$83.5M Suit Says Willis Group Aided Stanford Fraud

By Law360

A group of holders of Stanford Financial Group CD accounts claims that Willis Group Holdings Public Limited Co. helped perpetuate Robert Allen Stanford's $7 billion Ponzi scheme, according to an $83.5 million class action removed from Florida state court Monday.

The plaintiffs, 64 citizens of El Salvador, Nicaragua, Panama, the United States and Spain who claim combined losses of more than $83.5 million, say that when they made their investments in Stanford Financial CDs, they relied on "safety and soundness" letters issued by Willis asserting that Stanford International Bank and its products were protected by certain insurance policies and were highly liquid.

"In fact, the Stanford Financial CDs were not CDs at all, but unregistered, unregulated securities sold illegally from Stanford Financial's home base in the United States," the plaintiffs say in their complaint. "These investments had no insurance and were fraught with risk."

The case is not the first to lay such accusations against Willis. In 2009, a class of between 1,200 and 5,000 Venezuelan clients sought $1.6 billion over claims they were allegedly lured into the scheme by the insurance brokers' assurance that Stanford CDs were sound, insured investments. And in another suit that year, Mexican investors implicated Willis, claiming the defendants contributed to a fraud that cost them roughly $1 billion.

Stanford was sentenced in June 2012 to 110 years in prison after being convicted on charges he misappropriated billions of dollars in investor funds, including some $1.6 billion he allegedly moved to a personal account. His $7 billion Ponzi scheme was second only to Bernie Madoff's record-setting scam.

From about August 2004 through 2008, Willis provided Stanford Financial with an undated form letter that said Willis was the insurance broker for Stanford International Bank and had placed directors and officers liability insurance and a bankers blanket bond with Lloyds of London, according to the current complaint.

The letters played a crucial role in Stanford's fraud because Stanford Finanical was an offshore bank and thus not insured by the Federal Deposit Insurance Corp. Willis' letters helped Stanford get around that obstacle by claiming the CDs "were even safer than U.S. Bank-issued CDs because of the unique insurance policies Willis had obtained," the complaint says.

"The Willis letters were specifically designed to win investors' trust and confidence in Stanford Financial's fraudulent scheme," the plaintiffs say in their complaint, noting that for investors with more than $1 million in their accounts, Stanford Financial advisors could get personally addressed letters from Willis.

"Willis' message to potential investors was this: Trust us, you can invest with confidence and security in Stanford Financial CDs," they add.

All of the plaintiffs in the current case made their purchases through Stanford Financial's Miami office, which the complaint says accounted for more than $1 billion in CD sales.

Willis of Colorado Inc. filed the notice of removal of the class action on the grounds of diversity between plaintiffs and defendants, of the Securities Litigation Uniform Standards Act of 1998 and that the Northern District of Texas has exclusive jurisdiction in Stanford receivership cases.

The notice of removal also claims that defendants Willis Group Holdings Public Limited Co. and Willis Ltd., which are based in Ireland and the United Kingdom, respectively, have been fraudulently joined in an effort to defeat diversity jurisdiction. It says that the plaintiffs' claims are on letters issued only by the subsidiary Willis of Colorado and "no reasonable possibility" exists of the plaintiffs recovering damages from the other entities.

Counsel for both sides could not be reached for comment late Tuesday.

The plaintiffs are represented by Luis Delgado and Christopher King of Homer & Bonner PA and Ervin Gonzalez of Colson Hicks Eidson PA.

Willis is represented by Edward Soto of Weil Gotshal & Manges LLP.

The case is Nuila de Gadala-Maria et al. v. Willis Group Holdings Public Limited Co., case number 1:13-cv-21989, in the U.S. District Court for the Southern District of Florida.

Read the Willis Group NOTICE OF REMOVAL.

Read the Willis Group Exhibit A.

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SEC MOTION TO INTERVENE AND TO SUSPEND THE MEMORANDUM OPINION AND ORDER OF JULY 3, 2012

August 22, 2012
By Matthew T. Martens

Applicant U.S. Securities and Exchange Commission ("SEC" or "Commission") respectfully submits this memorandum of law in response to Robert Cheatham's Motion To Intervene and To Suspend the Memorandum Opinion and Order of July 3, 2012 ("Motion To Intervene").

Mr. Cheatham contends that he may intervene as of right in this proceeding pursuant to Federal Rule of Civil Procedure 24(a)(2). That provision states that intervention must be granted as of right, "[o]n timely motion," to anyone who "claims an interest relating to the property or transaction that is the subject of the action, and is so situated that disposing of the action may as a practical matter impair or impede the movant's ability to protect its interest, unless existing parties adequately represent that interest." In other words, the right of a party to intervene depends on the following four factors:

(1) the timeliness of the motion; (2) whether the applicant "claims an interest relating to the property or transaction which is the subject of the action"; (3) whether "the applicant is so situated that the disposition of the action may as a practical matter impair or impede the applicant's ability to protect that interest"; and (4) whether "the applicant's interest is adequately represented by existing parties.".

SEC Motion To Intervene and To Suspend the Memorandum Opinion and Order.

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Order re. Chapter 15 / COMI

July 30, 2012
By U.S. District Judge David C. Godbey

The Court grants the Joint Liquidators' motion for substitution as Plaintiff nunc pro tunc to June 8, 2010 and grants in part and denies in part their request that the Court take judicial notice. The Court overrules the parties' objections to each others' evidence. Finally, because the Stanford Entities' COMI is in the United States and they have an establishment in Antigua, the Court grants the Antiguan Proceeding foreign nonmain recognition, granting in part and denying in part the Joint Liquidators' petition for recognition. The Court grants the Joint Liquidators limited, conditional relief under Chapter 15.

In accordance with this Order, the Court orders the Clerk of the Court to terminate Peter Wastell and Nigel Hamilton-Smith as Plaintiffs and add Marcus Wide and Hugh Dickson as Plaintiffs.

Order re. Chapter 15 / COMI.

