Cricket hit for six as Stanford faces fraud charges

Some thought Sir Allen Stanford was too good to be true. Turns out they might have been right...

Last Updated: 31 Aug 2010

Sir Allen Stanford, the Texan billionaire who’s recently been throwing vast sums of cash into cricket, has been accused of ‘orchestrating a fraudulent, multi-billion dollar investment scheme’ by the US Securities & Exchange Commission. The allegation is that Stanford’s group of companies have managed to swindle unsuspecting investors out of more than $9bn, by promising implausible rates of return. Of course these charges could be wholly unsubstantiated, but Stanford (who hasn’t been out of the papers in recent months) hasn’t helped matters by suddenly disappearing off the face of the earth. All a bit embarrassing for the straight-laced cricket establishment…

Stanford’s alleged scam centres around supposedly super-safe ‘certificates of deposit’, which he’s been flogging to the world via his Stanford International Bank in low-tax Antigua. Investors were promised ‘improbable and unsubstantiated high interest rates’, according to the SEC – often more than twice the market average. SIB’s  ‘unique investment strategy’ supposedly produced years of double-digit returns (including an identical 15.71% in 1995 and 1996 – which is pretty much impossible statistically) and finished last year just 1.3% down as the world’s stock markets tumbled nearly 40%. Not surprisingly, the regulator smelled a very big rat.

‘We are alleging a fraud of shocking magnitude that has spread its tentacles throughout the world’, the SEC said yesterday – and since Stanford’s group of companies operates throughout the US, the Caribbean and Latin America, the consequences are likely to be pretty big. Charges have now been brought against Stanford, his CFO James Davis – supposedly the only other man who knew where the money was 'invested' – and his CIO Laura Pendergest-Holt, who apparently had no previous financial experience before she was hired to run his portfolio. All three have suddenly vanished, and refused to answer the SEC’s subpoenas for information. Innocent until proven guilty, and all that, but you have to say it doesn’t look good.

Indeed, the whole tawdry saga reflects pretty badly on all concerned. It’s a huge embarrassment for English cricket, which must rue the day it ever jumped into bed with Stanford – indulging his lewd behaviour and criticism of Test cricket, all to get its hands on a big pot of cash. As for the regulator, it’s all very well acting now, but why wait until Stanford’s financial empire has amassed $50bn in assets? If the set-up was so obviously dodgy, why didn’t they spot it years ago? Had they just not thought to look until they saw him on the cricket? Charges of the SEC being asleep at the wheel are inevitable, and probably justified.

And the biggest casualty may be the global asset management industry. Coming so soon after the Madoff scandal, this episode is going to further undermine confidence in the reliability of the investment business. Although there’s a fairly clear lesson here – if returns seem too good to be true, there’s generally a good reason for that...

In today's bulletin:

Cricket hit for six as Stanford faces fraud charges
Starbucks boss puts Mandelson in a flapuccino
Ashley promises figures as Sports Direct sales jump
Mobile phone companies on the charge
Twitter investment gets tongues wagging

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