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Posts Tagged ‘Stanford Financial’

Questions Left Unanswered

Posted by Larry Doyle on February 7th, 2011 7:13 AM |

Some random thoughts and questions in the midst of trying to determine what is really going on in the markets, the economy, and the world:

1. Just how healthy are our major money center banks? How many toxic mortgage related assets remain on their books? Where are those assets marked? With the housing market continuing to erode, and it is, how can those asset valuations not be eroding as well?

2. Will the American public ever truly learn what happened inside Bernard Madoff’s operations? (more…)

What Really Happened at Stanford Financial?

Posted by Larry Doyle on August 30th, 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?  (more…)

My Take on Why the SEC Did Not Pursue Allen Stanford

Posted by Larry Doyle on April 20th, 2010 4:19 PM |

Why did the SEC charge Goldman Sachs with fraud last Friday and not another day? Little doubt the SEC was trying to deflect attention from the scathing review of the SEC in its Investigation of Stanford Financial debacle. How bad is it? Well, let’s review a letter embedded in the SEC OIG’s review of the Stanford Alleged Ponzi Scheme,

Below please find a referral from NASD concerning Stanford Financial Group
Id. at 1. The letter stated: (more…)

Is Wall Street On the Up and Up?

Posted by Larry Doyle on October 3rd, 2009 11:57 AM |

The core of that question resides within the regulatory oversight of our financial industry.  The American public is beginning to learn a lot about this financial regulatory oversight. How so? A month ago, SEC Inspector General David Kotz released a report, Investigation of Failure of the SEC to Uncover Bernard Madoff’s Ponzi Scheme (embedded here). Yesterday, the Wall Street self-regulatory organization, FINRA, released Report of the 2009 Special Review Committee on FINRA’s Examination Program In Light of the Stanford and Madoff Schemes.

What did we learn from yesterday’s report? Plenty. For that, I commend all those involved in this effort. With all due respect to FINRA employees who have legitimately tried to fulfill their obligations to the best of their abilities, yesterday’s report is nothing short of a massive indictment of FINRA’s management, FINRA’s board, and the SEC which is charged to oversee FINRA. Why? Having read this report twice and studied critical components of it, FINRA is exposed as nothing more than a collection of crossing guards . . . said with all due respect to crossing guards. Have the supervisors of the crossing guards been so heavily influenced by Wall Street so as to render large parts of the FINRA mission ineffective? Many believe this to be true, including me.

Why so harsh? Let’s navigate and be a little more aggressive than the mainstream financial media in analyzing this report. In the process, I think you will appreciate my assessment and also realize there are many more questions which need to be answered.

The FINRA report is largely divided into the organization’s dealings with the financial frauds encompassing Allen Stanford and Bernard Madoff. Referencing the massive regulatory failings on FINRA’s behalf in these two cases, the authors provide recommendations which FINRA’s management will present for approval or ratification at the December 2009 Board meeting.

For purposes here, I will not regurgitate the numerous individual failings of FINRA examiners and management in each of these cases. Rather, I will highlight those failings which I find most egregious. In turn, I want to focus on highlighting the recommendations so the American public can truly understand how woefully inept, incompetent, and ill-prepared this financial self-regulatory organization has been and currently is to uphold its mission to protect investors. Against that backdrop, I will then lay out questions which I deem to be critically important for FINRA to answer if the American public can ever regain a degree of confidence in the oversight of Wall Street.

>> Stanford Case

1. In 2003, the Stanford broker-dealer generated 68% of its revenues from the sale of Stanford International Bank CD’s. Are you kidding me? Red Flag!! That finding did not prompt the examiner to dig deeper?!

2. A 2003 Anonymous Tip Letter laid out the Stanford scheme in detail.

3. In 2005, a FINRA examiner learned that the Stanford broker-dealer is paid an annual fee of 3% of the deposit sum for every CD. Another red flag! Standard practice would have bankers or securities salespeople earning a one-time fee of maximum .25%.

At this point, Stanford International Bank had raised approximately $1.5 billion in what would grow to a $7.2 billion scam.