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Stanford Officer to Plead Guilty

	June 18, 2012 By VANESSA O'CONNELL Stanford Financial Group's top investment executive, Laura Pendergest-Holt, is expected to plead guilty to obstruction of justice Thursday for her alleged role in a $7 billion Ponzi scheme that was among the largest frauds in U.S. history, a person familiar with the case said. A spokeswoman for the Justice Department declined comment. The expected plea by Ms. Pendergest-Holt, Stanford's chief investment officer, follows the sentencing last week of convicted Ponzi schemer R. Allen Stanford to 110 years in prison. That punishment amounts to a life sentence for Mr. Stanford, 62 years old, who for years enjoyed the life of a billionaire aboard jets, yachts and in homes around the globe. He remains in federal custody until the U.S. Bureau of Prisons decides where he will serve the time.
Laura Pendergest-Holt
A Federal Bureau of Investigation affidavit filed in U.S. District Court in Dallas had alleged that Ms. Pendergest-Holt misled Securities and Exchange Commission investigators who took her testimony in the probe of alleged fraud at Stanford International Bank, Mr. Stanford's Antigua-based offshore bank. Ms. Pendergest-Holt was scheduled to go on trial in September. An obstruction charge can carry a three-year sentence.

Source.

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Stanford sentenced to 110 years over Ponzi scheme

June 14, 2012
By The Wall Street Journal

R. Allen Stanford, the once-highflying financier convicted of masterminding a $7 billion Ponzi scheme, was sentenced Thursday to 110 years in federal prison.

The punishment amounts to an effective life sentence for Stanford, who is 62 years old and used to live extravagantly aboard yachts, jets and homes around the world.

"I didn't run a Ponzi scheme, I didn't defraud anybody and there was never any intent to defraud anybody," Stanford, wearing a green prison jumpsuit, told US District Court Judge David Hittner before he was sentenced.

In a rambling statement, marked with long pauses as he choked up and wiped away tears, Stanford accused the government of using "Gestapo tactics" and blamed it for the billions of dollars in losses to his investors.

Stanford's sentence was 40 years less than the prison term given to Bernard Madoff, but 100 years more than his lawyers had asked for.

The sentence ends the three-year criminal prosecution of Stanford, who in March was convicted by a federal jury on 13 of 14 counts including fraud, obstructing investigators and conspiracy to commit money laundering.

Though investors continue to seek hundreds of millions of dollars from Stanford in a civil proceeding, the end of the criminal case closes a chapter on one of the most flamboyant figures in the annals of white-collar crime.

Source.

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Investors Sue Auditor BDO for Stanford Ponzi Fraud

May 14, 2012
By DAVID LEE

Investors defrauded by Allen Stanford's $7 billion Ponzi scheme say in court that the fund's auditor knowingly participated in the fraud.

The Official Stanford Investors Committee filed the federal complaint against BDO USA, and related entities BDO International, BDO Global Coordination and Brussels Worldwide Services. The complaint abbreviates Stanford Group Co. as SGC.

"Despite the pervasive fraud that infected Stanford Financial Group's operations, BDO USA repeatedly issued unqualified audit opinions on its Stanford clients' annual financial statements," the complaint states. "BDO USA's audit opinions on SGC's financial statements were critical to Stanford Financial Group's success."

In March, Stanford was found guilty of one count of conspiracy to commit mail fraud, four counts of wire fraud, five counts of mail fraud, one count of conspiracy to obstruct a U.S. Securities and Exchange Commission investigation, and one count of obstruction of an SEC proceeding. He was acquitted of one wire fraud charge.

"Allen Stanford and his co-conspirators used the promise of SIBL CDs to lure investor money into Stanford Financial Group and then stole billions of dollars in assets from Stanford Financial Group companies for their own personal benefit," the complaint states, abbreviating Stanford International Bank Ltd. certificates of deposit.

"Substantial sums of these stolen funds were used to: (i) support the lavish lifestyles of Allen Stanford and his Ponzi insiders; (ii) issue bogus, unsecured personal "loans" to Allen Stanford; (iii) capitalize other entities wholly owned by Allen Stanford; and (iv) fund investments in speculative, illiquid, and high-risk assets, including private equity holdings and massive investments in Antiguan real estate."

Investors say BDO USA provided critical services to Stanford Financial Group for over a decade, auditing the annual financial statements of Stanford Group Co., a Houston-based broker-dealer and investment adviser that recommended and sold SIBL CDs to investor.

BDO USA also allegedly audited the annual financial statements of Stanford Trust Company (Louisiana), which served as trustee and custodian to hold the SIBL CDs that SGC sold for its investors' IRA accounts. And it audited the annual financial statements of Stanford Group Holdings, a holding company for the broker-dealer arm of Stanford Financial Group, including SGC and STC, according to the complaint.

BDO allegedly played a significant role in weakening banking laws in Antigua, where SIBL was based. When Antigua came under increased scrutiny from foreign regulators, Stanford formed a task force to rewrite the country's banking laws, according to the complaint.

The task force allegedly succeeded both in weakening regulations, and in effectively eliminating SIBL's Antiguan competitors, making Stanford the country's de facto offshore banking regulator.

"The smashing success of the Stanford task force and its misleading regulatory 'reforms' were rooted in its exclusive nine-person membership," the complaint states. "Every firm represented on the Task Force provided crucial services to Stanford Financial Group, and every individual member of the Task Force was personally appointed by Stanford himself. ... BDO USA's partners and associates comprised nearly half of the Stanford Task Force's members, more than any other firm represented on the Task Force."

The key initiative of the task force was to amend Antigua's Money Laundering Act to ensure that "fraud" and "false accounting" were not included as violations, investors say.

BDO USA allegedly had some of the most important responsibilities in completing the initiative, including reviewing and advising on Antigua's banking laws, and making recommendations to Antigua's regulatory authorities, including procedures for supervising and examining international banks.

BDO USA's service on the task force completely undermined its independence from SFG and, and as a result, violated generally accepted auditing standards by issuing unqualified audit opinions on its Stanford clients' annual financial statements during the years that BDO USA served on the Stanford Task Force, the complaint says.

Investors also accuse BDO USA's audit engagement partner, Carlos Ancira, of concealing critical, material information from his own audit engagement team.

