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Allen Stanford: A Ponzi Schemer from the Madoff School of Fraud

What makes Ethically-Challenged People do Bad Things?

So how does a once prominent financier find himself convicted of an $8 billion dollar Ponzi scheme? Just ask Bernie Madoff, the former chairman of NASDAQ, who set the standard for avarice. In March 2009, Madoff pled guilty to 11 federal felonies and admitted to turning his wealth management business into a massive Ponzi scheme that defrauded thousands of investors of about $65 billion.

In early 2009, Stanford became the subject of several fraud investigations, and on February 17, 2009, was charged by the SEC with fraud and multiple violations of U.S. securities laws for alleged massive ongoing fraud involving $8 billion in certificates of deposit. Last week the jury that convicted former Texas tycoon R. Allen Stanford of operating a massive Ponzi scheme found that there was sufficient evidence that $330 million in frozen foreign bank accounts he controlled was money he stole from investors, clearing the way for U.S. authorities to go after the funds.

I sometimes wonder how successful businessmen (I’ll leave out women because none seem to have mastered the art of a Ponzi scheme) become so greedy as to use and abuse friends, colleagues, and even family members for their own financial gratification. I’m convinced they must be narcissists who have become self-delusional and blind to the harm they have caused to others. They are lacking in empathy; care only about themselves; feel no guilt or shame for their actions; and have illusions of grandeur.

Stanford was involved in one of the largest incidents of fraud against investors since the fraud that involved Bernie Madoff. Stanford's personal fortune was once valued at $2.2 billion. Still no match for Madoff who is supposed to make restitution of $170 billion partly by having Irving Picard, the trustee charged with unwinding the Bernie Madoff fraud, file about 1,000 lawsuits worth some $100 billion against individuals and companies accused of profiting from Madoff's scheme including multibillion-dollar lawsuits against  mega financial firms JP Morgan, UBS and HSBC. These “clawback” lawsuits include NY Mets owners Fred Wilpon and Saul Katz and associated individuals and firms, who allegedly received $300 million from the scheme.

During a six-week trial, prosecutors told how Stanford, 61, repeatedly raided the bank he owned in Antigua, Stanford International Bank, using it as his "personal ATM." He bought a castle in Florida for one of his girlfriends and his oldest daughter lived in a million-dollar condominium in Houston. He wore custom-made suits, lived in luxury homes and on a yacht in the Caribbean and bankrolled a $20 million prize for an international cricket tournament. In short, he was from the Dennis Kozlowski school of creep-ism. You may recall that Kozlowski, the former CEO of Tyco International, was convicted in 2005 of crimes related to his receipt of $81 million in purportedly unauthorized bonuses, the purchase of art for $14.725 million for his $30 million New York City apartment which included $6,000 shower curtains and $15,000 "dog umbrella stands," and numerous other diversions of company funds.

The government's star witness in the Stanford case, former aide James Davis, testified that he and Stanford faked documents and made up financial reports to calm investors and fool regulators. They funneled millions of dollars from Stanford International Bank to a secret Swiss bank account that Stanford tapped for his personal use, Davis testified.

Prosecutors said Stanford lied to investors from more than 100 countries, telling them their funds were being safely invested when instead he used the money to fund a string of failed businesses, bribe regulators and pay for luxuries such as yachts and private jets. His attorneys portrayed Stanford as a visionary entrepreneur who made money for investors and conducted legitimate business deals. Seriously?

Blog posted by Steven Mintz, aka Ethics Sage, on March 12, 2012