Stanford's Rocky Start

The banker accused of running an $8 billion fraud wasn't always a business success

By Matthew Goldstein

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With R. Allen Stanford, the alleged mastermind of an $8 billion fraud that has snared depositors in his offshore bank, appearances long have been deceiving.

In 1984, just two years before he opened his bank in the Caribbean, Stanford, deep in debt, filed for bankruptcy. Yet that didn't stop the 6-foot-4-inch Stanford from passing himself off to investors as a successful businessman with a long history in the financial-services industry.

Indeed, by last year, Stanford had all the hallmarks of being one of the richest men in the world. But securities regulators—in a civil complaint—allege that much of Stanford's $2.2 billion personal fortune may have come from treating the offshore bank he created like his own personal ATM. He hasn't been charged with any criminal wrongdoing, but sources said the FBI continues to look into the matter. A lawyer for Stanford did not return phone calls; previously, a spokesman for Stanford Financial Group referred all questions to the SEC.

Master of Illusions?

If the Securities & Exchange Commission's allegations are true, it means the far-flung financial empire Stanford built by selling high-yielding bank certificates of deposit was no sturdier than a giant sand castle on the beach. Yet throughout his professional life, the 58-year-old from the small Texas city of Mexia has shown a knack for rewriting his past and mastering the illusion of being successful, beginning with his very first business venture.

Two years after graduating from Baylor University in 1974, R. Allen Stanford went into the health and fitness business in Texas. He bought an existing health club in Waco and quickly expanded into a handful of other cities and small towns in the Lone Star State, including Galveston and Austin, the capital. He struck a deal with Nautilus (NLS) to become an early distributor of the pioneering weightlifting machines in the western U.S., say people familiar with Stanford.

But in the early 1980s, Stanford overreached when he tried to expand his health club business into Houston. He planned to open a giant club in a new office tower going up in the city's downtown. But the club soon failed when the bottom fell out of the oil market and many new office buildings in Houston were left vacant. He fell behind on the rent for his health clubs. Ultimately, his Total Fitness Centers filed for bankruptcy in 1982.

Reinventing Himself

The failed foray into the health club business left Stanford, then 34, deep in the red and fending off more than 100 creditors. In February 1984, Stanford and his wife, Susan, filed for personal bankruptcy. The couple, who were married in 1975, reported having $229,735 in assets and $13.6 million in debts, according to federal court records. But by November of that year, the court discharged him from his old obligations—allowing him to make a fresh start.

Royle Berry, who worked for Stanford for six years and managed the Austin facility, says he knew the bankruptcy wouldn't slow down his former boss. "He was quite charismatic and was able to win everybody over," says Berry, who had to place a lien on Stanford's house to collect on a court judgment he won during the bankruptcy proceeding. "He was an incredible salesman and loved you as long as you were making money for him." Within time, Berry knew Stanford would find another business endeavor and ingratiate himself with a new crowd of loyalists.