeek has learned that the Securities & Exchange Commission; the Financial Industry Regulatory Authority, a major private-sector oversight body; and the Florida Office of Financial Regulation are all investigating Stanford Financial. The probes are focusing on the high-yield CDs sold by Stanford Financial and the investment strategy. According to people close to the investigations, the three agencies are also looking at how the firm could lavish large bonuses, luxury cars, and expensive trips on employees selling CDs, which are generally a low-margin business.

. . .

Allen Stanford, 58, has emerged in recent years as a prominent figure on Wall Street, with a fortune that tops an estimated $2.2 billion, according to Forbes' annual list of the richest people in the U.S. His Stanford Financial claims to oversee $50 billion for roughly 50,000 wealthy investors, mostly in the U.S., Caribbean, and Latin America.

Read more: http://www.businessweek.com/magazine/content/09_08/b4120022131798.htm?chan=top+news_top+news+index+-+temp_top+story

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Talk about this $50B ponzi has been on the internet, mainly in Latin America where Alex Dalmady has been following the story of the Latin branch which holds about $8B of the $50B.

A blog over at Salon talks about Dalmady's investigation. An excerpt:

Then last week, Veneconomia, in its monthly issue carried an article called Duck Tales, (in Spanish here) written by our friend and sometimes reader Alex Dalmady in which Alex analyzes Stanford International Bank (SIB), an Antigua'based financial institution with some US$ 8 billion in deposits mostly from Latin America and an estimated US$ 3 billion from Venezuelans. Another blog in English, Caracas Gringo, has already reviewed most of Alex’ findings.

What Alex does in a very entertaining style, is to ask what you should ask yourself if you are trying to find a “Financial Duck”, that is, a financial institution which like Madoff, it’s too good to be true, nobody can match what it does, like the Madoff pyramid it is run by a very small group of people and with no single institution having the incentives to uncover the fraud.

After analyzing SIB, Dalmady concludes that SIB has feathers, quacks, waddles and has webbed feet. That is, all of the tests that Dalmady could come up with, point to SIB looking a lot like a financial duck and people should be more careful of not placing their money with something that looks like a duck.

For many years, I have been hearing stories about SIB. When most banks paid 3% in deposits, SIB paid 6-8%. No amount of digging or understanding would clarify what it was they were doing

http://blogs.salon.com/0001330/2009/02/09.html#a4205

The bank has 75 employees on the island. But a small group manages it. There is mention of an investment committee, but the members of the committee are not named. A few years ago there was an actual investment manager or VP; now the position appears to be vacant. There is one board member, an 85-year-old cattle rancher and used car dealership owner who has the title of "Investments"...

The financial statements of the bank are audited. The auditor is a local (island) firm. The principal is a 72-year-old gentleman who has been auditing the bank for many years (at least ten).

Following the Salon links reveals a very colorful suspicious story.

Interesting that Business Week picked up the story.

Mix secrecy with leverage, and you have a nutrient broth for growing Ponzi schemes.

Yeah that makes a lot of sense when you want to preserve the principle. :crazy: Sounds more like an equity-indexed annuity.

one can only hope

And all apparently ended up as Ponzi schemes as a result of the hedge funds. The question is if they lost money they lost money to someone. So who has it? It didn't just disappear.

the bank accounts of the BFEE and its "friends"

This guy is well known around the world for ...

shocking the cricket world with a tournament that gave $20 million as cash prize for 1 game! In comparison, the winner of the 2007 Cricket World Cup received $2 mn. More than anything, he shocked the cricket world with his entry to announce the $20 mn tournament. He landed on the field in a helicopter and had a case containing $20 mn in bank notes. Read more here:
http://www.iht.com/articles/2008/06/12/sports/cricket12.php

See pics of $20 mn: http://www.timesonline.co.uk/tol/sport/cricket/article4117131.ece

He earned more scorn from cricket world when there were pics & videos of Stanford ogling English players' wives and girlfriends during the match. What's more - the financial crisis has hit him. Stanford confirmed a few days back that he is abandoning the tournament after the first year.

He was also supposed to hand over $62 mil for the merger of Emageon and Health Systems, but didn't. The deal was done and the papers were signed the bank promised the transfer Tuesday but it didn't happen. Calls were made and promises again given to transfer the cash Wednesday. Again nada. The bank is saying today it is backing out of the deal.

So no twenty mil for cricket and no sixty-two mil for venture capital buyout, all within the last couple of days. The internet is buzzing with posts about Stanford not being able to pay its suppliers.

I expect that ever since Madoff happened, cautious people have been withdrawing their money from Stanford Banking leaving them with very little left to pay the bills.