Stanford International Under Scrutiny

This story is almost beyond belief, but I suppose nothing really is anymore. The gist: An $8.5-billion investment firm has been offering certificates of deposit with anomalously high rates of return for more than a dozen years, and concerns are growing that this can’t be real.

The [Federal] agencies are investigating Stanford’s sales of certificates of deposit issued by its Antigua-based affiliate, Stanford International Bank Ltd., according to the former employees. The agency has asked former employees about the bank’s stated returns on investment, between 10.3 and 15.1 percent every year from 1995 until last year, according to documents and annual reports on the bank’s Web site. SIB has $8.5 billion in assets and 30,000 clients, according to the site.

“That type of return ignores the business cycle,” said L. Burke Files, principal of Financial Examinations & Evaluations Inc., a Tempe, Arizona-based financial investigation firm. “His returns fall outside the bell curve of probability.” [Emphasis added]

More here.

Comments

[Stone Fox C...:]

Amazing. Where the heck are the regulators? This seems like an obvious fraud.

Feb 12 04:58 PM

[jswede:]

from the website:

"Most banks generate their profits on the margin between interest and fees earned on loans and other credit facilities and interest paid on deposits. This singular investment strategy requires reserves for potential losses to be held in non-interest-bearing or non-revenue-generating accounts. This reduces earnings that could otherwise be paid to you as a higher return on their investments.

SIB's business model is different. Although the Bank earns income from credit facilities and fees, the majority of the Bank's assets are invested in globally diversified portfolios. The Bank's portfolio managers are assigned different sections of the portfolios within their realms of expertise, and they are given realistic return on investment goals, which are clearly defined and consistently monitored by SIB's investment committee. "

that's an SIV

Feb 12 05:12 PM

[Alex Salkever:]

I suspect there are many schemes like this that will quickly come to light now that people are paying attention again.

Feb 12 06:21 PM

[PROXIMO:]

"SIB has $8.5 billion in assets and 30,000 clients, according to the site." Not for long.

Feb 12 06:22 PM

[James Donal...:]

Stanford contated all his employees about this and saying "You have heard that regulators from different agencies have visited our offices in recent weeks, as they have been doing to many financial operations around the country. They are responding appropriately after the regulatory deficiencies of the last decade. Although we are all aware that former disgruntled employees have gone to the regulators questioning our work and our processes, this could have compounded an otherwise routine examination." Looks like it's probably just a bunch of disgruntled employees trying to stir up some controversy.

Feb 12 06:41 PM

[irondoor91:]

In the Bernie Madoff scheme of things, this is a gnat-bite. Unless you are an investor in their "certificates".

By the way, are those insured by the US Govt?

Feb 12 06:46 PM

[Mr. Ed, Jr.:]

"between 10.3 and 15.1 percent every year from 1995 "

At least it hasn't been going on for very long, as measured in government regulator years. (They are somewhat like "dog years", except that the dog might be awake )

Feb 12 07:32 PM

[User 356122:]

I live in Houston and have some knowledge of Stanford Financial. From what I understand, SIBL has instituted a policy of no longer allowing clients to redeem their CD's before maturity. There are supposedly clients who had requested money to be wired out of SIBL accounts and told the money had been wired but the clients have not received their money. Also, the firm is supposedly going to institute massive layoffs as early as tomorrow.

Feb 12 07:37 PM

[Big Al45:]

Clearly this is a Ponzi scheme. But when someone invests directly with a company that is domiciled in an offshore tax haven, they deserve whatever losses they take.

Just hope the FDIC or some other US government entity isn't on the hook for the losses.

Feb 12 09:27 PM

[k9s-4-k8:]

Interesting how a severe market crisis would unearth so much previously undetected fraud. Hard to believe there is a silver lining in this mess we call a market.

Feb 12 11:38 PM

[Moon Kil Woong:]

k9s-4-k8: Yes it's hard to believe nothing got done in terms of detecting fraud for at least 8 years. The silver lining is that this fraud gets snuffed out when it's in the billions instead of the tens of billions we hope.

As for investment, it's very buyer beware. Those trying to invest in tax havens at 15% interest should really do due diligence. If you want safety invest under $100,000 in a bank. Even if that bank is Citibank your assets are protected.

Feb 13 02:05 AM

[Boubou:]

Lets not get too sanctimonious about these outlying situations.
if you had your money in lehman, Fannie , Freddie , AIG , the list goes on (and probably we will add bac and c shortly), you end up down the same hole.
And mostly they crash with good ratings from analysts and agencies to the very end!
The goverrnment/finance gang are much the same - unscrupulous and corrupt.

Feb 13 09:59 AM

[Nik Kondrat...:]

Paul,

Sadly this type of thing (if it proves to be true that SIB is a massive Ponzi-type scheme) emanates from greed, avarice, and hubris. These behaviors have become so ingrained in our culture that these massive frauds are becoming endemic. With little to no consequences for transgression (look at Tyco, Enron, WorldCom execs), pressure to perform at a high level, greed, and feckless regulatory oversight, are we that surprised to see this behavior? Until we have real reform, you can expect more of this abhorrent behavior. It's just a more sophisticated version of bank robbing, incubated by the financial innovations and lack of regulation.

Nik

Feb 14 11:00 AM

[James Donal...:]

As a former Stanford employee, I have seen a lot of half-truths and some outright lies thrown around regarding Stanford International Bank (SIB). There have been many facts that have not been reported that might interest investors, the public in general, and particularly the media, which seem to rely on bloggers for their sources without doing any fact checking.

Over the last 18 months, there have been unprecedented challenges which have confronted the global financial industry and have led to heightened scrutiny by regulatory bodies, the public and the media. Although Stanford Financial Group has not been the beneficiary of any government bailout money, they are not immune from this crisis; however any comparisons to recently defaulted institutions and scandals are not relevant to the organization and are a disservice to Stanford employees and clients worldwide.

