Stanford, Libya Connected Through Alleged Ponzi Scheme

In January of 2009, accused ponzi scheme financier Allen Stanford and his girlfriend, Andrea Stoelker, boarded one of Stanford's private jets for an exotic yet fateful trip. First stop: Tripoli, Libya.

Allen Stanford on a hospital trolly after being assaulted by jail prisoners.
Source: Daily Mail
Allen Stanford on a hospital trolly after being assaulted by jail prisoners.

The global financial crisis was at its worst, and Stanford, like nearly every other banker in the world, was trying hard to keep his empire afloat.

Libya, which had only recently won fully normalized relations with the U.S., would throw Stanford a major lifeline, according to court filings: The Libyan government's sovereign wealth fund invested some $500 million with Stanford, who left Libya the next day along with Stoelker and an unidentified third person, bound for Zurich, Switzerland.

But three weeks later, it all fell apart. The United States Securities and Exchange Commission accused Stanford of running a $7 billion Ponzi scheme, and a court froze all the firm's assets—including, presumably, Libya's money.

It had been widely believed that the Gaddafi regime was one of the largest victims of the alleged Stanford scam, in which investors have thus far recovered less than three cents on the dollar.

But now, CNBC has learned Libya may have managed to withdraw much of its Stanford investment just before the firm collapsed, according to a source close to the case. If true, it would have been a stunningly fast trade that thousands of much smaller investors were unable to make.

All the deposits and withdrawals by Stanford investors are being closely examined by a court-appointed receiver, Dallas attorney Ralph Janvey, who has already filed hundreds of millions of dollars in "clawback" claims against investors who allegedly withdrew money they were not entitled to.

There was no immediate comment from Janvey's team on whether he plans to pursue a claim against Libya. If Stanford's empire was, in fact, a Ponzi scheme, attorneys could argue that the money invested by Libya was owed to earlier investors, so that money returned to Libya would constitute a fraudulent transfer.

The last-minute investment with Stanford by the Libyan government has been the subject of renewed speculation now that the government has fallen into chaos and Libya's U.S. assets have been frozen.

In a 2010 State Department cable uncovered by WikiLeaks, the head of Libya's sovereign wealth fund is said to have told the U.S. ambassador that the fund turned down investment requests from Stanford and convicted Ponzi schemer Bernard Madoff. But a source close to the case tells CNBC Libya did indeed invest with Stanford, "to the tune of nine figures."

Allen Stanford, who is currently undergoing drug treatment at a prison hospital in Butner, North Carolina, has denied wrongdoing.

In a 2009 bail hearing, prosecutors cited the January trip to Libya as evidence Stanford had the means to flee.

But his attorney at the time, Dick DeGuerin, argued the trip was above board.

"In fact, Mr. Stanford applied through the State Department and the embassy, the Libyan embassy in Washington, DC, to travel to Libya to develop business there," DeGuerin said according to a transcript of the hearing. "The state department of the United States is encouraging American business, now that the travel ban and the business ban is over with, to develop business there. That's why Mr. Stanford was there."

The judge in the case sided with the government, ruling Stanford's international ties made him a flight risk. He has been held without bail ever since, and his trial—which could shed more light on the Libyan connection—has been put indefinitely on hold.