Stanford To Have Texas Hearing, Declared Flight Risk

A judge in Virginia has ordered indicted billionaire R. Allen Stanford to return to his home state of Texas.

Allen Stanford
Allen Stanford

Magistrate Hannah Lauck (Lock) agreed with prosecutors during a hearing Friday in Richmond, Va., that Stanford poses a flight risk and ordered a detention hearing.

Stanford will remain in custody until that hearing can be held in Houston.

Prosecutors say Stanford's international banking empire was really just a Ponzi scheme built on lies and bribery to swindle investors out of $7 billion.

Stanford's lawyer, Christina Sarchio opposed the detention hearing. She says Stanford is not a flight risk and is essentially broke because the government has frozen his assets.

Steven Tyrrell of the Justice Department says more than $1 billion from Stanford's alleged scheme remains unaccounted for. Tyrrell says if anyone has access to it, it's Stanford.

Stanford, a flamboyant 59-year-old financier, appeared in the Virginia court to answer charges by a Texas grand jury that he orchestrated the fraud through his Antigua bank with the aid of company executives and an Antigua regulator.

He could face up to 375 years in prison if convicted on all charges, assistant Attorney General Lanny Breuer said in announcing the charges against Stanford, three company executives and the chief regulator in Antigua. Breuer, speaking at a Washington news conference, said some 5,000 to 6,000 investors were hurt in the fraud.

Stanford's lawyer released a statement after federal officials announced the charges:

" ... Since at least February of this year, Allen Stanford has been working with lawyers to meet and challenge the false accusations against him." "... Allen Stanford will continue to fight those allegations. He is confident a fair jury will find him not guilty of any criminal wrongdoing."

And Federal prosecutors in Houston filed a criminal information against Stanford Chief Financial Officer James Davis, bringing to six the number of people charged criminally in the alleged fraud.

Unlike the others, Davis is cooperating with prosecutors, and a result, avoided a grand jury indictment. Davis' attorney, David Finn, tells CNBC he expects his client will reach a plea agreement with prosecutors, but some "wrinkles" still need to be worked out.

"Mr. Davis has, and will continue to accept full responsibility for his actions," Finn wrote in an e-mail to CNBC, adding, "At Stanford's trial, the entire world will see that the prime orchestrator and beneficiary of the Stanford fraud was Sir Allen Stanford himself."

The criminal information charges Davis with two counts of conspiracy and one count of mail fraud. Under federal law, prosecutors now have 30 days either to obtain a plea agreement or an indictment against Davis.

Stanford, a colorful figure with a penchant for cricket, golf and publicity, holds dual U.S. and Antigua and Barbuda citizenship.

His case is the first major financial crimes prosecution brought under the administration of President Barack Obama, who has vowed to crack down on economic malfeasance amid a deep global recession.

Asked about the case, White House spokesman Robert Gibbs told reporters, "Whether it's this indictment or previous indictments that we've seen over the course of many months ... There are those whose outsized greed robbed millions of people of their savings and created part of a culture that led us to parts of the economic disaster that we've seen in this country."

With many Americans already angered by the financial sector crisis, investigators have been under heavy pressure to crack down on financial and corporate fraud cases after the government failed to respond to warnings over the years that money manager Bernard Madoff was running a massive swindle.

Madoff was arrested last year and admitted in March to orchestrating the biggest financial scam in Wall Street history.

Breuer said so far less than $2 billion in recoverable assets had been identified in the Stanford case. Stanford already faces civil charges by the U.S. Securities and Exchange Commission that he fraudulently sold $8 billion in certificates of deposit with improbably high interest rates from his Stanford International Bank Ltd, headquartered in the Caribbean island of Antigua.

The SEC, saying Stanford had used Antigua as a "personal playground," filed new civil charges on Friday against company officials and an Antigua regulator, saying they aided Stanford in the $8 billion Ponzi scheme, or pyramid investment plan.

The complaint says Antigua Regulator Leroy King obstructed the SEC's investigation of Allen Stanford's companies, allowing Stanford to "dictate" the responses King gave to U.S. regulators.

And the SEC said that two accountants at Stanford International Bank helped Stanford carry out his "massive Ponzi scheme" for more than a decade.

The accountants for Stanford's company, Gilberto Lopez and Mark Kuhrt, "reverse-engineered" the Antigua bank's financial statements to report nonexistent income, the SEC said in court documents on Friday.

Stanford already faces civil charges brought by the U.S. Securities and Exchange Commission that he fraudulently sold $8 billion in certificates of deposit with improbably high interest rates from his Stanford International Bank Ltd, headquartered in Antigua.