With all due respect to FINRA employees who may have continued to look into Stanford over the 2005-2008 time period, truth be told FINRA did not further aggressively pursue this case until the Madoff situation broke in December 2008.

>> Madoff Case

1. FINRA largely limits its review of the Madoff scam to the 2003-present time period. Why not go back further? FINRA had longstanding oversight of the Madoff enterprise.

2. FINRA largely reduces the extensive relationships between Bernie Madoff and family members with FINRA to nothing more than a footnote. That footnote on page 46 provides a cursory approval of FINRA’s relationship with the Madoff firm and family. Why aren’t these relationships more deeply explored?

3. The report acknowledges what we always knew about FINRA having oversight of Madoff’s operation. FINRA representatives, including Mary Schapiro, have willingly and intentionally misrepresented the fact that FINRA had oversight of Madoff’s enterprise. Did Mary Schapiro perjure herself on this topic during her confirmation hearings to be Head of the SEC? Well, she may not have perjured herself, but she and others have willingly misrepresented FINRA’s required oversight of Madoff over the long time period when Madoff was strictly a registered broker-dealer and ran this massive Ponzi scheme within that framework.

4. FINRA failed to detect the full breadth of the relationship between Cohmad Securities and Madoff.  Bernie Madoff and his brother Peter owned 24% of Cohmad, and the Cohmad broker-dealer operated within the same office space as Bernard Madoff Investment Securities. Cohmad was largely a front for feeding customers into Madoff’s scam. The report provides:

Cohmad was registered as a broker-dealer and reported having approximately 750 to 850 customer accounts, which were held by and cleared through Bear Stearns Securities Corporation. These accounts usually generated roughly 300 transactions per month, mostly in equities and, to a lesser extent, municipal bonds.

I would very much like to know more details about these municipal bonds. Were they municipal auction rate securities?

5. How did FINRA miss the Madoff scam? This report acknowledges the fact that FINRA examiners merely took Madoff and his representatives at their word that Madoff was running nothing more than a broker-dealer. Are you kidding me? It was common knowledge that Madoff had a money management business. FINRA maintains that the FINRA ‘crossing guards’ checked the little boxes on their Madoff review sheets and went on their way. (more…)

How the Mighty Have Fallen

Posted by Larry Doyle on September 26th, 2009 4:03 PM |

Sir Allen Stanford

R. Allen Stanford

Sir R. Allen Stanford, the once proud and domineering master of the Stanford Financial kingdom, has not been having a lot of fun lately. How so?

Aside from the fact that he has been indicted for masterminding a multi-billion dollar Ponzi scheme centered on the Caribbean island of Antigua, his assets are totally frozen affording him no ability to retain legal counsel. As a result, he is being represented by a public defender. To add insult to injury, he sits in jail because the judge considers him a flight risk.

Life in jail is no bed of roses for Stanford, who was dubbed a knight in Antigua. What is life like in jail for Stanford? Put ’em up!! Sounds like Stanford took a beating this week. Bloomberg reports, Stanford Gets Medical Treatment After ‘Altercation’ at Texas Jail:

R. Allen Stanford, awaiting trial on charges he swindled investors in a $7 billion scheme, was given medical treatment after getting into a fight with an inmate in a Texas jail, a U.S. marshal said.

“He got into an altercation with another inmate,” Alfredo Perez, a spokesman for the Houston office of the U.S. Marshals Service, said yesterday in a phone interview. “He’s being examined by medical staff and treated for his injuries,” which aren’t life-threatening, Perez said. Perez said the incident happened about 10 a.m. on Sept. 24.

Stanford, who has been in custody since being indicted in June, faces 21 felony charges for allegedly paying investors “improbable if not impossible” returns by taking funds from later investors in certificates of deposit at Antigua-based Stanford International Bank Ltd.

Stanford is obviously entitled to due process. Does he or anybody in jail deserve a beating by a fellow jailbird? No . . . but welcome to the real world, Sir.

LD

Is the Wall Street Cop, FINRA, Ready to Talk?

