The Rise and Fall of the Stanford Financial Group

Castles and corruption lead to criminal charges.

Stanford graduated from Baylor in 1974 with a business administration degree (Davis graduated the next year with an accounting and finance diploma) and joined his father in Mexia to help run the family insurance business. But Stanford had bigger plans.

"I couldn't stay in a small town and be content," Stanford told Forbes magazine last fall.

By the early 1980s, Stanford had persuaded his father to sell the insurance business and join him in Houston as a real estate speculator. Houston's market had crashed after the oil bubble burst, and the Stanfords began buying up distressed properties at bargain prices — run-down apartment complexes and strip malls, and later larger swaths of land.

R. Allen Stanford faces federal charges that his bank was a "massive Ponzi scheme."
Daniel Hambury/PA Wire
R. Allen Stanford faces federal charges that his bank was a "massive Ponzi scheme."
Alex Dalmady, a Weston, Florida-based analyst, called Stanford International a Ponzi scheme in a Venezuelan newspaper article weeks before the SEC's charges.
C. Stiles
Alex Dalmady, a Weston, Florida-based analyst, called Stanford International a Ponzi scheme in a Venezuelan newspaper article weeks before the SEC's charges.

By the mid-'80s, Allen Stanford had set his sights beyond real estate. In December 1985, with a few million in start-up cash from his father, he established an offshore bank called Guardian International Bank in Montserrat, a small British territory in the Leeward Islands.

The bank earned licenses to manage international banking accounts and in five years grew to about $14 million in holdings. But by 1990, Stanford faced an Internal Revenue Service lawsuit accusing him of owing the government $420,000 in unpaid taxes — and at the same time, the British government successfully pressured the territory to toughen regulations on its banks. In 1991, Stanford withdrew his license in Montserrat and began looking for another Caribbean home.

He found it later that year in the tiny island nation of Antigua and Barbuda, a country of about 85,000 in the middle of the Lesser Antilles. Stanford relocated to Antigua and split his company into the two central pieces that still exist today. The first, called Stanford International Bank, was housed in a hillside estate in the capital city of Saint John's. The other arm, called Stanford Group Company, was based in downtown Houston. He made James Davis, his college roommate, director and chief financial officer of both companies. Stanford, though, was the sole shareholder.

Stanford International Bank operated outside of direct U.S. scrutiny. The bank's certificates of deposit — which are similar to savings accounts, except that they are held for a preset period of time with a fixed interest — consistently returned more than most American deposits, with funds in the mid-'90s routinely bringing 15 percent interest.

Meanwhile, Stanford's Houston-based firm, Stanford Group Company, was a traditional Securities and Exchange Commission-regulated broker. It managed portfolios, traded stock and, quite prominently, sold CDs in Stanford's Antiguan bank to American investors.

About six years after moving his offshore bank to Antigua, Florida state records show, Allen Stanford brought his company to South Florida and made Miami the de facto heart of his new empire — midway between his Houston investment headquarters and the Antigua bank, and close to the wealthy Latin Americans to whom he catered.

He opened his first office in 1997 at the Miami Center, where he joined white-shoe law firms and the local branches of financial heavy hitters Smith Barney and Citibank.

By the end of the decade, his formula — pushing CDs in his offshore bank to U.S. and Latin American investors through his Houston- and Miami-based brokerages — was making the Texan a mint. And as Stanford grew richer in his island fiefdom, his eccentricities flowered like a tropical orchid.

He soon obtained Antiguan citizenship, persuaded the former British colony to bestow an honorary knighthood upon him and then demanded he be addressed ­everywhere as "Sir Allen." He became an avid cricket fan and brought the sport to Antigua by sponsoring a lavish international tournament with an unheard-of $20 million prize for the winning team. It was during this time that the six-foot-four Texan began talking with a slight British accent. He told reporters — falsely, it turned out — he could trace his lineage back to the founder of Stanford University. According to a Forbes profile, rumor abounded that he toted around a vial of blood in his briefcase that he claimed came from a priest with stigmata, or Christ-like wounds. Stanford denied carrying such a vial, but said he met a priest with stigmata in the early '90s and felt a "life-changing surge."

In October 2003, he found a suitable home to mirror this new image, paying $10.5 million for a massive, 57-bedroom mansion on the Coral Gables waterfront built by the Wackenhut family. He rechristened the estate — which was outfitted with turrets, grottoes, a pub and a throne-like toilet — Tyecliffe Castle.

Though he'd been married since 1974 to a Texas dental hygienist named Susan, Stanford began keeping mistresses around the Caribbean and Florida. According to court documents, he fathered six children with four women and paid around $200,000 a month in child support. One mistress, Louise Sage, lived in the Coral Gables manor with two of Stanford's children.

In the late '90s and '00s, the Stanford Group became a prominent player in South Florida sports and charities, sponsoring the VIP lobby at the American Airlines Arena, the Sony Ericsson Open in Key Biscayne and the International Polo Club in Palm Beach. Stanford also gave heartily to local nonprofits, including the Kiwanis Club of Little Havana and the Festival of the Arts in Boca Raton. Stanford, of course, didn't forget its home state — the company donated a $30,000 piece of medical equipment to the Texas Scottish Rite Hospital for Children in Dallas, and also sponsored the Houston Polo Club's Open Invitational in 2005. The company has also been slated to sponsor the Ladies Professional Golf Association's tour championship in Houston in November 2009.

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