"Ancira knew that SGC was under increasing scrutiny from the SEC years before the U.S. Government seized Stanford Financial Group in February 2009," the complaint states. "Shockingly, however, Ancira reassured SGC in a February 28, 2007 email that '[d]ue to the sensitivity of the situation,' no other members of BDO USA's audit engagement team would be told about the SEC's investigation of SGC for possible securities fraud. Furthermore, Ancira's email permitted SGC's outside legal counsel to omit any discussion of the SEC investigation in its audit response letter."

For every year BDO USA audited SGC's annual financial statements, it failed to confirm that SGC remitted investor funds to purchase SIBL CDs and failed to properly modify its audit opinions, the complaint alleged. It also stated that BDO USA failed to properly consider and apply consolidation principles, failed in its role as a public watchdog and issued unqualified audit opinions in spite of knowing its Stanford clients "substantially" depended on SIBL CDs.

The investors seek actual and punitive damages for negligence, civil conspiracy, breach of fiduciary duty, fraud and conversion. They are represented by Guy Hohmann with Hohmann, Taube & Summers in Austin.

PLAINTIFFS' ORIGINAL CLASS ACTION COMPLAINT
Read the complete CLASS ACTION COMPLAINT here!

Related articles:
Allen Stanford Investors Sue His Accounting Firm! $10 billion class action suit.

Source.

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La. Stanford victims' negligence claims moving forward

March 20, 2012
By Leslie Turk

On Monday the 5th U.S. Circuit Court of Appeals in New Orleans reversed a 2011 lower-court ruling, clearing the way for state court class actions against financial advisers, lawyers and other third parties accused of aiding convicted financial Allen Stanford's $7 billion Ponzi scheme.

U.S. District Judge David Godbey in Dallas had ruled in 2011 that the federal Securities Litigation Uniform Standards Act, or SLUSA, barred the state cases in Louisiana and Texas because they were related to securities fraud.

But the federal three-judge appeals court panel said that law was only "tangentially related" to the fraud alleged by the plaintiffs, the sale of bogus CDs issued by Stanford's Antigua-based Stanford International Bank Ltd.

Defendants include Stanford financial advisers, SEI Investments Co, which was accused of inducing investors to move retirement funds into the CDs, and the insurance brokerage Willis Group Holdings.

Phillip Preis, a lawyer for plaintiffs who has estimated total losses of $1 billion among some 1,000 Louisiana investors, said the ruling was the most significant for investors since Stanford's fraud was uncovered in February 2009.

"It will allow us to assert negligence claims," Preis told the Chicago Tribune. "It's a big deal." The plaintiffs in the Preis lawsuits affected by the appeals court's decision claim that SEI Investments Co. and Stanford's financial advisers, among them Tiffany Angelle and Hank Mills, both of whom worked out of the former Lafayette office in River Ranch, either knew or should have known that Stanford was stealing their money.

Preis also told Baton Rouge's Daily Report that the ruling is significant because state law only requires that plaintiffs prove negligence, not outright fraud, on the part of those entities. Preis said the appeals court's decision makes it more likely that those people will be made whole:

Preis filed the original class action suit in Baton Rouge's 19th Judicial District against the Stanford Trust, trust administrator SEI, a major international firm, and the Louisiana Office of Financial Institutions. Defendants were able to move the suit to federal court, but the Fifth Circuit (Monday) remanded the suit back to Baton Rouge. Preis expects to meet with Judge R. Michael Caldwell during the next six weeks to set a new schedule for the suit. "All those big companies like SEI that supported Stanford," Preis says, "we have a very viable claim against them."

A Houston federal jury found Stanford guilty March 6 on 13 criminal counts, including fraud, conspiracy and obstructing the SEC's investigation. The 61-year-old could face more than 200 years in prison at his June 14 sentencing, or a maximum of about 20 years if he is sentenced to concurrent terms, the Tribune reported.

Appeals from the United States District Court for the Northern District of Texas

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Vitter Testifies at House Hearing, Continues to call for SIPC to Compensate Stanford Victims

March 7, 2012
For Immediate Release

(Washington, D.C.) - U.S. Sen. David Vitter today was invited to testify at the U.S. House Committee on Financial Services, Subcommittee on Capital Markets about some of the ongoing problems at the Securities Investor Protection Corporation (SIPC). Vitter testified about SIPC's refusal thus far to compensate the victims of the Allen Stanford Ponzi scheme.

Since early 2009, Vitter has been the leading Congressional advocate for Stanford victims, many of whom live in Louisiana.

The text of Vitter's testimony as prepared for delivery is below.

Thank you, Chairman Garrett and Ranking Member Waters and members of the Capital Markets and Government Sponsored Enterprises Subcommittee, for inviting me to testify here today. Congress has given the Securities Investor Protection Corporation (SIPC) incredible responsibility for protecting investors, and for that reason, it's vitally important and appropriate that we point the spotlight at SIPC to understand the ways that it is and is not working.

If there is one common cause between Stanford and Madoff investors, it's the way SIPC fought investors every step of the way and has absolutely refused to protect the victims of fraud. For three years the Stanford victims have been fighting just to have their day in court - and unfortunately, it's SIPC that they have to fight.

I fear we are in a situation where, if SIPC were a true financial regulator, we would call it regulatory capture. The actions of SIPC are dictated by the member companies rather than by the law. SIPC is functioning more like a trade association and advocate than a quasi-regulator.

I first became involved in the Stanford case because it has affected thousands of victims in the United States, and many of them live in Louisiana. Allen Stanford was adept at preying upon the savings of retired oil and gas workers in Louisiana in particular. Many of the victims have told me their entire savings has been lost because of the Stanford fraud, and that they have been forced to sell their home and re-enter the work force.

I want to be absolutely clear. I don't believe there is any need to change to the Securities Investor Protection Act in order to provide coverage for the Stanford victims. These victims are entitled to coverage under the law as it is currently written.

In the actual criminal case against Allen Stanford, he is accused of stealing customer funds. Instead of purchasing Stanford International Bank (SIB) "certificates of deposit" (CDs), the Stanford Group Company (SGC) which was a SIPC member, acquired control of its customers' funds and the funds were stolen by Allen Stanford. The Securities Exchange Commission (SEC) and courts have taken the position in litigation related to the receivership of Stanford's estate, that the Stanford companies operated as a Ponzi scheme and, "a Ponzi scheme is, as a matter of law insolvent from its inception." And, just yesterday, a jury convicted Allen Stanford on 13 of 14 counts related to this case.