Posted by Larry Doyle on September 22nd, 2009 9:00 AM |

Pressure does funny things to people.

Is the pressure boiling inside the pot of the Wall Street “cop” known as FINRA getting ready to blow? A Bloomberg report indicates the steam is rising inside FINRA. I am not surprised that FINRA is feeling real pressure at this point in time. FINRA should be sweating. Why? Try the following:

>> Lawsuits Trying for Transparency at FINRA (September 21, 2009)

>> Attorney Claims Wall Street’s Cop, FINRA, Invested in Madoff (September 15, 2009)

>> An Open Letter to the Board of FINRA Regarding Auction-Rate Securities (July 27, 2009)

>> U.S. Attorney and SEC Investigating Lehman’s Auction Rate Securities Sales; They Should Also Investigate FINRA’s (May 29, 2009)

Bloomberg reports this morning, FINRA Board Said to Debate Releasing Report on Madoff, Stanford:

The U.S. brokerage regulator’s board is debating whether to release an internal report of its examinations of firms run by Bernard Madoff and R. Allen Stanford, according to people familiar with the matter.

Why should there even be a debate? Why isn’t it standard operating procedure that a financial self-regulatory organization such as FINRA would be mandated to provide total transparency of all its business dealings? Where FINRA has failed, transparency will serve as the  leverage to compel them to improve their policies and procedures. If current policies and procedures and past failures are exposed in the process, so be it. History has always shown that coverups only make bad situations worse.

I am heartened that FINRA board member Charles Bowsher, a man of real integrity, seems to be pushing FINRA to release information. Bloomberg asserts:

Bowsher, the committee’s chairman, is adamant the document be released, according to one person. He didn’t return a phone call seeking comment.

Finra spokeswoman Nancy Condon said the board formed the committee to review the examination program “in light of the Madoff and Stanford cases.” A draft was shared with the board, which will decide whether to release it, she said yesterday. She declined to comment on whether any board members oppose making the document public.

Finra, funded by Wall Street firms and overseen by the SEC, inspects and write rules for more than 5,000 U.S. brokerages. The board includes 10 representatives of the financial industry along with former regulators and academics.

Recall that to this point, FINRA has never willingly released information on its internal investment or oversight activities over and above what has been published in its annual reports. FINRA spokespersons, Herb Perone and Nancy Condon, have always maintained FINRA has released more information in its reports than it is required. If in fact that is true, then clearly FINRA’s overseer, the SEC, needs to increase those requirements.

The simple fact is, given the historic times in which we live any self-respecting financial regulator should be obligated to provide full and total transparency across all its initiatives. While FINRA may be embarrassed – if not worse – in the process, FINRA must provide this transparency if we are ever to regain confidence in our markets and our regulators.

Why else may FINRA want to talk? In a current lawsuit brought by Standard Investment vs. FINRA, the judge assigned to hear the case is none other than our friend of the American public, Jed Rakoff. Yes, the same Jed Rakoff who recently undressed the SEC’s contrived $33 million fine levied on Bank of America and stated the fine, “does not comport with the most elementary notions of justice and morality.”

Yes, indeed, pressure does funny things to people!!

LD

Who Protects Investors from Regulators?

Posted by Larry Doyle on June 19th, 2009 2:44 PM |

Is there anything worse than being violated by an individual in a position of trust? Crimes perpetrated by regular citizens are one thing, but crimes perpetrated by individuals in a position of public trust, in my opinion, are the most heinous. I am speaking of members of the clergy, teachers, law enforcement, and public servants.

When engaged in private business, individuals typically remain on guard from fraudulent and criminal behavior. That innate defense mechanism is usually relaxed when engaged with a public or quasi-public official. Given that vulnerability, the violation is far more painful due to the emotional damage even if the actual financial costs are minimal.

As I go down this path, let me emphasize the obvious – that is, the presumption of innocence and due process.

1. Today we learn that as part of the case against Allen Stanford, an indictment has also been handed down against Antiguan financial regulator Leroy King. Bloomberg reports that King not only took bribes from Stanford but also showed Stanford information relating to the government’s developing case.

