Charges filed by the Securities and Exchange Commission (SEC) portray the flamboyant Sir Allen Stanford as the ponzi-master’s offshore equivalent, perpetrating a fraud of “shocking magnitude” based on “false promises” and fabricated performance data, primarily through his Antigua-based bank.The central allegation is that Stanford International Bank hoodwinked investors over the safety and liquidity of uninsured certificates of deposit (CDs). It took in some $8 billion, consistently offering rates well above those of big banks—sometimes more than twice as high. Despite assurances that the money was going into liquid securities, much of it was apparently ploughed into sticky assets such as property and private equity.How well these performed is unclear, but the stated returns were suspiciously smooth and impressive: consistently in the low double digits for over a decade, with a loss of just 1.3% last year, when stockmarkets around the world crashed. Unlike Mr Madoff, Sir Allen has not been accused of running a ponzi scheme, although it is possible that large sums have been lost in unwise bets. Hundreds of the bank’s 30,000 clients descended this week on its neo-Georgian headquarters, conveniently located next to the airport of St John’s, the Antiguan capital, demanding their money back. Depositors also besieged Stanford’s smaller, onshore Bank of Antigua, as well as operations in Venezuela and Panama. A big chunk of the client base is Latin American, although Americans reportedly ploughed in as much as $1.5 billion. The SEC says it is, so far, unable to account for the bulk of assets. In total, the group claims to have more than $50 billion “under advisement”.The hoodwinking ran deep, according to the SEC’s complaint. The portfolio was not, as claimed, monitored by a team of more than 20 analysts, but by the sole shareholder himself and his chief financial officer, an old college classmate. Many of the holdings were known only to these two. Among those on the cosy investment committee were Sir Allen’s father and a neighbour with cattle-ranching experience.
Investors can perhaps be forgiven for failing to spot this in-bred governance structure. Other warning signs were more obvious: the implausibly small auditing firm that Stanford used—a trick out of Mr Madoff’s book; the labyrinthine corporate structure; and a stunning lack of transparency. The chief investment officer told staff not to reveal too much about the oversight of investments because it “wouldn’t leave an investor with a lot of confidence”.
Once again, regulators are shuffling uncomfortably in the spotlight. Antigua’s financial regulator has lived down to its reputation for being supine even by Caribbean standards. It gave Stanford a clean bill of health a few months ago (although, contrary to the bank’s claims, it did not perform a full audit). Sir Allen’s local largesse and political connections may have helped here. His knighthood came from a grateful Antiguan government, not Queen Elizabeth.
American regulators have been more assiduous, yet they are still open to charges of foot-dragging. FINRA, which oversees brokers, fined Stanford several times in recent years, including a $10,000 penalty for misrepresenting the “risks and potential benefits” of its CDs. Such a small fine will fuel suspicion that the self-regulatory body is too close to the industry. The SEC began probing Stanford as far back as 2006.Even then, it was arguably late to the game. Law enforcers had been sniffing around Sir Allen since the late 1990s, when he lost his banking licence in Montserrat, another Caribbean island. His group’s murkiness has long alarmed those who looked closely. “There was no excuse for anyone with an ounce of sophistication to invest,” says David Marchant of Offshore Alert, a newsletter. At least one trading partner grew wary long before regulators tightened the noose: in early 2008 Pershing, a Stanford custodian, sought an independent report on its financial health. In December, after being told that this was “not a priority”, it stopped processing the bank’s transfers.The SEC stepped up its probe after its Madoff mis-steps. But a bigger impetus may have been a deeply sceptical report on Stanford’s investment returns, published in January by Alex Dalmady, an independent analyst. The blogosphere picked this up, and within days it was making headlines worldwide. This offers hope for those who despair of the SEC’s bungling, suggesting that in the internet age forensic vigilantes and devil-may-care bloggers can, to some extent, fill the gap left by dilatory regulators and libel-constrained mainstream media
0 comments:
Post a Comment