Time For The Hangman's Noose

Take every last dime he has and all of his property.

February 21, 2009

By CLIFFORD KRAUSS, JULIE CRESWELL and CHARLIE SAVAGE

ST. JOHN’S, Antigua — When Robert Allen Stanford arrived here in the early 1990s, few locals had ever heard of the Texas financier. Today, he dominates so many aspects of life on this sun-drenched Caribbean island that some have taken to calling it “Stanford Land.”

At one point or another, he has owned an airline that many locals and visitors fly on. A local newspaper that covers their goings-on. A vast residential complex where many live. Two restaurants where they eat. And the national stadium where they go to watch cricket, the island’s favorite sport.

But the crown jewel of his domain has long been Stanford International Bank, an offshore institution that attracted billions of dollars of cash from clients around the world — and especially from Latin America — seeking a haven for their wealth.

All the while, he cultivated a comfortable relationship with Antiguan officials. The bank made loans to the Antiguan government, which often used the money to award his companies lucrative construction contracts. To clean up the nation’s image as a dodgy tax haven, the authorities installed him on a new regulatory authority to oversee its banks — including his own.

To some, it felt too cozy.

“There seemed to be a complete breakdown of the normal barriers between the regulator and the regulated,” said Jonathan Winer, who was, at the time, a deputy assistant secretary of state for the United States State Department. “The relationship between the government of Antigua’s political leaders and Stanford seemed weirdly intimate.”

Despite raised eyebrows and occasional investigations of Mr. Stanford — or Sir Allen, as he is called here since he was knighted by the Antiguan government in 2006 — his sway continued to grow. That is, until this week, when the Securities and Exchange Commission accused Stanford International of orchestrating a huge fraud that may have bilked investors of some $8 billion that regulators say cannot be accounted for. The company is referring all calls to the S.E.C.

Mr. Stanford, 58, who has not been charged with any criminal wrongdoing, could not be reached. On Friday, his troubles mounted, as officials here took over his Antiguan bank, following seizures of his operations elsewhere in the world.

Stanford International claims it had about $8 billion in assets, but the Securities and Exchange Commission has only said it has not been able to account for that money. Most of the key players, including Mr. Stanford, failed to appear to testify after the S.E.C. issued a subpeona.

Seeking Answers

The collapse of Mr. Stanford’s empire has left many questions unresolved. What happened to investors’ money, which supposedly was put into high-quality assets? To what extent did his efforts to curry favors with politicians here — and in the United States, where he made contributions to many congressmen — help him elude serious scrutiny despite suspicions raised about his activities in the past? And what was the nature of the fraud that is being alleged — a plain-vanilla securities fraud, as the S.E.C. has charged; a Ponzi scheme; or, given the history of some offshore Caribbean banks, was money laundering also involved?

It may take months to figure out the answers. Few documents have emerged to shed light on Mr. Stanford’s business dealings, which involved high-yielding certificates of deposits sold to investors and housed in the Antigua bank — or even its exact size.

In numerous interviews with former Stanford employees, former American regulators and agency officials, and individuals who had direct dealings with Mr. Stanford over the years, a picture emerges of a man who had visions of grandeur for himself and his company and who knew the key to his success was aligning himself with politically powerful individuals.

At the same time, much of Mr. Stanford’s true background appears elusive.

Born in Mexia, Tex., a rural town of 6,600 about 85 miles southeast of Dallas, he claims to have based his company, Stanford Financial Group, on an insurance firm started by his grandfather Lodis Stanford during the Depression.

Mr. Stanford’s first foray into business, however, was far from finance. He started with a chain of body-building gyms in Waco, Tex. He later claimed to make much of his fortune in the 1980s buying distressed properties in Houston.

A former Stanford employee said that while some properties, such as ones Mr. Stanford picked up in the chic River Oaks area of Houston, made money, many others ended up as busts.

So when Mr. Stanford decided to start his first offshore bank, Guardian International Bank, on the Caribbean island of Montserrat in 1986, he turned to his father, James Stanford, for about $2 million to $4 million in seed money, according to the employee, who declined to be named because he did not want to be drawn into ongoing investigations.

Guardian International sought out wealthy individuals and companies in Mexico, Venezuela and Central America, where people were eager to move money offshore because of onerous regulatory and political regimes.

Antigua-Bound

As Mr. Stanford’s small operation grew, so did his ambitions.

“He talked about wanting to build the largest financial company in the world,” the employee said.

Mr. Stanford, who showed at times a charming demeanor as well as a fiery temper (a former employee said he once threw a glass ash tray against the wall in a fit of anger), began to see himself in more grandiose ways. He came up with a shiny new logo for his company, a Golden Eagle, which he described as a knight’s shield and required all employees to wear.

In the early 1990s, the government of Montserrat cracked down on a number of offshore banks. Guardian was out.

Quickly, Mr. Stanford set his sights on territory he would soon call home, Antigua. His presence on the tiny island, population 85,000, began taking shape when Lester Bird, then the prime minister, saw him as a can-do American with ample cash who could help solve Antigua’s myriad problems. When the local, Bank of Antigua ran into difficulties, for example, Mr. Stanford stepped in in 1990 to take it over.

