Ray Pellecchia and I think that if Harry Markopolos had put his theories about Bernie Madoff online, Madoff would not have been able to continue his scam much longer. Against that, a lot of people are saying that no matter how detailed Markopolos's analysis, without the backing of a large institution like the Wall Street Journal or the SEC, nothing would have happened.
So it'll be interesting to see what happens now that Alex Dalmady has gone public with his suspicions about Stanford International Bank, an Antigua-based private bank with $8 billion in assets. Dalmady's report can be found here; it makes for quite a rollicking read, and if I had any money with SIB I'd be asking some pointed questions right now.
Stanford International Bank has nothing to do with the university, but everything to do with a Texan billionaire cricket tycoon (yes, really) named Sir Allen Stanford. (His knighthood was the first ever bestowed on an American by the government of Antigua.) Stanford has close ties with Venezuela's monied classes, who reportedly have some $3 billion in his bank; the Caracas branch of his bank was raided in November by the Venezuelan authorities, who accused him of being a US spy.
But the Americans don't seem particularly enamored of Sir Allen either: the SEC started issuing subpoenas to Stanford Group in July, after two employees quit, saying "that the company gave clients false historical performance data for its securities".
What is that performance data? Here's a table from Dalmady's report:
As you can see, Stanford manages to report extremely consistent returns every year, and it even managed to make a 6% profit on its portfolio in 2008. Which is extremely impressive, given what happened to just about every asset class last year. And which is even more impressive given that Stanford International Bank is a bank which doesn't make loans.
SIB, it turns out, is a very peculiar fish indeed: it offers extremely high interest rates on its deposits -- on the order of 7.5% for a one-year CD. It then takes that money and, rather than lending it out at a higher rate still, invests it in stocks and hedge funds and commodities and the like.
If that sounds dangerous to you, ask yourself whether you'd be remotely reassured by the "Depositor Security" section of Stanford's website:
SIB has seen consistent profitability and growth every year since the Bank was founded. After first paying its clients a premium return on their deposits and then rewarding employees for their performance, the Bank has reinvested every dollar earned back into retained earnings. This has continuously strengthened SIB's capital base for future growth and is a significant difference between SIB and other international banks.
Basically, this is Allen Stanford -- the bank's sole shareholder -- saying "I'm a billionaire, I'm good for the money".
There's much more in Dalmady's report than just suspiciously good returns, however. Check this out:
The bank has 75 employees on the island. But a small group manages it. There is mention of an investment committee, but the members of the committee are not named. A few years ago there was an actual investment manager or VP; now the position appears to be vacant. There is one board member, an 85-year-old cattle rancher and used car dealership owner who has the title of "Investments"...
The financial statements of the bank are audited. The auditor is a local (island) firm. The principal is a 72-year-old gentleman who has been auditing the bank for many years (at least ten). PriceWaterhouseCoopers and KPMG have offices on the island, and it is a good internal control practice to change auditors every few years, but the bank prefers to stick with its trusted firm.
The banking authorities which supervise the bank are those from the island. The same island with the population similar to Altagracia de Orituco. The bank does not take institutional deposits or deposits from other banks. This is not necessarily a bad thing, but corporate depositors would be expected to do some due diligence on the bank before committing their money.
Right now, Dalmady's report has been picked up mainly by the Latin blogosphere (see here and here for starters). That makes sense, given that SIB's investors are mostly Latin Americans looking to keep their money offshore.
Now the SEC has been looking into Stanford since July, and hasn't announced anything, so maybe there's really nothing to see here. I have a call in to Stanford's spokesperson, Lula Rodriguez; I'll let you know if and when she gets back to me. But certainly the world is more attuned to the possibility that its financial institutions are dodgy than it was even a few months ago. So maybe the real scrutiny of SIB is only beginning.