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Here Come the Stanford Lawsuits

Posted by: Matthew Goldstein on February 18

It didn’t take long for the investor lawsuits to start flying over the alleged massive fraud at Stanford Financial.

Only hours after the Securities and Exchange Commission charged R. Allen Stanford and two of his top deputies with civil fraud, a putative class action on behalf of Stanford customers was filed in federal court in Houston. The lawsuit names four initial plaintiffs, who say they invested a total of $1.75 million with the Houston-based firm that is now in the hands of a court-appointed receiver.

The lawsuit, captioned Jerry Adams v. Stanford Group Company, mirrors much of the same allegations raised in the SEC’s Feb. 17 enforcement action. Regulators charged the 58-year-old Stanford and his co-defendants with misleading investors about the security of high-yielding certificates of deposit sold by an offshore bank in Antigua that he controls. The SEC says it can’t account the approximate $8.5 billion Stanford’s bank took in from investors. Regulators also charged the defendants with taking in another $1 billion for another investment product that the firm touted with “fictitious’’ performance results.

The lead attorney on the investor suit is Houston lawyer Mike O’Brien, who also represents two former Stanford brokers, whose lawsuit last summer helped flag some of the alleged wrongdoing at the firm. O’Brien says he’s been talking to lots of other investors.

In the coming days and weeks, look for the investor lawsuits to multiply—just like what happened in wake of the Bernard Madoff $50 billion Ponzi scheme. Of course, it’s anyone’s guess just how much of the $9 billion that Stanford & Co. allegedly raised through fraudulent means can be retrieved.

Reader Comments

John Lloyd Scharf

February 18, 2009 01:13 PM

National Ponzi Scheme - Recovery.Gov - ARRA - Stimulus Plan

The $787 billion American Recovery and Reinvestment Act (ARRA) is an extention of the National Debt by $2580 for every man, woman, and child.

Of that, President Obama claims $288 billion is "Tax Relief," or $944 per person. Then, he claims the "Tax Relief" includes $15 billion for infrastructure and science, $61 billion for "protecting the vulnerable," $25 billion for education and training, and $22 billion for "Energy."

So, after all those special tax cut programs are removed, that leaves $165 billion of more general "Tax Relief," for all of us not in those categories, or $540 per person. So, you are going into debt for investing $2580 for $540 in tax relief.

A Ponzi scheme is a fraudulent investment operation that pays returns to investors from their own money or money paid by subsequent investors rather than from profit. Is the ARRA any less of a Ponzi Scheme when the Federal Government does this than when Charles Ponzi or Bernard Madoff does this? Does it matter whether Nicolas Cosmo, Allen Stanford, or Barack Obama does this?


February 18, 2009 05:24 PM

I'll take the legal Ponzi scheme of Social Security over the Madoffs and Stanfords anytime. At least our Grandparents get the money instead of the crooks!


February 20, 2009 04:31 PM

Crooked - upside down - illegal, maybe - but I do not think the correlation between Madoff and Stanford is correct.

One difference was revealed today - Madoff did not purchase a single security in 13 years. As far as I can read, everybody who has ever invested in the Stanford deal has gotten paid. And Madoff cleared all his own money.

I find it interesting that the SEC made sure CNN and everyone were clear that Stanford was not a fugitive...was not under arrest and was not in custody. Prior to the papers being served, I was under the impression that Stanford, Davis and Holt were wanted....guess not.

I am sure there is something wrong here - just find it weird that SEC would move forward in taking over the company if they have not been to Antigua and figured out what is actually there and what is not.

And in typical gov't fashion (ineffective and not that smart) they have frozen the accounts that Pershing clearly stated were there...They are causing more harm than good by not letting the North American investors move their funds and those financial advisors begin to to try to find a home.

The SEC's job should not be to make it worse. If the funds are in investment vehicles cleared through Pershing that should have nothing to do with the SIB case.


February 20, 2009 07:53 PM

The SEC is looking for a "bad guy" to make up for missing Madoff. They haven't even been able to investigate the records because the bank in Antigua is giving the SEC and the IRS the finger. So instead of publishing facts backed up by evidence, they choose to write about innuendo backed by rumors.


February 22, 2009 11:46 PM

I live in Mexico and I invest 150,000 usd in CDs with Stanfod Group Mexico, I see differences between Madoff and Sanford, at least Stanford has a " Bank " also hes is not a fugitive hes is waiting something, I hope the SEC accept the wrong move placeing a receivership in charge of the bank, well I mean if they dont find something wrong..... we al know that if you need to find somthing wrong you will get it.

For now I need my money for perssonl reasons, but I cant transfer it to my account in mexico, Im in touch with more than 150 people that were in the same case, we all invest more than 20 million usd, all the customers affected for this situation in Mexico are arround 2,000 people, the 80% of this customers are 60 years all, this people invest they saveings in Stanford, what are they going to do ? maybe they dont have the time, money or energy for a lawsuit in other country, nt even speak english, his is a tragedy for them. I hope everything finishes well and faster with this situation. My parents need this money.

Thank you for your interest. This blog is no longer active.



BusinessWeek's Adrienne Carter, Jessica Silver-Greenberg, and David Henry deconstruct the mysteries of high finance, Wall Street, and hedge funds for pros and ordinary investors. E-mail them directly if you've got tips about big deals, a hedge fund, or even securities industry gossip.

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