One analyst's opinion regarding Stanford International Bank has been picked up by numerous blogs and reputable news outlets and printed "as fact." These facts need to be known: Stanford International Bank was able to show a positive return for doing what U.S, banks did NOT do: --SIB does not make loans, they have no loan loss reserves, they took no markdowns to capital and had no exposure to subprime. If U.S. Banks had followed this strategy -- chances are they might have shown positive returns.

Has anyone bothered to check out the Analyst -- one Alex Dalmady -- who is he, what is his track record? It is easy to point fingers and make broad statements -- what expertise does this guy have? I would hope the more reputable outlets did this homework, but they seem to have picked his words up verbatim and did no "fact checking" on the source of all of this at all.

The media has a responsibility to report accurately and balanced -- that is not apparent in Stanford's case. He may be flamboyant, but that is not a crime. Misleading and scaring thousands of investors is.

And let's not forget that ALL of this started with two disgruntled employees who owe Stanford a lot of money (Bloomberg link with what they actually owe: www.bloomberg.com/apps...) running to regulators accusing Stanford when they found out Stanford expected them to pay back what they owed. To date, there has been NO evidence of wrongdoing on the part of Stanford, but evidence of illegal selling practices by the two employees has been uncovered and turned over to regulators. Why has not one reputable media outlet reported this??

Stanford International Bank has NEVER failed to make an interest payment or pay funds at maturity in the nearly 25 years of its history. That is 25 YEARS, not weeks or months. Also, while not obligated to, this Bank has always tried to help the customers who needed early withdrawals. This Bank has suspended THE Privilege of early withdrawals to ensure the protection of its entire depositor base. The media hype and continued repetition of half truths is only causing heightened anxiety, and this step has been taken in light of this barrage of negative and misleading statements.

SIB structures, operations and higher returns are no different than other private international banks except that SIB has narrowed its products to CDs and deposit accounts, as well as ancillary products like credit cards and loans to existing clients. The rates for a 5-year jumbo CD are from 1 1/3% to 6 7/8% and are comparable to other international institutions. This information is verifiable on bankrate.com.


This analyst states that it is near to impossible for SIB to show a positive return -- implying there must be fraud for this to occur. Plenty of financial investment vehicles had positive returns -- including more than 1,600 hedge funds. The characterization that positive must be fraudlent is simply false and sensationalism.

Are we going to launch investigations of all firms who did NOT lose money for their investors last year?

Madoff/ponzi characterization -- Separately, at Stanford Group Company, clients assets are held at Pershing LLC, a subsidiary of Bank of New York Mellon—one of the largest custodian organizations in the world. Clients’ brokerage account assets are insured and segregated to assure return of their assets in the event of any catastrophic events like the ones that have occurred to world class financial institutions in the last two years. Madoff was his own custodian.....more sensationalism. Report the truth...report the Pershing relationship. There has not been one fact proving that Stanford International Bank's custodian relationships are not holding sigificant assets or that their independent money managers are not managing significant amounts for the bank.

Federal Agencies are "investigating" Stanford -- regulators are a reality for any U.S. Broker/Dealer....the SEC and Finra were in Stanford offices as part of a routine examination. No one has confirmed or advised an "investigation is ongoing. There was an article in the New York Times earlier this week with headline "Hundreds of Regulators descend on Citi....." Regulators are feeling the sting from their testimony to Congress, and are responding with more oversight. Stanford has no problem with this and has track record of full cooperation with regulators over the years.

Since the first Stanford Company’s founding during the Great Depression, the Stanford Financial Group has grown into a full-service portfolio of companies servicing individuals and institutions. Stanford Financial Group is a privately held global network of independent, affiliated financial services companies including Stanford Group Company, Stanford International Bank and Stanford Trust.

The Stanford International Bank (SIB) is but one aspect of the overall company portfolio and operates in St. John in the Caribbean Island of Antigua and Barbuda. The Bank has a prudent investment approach that it has followed for over 20 years and has over 30,000 clients in over 90 countries. It has stringent know-your customer/anti-money laundering policies and procedures and terrorist financing tracking. SIB remains a strong institution, and even without the benefit of billions in US taxpayer’s dollars SIB is taking a number of decisive steps to reinforce SIB financial strength to keep the capital base intact to protect SIB depositors.

Stanford International Bank has used the same auditing firm for a number of years. Once the external bank auditors are selected by the Board of Directors they must be expressly approved by regulatory agencies. The regulatory framework follows international standards set forth by Basel I and II. For the record, Basel I and Basel II are the highest standards in the industry.

Feb 16 01:46 PM

[User 362944:]

I also knew that crap was going down back in late 2006 but I didn't think it would get this bad until a friend of mine got canned from Stanford back in 2007. He said he started asking questions and looking at the numbers and things didn't look good so he talked with his boss and was fired. Asking questions "wasn't part of his job" and was told to "sell the cds and shut the f up" He wanted to go to court but didn't feel like getting shot by a drug lord. He was able to get most of his people to get their $$ out and is now at a good firm. Since 2006 I've been telling my people to get their $$ asap. Some did and others didn't, hate to say I told you so but yeah I did. I may not wine and dine them like SIB did, I'm not going to kiss up to anyone or give you tickets to the heat game but I will tell my people the truth and give you honest answers.
These finanace managers had to know that the numbers are off and why did it take the SEC this long to bust SIB? Give any person with half a brain a view of their numbers/website and see that Stanford was messed up? If people just weren't so dang greedy and actually looked into where/who they are giving their money to this could have been avoided. All I have to say is the lawyers in Miami and Texas are going to be busyyyy!

Feb 23 07:22 PM