Stanford: The Manhunt Begins 15 comments
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Given the amount of time that the SEC and the media have been sniffing around his operation, today's fraud charges can't have come as much surprise to Allen Stanford. And given that he owns banks in many different jurisdictions (the FT has found entities not only in the US and Antigua, but also New Zealand, Switzerland, Colombia, Ecuador, Mexico, Peru, Venezuela, and, of course, Panama), as well as what Matthew Goldstein calls "a number of private jets", one expects that at this point his contingency plan is well underway.
Yesterday, Stanford spokesman Brian Bertsch "wouldn't discuss the whereabouts of the Texas billionaire", probably because he didn't know those whereabouts. It's probably a safe guess, however, to say that he's not in the US, and neither is he in the US Virgin Islands, where he lives most of the year. Antigua? It's possible, but I'd say unlikely. More probable is somewhere with an ask-no-questions private-banking industry and a vague-to-nonexistent extradition treaty with the US.
Remember that according to the SEC complaint, the lion's share of Stanford's assets were placed in a "black box" under the control of just two people: CFO James Davis, and Allen Stanford himself. Remember too that Stanford has been reneging on deals to provide tens of millions of dollars in financing to the kind of micro-cap companies the firm specializes in. Stanford probably had that money cued up in liquid form, ready to go; I wouldn't be at all surprised if he just decided to trouser it personally instead.
My guess is that only Stanford knows where his depositors' money has gone, and that for the time being he still has control of most of it. If the US authorities have any interest in reuniting those depositors with any of their cash, they might end up having to cut some kind of deal with Stanford. But they'll need to find him first.
For anybody who's coming new to this story, it began with an article entitled "Duck Tales", which can be downloaded here, in Veneconomia magazine in Venezuela. The article essentially accused Stanford of being a fraud; it was picked up by Venezuelan blog Venepiramides on February 6, and had made it to Portfolio.com by the morning of Feburary 10. The following day, February 11, there was a big article in BusinessWeek; by February 12, the rest of the mainstream media had cottoned on, if cautiously.
By yesterday, with depositors flying to Antigua in a desperate and doomed attempt to cash out their CDs, it was all over bar the formal indictment. Stanford Group is now in receivership, and its top two executives are fugitives from justice. But given that they seem to have been operating this scam for over a decade, they surely saw this coming long before the authorities started asking awkward questions. In fact, they're probably shocked themselves at how long it's taken the SEC to get to this point.
Allen Stanford might be a moustachioed crook, but he's not stupid. There's still a good chance that he could live out the rest of his life in sybaritic luxury, even as his investors lose substantially everything they entrusted to him and his offshore bank.
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This guy Stanford, and Madoff before him.........
They are only the tip of the iceberg.
By the time this entire global credit crisis is done, you are going to find out that over 50% of hedge funds, managed accounts, private partnerships, etc, etc, are nothing more than Ponzi schemes.
Though I wish this was all winding down, I feel we are only in the 4rth inning of a complete breakdown of the financial service industry.
On Feb 17 06:37 PM Nathaniel C wrote:
> While we are on the topic of ponzi schemes. Guess what is the largest
> ponzi scheme currently operating in the US? Social Security and we
> are talking trillions of dollars, not just billions like Stanford
> and Madoff.
And how many more of these scams are we going to have to face before we recognize that the fund industry, especially hedge funds, need real disclosure and regulation?
So far there is still no new regulatory components put in place to deal with mass fraud, out of control derivatives, terrible bank risk management, and insufficiently collateralized gambling bets by brokerages, banks, and insurance companies. If anything is eating at the roots of economic stability it is these things. You can't build an economic recovery when you know that the ground below you is a vast wasteland of dog doo.
It's useless to talk about bailouts and bank recapitalization when all the losses are hidden on off balance sheet books and derivatives positions are a black box. It is useless to try to stabilize the market with stimulus when you can't even find out what Bernie Madoff did with his money month's after you drag him to court.
That shows you how completely unregulated and in-transparent our accounting system has become. No wonder no one wishes to loan anymore. It's not just a capital thing, it's a book keeping thing. You can start by cleaning up the mucky waters by requiring funds to disclose all their holdings every month, cleaning up banking by simplifying it with Glass Stegall, and requiring all derivatives including CDS and CDOs to be exchange tradable and requiring full disclosure of the positions along with some required collateral to write such contracts.
To me a trillion dollars in derivatives written by a firm with assets of a few billion doesn't hold muster. If anything it smacks of fraud on a scale much greater than Madoff and Stanford. But that's just me. Paulson apparently thought companies like these (AIG primarily) were saints and deserved over $100 billion in public assistance.
I continually find myself appreciative of your insightful analysis and determination to bird-dog this story. Perhaps the global network of the blogosphere will help ferret out the location of Sir Stanford and he will face some sort of retribution for what is apparently a brazen and depraved indifference to his clients. Let's hope the power of the network leads someone to spot him in some far-flung exotic location and we see him do the perp walk.
Keep up the good work.
Nik