If in fact these allegations are true, King aided and abetted the fraud which is speculated to be of a magnitude of $1-7 billion dollars.

2. In regard to the Bernie Madoff Ponzi scheme, we have no evidence to indicate criminal intent or activity on behalf of anybody at the SEC. That said, the SEC – by its own admission – failed to perform its duties. For those impacted by the Madoff fraud, the lack of accountability by the SEC is no less damaging than if there were criminal activity. Why is that? The length of time over which Madoff perpetrated the scheme along with the amount of evidence provided by Harry Markopolos was so overwhelming and should have minimized the damage, both financial and emotional.

3. We do have evidence of potential culpability on behalf of FINRA in the Auction-Rate Securities fraud. FINRA was headed by Mary Schapiro, current head of the SEC. This fraud is MANY MULTIPLES the size of the fraud perpetrated by Allen Stanford. Professionals, both inside and outside of the financial industry, have estimated that there are anywhere from $80 billion to $175 billion ARS (of a $330 billion market) still outstanding.

Let’s take the midpoint of those estimates, $125 billion, as a best guess of outstanding ARS positions. These securities do not actively trade, like government bonds, but in speaking with Kevin O’Connor of Second Market, he shared that bonds trade around 75 cents on the dollar. Thus, we are looking at approximately $30 billion in losses on a mark-to-market basis.

FINRA’s potential culpability stems from the fact that they liquidated their own ARS holdings in 2007. I have asked repeatedly and will put forth once again, for the benefit of those thousands of investors and billions of dollars:

-what was the exact trade date of FINRA’s ARS liquidation?
-through whom did they liquidate their ARS position?
-what price were they paid for their ARS position?
-did they possess material non-public information about the ARS market failing and act upon it?

The U.S. attorney and SEC are investigating executives from Lehman (Gia Rys, Alex Kirk) for potentially front running the ARS market in 2007. Will we ever find out if FINRA did the same? FINRA is charged with protecting investors. They certainly failed to protect investors in Auction-Rate Securities.

4. Given the fraud involved in the marketing and distribution of ARS, I am blown away by the fact that the SEC, now headed by Ms. Schapiro, blessed the marketing and distribution of the new version of municipal ARS, known as x-Tender, or henceforth called Porky Pig here at Sense on ¢ents. Please see my post earlier today, An Auction-Rate Pig by Any Other Name Is Still a Pig.

Sad but true, as we enter the Brave New World of the Uncle Sam economy, investors need to remain diligent and should not assume that regulators are necessarily protecting them.

LD

Allen Stanford and Whitey Bulger: Two Peas In a Pod?

Posted by Larry Doyle on May 11th, 2009 2:58 PM |

Allen Stanford and Whitey Bulger

Allen Stanford and Whitey Bulger

Are Allen Stanford and Whitey Bulger two peas in a pod? For those unfamiliar with Whitey, he is Boston’s greatest gangster, a government informant who simultaneously continued to run his gangland activities, one of the FBI’s Most Wanted, and still on the lam. The Martin Scorsese film, The Departed, was largely based on Whitey and his boys. If Whitey dealt in drugs and murder, is Stanford Financial, operated by Allen Stanford, a financial version of a government cover totally run amuck?  

 We all know the SEC totally dropped the ball in the oversight of the Bernie Madoff Ponzi scheme. On the heels of that and to alleviate massive pressure on the commission, the SEC quickly moved on Allen Stanford. 

MAJOR hat tip to MC of Investor Rebellion in sharing with me a story broken by the BBC, Stanford Drug Informer Role Claim:

Evidence has emerged that the Texan who bankrolled English cricket may have been a US government informer.

Sir Allen Stanford, who is accused of bank fraud, is the subject of an investigation by the BBC’s Panorama.

Sources told Panorama that if he was a paid anti-drug agency informer, that could explain why a 2006 probe into his financial dealings was quietly dropped.

Sir Allen vigorously denies allegations of financial wrongdoing, despite a massive shortfall in his bank’s assets.

But the British receiver of his failed Stanford International Bank – based in Antigua – told Panorama that the books clearly show the deficit.

