Stanford Financial Accused of a Long-Running Scheme
By JULIE CRESWELL and CLIFFORD KRAUSS
Published: February 27, 2009
Late last fall, one of Stanford Financial Group’s top salesmen in Miami sent a frantic e-mail message to Laura Pendergest-Holt, the chief investment officer for the brokerage firm. A client with $20 million in Stanford’s Antigua-based bank affiliate had grown nervous about its financial safety and wanted to withdraw his money.
In truth, the funds were far from secure. Inside the Stanford empire, Robert Allen Stanford and his chief lieutenant, James M. Davis, were preparing to sell off large chunks of the bank’s investment portfolio and move hundreds of millions of dollars in and out of the bank’s three-tiered structure.
But Mrs. Pendergest-Holt, who had been groomed for a role at Stanford since the age of 15 by Mr. Davis, a patriarch from their hometown of Baldwyn, Miss., told the salesman he could report that nothing was wrong and that his client’s assets were safe.
On Friday, the Securities and Exchange Commission accused Mr. Stanford and Mr. Davis of executing a “massive Ponzi scheme” over the last decade, in which they misappropriated funds and made more than $1.6 billion in “bogus” loans to Mr. Stanford. The agency, in a revised complaint, also accused the men of falsifying financial statements to investors who bought $8 billion worth of certificates of deposit whose large returns turned out too good to be true.
Also Friday, Mrs. Pendergest-Holt appeared at a bail hearing in Houston after the F.B.I. arrested her for obstructing the S.E.C.’s inquiry into one of the largest suspected international financial frauds to come to light. Authorities say she failed to reveal the extent of her knowledge about where as much as $5 billion of the banks’ assets were when she testified before the agency in early February. Her defense lawyer, Dan Cogdell, said she would plead not guilty when she is arraigned in Dallas, where the criminal charge was filed. He said there was “no proof” she did not cooperate with investigators.
The government lawyer, Paul Pelletier, said, “She is one of three people who had access to $6 billion now missing to investors.”
Numerous interviews with former Stanford employees and testimony provided in court documents indicate that over time, top managers surrounded themselves with a team of friends, family and acquaintances who had little financial experience, but were as close-knit as the small Southern towns from which several of them came. On Friday, the S.E.C. said these ties created an environment that left “no independent oversight" over the Antiguan-based bank’s assets.
Indeed, the comfortable relationships meant that Mr. Stanford and Mr. Davis were almost never questioned about what they were doing with the money, according to Stanford employees.
In earlier testimony to the S.E.C., Mrs. Pendergest-Holt said that only Mr. Stanford and Mr. Davis knew the status of billions of dollars stashed in an opaque part of the bank’s portfolio known as Tier III. Tier I, roughly 10 percent of the bank’s assets, was in cash, and Tier II, another 10 percent of assets, was overseen by Mrs. Pendergest-Holt and invested with more than a dozen fund managers worldwide.
According to the F.B.I., however, only four days before testifying, Mrs. Pendergest-Holt gave a presentation in Stanford’s Miami office that was attended by Mr. Davis, as well as a number of Stanford executives and an unidentified outside lawyer representing Stanford Financial. The purpose of the meeting was to discuss the financial details she would need to present in her testimony to the S.E.C.
According to the F.B.I. affidavit, during the meeting “executive B,” or Mr. Davis, gave her a data drive showing that the Tier III asset group included more than $3 billion in real estate holdings and $1.6 billion that turned out to be a “loan to shareholder,” believed by those present to be Mr. Stanford. The information shocked and upset a number of executives present, all of whom had been told time and again that the firm’s investments were legitimate. A number of them are now cooperating with government investigators.
In her S.E.C. testimony, however, Mrs. Pendergest-Holt did not reveal these details, despite repeated questioning. Thomas V. Sjoblom, a lawyer with Proskauer Rose who represented the firm and who was present during Mrs. Pendergest-Holt’s testimony before the S.E.C., withdrew his counsel the day after her testimony. Two days later, Mr. Sjoblom, who had spent 20 years with the S.E.C. before entering private practice, disavowed all previous oral and written representations he had made to the S.E.C. on behalf of the firm.
Calls to Mr. Sjoblom’s offices were not returned. Mr. Stanford and Mr. Davis, who have not been criminally charged, could not be reached for comment.
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