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What Really Happened at Stanford Financial?

Posted by Larry Doyle on August 30, 2010 11:05 AM |

Is this game of life a total mystery? In many respects, life is a mystery. While there are many aspects of life we may never fully understand, there are those elements for which we can gain greater understanding through research, study, transparency and disclosure.

Along these same lines, to what degree is the world of financial frauds a mystery? How much of what transpired to lead us into our current economic crisis will we never truly learn? While our financial regulators and legal representatives may work toward providing transparency and disclosure, will the American public ever  learn the full extent of the two largest financial frauds of the last few years–those being the Bernard Madoff and Allen Stanford travesties.

I ask this critically important question in light of the Freedom of Information Act exemption provided to the SEC in the recently enacted Financial Regulatory Reform package. Will that exemption inhibit transparency and disclosure? Should the American public blindly accept and trust the SEC at each and every turn? How might we ever know? 

Specifically in regard to the Stanford Financial debacle, “Sir” Allen is fighting Lloyds Insurance currently to cover the costs of his legal defense. We learn insights into the Stanford defense in a Bloomberg review, Stanford Committed No Crime, Ex-Prosecutor Testifies at Trial on Insurance:

R. Allen Stanford didn’t lead a Ponzi scheme that fleeced investors of $7 billion, a former federal prosecutor who reviewed evidence against him told a U.S. judge in Houston.

Securities lawyer Christopher Bebel reported his conclusions on the fourth day of trial in a case brought by the indicted financier to force Lloyd’s of London underwriters to pay for his criminal defense lawyers.

“I haven’t seen any evidence that links Mr. Stanford to any particular criminal act and establishes a knowing intention” to break any laws, said Bebel, testifying today on Stanford’s behalf.

Stanford is suing the London-based underwriters to gain access to $100 million in liability insurance coverage. His assets and those of three co-defendants in his criminal case were frozen by a February 2009 court order when the U.S. Securities and Exchange Commission filed a lawsuit accusing the financier of leading a $7 billion fraud scheme.

While our friends at the SEC clearly have a different opinion, how was it that the SEC overlooked the financial comings and goings at Stanford for so long?

The Stanford Financial Group Cos. executives were indicted in June 2009 by a U.S. grand jury in Houston. Each has denied all wrongdoing. Stanford is scheduled to stand trial alone in January.

He and his co-defendants face 21 criminal charges that they swindled investors through the sale of bogus certificates of deposit issued by Antigua-based Stanford International Bank Ltd.

Lloyd’s lawyers contend the insurer doesn’t have to pay for the defense of Stanford and his co-defendants. The sale of the bank CDs through the use of misleading information voids the coverage because of an exclusion for money laundering, the lawyers said.

Money laundering? Very interesting. I have always wondered whether Stanford was set up as a front by our government to penetrate the drug trafficking trade in Central and South America. I asked that questioned and proposed that possibility in writing two commentaries, My Take on Why the SEC Did Not Pursue Allen Stanford and Allen Stanford and Whitey Bulger: Two Peas in a Pod?. From the former post, I wrote:

I believe there is a lot more to this Stanford fiasco than meets the eye. While I am not an apologist for the SEC, recall that the BBC broke a story one year ago hinting that Stanford was actually being used as an informer by our government to infiltrate the Central American drug trade. Under the cover of government protection, Stanford ran his scheme in order to attract drug money and allow the Feds the opportunity to track the drug trade.

In the process of this activity, I actually believe Allen Stanford ran an operation that was largely a fraud mixed in with parts of an otherwise reputable broker-dealer, all under the protection of Uncle Sam. Who else ran a criminal operation while being protected by the Feds? The man who currently occupies a spot on the FBI’s Top Ten Most Wanted List, that is James “Whitey” Bulger.

I find this intrigue to be exceptionally interesting. Will the American public ever truly learn what happened?

Or, will it remain one of the great mysteries of this crisis?

