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Fraud of the Week: Stanford International Bank 22 February 2009

Stanford, widely known for his sponsorship of 20twenty cricket tournaments, was charged in a civil lawsuit alongside his Stanford International Bank operation with selling $8bn of investments with ‘impossibly high rates of interest.’

Charged on Tuesday, his whereabouts were unknown until he was located in the US on Thursday and served with court papers by the FBI.  He has not been arrested, though criminal investigations are now underway.  Stanford’s main operations were run through Antigua, where he was the country’s largest employer.  

Nigel Hamilton-Smith and Peter Wastell of Vantis have been appointed receivers of Stanford International Bank Ltd in Antigua, and are now on-site with a team from the firm’s London office.  In the US, Dallas-based lawyer Ralph Janvey is the court-appointed receiver and has frozen all customer accounts and moved into Stanford’s Houston headquarters.

Hamilton-Smith said:  “As receivers we are now seeking to establish and protect the position with the investors’ deposits, the companies’ assets and claims from investors.”

Similarities to the Madoff fraud are striking: both men dominated their companies and both were audited by tiny, unknown firms of accountants.  In the case of Stanford, it seems that his auditors, CAS Hewlett, were little more than a sole-practitioner who died last month aged 72.  The Evening Standard reported that addresses for the accounting firm’s listed offices in London are all unoccupied and that no-one at the firm’s offices in Antigua knows anything about a Stanford audit.  The SFO is now looking at Stanford’s UK connections.

On Friday, Peru’s financial regulator opened an investigation into money laundering by Stanford’s South American operations amidst rumours of Mexican drug money passing through the offshore bank.  Stanford surrendered his passport along with the Chief Financial and Chief Investment Officers of the investment firm, who have been charged alongside Stanford himself.

Meanwhile, records recovered from Madoff’s offices suggest that no securities had been purchased with client funds for as long as 13 years.  Staff working for Irving Picard, the court-appointed trustee who is leading the investigation, have sifted through 7,000 archive boxes of records.  The trustee has recovered around $946m of around $50bn invested with Madoff.  Investors are now worried that payments out of the fund made in the 90 days prior to the collapse will be recalled by regulators.

The wait is on for a London-based fraud to be uncovered. Readers are advised to poke their investment manager’s office fittings (including staff) to ensure they are not made of cornflake boxes and sellotape.



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