Once a high-flying Texan billionaire, Allen Stanford was yesterday found guilty in a Houston court of running a 20-year, US$7B Ponzi scheme during which he bilked investors in 113 countries – including Guyana – and he faces spending the rest of his life in prison.
A day after they told the judge in the case that they were having a difficulty arriving at a verdict, jurors found Stanford – the man who sparked Twenty/20 cricket frenzy in the Caribbean – guilty on 13 of 14 counts.
Stanford – some of whose tournament proceeds were invested in a cricket facility here – showed little emotion after the verdict was delivered. Shortly after, he returned to the courtroom for hearing into a case brought by the US to forfeit US$300M found in 30 bank accounts. Some of this money could potentially go to defrauded investors but would be a few cents on the dollar. Another series of trials will see a regulator from Antigua – the place where Stanford set up much of his money pulling business and which was left in crisis after the collapse of his empire – facing a charge of bribery.
In Guyana, the Hand-in-Hand Trust was exposed to the Stanford empire to the tune of $822M and Citizens Bank to a smaller amount.
According to Reuters, yesterday’s verdict was a vindication for the U.S. government, which shut down Stanford’s financial empire in February 2009 but had failed for years to tackle signs that the business was built on air. The Stanford case was the biggest investment fraud since Bernard Madoff’s.
Stanford was found guilty on 13 counts of a 14-count criminal indictment, including fraud, conspiracy and obstructing an investigation by the U.S. Securities and Exchange Commission. He was found not guilty on one count of wire fraud. The charges carry a possible prison sentence of nearly 20 years and the jail terms could be applied consecutively.
Reuters said that as Stanford, 61, was led out of the courtroom after the verdict, he touched his fist to his heart and looked at the bench where his mother and two daughters sat. He has been in jail since his June 2009 arrest.
“We’re disappointed in the outcome,” said Stanford’s defence attorney Ali Fazel. “We do expect an appeal.” He said he expects sentencing in several months.
The verdict came less than a day after the Houston federal jury said it could not reach a decision, and U.S. District Judge David Hittner instructed jurors to keep deliberating.
Reuters added that the verdict may prove only a moral victory for Stanford’s victims. Most have received none of the money back they invested in Stanford’s certificates of deposit.
“For all the investors I think there is a sense of relief that they weren’t just fools,” said Cassie Wilkinson, a Houston investor in Stanford funds who attended the six-week trial told reporters. “There was a jury of 12 people who found the same thing – that we were just conned.”
Stanford’s collapse was one of the most closely watched fraud cases since Madoff’s. Madoff, 73, pleaded guilty in 2009 to orchestrating what prosecutors have called a US$64.8 billion Ponzi scheme. He is serving a 150-year prison sentence.
The guilty verdict did not end the Stanford saga. Reuters said that the jury of eight men and four women, including a pawn shop operator and a retired hairdresser, were back in the courtroom yesterday afternoon to consider the government’s demand that more than US$300 million in assets linked to Stanford be forfeited.
The money, Reuters said, is held in more than 30 bank accounts in Geneva, the United Kingdom and Canada in the names of Stanford and other entities, according to the government.
“Every single dollar that the U.S. is seeking to forfeit is CD depositor money that stems from Mr. Stanford’s crimes and belongs to the victims of his crimes,” prosecutor Andrew Warren said in opening statements.
‘PERSONAL ATM’
Stanford’s personal fortune was once valued at US$2.2 billion.
At trial, Reuters said that prosecutors told how he repeatedly raided the bank he owned in Antigua, Stanford International Bank, using it as his “personal ATM.”
He bought a castle in Florida for one of his girlfriends and his oldest daughter lived in a million-dollar condominium in Houston. He wore custom-made suits, lived in luxury homes and on a yacht in the Caribbean and bankrolled a US$20 million prize for an international Twenty/20 cricket tournament.
Reuters said that the government’s star witness, former Stanford aide James Davis, testified that he and Stanford faked documents and made up financial reports to quiet investors and fool regulators. His testimony said that they funneled millions of dollars from Stanford International Bank to a secret Swiss bank account that Stanford accessed for his personal use.
Davis, 63, has pleaded guilty to three criminal counts.
Reuters noted that Stanford’s lawyers portrayed their client as a visionary who was not involved in his firm’s daily activities. They cited Davis for any fraud and argued that Stanford’s businesses were viable until the US government shut down Stanford Financial Group in Houston in February 2009. Left with no money, Stanford was declared indigent by the court and his defence was paid for with public funds.
BRAIN INJURY
While in jail awaiting trial, Stanford was beaten by another inmate, leaving him with a brain injury and broken bones in his face. He then became addicted to an anti-anxiety medication. His lawyers argued that those events caused him to lose his memory, making him incompetent to stand trial.
After eight months at a prison hospital in North Carolina, Reuters said, he was deemed competent to stand trial. Before his trial began on January 23, Stanford’s lawyers said their client wanted to tell his story to the jury, raising the possibility that he would take the stand. Ultimately, he did not testify.
Stanford grew up in Mexia, Texas. He studied finance at Baylor University, where Davis, who later become chief financial officer of Stanford Financial Group, was his roommate, Reuters reported.