In Old Naples Securities, Inc. the U.S. Court of Appeals for the 11th Circuit held that customers of an introducing broker-dealer who thought they were purchasing bonds through the broker- dealer were "customers" of an introducing broker-dealer within the meaning of SIPA and entitled to coverage under the statute. The court held whether a claimant deposited cash with the debtor "does not... depend simply on to whom the claimant handed her cash or made her check payable, or even where the funds were initially deposited." Rather, the issue was one of "actual receipt, acquisition or possession of the property of a claimant by the brokerage firm under liquidation."

Previously, the SEC has argued that "a customer's legitimate expectations" ought to be protected "regardless of the fact that the securities were fictitious." It is impossible for an insolvent entity issue legitimate securities. In re New Times Securities Services, Inc., the owner sold fictitious mutual funds, as well as bona fide mutual funds to investors via a register broker dealer that was a SIPC member and a non-broker-dealer entity.

Forensic accounting, which was done by the court appointed receiver, shows that the SIB CDs were not purchased by SGC for its customers, and therefore they are not worthless securities with zero value as argued by SIPC. Instead, these CDs are fictitious. The SGC customer funds were never transferred to the Antiguan bank and there was never any money standing behind the CDs.

On June 5, 2011, the SEC Commission voted on a determination that SIPC should provide coverage for the Stanford victims. In the analysis of the case provided by the SEC to SIPC, the SEC explains that on the specific facts of this case, investors with brokerage accounts at SGC who purchased the CDs through the broker-dealer qualified for protected "customer" status under SIPA.

In reaching its determination, the SEC cited the conclusions in the report of the court appointed-receiver for SGC, who noted that the many companies controlled and directly or indirectly owned by Stanford "were operated in a highly interconnected fashion, with a core objective of selling" the CDs. Among other things, the receiver also noted that "[c]orporate separateness was not respected within the Stanford empire... Money was transferred from entity to entity as needed, irrespective of legitimate business need. Ultimately, all of the fund transfers supported the Ponzi scheme in one way or another, or benefited Allen Stanford personally."

A SIPA liquidation proceeding would allow investors with accounts at the SGC to file claims with a trustee selected by SIPC. The trustee would decide whether the investors have "customer" claims that are protected by the statute, and an investor who disagreed with the trustee's determination could seek court review.

However, the ultimate roadblock to the victim's day in court is SIPC.

During the eight months since the SEC made its determination instructing to provide protection to the Stanford victims, SIPC has tried every conceivable idea to drag out making a final determination.

After the SEC's determination, SIPC ran up $200,000 of charges in June and July of last summer in reviewing the court appointed receiver's documents - a cost that will be ultimately be paid for with the money set aside for the victims. When asked about these charges, SIPC claimed that it was in order to do research into a settlement offer to the victims. However, an official settlement offer never materialized.

During the time between the SEC's determination and the SEC ultimately filing an application with the DC Circuit Court to compel a SIPA liquidation, I had many calls and meetings with Orlan Johnson, then Chairman of SIPC and his staff, including Stephen Harbeck. Concerns were raised by both Mr. Johnson and his staff on a reoccurring basis, as far back as our first meeting on this issue, about the cost to the SIPC fund of covering Stanford victims and how SIPC member companies would react to the need for SIPC to increase its assessments. I stressed in our discussions that I believe the only focus should be on providing the victims with swift resolution under the law in a manner that takes into account the complex nature of the fraud and uses the forensic accounting that had already been undertaken.

In these meetings and on these calls, it seemed to me, that SIPC was more interested in the cost of the resolution and protecting its Wall Street member companies than it was in doing their duty, doing the right thing, and immediately initiating a formal liquidation proceeding in the Stanford matter as ordered by the SEC. In fact, I was told that SIPC felt they would be sued no matter what they ultimately decided to do. SIPC was certain they would either be sued by the SEC or sued by their member companies.

During the course of these meetings and phone calls it also became obvious that SIPC hired lawyers to defend itself from the SEC while still negotiating a settlement offer, and SIPC has shown every indication it will continue to litigate this matter in court.

Currently, SIPC is fighting the SEC in court trying to avoid being compelled to file a protective order which would ultimately allow individual victims to get a judicial review of the merits of their claims against SIPC. While this judicial review is certainly part of the SIPA process, it was intended to be more of a summary proceeding, and I think everyone would be surprised at some of SIPC's tactics they are willing to use in order to avoid compensating the victims.

In a filing on February 16th, despite the fact that SIPC has run up a charge of $200,000 dollars with the court-appointed receiver, SIPC asked the judge to allow a discovery of documents related to who the customers were, the certificates of deposit and the corporate structure of the Stanford Companies. In addition, on Monday of this week, SIPC asked the judge for approval to review all of emails and documents of the SEC's legislative affairs team in a fishing expedition in an attempt to find a past instance where a staffer at the SEC might have said something that disagreed with what the SEC ultimately voted on months or years later.

The SIPA statute is 41 years old, and SIPC has never challenged the authority of the SEC in court the way it is now. SIPC has decided to test the SEC's authority to compel SIPC to protect investors. If SIPC persists on this pat, SIPC will undermine the faith investors have in markets and in SIPC coverage itself. Although I hope SIPC will see the error of their logic, I realize that ship has already sailed. I will continue to work on behalf of Stanford victims and all of Louisiana victims of securities fraud.

Chairman Garrett, I want to close by once again commending you on this timely hearing. I hope that my testimony shows that though no additional legislative action is needed to provide SIPC coverage for the Stanford victims, they are facing what amounts to regulatory capture and are in a desperate search for ways to hold SIPC accountable. Hearings like this one are a very important step in that process. I encourage you to bring them back before this committee on a regular basis to answer for their actions.

I hope at some point to hear Mr. Harbeck and Ms. Bowen tell the victims why they feel comfortable running up a $200,000 tab at the expense who have lost everything.

Thank you again Chairman Garrett, Ranking Member Waters and Members of the Subcommittee for the opportunity to speak on behalf of the victims.

