Secrets of the Knight: Sir Allen Stanford and the Missing Billions

Posted: 2009 May 13 Sir Allen Stanford is the moneyman from Texas, accused in a financial scandal that rocked the world.CNBC’s Senior Correspondent Scott Cohn unlocks a bank vault full of secrets that destroyed savings, ruined lives and threatens a country’s economy.Premieres:  Thursday, May 14th 9p | 1a ETVisit the website

He's an international man of mystery, a globetrotting banker and an Antiguan Knight. Sir Allen Stanford's heads a financial empire with 30-thousand clients in 133 countries.But U.S. authorities say his Antigua based Stanford International Bank is an essential strand in a web of deceit... a global Ponzi scheme that destroyed the savings of unsuspecting investors.

From Antigua, Stanford International Bank issued $8-billion in certificates of deposit supposedly backed by Stanford’s secure investments.  The CD’s were sold by hundreds of Stanford brokers around the world to investors big and small.But the Securities and Exchange Commission says those CD’s are bogus and the funds from new investors were used to pay improbably high returns to old investors.

In an exclusive interview, Sir Allen Stanford swears he did nothing wrong.  Interviewed by CNBC’s Senior Correspondent Scott Cohn, he says the authorities are targeting him and his legitimate global empire to make up for their mis-steps in the Bernie Madoff financial scandal.Stanford:  “You make your own judgment there.  Madoff was a true Ponzi scheme.  We have real assets, real people, a real group of companies and this was no Ponzi scheme.”>See Scott Cohn’s Exclusive Interview

Sir Allen Stanford’s net worth is listed by Forbes at $2.2 billion.   He’s a Knight Commander of the Most Distinguished Order of the Nation of Antigua and Barbuda.  He’s a philanthropist and friend to both Democratic and Republican politicians.  Lavish homes, private jets -- Sir Allen lived a life of opulence and mystique.Now, everything is shut down.  The Stanford empire forced into receivership by U.S. and Antiguan courts.

Stanford’s base of operations is in Houston, Texas. It’s a study in luxury from the sweeping staircase to the surround-sound theatre.  There’s a formal dining room served by a gourmet kitchen.Engraved deep in the Lobby’s marble wall is the motto “Hard work, clear vision, value for the client.The offices are now locked down following an FBI raid in February 2009.

Antigua.  In this nation of just 85-thousand people, it’s impossible to miss the signs of Allen Stanford’s empire. He’s Antigua’s largest private employer and his investments have raised the country’s standard of living. Stanford owns Antigua’s largest newspaper, a gourmet restaurant and The Stanford Cricket Grounds.But regulators and investors say there’s just one problem: it’s all paid for with other people’s money.

Troy Lillie, a refinery worker who retired in 2005, had saved close to a million dollars.  Troy and wife Melanie needed a plan and a financial advisor so they turned to Stanford Trust Company in Baton Rouge, La.  Troy Lillie:  “ My main goal was that...that the money be in somethin’ safe.”The money was invested in Certificates of Deposit issued by Stanford International Bank.

Mike Kogutt and wife Angie Shaw had two million dollars to invest in 2007—their proceeds from the sale of the family’s leather goods manufacturing business.    They reviewed Stanford International Bank’s investments and regulatory reports.  Satisfied it was safe, they invested the entire amount with Stanford.Mike Kogutt:  “Every conversation was that we were extremely risk averse, that we want safe insured reliable secure investment.  We had too much to lose, we weren’t going to make a risky investment.”

Following the FBI raid on Stanford’s offices, a court ordered all of Stanford’s assets frozen … including the investment funds of Troy and Melanie Lille ….and Mike Kogutt and wife Angie Shaw.They had been told they were investing in safe Certificates of Deposit backed by a stable portfolio of stocks, bond, precious metals and real estate.  Now, authorities said they had, in reality, invested in a giant Ponzi scheme and all their money was probably gone.

James Davis was Sir Allen Stanford’s Baylor college roommate and for more than 20 years, his Chief Financial Officer.   Davis is now cooperating with the authorities.The court appointed receiver in the case reports finding 200 different accounting systems at Stanford’s company, in a system officials believe was designed to prevent any one employee from knowing the full scope of the Stanford operations.

Sir Allen Stanford called it The Stanford Investment Model -- safe, smart secure.  Members of his sales force, including Michael Word, marketed with fervor and collected a commission upfront and a continuing commission for as long as they kept their clients invested.Word was among Stanford’s top performers, according to court documents, receiving $1.3 million in commissions since 2007.Now, the court appointed receiver is suing Word and 65 other Stanford advisors – seeking to recover $40 million in commissions to return to investors.Word’s attorney says his client believed the Stanford certificates of deposits were appropriate for the investors he recommended them to, and that Word’s commissions were disclosed to clients.

Sir Allen Stanford says he intends to fight the SEC’s allegations, as well as the criminal indictment he expects is coming.

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