  • Secrets Of The Knight: Sir Allen Stanford & The Missing Billions

Stanford denies any wrongdoing and has said he would put up "the fight of my life" if indicted.

"If the SEC had not come in and disemboweled a living, breathing strong organization the way they did, there's no question on God's green earth that everyone would have been made whole and we would have had a lot of money left over," Stanford told Reuters in an interview in April.

'Massive Ponzi Scheme'

In its civil case, the SEC in February accused Stanford, his college roommate and three of their companies of carrying out a "massive Ponzi scheme" over at least a decade and misappropriating at least $1.6 billion of investors' money.

"This starts to bring closure for the victims," Jacob Frenkel, a former SEC enforcement official, said of the criminal indictment.

Stanford now faces concrete charges and "is no longer swinging at a pinata," said Frenkel, now an attorney in Rockville, Maryland.

Stanford, a golf and cricket promoter, became the first American to be knighted by Antigua and Barbuda in 2006. He made his first fortune in real estate in the early 1980s and expanded the family firm into a global wealth management company.

Before the SEC leveled the fraud charges, his personal fortune was estimated at $2.2 billion by Forbes magazine. Stanford was a generous sports patron and owned homes in Antigua, St. Croix, Florida and Texas.

To date, the only Stanford official to have faced criminal charges is Laura Pendergest-Holt, the chief investment officer for the Stanford Financial Group. She was arrested by the FBI in February and later freed on bail.

Nigel Hamilton-Smith, the Antiguan official named to oversee the liquidation of the offshore bank that was run by Stanford, has accused the tycoon of using client funds to pay for jets, lavish homes and yachts.

Stanford's Antiguan liquidators and the company's U.S.-based receiver have been locked in a battle over control of the offshore bank.

Ralph Janvey, the Dallas lawyer appointed by U.S. District Judge David Godbey to oversee Stanford's assets and operations, has filed court papers arguing he should oversee the Antigua bank along with the U.S.-based Stanford entities he controls. The Antiguan liquidators disagree.

Investors, who are likely to recover just pennies on the dollar, have criticized the SEC and other regulators for not acting sooner. As CNBC first reported on June 5, prosecutors have been investigating a possible pattern of deceiving regulators. If true, it might explain the pace of the investigation.

The CDs were marketed to individuals — many of them retirees in the U.S. — as safe investments. But the SEC alleges the proceeds from the CDs were used to pay improbably high returns to earlier investors, and to fund Allen Stanford's lavish lifestyle.

Stanford leased a fleet of private jets, and had homes in St. Croix, Houston and elsewhere. He gained fame as a lavish sponsor of professional sports, most notably cricket, which Stanford sought to popularize worldwide.

Stanford bankrolled a $20 million cricket tournament based in Antigua, pitting his team of "All Stars" against a team from Great Britain. The winners could take their share of the prize money in cash, or invest it in Stanford certificates of deposit.

Stanford also cultivated an air of intrigue. Rumors abounded for years that the offshore banker worked as an informant for the U.S. government. Asked by CNBC in April about his role, Stanford responded, "You talking about the CIA?" He then refused to discuss the matter.

While Stanford did draw praise from U.S. authorities in 2001 for turning over millions of dollars in drug money that was being laundered through his offshore bank, it is unclear whether his relationship with U.S. authorities went any deeper than that.

Stanford Victims Statement

The Stanford Victims Coalition released a statement on Friday's court action:

"The highly anticipated criminal indictments of Allen Stanford and other Stanford Group Company employees today is only one step in the process for U.S. government officials to provide an explanation for what happened to the life’s savings of 4,500 Americans and another 23,500 victims from around the world. While it is a relief for Stanford victims to see progress in the ongoing investigations in to how $7.2 billion of our retirement accounts were stolen right out from under us, these actions today do not help us recover our savings that took decades to build. Our losses are devastating as senior citizens are losing their homes, going without medical care, and becoming a burden on their children and families. Many are now already dependent on government aid. Bankruptcies have been filed.

There are numerous reports of suicide. The Stanford victims are people who did everything right. We are retired school teachers, US war veterans, small business owners, and generally honest, hard-working people who took every possible step to ensure the safety of our retirement funds. We did not simply make bad investments. We relied on the information provided by our financial regulators and our licensed financial advisers – all of which pointed to a healthy and growing American financial institution.

The entire world is watching how the American regulatory system will handle the debilitating losses of victims of massive fraud like the Stanford case. These victims have been denied help by the US government and are now facing a long road to an extremely limited recovery. The American financial and legal system can ill-afford to convey the message that defrauded investors will be deprived – even temporarily – of their life’s savings. We are the prime example of the need for regulatory reform and a plan to restitute victims when the system fails."