Congressman Bill Cassidy questions CEO of SIPC Stephen Harbeck

Related article:

STIPULATED FACTS for SGC Customers

The Securities and Exchange Commission ("SEC") and the Securities Investor Protection Corp. ("SIPC") have reached the stipulated facts that are attached hereto. In addition, the SEC is still attempting to confirm and the parties are attempting to reach a stipulation to the following effect: "SIBL did not provide its investors with U.S. tax Form 1099 for the income purportedly earned on the SIBL CD investments. SGC did not include SIBL CD ‘interest income' on the Forms 1099 it provided to investors."

The Securities and Exchange Commission ("SEC") and the Securities Investor Protection Corp. ("SIPC") hereby stipulate and agree to the following facts only for purposes of the abovereferenced matter:
At the specified times or at all relevant times:

1. Stanford Group Company ("SGC") was a Houston-based broker-dealer that was registered with the Commission and a member of SIPC.

2. Stanford International Bank, Ltd. ("SIBL") was a bank organized under the laws of Antigua.

3. SIBL offered certificates of deposit ("CDs") to investors. In order to purchase a SIBL CD, an investor had to open an account with SIBL. CD investors wrote checks that were deposited into SIBL accounts and/or filled out or authorized wire transfer requests asking that money be wired to SIBL for the purpose of opening their accounts at SIBL and purchasing CDs.

4. Most SGC investors either received the physical CD certificates or had them held by an authorized designee, including Stanford Trust Company. To the extent that some SIBL CD investors did not receive the physical certificates, the SEC is not relying on that fact to support its claims in this proceeding.

5. SIBL CD investors received periodic statements from SIBL reflecting the balances in their SIBL accounts, including their CD balances. (An example of such a periodic statement is attached as Exhibit A.)

6. In the United States, disclosure statements for SIBL's CDs stated that "SIBL's products are not subject to the reporting requirements of any jurisdiction, nor are they covered by the investor protection or securities insurance laws of any jurisdiction such as the U.S. Securities Investor Protection Insurance Corporation." (An example of such a disclosure document is attached as Exhibit B.) A version of the marketing brochures for SIBL's CDs stated that SIBL CDs "are not subject to the reporting requirements of any jurisdiction outside of Antigua and Barbuda, nor are they covered by the investor protection or securities insurance laws of any jurisdiction such as the U.S. Securities Investor Protection Insurance Corporation or the bonding requirements thereunder.
There is no guarantee investors will receive interest distributions or the return of their principal." (An example of such a marketing document is attached as Exhibit C.)

7. SIBL and Stanford Trust Company are not and never have been members of SIPC.

8. For purposes of its Application in this proceeding, the SEC is relying on investors' deposit of funds for the purchase of SIBL CDs; it is not relying on transactions involving any other securities (or funds for other securities).

Source and Exhibits.

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Jury convicts R. Allen Stanford in investor fraud

March 6, 2012
By Loren Steffy

A federal court jury on Tuesday convicted Texan R. Allen Stanford of all but one count of an indictment alleging he ran a $7 billion fraud through an offshore bank.

Stanford, a Mexia native, was convicted of 13 counts of conspiracy, fraud, obstruction and money laundering. The counts of which he was found guilty carry total penalties of 230 years.

Stanford, 61, sat with his hands clasped over his mouth as he awaited the verdict, then looked to family members in the courtroom as U.S. District Judge David Hittner read the 13 verdicts of guilty and one of not guilty.

Evelyn Saravia, a friend of Stanford who has been in court every day since the trial began Jan. 23, wept as the verdicts were read, and family members wiped tears.

The 8-man, 4-woman jury acquitted Stanford of a wire fraud count alleging he bought Super Bowl tickets for co-defendant Leroy King, a regulator in the Caribbean nation of Antigua who is set for trial later.

On Monday, the jurors asked to review testimony about rules regarding gifts to Antiguan regulators, then told the court they were unable to reach a unanimous verdict on all counts.

Hittner ordered them to keep deliberating, and they reached the verdict after about 90 minutes of deliberations Tuesday morning.

Convicted Texan R. Allen Stanford

They broke for lunch, then returned to the courtroom at 1:30 p.m. Tuesday to consider a forfeiture matter they weren't aware of until after they returned the verdict.

The government asked jurors to find that in view of his conviction, Stanford must forfeit 29 bank accounts the government alleges contain investor money.

The jurors heard testimony on that matter Tuesday afternoon, and will deliberate it Wednesday.

Defense lawyer Ali Fazel said the defense team is disappointed in the guilty verdicts and plans to appeal.

Asked about Stanford's state of mind, defense lawyer Robert Scardino said, "He would be unusual, I think, if he was anything but depressed. It was a long, hard case and of course the consequences for Stanford are going to be dire."

Hittner did not immediately set a sentencing date for Stanford.

He has been jailed without bond as a flight risk since he was indicted in June 2009, four months after the Securities and Exchange Commission filed a fraud suit and shut down his international financial network, all part of Houston-based Stanford Financial Group.

The government alleged that Stanford and others defrauded investors in certificates of deposit issued by Stanford International Bank in Antigua.

Stanford declined to testify in the case, on the advice of lawyers.

The jury convicted Stanford on one count of conspiracy to commit mail or wire fraud; four counts of wire fraud; five counts of mail fraud; one count of conspiracy to obstruct a U.S. Securities and Exchange Commission proceeding; one of obstructing an SEC proceeding; and one of conspiracy to commit money laundering.

The government's star witness was Stanford's former chief financial officer, James Davis, who has pleaded guilty for his role in the scheme. Evidence included documents showing that potential customers were attracted by the offshore bank's higher rates of interest and guarantees of "safe and conservative" investments, from 1990 until federal regulators shut it down on Feb. 17, 2009.

Other key evidence came from FBI agent Robert Martin, who once worked as a banking officer. He showed jurors weeks ago how government investigators traced funds from the bank to a secret Swiss bank controlled by Stanford. From there, some of the money went to King and to an auditor, who signed off on the bank's annual report numbers, as well to other Stanford bank accounts in Houston and Florida.

By the time federal regulators shut down Stanford's enterprise, the government claims, Stanford had taken more than $2 billion from the offshore bank in loans.

Federal prosecutors said Stanford was taking $1 million a day out of the Antigua bank by the end of 2008.