Real life is better than the movies.

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. As President of Greenwich Investment Management, an SEC regulated privately held registered investment adviser, I am merely a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • Lou

    Movie material if the story ever fully came out.

  • Adam

    The Departed

  • Sweet Ebony Diamond

    Why would TPTB let Stanford set up in the Southern U.S.A. (and attract deposits) if they knew he was a charade?

  • LD

    Why? Perhaps they had no appreciation for the enormous risks and excessively speculative nature of his investment portfolio while they were focused on his aid and assistance in providing a window into the drug trade. Willful blindness.

  • Subject: Proskauer Sjoblom info – What Really Happened at Stanford Financial Sense on Cents

    Now this is truly a classic, the first article below is about the lawyer (dirty rotten) who went to court for Stanford the other day claiming no fraud after his analysis, despite plane loads of evidence. Ah but check out his Pork Sour Smelly Rose bedfellow and we see why perhaps he does not want investigation of his client, Not-So-Sir Allen Stanford. Remember Slobjom was found in an airport hangar in Miami teaching Stanford emps how to lie to SEC and FBI investigators and was Stanford’s attorney representing before the SEC, his former emp. He left SEC meeting when it got hot and sent an email resigning as Stanford’s attorney and withdrew all his former statements to SEC, if that is possible??? This led to Stanford beatch, Holt, arrested for statements at that SEC meeting where Sjoblom misrepresented her as counsel and she sued Pork Sour and Slobjom for such. Then Slobjom’s involvement led to a global class action by Stanford investors for 7 BILLLLLLIOOOOON against Pork Sour, wonder if they reported that to insurance carrier. So this Christopher Bebel lawyer now for Stanford, in the 2nd article below, is praising Sjoblom as a great guy prior to the Stanford bust, they used to work together I think at SEC, Sjob for sure was a SEC Regulator, on the Stanford to keep it suppressed. After SEC Slob went to get his Sour Pork pension from Pork Sour in his cushy law firm partnership, now to prison for both of them, somebody notify the SEC and FBI of this stench bomb and his relations. Does his relation with Sjoblom conflict him a bit in his representation of Stanford, is the judge allowing this nonsense?

    http://mitchellonlaw.wordpress.com/2008/01/01/balancing-public-good-and-personal-rights-thomas-sjoblom-78-washington-dc

    Quote from article above

    “Sjoblom is deeply sensitive to both sides after spending two decades at the SEC prosecuting insider trading, financial fraud, and other securities frauds—the cases he now spends his days defending against.

    His work on a wide variety of cases has earned kudos from those who know him best: former colleague (and William Mitchell alum) Christopher Bebel ’85 calls him among “the most tenacious, determined litigators that anyone will ever come across.”

    Eliot I. Bernstein
    Inventor
    Iviewit Holdings, Inc. – DL

  • Nice Post, Mr. Doyle.

    I have followed this case very closely. I’d have to agree with parts of your assessment, with a few caveats.
    Stanford was a HUGE fraud operation, with smaller legit businesses sprinkled in. I don’t think it was planned that way, it simple evolved into that. However, the “legit” businesses in the US, Venezuela, Mexico, Peru, etc…fed the fraud also.

    As for Stanford’s relationship with US law enforcement, I can see that he may have been an “informer”. But who in the financial business isn’t nowadays?
    When the DEA or CIA comes around asking questions, you answer. If a potential client looks suspicious, you ask around. I wouldn’t extend such collaboration as far as a quid pro quo for running a multi-billion dollar fraud.
    Much too elaborate.

    As for the so-called “expert witness” who is testifying on behalf of Stanford,check out his CV.

    http://www.regulatorydefense.com/narrative-cv.html

    The fact that guys like Bebel were running the SEC (and continue to do so), probably explains more about why Stanford wasn’t caught earlier than conspiracy theories.

    Nice Blog. Cheers.

    Alex Dalmady






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