And when the United States began pressuring the Bird government in the late 1990s to take a firmer hand on alleged money laundering, Prime Minister Bird again asked Mr. Stanford to help.

The government formed a banking advisory board and put Mr. Stanford on it, a move that alarmed American authorities scrutinizing Antigua, who saw an inherent conflict of interest since the board also oversaw Mr. Stanford’s bank. The project was paid for by the Antiguan government by money either lent or granted by Mr. Stanford.

Various United States regulators and agencies were already uneasy about Mr. Stanford. Around 1998, he sent a letter to Jeanette Hyde, then the United States ambassador to Antigua, in which he said he had been investigated by numerous agencies over the years. None of them had turned up anything, he claimed, a vindication he said showed he was a law-abiding citizen.

If anything, the concerns about Antigua and Mr. Stanford’s presence there grew. In 1999, he gave the Drug Enforcement Agency a $3.1 million cashier’s check from Stanford Financial in Antigua after the bank found that a former Mexican drug lord had hid or laundered money there. The same year, however, the American Treasury Department placed Antigua on its money-laundering watch list.

Around the same time, Mr. Stanford and his Houston-based company, Stanford Financial Group, burst onto the scene as players in federal politics. The White House was pushing legislation to make banks crack down on money laundering, so Stanford Financial hired a Washington lobbying firm and began donating hundreds of thousands of dollars to Republicans and Democrats alike.

Suspicions Grow

The sudden rush of money drew the attention of Public Citizen, which singled out Stanford as a case study of the influence of campaign donations in shaping legislation. Public Citizen concluded that it was “clear” that the Stanford contributions “were aimed at killing the bills,” although broader help turned out to be unnecessary because Texas Republicans simply blocked it from receiving a vote in both chambers. (After the 2001 terrorist attacks, Congress revived and passed the money-laundering proposals. Antigua’s government, meanwhile, had recreated the reform panel and rewrote its banking regulations to Washington’s satisfaction, allowing its name to be stricken from the watch list that same year.)

Still, Mr. Stanford kept his outreach to Washington going. From 1999 to 2008, Stanford Financial dispensed some $4.8 million on lobbying activities — spending $2.2 million of that in 2008 alone — and its employees and its political action committee have given $2.4 million to federal candidates since 2000, according to the Center for Responsive Politics.

Mr. Stanford also wooed lawmakers and their staff with plane rides and “fact-finding” trips to vacation destinations. Many were paid for by the Inter-American Economic Council, a nonprofit organization that he supported.

In recent days, some lawmakers have sought to distance themselves from Mr. Stanford. Among them is Senator Bill Nelson, Democrat of Florida, who received more money from Mr. Stanford and his employees than any other lawmaker: $45,900, according to the Center for Responsive Politics. Mr. Nelson’s office said he was donating the money to charity.

Another lawmaker, Representative Pete Sessions, Republican of Texas, received $41,375 in such donations. He also went on two council trips, totaling more than $10,000 in expenses, according to Legistorm, a group that tracks lawmaker travel disclosure forms.

Mr. Sessions’s spokeswoman, Emily Davis, told Bloomberg News this week that Mr. Sessions did not know Mr. Stanford personally. But that account was called into question when the Web site Talking Points Memo published a photograph showing the two men talking during a trip to Antigua. (Ms. Davis declined to comment on Friday.)

But Mr. Stanford’s ties to key lawmakers did not completely shield him from the wary eyes of regulators. A routine S.E.C. examination of Stanford’s broker-dealer operations in Houston revealed a major problem — the firm was in violation of net capital requirements, resulting in the company paying a fine of $20,000 in 2007.

In 2006, the agency opened an investigation, but halted it abruptly at the behest of another unnamed agency. The inquiry was reopened late last year, after the alleged $50 billion Ponzi scheme involving Bernard L. Madoff came to light. It is unclear why these and other investigations, including by various law enforcement agencies, appeared to have stalled over the years.

Meanwhile, relatively unfettered, Mr. Stanford and his companies continued to attract money to their Antigua-based bank, particularly from Venezuela and other Latin American countries. Venezuelan regulators estimate investors there may have put $2.5 billion into C.D.’s issued by the Antigua-based bank.

Mr. Stanford was quick to offer flights to prospective investors to Antigua on his private jets and maybe a breezy trip through Antigua’s quiet bays on his yacht.

The richest prospective investors would be put up for a few days at Jumby Bay, a 300-acre secluded private island with cottage guest rooms and a nature preserve.

“He’s an ‘everything is big in Texas’ kind of man,” said Winston Derrick, a radio show host and publisher of The Antigua Observer newspaper, the competitor of Mr. Stanford’s own newspaper. “Everything he does is first class.”

Now, Antigua is reeling. Senior government officials declined to comment on their relationships with Mr. Stanford. Many met behind closed doors Friday with executives of several local Stanford companies to gauge how far the Stanford empire would be impacted. “What we are concerned about is the fallout,” said Attorney General Justin Simon. “Although it is only one bank, we need to ensure that the local assets are protected for depositors.”

Clifford Krauss reported from St. John’s, Julie Creswell from New York and Charlie Savage from Washington. Simon Romero contributed from Caracas, Venezuela.

Let The Sun Shine In......