Source.

Related article:
1) Indictment vs. Robert Allen Stanford.
2) Stanford Jury Instructions.

Convicted Texan R. Allen Stanford

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Stanford Told Investors "Lie After Lie" and now he is trying to "game the system"

January 28, 2012

Stanford's lawyer told the panel that the CDs sold by the Stanford bank weren't securities and that Stanford's clients had no say over how their money was invested.

Robert Scardino, one of Stanford's court-appointed lawyers called those CD purchasers "sophisticated investors" whom he said "know what a CD was and what it wasn't."

They also received promotional materials from Stanford's business disclosing that past performance was no guarantee of future success and that an investor could lose the entirety of an investment.

Well, it seems Scardino and defense lawyer Ali Fazel should look at these promotional materials from Stanford's business!

Gregg Costa, the lead federal prosecutor, has said that Mr. Stanford is trying to "game the system."

"You're still pushing that?" Judge Hittner responded incredulously when he heard from the defense lawyers that Mr. Stanford was unable to participate fully in his defense.

Trial Set for Financier Accused in Decades-Long Ponzi Scheme

Stanford Told Investors "Lie After Lie"

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SEC Said to Prepare Vote on Cases Against Ex-Stanford Execs

January 10, 2012
By Joshua Gallu

U.S. Securities and Exchange Commission investigators have proposed sanctions against at least five former Stanford Financial Group Co. executives and brokers for their roles in selling investments that fueled R. Allen Stanford's alleged $7 billion Ponzi scheme, according to two people with knowledge of the matter.

The SEC's five commissioners are scheduled to vote Jan. 12 on whether to authorize the enforcement actions, which target brokers and senior executives at Stanford's Houston-based brokerage, the people said, speaking on condition of anonymity because the matter isn't public. The vote by the commissioners could still be delayed or tabled, the people said.

The actions, which seek to bar the executives and brokers from working in the industry and claw back sales commissions, come almost three years after the SEC sued Stanford and a federal grand jury indicted him on 21 criminal counts alleging he used his U.S. brokerage to sell bogus certificates of deposits for his Antigua-based bank.

The SEC lawyers claim the employees ignored red flags signaling that they were selling fraudulent products, such as above-market returns promised on the CDs and outsized commissions to the brokers who sold them, one of the people said.

The investigators are treating the cases as a legal test of whether they can sanction brokers for failing to conduct due diligence on in-house products, the people said. If successful, the cases could be replicated against more ex-Stanford brokers over time, said the person.

Former NASD Official

One of the former Stanford employees whose actions were reviewed by investigators was Bernerd Young, the former regulator who later became Stanford's chief compliance officer. Young received a notice in June 2010 from SEC investigators that they planned to recommend an enforcement action against him for his role in the Stanford matter, according to his broker records.

Young became the top compliance official at Stanford's brokerage in 2006 after having worked for nearly two decades at the National Association of Securities Dealers, which later became the Financial Industry Regulatory Authority, the brokerage industry's self-regulator. He headed the NASD's Dallas office from 1999 to 2003, Finra said in a 2009 report. Young now works at Magnolia, Texas-based MGL Consulting LLC.

"Aggressive Defense"

"If the Commission authorizes the Staff to bring a formal action against Bernie, it will be met with a fierce and aggressive defense," Melinda G. LeGaye, founder and president of MGL Consulting, said in a statement today. The SEC staff "has repeatedly changed its focus in an attempt to secure Commission authorization to bring a formal action against him."

Young "has continued to cooperate and provide documentation and detailed explanations to not only refute the Staff's allegations but also to assist in their understanding of events while Bernie was at Stanford Financial Group," LeGaye said.

Randle Henderson, an attorney for Young, said in a phone interview that he didn't know whether the SEC was considering sanctions against Young. He said he has submitted multiple briefs to the SEC in defense of his client.

Trial Date

Stanford, 61, has denied the fraud allegations and last month requested that his Jan. 23 trial date be delayed by three months after his expert witnesses quit because they weren't being paid. He is being held without bail. Stanford's former accountants and heads of finance and investment also face criminal and civil claims.

The SEC has been reviewing the case for more than two years as Stanford customers and lawmakers criticized investigators for not catching the alleged scheme sooner. The SEC's inspector general said the agency didn't conduct a meaningful probe of Stanford's business until 2005, even though examiners suspected fraud eight years earlier.

Source.

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2 former Stanford brokers say SEC let them down

January 5, 2012
By Purva Patel, HOUSTON CHRONICLE

Former Stanford Financial Group brokers Charles Rawl, left, and Mark Tidwell say SEC attorneys promised them legal protection, but the receiver appointed to recover assets in the case sued both of them for hundreds of thousands of dollars. Photo: James Nielsen / © 2011 Houston Chronicle

Former Stanford Financial Group brokers Charles Rawl and Mark Tidwell say they helped regulators build a fraud case by supplying the government with emails, testimony and names of people to question.

They answered questions when Securities and Exchange Commission investigators camped out at the Stanford offices near the Galleria before shutting down the firm in February 2009.

All along, they say, SEC attorneys promised them legal protection to quell their concerns about retaliation by Stanford or being lumped together with anyone implicated in the investigation.

By the end of the year, however, the receiver appointed to recover Stanford's assets sued both brokers for hundreds of thousands of dollars in earnings the receiver claims are related to the sale of Stanford financial products.

"We've been totally shafted by the system," said Rawl, who has testified about his predicament before the House Financial Services Subcommittee on Oversight and Investigations.

The former head of the Houston firm, R. Allen Stanford, is scheduled for trial later this month on charges that he swindled investors who bought CDs issued by Stanford's bank in the Caribbean island nation of Antigua.

Three other former company executives are to be tried later. A Houston federal judge on Thursday denied the latest of several attempts by Stanford's lawyers to delay his trial.

The receiver is suing Rawl for $732,946 and Tidwell for $1.1 million. Neither has anything in writing from the SEC promising protection, though their attorney confirms being told his clients would be protected. An SEC spokeswoman declined to comment.

Kevin Sadler, an attorney for receiver Ralph Janvey, said the receiver was not a party to whatever discussions the brokers may have had with the SEC.

