Next Bernie Madoff: R. Allen Stanford Under Investigation By The SEC, FINRA, FBI

is there an allegation re Sir Stanford? Is the author, Julie Satow the same Julie as the journalist for the New York Sun?

Stanford Financial Gets More Scrutiny
By DIONNE SEARCEY and ANNELENA LOBB in New York and JOHN LYONS in Caracas, Venezuela
2/14/09

An investigation into wealthy financier R. Allen Stanford's operations is intensifying, with the FBI looking into his financial group in the U.S. and regulators in Antigua scheduled to visit his bank there.

Stanford Financial Group Co., which has more than 30,000 investors, has been recently advising clients that they can't redeem their CDs for two months, a person familiar with the matter said. A spokesman for Stanford Financial said depositors may withdraw funds in accordance with the terms of their accounts.

Mr. Stanford, in an email to clients, said he has been infusing cash into the Antigua bank he controls, Stanford International Bank Ltd.

The events come amid a widening investigation of Stanford Financial, a holding company jointly based in Houston and St. Croix for broker-dealer firms, an investment bank and wealth-management service.

The Securities and Exchange Commission, the Financial Industry Regulatory Authority and Florida regulators entered the financial group's branches in January and collected records, according to a person familiar with the investigation. Another person familiar with the investigation said the SEC has been looking at the certificate-of-deposit business since at least 2007.

The Houston office of the Federal Bureau of Investigation also is probing the financial group, said two people close to the inquiry. The FBI declined to comment.

In Antigua, Leroy King, administrator and chief executive of the Financial Services Regulatory Commission, said the SEC had been in touch with his office recently. Mr. King wouldn't comment on precisely what the SEC is currently seeking. An SEC spokesman wouldn't comment.

Stanford Financial Group previously has been in the sights of various regulatory and law-enforcement agencies, according to the people familiar with the matter. Those people say the agencies now are focusing on certificates of deposit, which are marketed by the financial group's wealth-management arm and sold by Mr. Stanford's Antiguan bank. The CDs offer unusually high returns; for example, as of Nov. 28, a one-year, $100,000 CD paid 4.5%.

"The first thing that grabs your eye is the business model," says Alex Dalmady, an analyst who unveiled concerns about Stanford International Bank in the magazine VenEconomy Monthly but isn't involved in the investigation. "Taking deposits and playing the stock market -- this is way too risky. "

Stanford's Web site says that the bank has invested in a diversified portfolio including stocks, while banks generally make money by lending. A memo on Stanford's Web site says that the bank has never made a structured loan or a commercial loan.

Mr. Stanford didn't return calls for comment. A spokesman for Stanford Financial has described the visit from regulators as a routine examination.

In a statement, the Stanford Financial spokesman said the bank "remains a strong institution even without the benefit of billions in U.S. taxpayer's dollars like other banks have had. Nonetheless, given the lack of confidence in the industry, we are taking a number of decisive steps to reinforce our financial strength."

The examination of Mr. Stanford's businesses comes at a time of investor nervousness after a series of frauds have recently come to light, including an alleged Ponzi scheme run by New York money manager Bernard Madoff.

Mr. King, the Antigua regulator, said his office has been in touch with SEC officials on and off for years regarding Mr. Stanford's bank. He believes the SEC in the past had been investigating high commissions paid to Mr. Stanford's advisers in his financial group who, according to Mr. King, earn 1% of what they bring in, as well as the rate Mr. Stanford's bank pays on CDs, which is typically two to three percentage points higher than what other banks around the world are paying.

Stanford Financial was fined $10,000 by Finra for distributing literature in the sales of CDs that didn't disclose the relationship between the firm and Stanford's bank that it said could create a conflict of interest, according to a 2008 Finra report.

Latin America is a big part of Stanford Financial Group's business. One Venezuelan who invested through Stanford's investment advisory business says he is seeking to pull his money. The investor said the CDs guaranteed a 5% rate of return, which he considered good but not suspicious. He said he decided to pull all but $10,000 of his investments.

The investor said he contacted his adviser at Stanford on Thursday, and was told it would be "no problem" to withdraw his investments, which would clear in about five days.

Rocio Fernandez, a spokeswoman for Stanford's Venezuelan business, said that it's "natural that some clients would be concerned" by the recent investigations. She said that the Venezuelan operations weren't engaged in fraud. She also said they were stand-alone businesses, essentially unaffiliated with the operations in Antigua, although the Venezuelan business is wholly owned by Mr. Stanford.

Mr. King, the administrator in Antigua, had a meeting scheduled late Friday with the bank to determine whether many investors are being able to successfully pull out money, though he said his office hadn't received a complaint about Mr. Stanford's bank failing to pay redemptions in a timely fashion.

"Evan Perez and Kara Scannell in Washington contributed to this article.