According to the SEC, the fraud centered on the sale of certificates of deposit (CDs). Antigua-based Stanford International Bank sold $8 billion in CDs to investors, claiming the assets were safe, liquid financial instruments, monitored by a team of more 20 investment analysts and subject to audits by Antiguan regulators.
Interest rates on the products exceeded those typically offered on CDs issued by traditional banks. The bank also claimed identical returns of 15.71% on the investments in both 1995 and 1996, which was noted as improbable. The SEC said a significant portion of the assets were placed in illiquid real estate and private equity investments and that, instead of a team of 20 analysts, the investments were managed solely by Allen Stanford and Stanford International Bank's chief financial officer James Davis. Both men's whereabouts are unknown.
In a statement by the SEC, Linda Chatman Thomsen, director of the SEC's enforcement division, commented: "Stanford and the close circle of family and friends with whom he runs his businesses perpetuated a massive fraud based on false promises and fabricated historical return data to prey on investors."
The SEC has stepped up its probes as a result of its charges against Bernard Madoff, who was found to be executing a $50 billion Ponzi scheme. The SEC also determined that the Stanford Group was exposed to losses from the Madoff fraud, despite public assurances that claimed the contrary.
The SEC also charged the Stanford Group with presenting inaccurate historical performance data in connection with the sale of a mutual fund wrap programme with assets exceeding $1.2 billion.
The week on Risk.net, July 7-13, 2018Receive this by email