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.
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.