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Stanford sentenced for fraud scheme

By Michael P. Tremoglie | Jun 18, 2012


WASHINGTON (Legal Newsline) -- The Department of Justice says R. Allen Stanford, the former board of director's chairman of Stanford International Bank, was sentenced to a prison term of 110 years for orchestrating a 20-year investment fraud scheme in which he misappropriated $7 billion from SIB to finance his personal businesses.

The case had international proportions. The governments of Antigua and Barbuda, Switzerland, the Cook Islands, the United Kingdom and the Isle of Man were all involved in the investigations and prosecution.

On March 6, Stanford, 62, was convicted on 13 of 14 counts by a federal jury following a six-week trial and approximately three days of deliberation. The jury also found that 29 financial accounts located abroad and worth approximately $330 million were proceeds of Stanford's fraud and should be forfeited.

Stanford was sentenced by U.S. District Judge David Hittner who sentenced Stanford to 20 years for conspiracy to commit wire and mail fraud, 20 years on each of the four counts of wire fraud as well as five years for conspiring to obstruct a U.S. Securities and Exchange Commission (SEC) investigation and five years for obstruction of an SEC investigation. These sentences will all run consecutively.

But he also received 20 years for each of the five counts of mail fraud and 20 years for conspiracy to commit money laundering. These will run concurrent with the other sentences.

The prosecutor in the case, William Stellmach, asked for the full 230 year sentence for which Stanford was eligible. He said Stanford's schemes dwarfed anything that Bernie Madoff did noting that Madoff kept about $250 million while Stanford kept $2 billion.

According to the DOJ, as part of Stanford's sentence, the court also imposed a personal money judgment of $5.9 billion, which is an ongoing obligation for Stanford to pay back the criminal proceeds. "The court found that it would be impracticable to issue a restitution order at this time. However, all forfeited funds recovered by the United States will be returned to the fraud victims and credited against Stanford's money judgment," according to DOJ.

Stanford's operation centered around SIB, an offshore bank he owned that was headquartered in Antigua and Barbuda. The bank sold certificates of deposit to depositors. Stanford began operating the bank in 1985 in Montserrat, the British West Indies, under the name Guardian International Bank. He moved the bank to Antigua in 1990 and changed its name to Stanford International Bank in 1994.

SIB issued CDs that typically paid a premium over interest rates on CDs issued by U.S. banks. By 2008, the bank owed its CD depositors more than $8 billion.

SIB published annual reports and marketing brochures stating the CD proceeds were invested in highly conservative, marketable securities that were also highly liquid, meaning the bank could sell its assets and repay depositors very quickly. It also said all of its assets were globally diversified and overseen by money managers at top-tier financial institutions, with an additional level of oversight by SIB analysts based in Memphis, Tenn.

But during the trial, this declared investment strategy and management of the bank's assets was used for only about 10-15 percent of the bank's assets. Stanford diverted sent billions of dollars to companies he owned. He booked the expenditures as loans.

Stanford's businesses, operated at a loss which he compensated for by using more depositors money. These businesses were concentrated primarily in the Caribbean and included restaurants, a cricket tournament and various real estate projects. He also used the misappropriated CD money to finance a luxurious lifestyle of yachts, private planes and expensive gambling.

New CD sales were used to pay old depositors. When the financial crisis of 2008 caused a decrease in new CD sales and an increase in record redemptions, Stanford lied about personally investing $741 million in additional funds into the bank to strengthen its capital base.

He cooked the books to substantiate his false claims. Accountants inflated on paper the value of a piece of real estate SIB had purchased for $63.5 million earlier in 2008 by 5,000 percent to $3.1 billion, despite the fact there were no independent appraisals or improvements to the property.

He also paid bribes from a Swiss slush fund at Societe Generale to C.A.S. Hewlett, SIB's auditor (now deceased), and Leroy King, the then-head of the Antiguan Financial Services Regulatory Commission.

Several of his alleged co-conspirators, including: James Davis, the former chief financial officer; Laura Holt, the former chief investment officer; Gil Lopez, the former chief accounting officer; Mark Kuhrt, the former controller; and King were previously indicted by a grand jury in the Southern District of Texas according to DOJ. Davis has pleaded guilty.

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