Loss of billions

"Rawl and Tidwell were compensated well for selling CDs that were fraudulent, and they have no legal, equitable or moral right to keep the bonuses and commissions they were paid for selling CDs," he said. "These two brokers still have that money, while thousands of investors have lost billions."

None of the more than 300 former Stanford employees the receiver has sued for about $215 million in CD-related proceeds has returned any of the money made from CD sales, he said.

Other lawyers who deal with receivers noted that receivers are appointed by the court and work for the court, even if regulators suggest them for appointment.

"It would certainly be in the receiver's purview because the receiver has an independent fiduciary duty to look out for the interest of all of the creditors and other parties who may have an interest in that property," said Michael Good, a California bankruptcy attorney.

Unless Rawl and Tidwell have written documentation of an agreement with the receiver, they may not have much of a case, Houston bankruptcy lawyer Wayne Kitchens said.

Witness protection?

It would be unusual for the SEC to offer a witness any protection except from action by the SEC itself, he said.

Rawl and Tidwell say they assumed they would be protected at all levels. They say they risked their jobs by alerting Stanford management about their complaints and taking their concerns to the SEC after resigning from the firm in 2007.

It wasn't until after they filed a lawsuit in state court and news of the Bernard Madoff fraud case broke in 2008 that the SEC sought more information about Stanford, the pair said.

Rawl and Tidwell, who had adjacent offices at Stanford Financial, started their own firm in 2007. But the pending lawsuit makes it difficult to get new business or licensing in other states, they said, and the litigation prompted the Certified Financial Planners Board of Standards to open inquiries into their certifications.

Lawsuits between the pair and Stanford Financial before the firm was shut down also fueled rumors that the two were responsible for the company's downfall.

In litigation that has since been put on hold as the government proceeds with its case against the firm, the pair said they were forced to resign because they didn't want to comply with certain business practices they found alarming. The firm countered with its own suit, calling them disgruntled employees who were fired and owed the company hundreds of thousands in loans that were part of their compensation packages.

"I did exactly what I was supposed to do. I did it without any protection from the law, and I'm the bad guy," Tidwell said. "It's disheartening to know that American citizens are relying on this system to protect them, and they're going to be more than disappointed."

Source.

Related article: How the SEC really treats "Whistleblowers" - Second Part.

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Madoff's case bigger, but Stanford's messier

	December 13, 2011 By Loren Steffy From the beginning, the collapse of R. Allen Stanford's financial empire was unlike other financial scandals, and the aftermath of his alleged $7 billion
Bernard Madoff vs Allen Stanford.
fraud has been messier than normal for investors in such cases. Bernard Madoff, after all, orchestrated a Ponzi scheme almost 10 times bigger than the one Stanford is accused of running, yet Madoff pleaded guilty and is serving a lifetime prison sentence. A receiver (Irving Picard) has recovered billions that is being distributed to investors, and an insurance pool funded by the brokerage industry is covering at least some of the additional losses. Not so in the Stanford case. Investors are likely to recover almost nothing from the receiver Ralph Janvey, and on Monday, the Securities and Exchange Commission sued the industry insurance fund, the Securities Investor Protection Corp., which since June has refused the SEC's order to pay. Stanford Financial was an SIPC member, and it slapped the fund's logo on its investment offerings. While the SIPC doesn't provide blanket insurance - it only protects against securities that are lost or stolen in brokerage failures, not losses on the value of investments - it was happy to allow Stanford to use its name to foster a false aura of security. It now argues that those same investors don't deserve coverage because Stanford brokers were peddling certificates of deposits issued by Stanford's Caribbean bank. But investors I've spoken with said their money went through, and perhaps never left, Stanford's brokerage with the SIPC seal on the door. The distinction between the Stanford and Madoff cases is most stark in how investors have been treated by the organizations that are supposed to protect them. Madoff was, after all, a Wall Street insider who catered to other well-connected financiers and movie stars. The SIPC agreed to cover their losses. Kevin Bacon, it seems, will have a lesser degree of separation from his wealth than the average Stanford investor. Similarly, when MF Global, a commodities trader run by the former U.S. senator and Goldman Sachs honcho Jon Corzine, tanked on bad investments in European markets, the SIPC rushed in to repay some of the losses for the firm's wealthy hedge fund clients. Stanford's investors for the most part are more pedestrian. They were well-off but not wealthy. Most invested for retirement, and while much was made of the ridiculous interest rates promised on Stanford CDs, investors said what attracted them most was the safety. They were looking for a shelter from turbulent markets, and CDs, Stanford brokers told them, were a safe move. Many didn't go to Stanford, Stanford came to them. The firm built its brokerage by recruiting investment advisers from other firms who brought clients with them. Seduced by the green marble desktops and cherry-wood interiors, they knowingly or not lured into Stanford's web clients with whom they'd built up trust over many years. Stanford's investors also were hurt by bad timing. Their plight came just months after Madoff dominated the national news, and it was overshadowed by a mounting recession, looming bank failures and government bailouts. And so, amid national disinterest and regulatory foot-dragging, Stanford investors have become the alleged victims of a forgotten fraud. It's not surprising, then, that their fate depends on the unprecedented legal action by the SEC against the SIPC. For three years, they've had to fight just for a chance to grab the safety net that was thrown to investors in other scandals.

Source.

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International Victims Charge America to play Fair

October 22, 2011
PRESS RELEASED By Kate Freeman

In 2009 on the heels of the Madoff fraud, the Ponzi scheme operated by R. Allen Stanford was uncovered which has received widespread media coverage in the United States. What has not been widely reported is that only 4,000 of the 21,000 victims worldwide are US citizens. The remaining 17,000, the vast majority, are innocent victims from around the globe, who all have one common cause; to recover their life savings, stolen by the US citizen R. Allen Stanford, under the guise of his Stanford Financial Group, based in Houston, Texas, and regulated by the United States Securities and Exchange Commission.

It is now almost three years since R. Allen Stanford was charged with fraud and his various enterprises wound-up and sold by the US court appointed receiver Ralph Janvey. Yet to date there has been no distribution of any funds recovered by the receiver, nor even a mechanism created whereby those funds can be fairly distributed equally among all the innocent victims, some of whom have lost their homes and become ill, while others have died waiting. Meanwhile the receiver, his general counsel, Kevin Sadler of Baker Botts, and the other advisors he has engaged are consuming all the available funds they have collected.

