Stanford’s Alleged Fraud Said to Be Under Investigation by FBI

U.S. regulators’ allegations of a “massive” fraud run by Houston billionaire R. Allen Stanford and companies he operated are being investigated by the FBI, a person familiar with the case said.

The U.S. Securities and Exchange Commission sued Stanford and two aides on Feb. 17, accusing them of orchestrating a fraud involving $8 billion placed by investors with Stanford International Bank and two related firms.

No criminal charges have been filed against Stanford or his co-defendants in the SEC case: Stanford Chief Financial Officer James M. Davis and Laura Pendergest-Holt, chief investment officer of the Stanford Financial Group. Federal marshals shut the Houston office of Stanford Group Co.

“The SEC case is a precursor for the criminal investigation and inevitable criminal charges,” said Dan Cogdell, a Houston attorney who defended several Enron Corp. executives against federal securities-fraud charges.

Based on allegations in the SEC complaint, prosecutors might have grounds to charge some of the defendants with mail fraud, bank fraud, securities fraud, money laundering “and a host of less felonious acts,” he said.

Houston U.S. Attorney’s Office spokeswoman Angela Dodge referred questions regarding possible charges against Stanford to the SEC. Alfredo Perez, a spokesman for the U.S. Marshal’s office in Houston, said he wasn’t aware of any arrest warrants for the three executives, which he said wouldn’t be issued until any charges are filed.

Whereabouts Unknown

The SEC said yesterday that Stanford’s whereabouts weren’t known. Federal officials were unable to say if Stanford has retained a lawyer or been served with SEC-requested court orders freezing his personal assets and those of his companies.

The SEC pressed to freeze Stanford’s assets and appoint a receiver after learning that instructions had been given within the firm last week to move more than $170 million offshore, a person familiar with the matter said. Most of the money, including an attempted transfer of $150 million on Feb. 13, didn’t get out, the person said.

Houston criminal defense lawyer Ron Woods, who helped defend former Enron CEO Jeffrey Skilling, said SEC complaints typically precede criminal charges in white-collar cases.

“With Enron, the SEC filed its case real early,” said Woods, a former U.S. attorney in Houston and an ex-agent for the Federal Bureau of Investigation. “Then, when the criminal case came along, the SEC case tagged along with it.”

CD Sales

Stanford advisers fraudulently sold as much as $8 billion in certificates of deposit linked to Antigua-based Stanford International Bank, according to the SEC complaint, which was filed in federal court in Dallas.

Stanford sales staff told investors the CDs were safe, liquid investments similar to federally insured CDs issued by U.S. banks, and were overseen by a team of company analysts and by Antiguan banking regulators, according to the SEC complaint.

“Now it appears that all of those claims were false,” said attorney George Fleming, who filed a proposed investor class-action, or group, lawsuit against Stanford and his companies in federal court in Houston on Feb. 17, hours after federal agents raided Stanford’s Houston offices.

One of the companies the SEC sued, presented hypothetical investment results as actual historical data in sales pitches to clients, Michael Zarich, a senior investment officer with Antigua-based Stanford International Bank, told SEC officials in a sworn deposition.

After the raid, nothing was removed from the building, and the offices were locked down after employees were sent home, Perez said.

Cartel Link

The FBI and others have been investigating whether Stanford was involved in laundering drug money for Mexico’s Gulf Cartel, ABC News reported yesterday. Mexican authorities detained one of Stanford’s private planes after officials found checks inside believed to be connected to the cartel, reputed to be Mexico’s most violent gang, ABC News said.

Woods, who trained FBI agents in the U.S. Virgin Islands, where Stanford maintains a home, said it is unlikely that Stanford has gone into hiding.

“He’s so high-profile, I can’t see him fleeing,” Woods said.

So many countries have extradition treaties with the U.S. that “it is very difficult to hide anywhere these days,” Woods said. “There are very few countries, none of which you’d really want to live in. People running and hiding live a miserable existence, and they usually get caught.”

The case is SEC v. Stanford International Bank Ltd, 09-cv-00298, U.S. District Court, Northern District of Texas (Dallas).