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Investigators Probe Fraud Allegations Against Financier

February 20, 2009 at 6:35 PM EDT
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Billionaire financier Allen Stanford is accused of swindling investors out of billions. Wall Street Journal reporter Glenn Simpson gives an update.
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JUDY WOODRUFF: The Securities and Exchange Commission has charged Texas financier R. Allen Stanford with an estimated $8 billion fraud. It’s related to the sale of certificates of deposit in Antigua-based Stanford International Bank.

Two days after being accused, the businessman was tracked to this home in Virginia, where FBI agents served him with an SEC civil complaint. Authorities have frozen Stanford’s numerous business holdings, many of which are based in Latin America and the Caribbean.

Yesterday, the Venezuelan government seized the bank’s subsidiary there and barred depositors from making withdrawals to avoid its collapse.

ANTIGUA CITIZEN: These people aren’t moving. The line is not moving.

JUDY WOODRUFF: There was a run yesterday on a Stanford-controlled bank in Antigua, and today authorities took control of it. Stanford is known worldwide for his profligate spending, rich lifestyle, and passion for the sport of cricket. He remains free, and no criminal charges have been filed against him.

For more, I’m joined by Glenn Simpson of the Wall Street Journal. He’s an investigative reporter specializing in financial crime.

Glenn, it’s good to have you with us. There’s some pretty grand language in this SEC complaint, quote, “a fraud of shocking magnitude that has spread its tentacles throughout the world.” What exactly is the SEC saying that he did?

GLENN SIMPSON, Wall Street Journal: The SEC is only saying right now that he misrepresented the returns on his investments, he misled investors on his ability to bring them high returns. They’re indicating that they think that more is amiss than that, but they’re also saying they don’t know where this money is.

JUDY WOODRUFF: Now, certificates of deposit involved. Help us understand how that works.

GLENN SIMPSON: If you’re accustomed to banking in the United States, sometimes you will buy a certificate of deposit for a short-term safe investment, usually yields a very small, modest interest rate.

He was pitching a similar product through his off-shore bank that yielded a much more generous rate, and he was telling investors that he could produce this rate through unique global strategy of investments.

Not a criminal case yet

JUDY WOODRUFF: Similarities with the Bernard Madoff Ponzi scheme?

GLENN SIMPSON: Well, this is not criminal yet, so we don't know, you know, whether it's going to go in that direction or not. At the moment, he's only charged with misleading investors about what kind of returns he could produce. And the government has said that they don't actually know where this money is.

JUDY WOODRUFF: They don't have suspicion? I mean, what do they say?

GLENN SIMPSON: Well, what they've said is that he took in over $8 billion in investments and that 90 percent of that went into what was known internally as "the black box," which is the portion of the investments that were controlled by Mr. Stanford and his top deputy alone, and only the two of them know where that money is.

JUDY WOODRUFF: And the people doing the talking are people who worked with him?

GLENN SIMPSON: That's correct, former employees, consultants. There's a long string of disgruntled people who worked with him who we think had a role in causing the government to finally act against him.

Many investors were Latin American

JUDY WOODRUFF: And what about the investors, the people who did put their money with him? How much do we know about them, most of them outside the United States?

GLENN SIMPSON: We actually are not sure about that. There's a large number that are outside the United States. He had operations all across Latin America. And we do believe that one of his business strategies was appealing to Latin Americans concerned about political instability in their countries. So he definitely has a large Latin clientele.

But he also had operations all across North America. So there is significant number of Americans who invested in this operation, as well.

JUDY WOODRUFF: And these businesses, the banks have now been taken over, as we reported, by authorities. The accounts are frozen. And today there was a comment, I guess, a statement that came out from the SEC you were telling me about.

GLENN SIMPSON: Yes, the government-appointed receiver has called for all of the American politicians who received campaign contributions from Mr. Stanford to return those monies, about $2 million, to him. So that's going to throw the focus on why he was directing money towards politicians in Washington.

A controversial reputation

JUDY WOODRUFF: And we've seen a bunch of numbers thrown around. Tell us more about who he is.

GLENN SIMPSON: He's a colorful character. He comes from a modest Texas stock, but he has always courted publicity and given a lot of money to various charities, sporting events, that sort of thing, and at one point implied at least that he had a link with Leland Stanford, the founder of Stanford University, for which he was sued by Stanford.

He's been in libel cases, all sorts of different court litigation, a very interesting, colorful guy who's gotten publicity all around the world.

JUDY WOODRUFF: And he's referred to in some quarters as "Sir Allen Stanford"?

GLENN SIMPSON: He received that title from the government of Antigua, which is a territory of the United Kingdom.

JUDY WOODRUFF: And back on the political contributions, did they know how much money he gave away? They're trying to find out?

GLENN SIMPSON: Well, from records, it looks like it's about $2 million. One of the interesting issues is whether they will also go after the lobbying fees that he also paid, which was about $6 million in Washington.

Investigators had been tipped off

JUDY WOODRUFF: Now, Glenn Simpson, we know that the -- there have been several reports that the SEC was given tips about Alan Stanford going back several years. Do we know whether those were followed up? Were they investigated?

GLENN SIMPSON: Intermittently they were followed up, and it wasn't just the SEC. Various other law enforcement agencies received tips and launched inquiries. There were lawsuits. There was all sorts of allegations.

And in that sense, it does have similarities to the Madoff affair, in that there were red flags going back many years that something might be amiss here.

JUDY WOODRUFF: Do we know much more about what the substance of those complaints were, what people...

GLENN SIMPSON: Some of them were fraud complaints. The fraud complaints came later. Some of the earlier complaints had to do with whether his clientele were involved in criminal activity and that sort of thing. And he always cooperated with those investigations, and no charges were ever filed.

JUDY WOODRUFF: And I did see that there were allegations as far back as the early '90s, money laundering, possible connection to drug-dealing?

GLENN SIMPSON: Yes. Well, I mean, if most of your clientele is from Latin America, it's definitely a possibility that you have to consider some of that money might be tainted.

JUDY WOODRUFF: But nothing solid?

GLENN SIMPSON: Well, nothing was ever -- there was money confiscated from the bank by the Drug Enforcement Administration in 1997, but there was never any criminal allegation against the bank.

JUDY WOODRUFF: But as of today, Allen Stanford is a free man?

GLENN SIMPSON: That's correct. He's staying inside the United States at the request of the U.S. government.

JUDY WOODRUFF: They took his passport away, we believe?

GLENN SIMPSON: Yes.

JUDY WOODRUFF: But not in custody?

GLENN SIMPSON: Not in custody. And we don't know if that's going to change.

JUDY WOODRUFF: All right, Glenn Simpson, the Wall Street Journal.

GLENN SIMPSON: Thanks, Judy.

JUDY WOODRUFF: Thank you very much.