Further, in the United States there has been no recognition that anyone but US voters and taxpayers have been harmed by this massive fraud, perpetrated by a US citizen, based in Texas, where officials of the US regulator preferred to spend their time at work watching porn instead of taking the enforcement actions they were charged with, against a business they knew to be a fraud.

The failure of the SEC in detecting the Madoff Ponzi scheme has been well reported and investigated, yet some of those SEC officials who missed Madoff knew as far back as 1997 that Stanford may be a fraud. The Stanford empire was investigated by the SEC on at least four occasions, first in 1997, and they concluded even back then it was likely a massive Ponzi scheme, yet no action was taken, as the SEC did not think there were any American investors, consequently they permitted the fraud to continue and grow exponentially for a further twelve years, abandoning 21,000 innocent investors to their fate, simply because they believed it did not concern US interests. How wrong could they be, and how prejudiced in their negligence and blatant disregard for their duties.

The SEC have been investigated for their failure to detect the Stanford fraud, and heavily criticized. Their own Inspector General has stated that the depth of their failure is unbelievable; and US congressmen have claimed that the debt they owe the Stanford victims is enormous, and demanded that they should act swiftly, so families whose retirement and savings were stolen as a result of greed and government failure can begin to rebuild their lives.

Following the investigation, earlier this year many hundreds of innocent Stanford victims worldwide filed protective claims against the SEC for negligence under the Federal Tort Claims Act. The SEC have had their allotted six months to respond, yet remain unconscionably silent, with no regard for the consequences of their complicity, or the demands of elected officials.

Now the SEC finds themselves and their appointed receiver once again under investigation, for the way they have conducted this receivership.

The Securities and Investors Protection Act was passed by congress to provide a fund to repay innocent victims of US securities fraud, irrespective of their nationality or place of abode. It gave the registered broker/dealers a veneer of respectability and investors the comfort of believing there was a safety net should the worst happen and any of the US financial advisors they trusted turn out to be liars, crooks, or thieves.

It has taken the SEC two years, under considerable political pressure, to instruct SIPC to do the right thing, yet we now learn the number of innocent victims who believed they were eligible for compensation may be limited further, and that SIPC themselves may raid the receivership estate, to recover their losses at the expense of the remaining victims.

Whenever innocent foreign victims of the Stanford fraud have asked for recognition in the United States, invariably they have been told that Stanford operated his fraud from the small Caribbean island of Antigua, and what rights have they to expect that US authorities and officials have any obligation or other moral duty to extend assistance. The tentacles of the Stanford empire stretched halfway around the globe and in each of its outposts was portrayed as a safe, stable, and conservative institution backed by a major Texas based group, regulated in the US, extending equivalent protection to investors worldwide to that benefiting US citizens. Further, R. Allen Stanford, the founder and sole shareholder was compared by Forbes to the likes of UBS and Wachovia, who accredited him as one of the United States 400 wealthiest individuals, with a portfolio of $51bn under management. After the president of the United States, George W Bush, and a raft of US senators and congressmen also lent Stanford their endorsement, how could his credibility possibly be questioned further?

At the request of dissatisfied victims of the Stanford fraud, the courts have recently appointed two very experienced directors of Grant Thornton as joint liquidators of Stanford International Bank, and charged them to recover and distribute, fairly and equally, and in the shortest possible time, the losses stemming from the Stanford Ponzi scheme. Grant Thornton have been recognized as the most proper person to recover losses stemming from the Stanford fraud, with the best chance of success by courts in every jurisdiction worldwide, except in the United States, where the receiver, Ralph Janvey, and his 'official' investors committee, comprising mainly self-interested attorneys, have contrived to establish a network of vested interests which serve primarily to benefit themselves, and through which they have reached an agreement whereby they may charge excessive fees which may run to hundreds of millions of dollars, all at the expense of all the innocent victims. Grant Thornton has strived to reach a workable protocol with Janvey for the benefit the innocent victims, yet the vested interests in the US continue to block any agreement from being reached.

There are frozen funds overseas, to the tune of $250m that Grant Thornton wish to recover and distribute equally, transparently, and quickly, to all the Stanford victims worldwide, yet they have been further blocked by the United States Department of Justice, who seek to 'repatriate' those funds to the US, to be distributed; how? These are funds that did not originate from the US yet the DOJ insists that US minority interests should once again be given preferential treatment.

The perpetrator of the fraud R. Allen Stanford still awaits trial in Texas. Unlike Madoff he has not confessed, but pleads the fifth amendment; has changed attorneys as frequently as changing his socks; claimed incompetence; drug addiction; and now memory loss; what next? His trial has been postponed twice, and is now due to be heard in January 2012, meanwhile many of the initial charges have been dropped, and there are some who believe he may soon be granted bail, and conveniently disappear.

In a recent twist many of the lawsuits that may eventually benefit the victims of this fraud, already delayed two years due to restrictions imposed by the judge appointed by the DoJ to hear the criminal case against Stanford; may now fail entirely, following a ruling by another judge; appointed by the SEC to preside over the civil case, all at the expense of the innocent victims.

Enough is enough. The United States authorities and institutions have failed us all, not just US citizens, and we all deserve to be treated equally. We have all seen our entire life savings stolen by a US citizen who was permitted to operate for years due to the negligence of the US regulator, and we now find US court appointed officers determined to line their pockets at the further expense of the innocent victims, and through political pressure, place US citizens in a preferential position, while the perpetrator of the fraud continues to mock us all.

It may not appear so to the US victims of this fraud but the world is watching just how self-interested and how little regard some officials and citizens of the US appear to have for anyone but themselves.

All 21,000 innocent Stanford victims lost their life savings in this massive fraud. All the foreign victims ask is to be treated with fairness, equality, and with due respect. No more humiliation and injustice. Is it too much to ask that the officials of the world's most powerful, wealthy, and technologically advanced nation show some integrity, accept responsibility for the consequences of their complicity in the Stanford fraud, and make due recompense without further delay to each and every victim regardless of class, creed or citizenship.

Source in English.

Source in Spanish.

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