In February of 2009, the Antigua/Texas based global financial group (made up several subsidiaries owned by the same owner) owned by R. Allen Stanford was charged with scamming their customers by the Securities and Exchange Commission. Stanford Financial Group was charged with fraud when deceptively selling consumers $8 billion dollars in deposit certificates. According to The Money Alert, ”A certificate of deposit, or CD, is a type of low-risk investment that many people use when they want a small return on their investment without having to worry about losing their money” (1).
The firm ensured its customers/investors an unrealistically large return on their certificates of deposit. According to Zachary Goldfarb, “Stanford International Bank offered CDs paying anywhere from 7.45 percent to 10 percent annual interest rates” (16). Stanford Financial also lied to their customers on how their money was being invested.
Customers were told that their deposits were invested in easily sellable securities, however in actuality the customer’s deposits were invested in dubious real estate and private equity holdings.
The investment portfolio of the company was kept secret from their customers and was only known by R. Allen Stanford and James M. Davis (the Chief Finical Officer). 3. There are a variety of rules the Stanford Group broke. The culprits are the executive officers of Stanford Group and their use of one subsidiary, Stanford Investment Bank (SIB) and several other companies within the group, the company executives were charged with fraud. The fraudulent act that got them caught was, via SIB Stanford Group was fabricating high returns on CDs.
Using fictitious CDs created by SIB, Stanford group faked high returns by using one of their subsidiaries as faux investors to entice other investors, thus swelling the numbers they would present to potential investors.
The various members of the company were also charged with counts of obstruction of an SEC investigation. Once Stanford Group was under investigation various other violations were discovered. (huffington post) Laundry list of SEC acts the company violated (pulled directly from the complaint document): By engaging in the conduct described in this Complaint, defendants Stanford, Davis, Pendergest-Holt, sm, SGC, and Stanford Capital, directly or indirectly, singly or in concert, have engaged, and unless enjoined and restrained, will again engage in transactions acts, practices, and courses of business that constitute violations of Section 17(a) of the Securities Act of 1933 (“Securities Act”) [15 U.S.c. §§ 77e(a), 77e(c) and 77q(a)], and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. § 78j(b)], and Exchange Act Rule 10b-5 [17 C.F.R. § 240.10b-5] or, in the alternative, have aided and abetted such violations.
In addition, through their conduct .<:described herein, Stanford, SGC, and Stanford Capital have violated Section 206(1) and (2) of the Investment Advisers Act of 1940 (“Adviser’s Act”) [15 U.S.C. §§ 80b-6(1) and 80b-6(2)] and Davis and Pendergest-Holt have aided and abetted such violations. Finally, through their actions, SIB and SGC have violated Section 7(d) of the Investment Company Act of 1940 (“ICA”) [15 U.S.C. § 80a-7(d)]. (SEC) 4.Was anyone else involved in the scandal? In regards to the question of was anyone else involved in the scandal, in short no, Stanford was able to keep the shifty scandal in house and it remained a conglomerate scheme in the making. The main parties involved were the Stanford Financial Group, director, Robert Allen Stanford, and his college buddy turned Chief Financial Officer, James M. Davis. The two parties mentioned previously held a substantial portion of the bank portfolio and led in the misuse of bank’s assets and decided to keep it under wraps along with obstructing the U.S. Securities Exchange Commission (SEC) investigation as much as possible.
The Houston Texas, firm and subsidiaries were involved in a huge Ponzi con artist scheme which resulted in 20 years of stealing over $7 billion international dollars. The end result was $17,000 supposed investors turned victims in the U.S. and other locations within the Americas. Davis in particular was originally on the cusp of having to serve 110 years, shortening his sentence because he as the second in charge he was able to provide a copious amount of priceless data against Stanford who’s end sentence was 110 years. 5. There were several sanctions levied against the corporation: (1) James M. Davis, CFO of Stanford International Bank (SIB) and Houston-based Stanford Financial Group, was sentenced today to five years in prison for his role in helping Robert Allen Stanford perpetrate a fraud scheme involving SIB and for conspiring to obstruct a U.S. Securities and Exchange Commission (SEC) investigation into SIB. (2) Personal money judgment of $1 billion.(3) Stanford and Holt are currently serving 110 years and three years in prison, respectively. (4) Lopez and Kuhrt are in federal custody and await sentencing, scheduled for February 14, 2013. 6.
Our thoughts on the sanctions for Allen Stanford were fair enough and taken very seriously. Stanford was sentenced to 110 years in prison with a one billion dollar fine. However, the sanctions for James Davis are not severe enough. Conversely, he is being mandated to pay a billion dollar penalty and any profits of the company are to be seized. He was sentenced to five years in prison, while others involved got over one hundred years in prison. We also think that the persons involved in the huge Pyramid scheme should be forced to pay back some of the money back to all of their victims.
We couldn’t agree on how much should be given back since we know that a lot of people were duped but we could agree that everyone should get at least 10% of money back and everyone involved in Stanford Group should be forced to pay up. 7. Stanford broke the SEC rules out of sheer greed. The desire to make as much money as they could, any way that they could was the reason they committed such blatant fraud. We also believe that Stanford and Davis continued to commit the crime for 20 years because they felt like they couldn’t get caught, were good at were that did since they had a lot of smaller companies to make it look legit as possible.
Additionally the main parties involved might have felt as if they were to some effect above the law or they would just accept the punishment whenever it came and in the meantime just cash in on as much money as they can. 8. There were so many corporate scandals during the 2000s because there were fewer regulations. Basically the inmates were allowed to run the asylum and bedlam ensued. We also believe that in the 2000’s they was a vast increase in dot.com companies popping up at nowhere, and with more people being in corporate America, the higher the chance that someone would commit a crime since everyone was trying to make a buck and there was more competition the legal way.