By Jeff Balke
By Aaron Reiss
By Angelica Leicht
By Dianna Wray
By Aaron Reiss
By Camilo Smith
By Craig Malisow
By Jeff Balke
"It wasn't just the balance sheets; there's one fishy thing after another," he said. "I looked up their board of directors, and I see it's Stanford, his dad and some other old guy in Mexia. I looked up his address, and it was on this cattle ranch in the middle of nowhere."
Dalmady never talked to a single person at Stanford, and based his research solely on public filings and the company's Web site. Yet after just a few weeks of reading up on the company, he was so certain Stanford was a fraud that this past December, he called a Caracas business paper and asked if they would publish a story laying out his suspicions. The editor agreed. In January, Dalmady's bylined piece ran in two Venezuelan newspapers and on their Web sites.
"I expected some kind of outrage," Dalmady says. "Instead, they send us this beautiful collection of PR bullshit. And then it's absolute silence, which was the final confirmation for me. Stanford was running a Ponzi."
Charles Hazlett, a top Miami investment broker, aired his fears about the company in 2003.
According to the 25-page SEC complaint which formally charged Pendergest-Holt, Davis and Stanford with orchestrating an $8 billion "massive Ponzi scheme," Stanford's company claimed its investments lost only 1.3 percent in 2008 — a year when the S&P 500 dropped 39 percent. Stanford and Davis kept 90 percent of the company's supposed $8 billion in investments in a "black box" shielded from outside scrutiny. In essence, the regulators charge, Stanford never invested any of that money except in a few land deals and pet projects. The rest he used for himself and to pay interest on the older investments.
In the weeks since the SEC brought charges against Allen Stanford and his associates, the fallout has been monumental.
Besides all the people who lost their jobs, tens of thousands of investors have had their accounts frozen until the case is resolved. The 30,000 investors worldwide who sank money into Stanford International Bank CDs, meanwhile, face the prospect of losing life savings, retirement funds and charitable endowments — probably forever.
Antigua has been thrown into chaos. Stanford was the island's second-largest employer, and hundreds have gone unemployed for the past few weeks. Panicked residents have made a run on the island's banks and government financial centers since the charges were filed.
Three weeks after the company was charged with massive fraud, and Laura Pendergest-Holt was hit with felony criminal charges for allegedly lying to regulators, police found Allen Stanford hiding in one of his girlfriends' homes in rural Virginia. He had tried to pay a private pilot to fly him to Antigua, but his credit cards had already been frozen. He surrendered his passport and remains free today.
Stanford, who so far faces no criminal charges, hasn't commented about the SEC's case against his company. But his lawyer, well-known Houston attorney Dick DeGuerin, has denied that Stanford ran a Ponzi scheme.
"From what I've been able to figure out, this is not a Ponzi scheme, it is not toxic assets and it is not toxic loans," DeGuerin told Reuters. "There were hard assets for all the investments. And then SEC came in like gangbusters and has just incinerated the companies and caused a panic."
Government inquiries have begun into how the SEC and other regulators could miss such a gargantuan fraud for so long. A new anti-money-laundering bill to stiffen regulations on offshore banks has been introduced into the Senate — cosponsored by Senator Bill Nelson. And state attorneys general across the nation announced last month an initiative to crack down on financial fraud on a state level.
But some experts say all of those measures won't prevent the next Madoff or Stanford from preying on Americans again.
One problem, says Phillip Phan, a business professor at Johns Hopkins University who has studied large-scale frauds, is that regulators are usually lawyers and accountants trained to look for problems only in companies' balance sheets. If SEC agents had been more attuned to the most basic problems at Stanford, such as a board of directors with 85-year-old Mexia cattle ranchers at the top, the firm might never have built such a large scheme.
"We really should look at regulation more like intelligence gathering," Phan says. "We should be trying to spot all warning signs out there, in the same way the CIA employs linguists and sociologists and all the specialties. There's so much information out there beyond the balance sheets."
Every job interview Mazor's gone to always starts off the same: The interviewer will lean in close and sort of whisper, "So, what really happened at Stanford?"
And Mazor always says the same thing: she doesn't know more than anyone else.
"We were on the outside from [February] 17th on," she says, referring to the day the company was seized. She says she and her former co-workers can't get much information from Ralph Janvey, the receiver. Mazor says she's still due two months' severance. That would've covered about six months of mortgage payments and given her some breathing room to look for a new job.
"It's like he's making this up as he goes along," she says. "And I know it sounds like a little kid thing to say."