Fraud | 2/26/2009 12:00:00 AM
The Stanford scandal in Colombia
The recent Allen Stanford scandal has as much in common with the Bernard Madoff fraud as it does with the sadly famous pyramid scheme case of David Murcia and DMG in Colombia. This is the story of how the Texas millionaire arrived in Colombia and how he fooled thousands of Latin American investors.
Accustomed to rub elbows with the most powerful people in the world, the sole owner of the Stanford Financial Group could not arrive unnoticed in Bogotá. He arrived through the front door. He went to the Casa de Nariño presidential palace to meet President Álvaro Uribe with the news of his first purchase in the country: a stock brokerage.
That one of the 200 richest men in the world would set his eyes on Colombia without a doubt was good news. The authorizations to operate in Colombia were not a problem. Augusto Acosta, then financial superintendent, remembers that all the processes were followed and requirements were met which they required for the entry of a foreigner in the Colombian stock market. Stanford had more than enough credentials.
In April 2007 the purchase of the firm Bolsa y Banca was finalized, which was until then owned by businessman Gustavo Gaviria. The Stanford Group assumed control of the company and renamed it Stanford Bolsa y Banca. With the firm ready and authorized to operate a representation office of Stanford Trust Company Limited with headquarters in Antigua (known as a fiscal paradise), the key player of the 2009 financial scandal began his Colombian operations.
During the last two years of operation in Colombia it was very active. That is why some people close to this firm believe that there are many Colombians with investments affected by this fraud that U.S. authorities estimate to be worth around eight billion dollars. A former executive calculates that investments by Colombians in problematic investments could reach between 250 and 300 million dollars. A former official of a bank in Miami said that he had a Colombian client with 30 million dollars deposited. At the end of the week, already several of the Colombian victims were looking for a lawyer in the United States to sue Stanford.
The financial superintendent Roberto Borrás told SEMANA that there is no list of clients who were managed locally. “The stock brokerage should respond for operations in the Colombian market, and in that sense there is no problem because it has just been injected with three million dollars in funds.” Today the Colombian operations are inactive and the financial watchdogs in the countries where the group had extended its operations are working in coordination to, at least, share information that will allow for some clarity for clients who could have been affected.
With good yields he managed to “hunt” wealthy people. That is not unlike the well-known Bernard Madoff case which cheated thousands of wealthy people in the world out of more than 50 billion dollars through a pyramid scheme, thanks to the very good yields that he offered.
For now there isn’t a direct accusation that Allen Stanford had created a pyramid scheme. What is sure is that nobody is clear about where he invested the money.
In a recent interview that Stanford gave to World Finance magazine, who named him 2008 Man of the Year, they asked him how the Stanford high-yielding investment model worked. He answered that “the investment philosophy is based on diversifying across different regions of the world, countries, markets, types of assets, products and sectors.” But, as an analyst says, that is very strange because with the current investment climate in which 99 percent of the markets of the world have lost money, how can he go unscathed and offer yields with just that strategy?
This makes one recall the explanations that David Murcia gave for the great business secrets behind DMG. Albeit on a much grander scale, the main actor in this international scandal has a style very similar to Murcia, a man who was clear that he needed to surround himself with powerful people, the best lawyers, and publicists and gain social recognition, as a type of facade for his business.
Today the world is amazed at the eccentricities and the style of Mr. Stanford. He had a top-notch counsel of advisors. According to the Nuevo Herald, which cites as a source a former bank executive from Venezuela, Stanford named advisors such as Peter Romero, former sub-secretary of state for hemispheric relations; Adolf Ogi, former president of Switzerland and Luis Giusti, former president of the Venezuelan oil company PDVSA.
He knew how to move among the corridors of power. He paid millions of dollars to lobby in the U.S. Congress. He supported political campaigns. A former bank executive says that there is no doubt that this scandal will end becoming a type of Stanford-gate in the United States. Last year he was a heavyweight at the Democratic National Convention in Denver. A video published on the Internet shows him hugging the Speaker of the House Nancy Pelosi and honoring former President Bill Clinton.
According to El País, among his beneficiaries were Republican presidential candidate John McCain, Democratic senators Christopher Dodd and Charles Schumer. The webpage Tengol.com notes that Stanford is one of the biggest sponsors of golf. He was the main sponsor of the Stanford St. Jude Championship PGA golf tournament. And he underwrote the Stanford Financial Tour Championship of the LPGA in Houston. In addition he directly sponsors Colombian golfer Camilo Villegas.
But for Mr. Stanford people outside of his organization were as important as his employees. He was famous for paying excellent salaries. He brought in the most renowned executives to work with him. He paid bonuses of three and four million dollars each year. In an interview this January he admitted that in the current market conditions he had hired 658 new employees. He pointed out that he had hired some of the best talents and that this was going to increase in 2009.
Many of the employees are surprised by the news that they are hearing. Stanford was a well-liked boss. He could take out a plane (he has a private hangar in the Miami airport with a fleet of planes) and show up in the hospital if one of his close employees were sick. His mantra has been “my partners are my clients and my family is my employees.” But the strategy has not worked out for his employees who have left his companies on unfriendly terms. It is believed that some of them have reported irregularities to U.S. authorities. He had a circle of very close employees. James Davis, financial director of the bank; Laura Pendergest-Holt, investment director and the Colombian Mauricio Alvarado, a lawyer from the Universidad de los Andes who had been his legal advisor for many years and who was behind Stanford’s entry in the Colombian market.
For now, everything surrounding that company is a mystery with things likely to get more complicated. According to ABC News the FBI is investigating whether Stanford was involved in drug money laundering from the Gulf of Mexico cartel. Something similar occurred in Colombia with the Fiscalía, the prosecutor general’s office, and the DMG case, in which it is said that they had not acted earlier in order to not compromise a deeper investigation. In the United States authorities say that action by the SEC could have complicated the federal investigation on drug charges.
The scandal is just beginning. Given his extensive social and political connections, everything suggests that this is just the tip of the iceberg.