In the 1980s, Stanford bought up real estate in Houston with his father, later selling it at a profit. In 1986, he opened an offshore bank on Montserrat but after banking regulations there tightened, he moved his operation to Antigua.
Reuters said that the bank specialized in aggressively selling certificates of deposit to wealthy people. His former employees testified at the trial that they targeted clients in Latin America, especially Venezuela, and oil company workers with big pensions who lived along the U.S. Gulf Coast.
In Antigua, he became a philanthropist and sponsor of cricket in a wildly popular tournament, and was known as “Sir Allen” after being knighted there in 2006. By 2008, Stanford made No. 205 on Forbes magazine’s list of the wealthiest Americans, Reuters reported.
But questions surfaced continually about how Stanford International Bank’s CDs could pay above market rates. By February 2009, investors were trying to withdraw their money and, on February 17 of that year, the government raided his headquarters in Houston and shut it down.
Antigua stripped him of his knighthood and seized his local assets.
Civil lawsuits
Reuters added that the conviction could be bad news for two prominent law firms and an attorney facing civil lawsuits arising out of the Texas financier’s crimes.
Attorney Thomas Sjoblom and New York-based law firms Chadbourne & Parke and Proskauer Rose are defendants in several class actions and other lawsuits brought by Stanford Financial investors, who claim they lost hundreds of millions of dollars as a result of the fraud.
Filed mostly in Texas, Reuters said that the lawsuits allege that Sjoblom, who worked at Chadbourne & Parke from 2002 to 2006 and at Proskauer Rose from 2006 to 2009, helped Stanford cover up the Ponzi scheme and evade authorities. Investors claim that the firms failed to properly supervise Sjoblom and were negligent in hiring him.
Sjoblom and the law firms also are defendants in a US$1.8 billion lawsuit filed in January in Washington, D.C., federal court by the receiver for Stanford Financial, who alleges claims similar to those filed by the investors.
Legal experts said that yesterday’s jury verdict against Stanford on 13 counts of fraud could bolster the class actions and individual cases against the firms and Sjoblom.
“We now know there were bad actors and people suffered. The only question left is who should pay for it,” said Michael Downey, a legal malpractice attorney with law firm Armstrong Teasdale who is not involved in the Stanford matter. “The issue will be ‘should we make these poor innocent investors bear the losses or the lawyers who helped make it all happen.’“
Daniel Richman, an evidence professor at Columbia Law School, told Reuters the criminal conviction does not guarantee a win in the civil actions. But the verdict could mean that information favourable to the civil cases about the scheme will “shake out,” he said.
Stanford was accused of defrauding about 30,000 investors for more than 20 years in 113 countries with high-interest certificates of deposit at Stanford National Bank, based in Antigua.
The Associated Press said that the most serious charges against Stanford carry up to 20 years in prison, and if Judge Hittner ordered him to serve his sentences consecutively, the 61-year-old could spend the rest of his life behind bars.
AP said that three other former Stanford executives are scheduled for trial in September. A former Antiguan financial regulator accused of accepting bribes from Stanford also was indicted and awaits extradition to the U.S.
According to the New York Times, Davis testified that the Stanford business empire was a fraud complete with bribes for Antiguan regulators and schemes to hide operations from federal investigators. He described for the court how Stanford had dispatched him to London to send a fax to a prospective client from a bogus insurance company office to reassure him that his investment would be safe.
Prosecutors had said that he treated Antigua like his personal business haven, with politicians and regulators in tow, through bribes and political campaign contributions.
Hand-in-Hand Trust
Following the collapse of the Stanford empire in February 2009, Hand-in-Hand Trust had revealed that it had invested approximately $822 million (at an exchange rate of $203 to US $1) over the previous year in the Antigua-based Stanford International Bank (SIB).
HIHT treated the investment as impaired. It took a lot of flak for the investment in the SIB, with accusations coming from several quarters that it did not conduct adequate due diligence. However, the Trust had refuted this allegation and said that adequate due diligence was done. CEO of the Hand in Hand Group of Companies Keith Evelyn had stated that the Hand-in-Hand Trust had been investing in the SIB over the preceding three years and said that the bank had always been faithful with its interest payments. He said that the decision to invest in the SIB was made by the Investment Committee of the Company after it had carried out due diligence studies.
The CEO stated that at no time did this arrangement appear too good to be true and said that the interest rate of 7 percent that the SIB was offering was good but not extraordinary.
Evelyn added that while a legal team had been hired to fight the local company’s claims, developments made it clear that it was unlikely any of the money would be recovered.
The $822M was later written off by the company.
Citizens Bank also wrote off $170M in 2009 which comprised impaired investments in the Stanford empire and CLICO which had collapsed earlier that year too.
After Guyana won the inaugural Stanford Twenty/20 tournament in 2006 in Antigua it got a US$100,000 grant from Stanford for cricket development and other areas. Ironically, a training facility that was built ended up being mired in a dispute between the national and regional boards over its condition and other matters.
Stanford’s showiest cricket gambit was US$20M in prize money for a game between a West Indies team and one from England in November of 2008, months before US regulators descended on him. It was argued that his deep involvement in cricket where he enlisted former Windies greats for various purposes was a ploy to suck in money from the Caribbean and further afield.