If in fact this development is accurate, has the U.S. government, via the DEA, facilitated a Ponzi scheme?  I am not so naive as to think that there aren’t massive undercover operations ongoing regularly to infiltrate and expose illicit activities. However, if in fact that were the case, how did the DEA lose control of Stanford’s investment activities? Is this situation an indication that the Obama administration will not partake of these types of undercover operations? Is there a massive in-house brawl currently ongoing between the DEA and the SEC? 

The BBC reports:

Secret documents seen by Panorama show both governments knew in 1990 that the Texan was a former bankrupt and his first bank was suspected of involvement with Latin American money-launderers.

In 1999, both the British and the Americans were aware of the facts surrounding a cheque for $3.1m (£2.05m) that Sir Allen paid to the Drug Enforcement Administration (DEA).

It was drug money originally paid in to Stanford International Bank by agents acting for a feared Mexican drug lord known as the ‘Lord of the Heavens’.

The cheque was proof that Stanford International Bank had been used to launder Mexican drug money – whether or not Sir Allen knew it at the time.

On 17 February of this year, the US Securities and Exchange Commission (SEC) accused Sir Allen of running a multi-billion dollar Ponzi fraud – when cash from new depositors is used to pay dividends to old depositors – civil charges he has denied.

Two and a half months after the SEC filing, the Texan has not yet faced criminal charges.

He was initially investigated by the SEC for running a possible Ponzi fraud in the summer of 2006, but by the winter of that year the inquiry was stopped.

Is this another version of the Whitey Bulger story in which the criminal turned informant continues to operate his own illicit activities? Whitey is now on the lam and his FBI protection, John J. Connolly, is cooling his heels in a federal penitentiary.

The intrigue of this situation is surreal, but the natural and instinctive question has to be: if Uncle Sam (DEA) provided cover for Allen Stanford in the pursuit of illicit drug related activities, did Uncle Sam also provide cover for Bernie Madoff as well? 

LD

Mary Schapiro Meet Stump Merrill

Posted by Larry Doyle on April 16th, 2009 4:30 PM |

President Obama was elected primarily on one theme: change. Many private and public sectors need change, but perhaps none more than our banking and regulatory oversight. Barack said as much in late February:

Obama leveled a broad indictment of the industry, saying the current financial crisis occurred when “Wall Street wrongly presumed the markets would continuously rise and traded in complex financial products without fully evaluating their risks.” But he also blamed government regulators for not adequately protecting consumers.

Obama further offered:

“strong financial markets require clear rules of the road, not to hinder financial institutions, but to protect consumers and investors, and ultimately to keep those financial institutions strong.”

To this point, who could not agree with Barack’s assessment and designs. However, if we go back to mid-January, why did he select the head of the Wall Street self-regulatory organization, FINRA, to oversee the SEC? FINRA has been widely critiqued for being soft on overseeing the very institutions at the heart of our current economic disaster.

Again today, we hear about FINRA’s incompetence in a Bloomberg report on the investigation of Stanford Financial. Bloomberg reports: (more…)

Keystone Kops

Posted by Larry Doyle on March 9th, 2009 5:40 PM |

On the heels of the Bernie Madoff fiasco, there was massive pressure on the gross incompetence displayed by the SEC. Not unlike a police department that is under fire, the SEC needed a high profile case to gain a measure of vindication. Enter Allen Stanford and Stanford Financial.keystone-kops1

I am not here to defend Allen Stanford nor any of the activities that transpired in his offshore bank located in Antigua. However, the SEC also froze the assets of all clients housed in Stanford Financial’s brokerage operation based in Houston.  Unlike Bernie Madoff, who did not employ a custodian, the bulk of Stanford Financial’s assets were housed at Pershing Financial, one of the largest custodians in the business. While the concerns revolving around Stanford are in the Caribbean, the SEC’s act of freezing ALL customer accounts has been the death of this brokerage entity. Hundreds of legitimate jobs have been eliminated. Thousands of customers have faced unnecessary and undue financial hardships since February 17th as a result.  (more…)






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