Stanford: It's Now a Criminal Case

Posted by: Matthew Goldstein on February 26

The investigation into the alleged $8 billion fraud at R. Allen Stanford’s financial empire is officially a criminal matter.

Late Thursday, federal authorities in Houston arrested Laura Pendergest-Holt, the investment firm’s chief investment officer, and charged her with obstruction of justice. Holt is being held overnight in federal custody and is expected to be arraigned Friday before US Magistrate Judge Mary Milloy in a Houston federal courtroom.

The criminal charge against Pendergest-Holt is the first to emerge from the fast-growing scandal. On Feb. 17, the Securities and Exchange Commission filed civil fraud charges in the investigation against Stanford, Pendergest-Holt and the firm’s chief financial officer, Jim Davis. The SEC charged that Stanford and his top deputies orchestrated a long-running fraud involving the sale of high-yielding certificates of deposit from an offshore bank in Antigua.

Federal prosecutors, in a 15-page complaint and FBI affidavit, charged Pendergest-Holt with obstructing the SEC’s investigation by giving misleading statements to investigators. Authorities allege that Pendergest-Holt “made several misrepresentations” in response to questions from SEC investigators on Feb. 10 and Feb. 17.

For instance, prosecutors charged that Pendergest-Holt denied having any knowledge of the main investment portfolio that the offshore bank invested the customers’ money in. The portfolio that investigators were asking about controlled 81% of the bank’s investments. The complaint alleges those investments were largely sunk into ”unknown assets.”

Elsewhere in the complaint, one of those “unknown assets” is described as a $1.6 billion “loan to shareholder.” The shareholder is identified in the complaint as Stanford Financial “Executive A.” That executive is believed to be Stanford, since he is the sole shareholder of Stanford Financial and it’s offshore Antiguan bank.

A spokeswoman for the Houston divison of the FBI said the arrest went without incident. Pendergest-Holt’s lawyer was not immediately available for comment. But earlier in the day he confirmed that he was in Houston, where Pendergest-Holt was arrested.

The SEC has been investigating Stanford Financial since the spring of 2005. The criminal complaint says the FBI and other law enforcement agencies joined the investigation last summer. SEC Deputy Enforcement Director Scott Friestad said: “We appreciate the quick and decisive action of the Department of Justice and the FBI, and thank them for their fine work and cooperation in this matter.”

It’s not uncommon for prosecutors seeking to build a criminal case to pursue charges against lower level officials before targeting the top executives. It’s possible that in bringing an obstruction of justice charge against Pendergest-Holt, prosecutors hope to secure a quick guilty plea from her. With a plea deal in hand, prosecutors could then use her as a witness against Stanford and Davis.

Stanford, a 58-year-old Texas billionaire who is also a citizen of Antigua, is the public face of Stanford Financial and the firm’s sole shareholder. But people familiar with the firm say Davis, Stanford’s college buddy from Baylor University, is a close confidant and the brains of the operation.

The complaint notes that federal authorities have already secured the cooperation of at least three confidential witnesses.

It looks like the Stanford investigation is quickly escalating into an even more serious matter than it appeared to be just a week ago.

Updated Feb. 27, 2009

OK folks, you can now officially call the alleged fraud at Stanford Financial a Ponzi scheme. In an amended civil complaint filed on Friday, the SEC now says Stanford and his top deputies carried out a “massive Ponzi scheme.”

Of course, the SEC designation isn’t news to many people who have worked for Stanford Financial. For years, former employees have charged the firm’s push to sell more and more CDs was the byproduct of a Ponzi scheme.

Bernard Madoff, you’ve got company.

Meanwhile, Laura Pendergest-Holt was released from custody after posting a $300,000 bond and pleading innocent to the obstruction of justice charge.

I’m also posting a link to the Stanford receiver’s website because of the growing controversy about some of his work. Stanford Financial investors who didn’t have any money with the offshore bank are angered that they still can’t get access to their money. And some of Stanford Financial’s 5,000 employees are mad they haven’t gotten paid since the SEC action on Feb. 17.

The receiver, Dallas lawyer Ralph Janvey, hasn’t been returning phone calls. But he is posting communications on the website. Concerned investors and Stanford employees may want to check the website several times a day.

Reader Comments

Alex Dalmady

February 26, 2009 10:28 PM

"It looks like the Stanford investigation is quickly escalating into an even more serious matter than it appeared to be just a week ago."

Ya Think?

BTW...check the dates on those SEC questionaires.

Mr Chang

February 26, 2009 11:38 PM

Read Pendergest-Holt's bio!

She appears to be the Monica Lewinsky of the financial world.

John from Portugal

February 27, 2009 05:19 AM

You mean GARFIELD's creator, Jim Davis, is also a culprit??? Damn it, I knew that fat cat had something going on...

James

February 27, 2009 08:11 AM

Pendergest-Holt becomes famous overnight and had earned lots of money. Honesty is the best policy when it comes to making long term income. Lose weight in a week

All Stanford Employees

February 27, 2009 08:58 AM

Stanford Employees Victimized by SEC-Appointed Receiver

Promises to Meet Payroll Are not Honored/Allegations of Fraud and Attempts to Deliberately Mislead Employees and Harm Investors Levied at Receiver

Calls and e-mails to the court-appointed receiver today regarding why payroll for the 3,000 plus employees of Stanford Financial Group were not returned.

Employees in all U. S. offices were told by the Receiver that “Payroll would be met and benefits were still in effect” as part of their initial communication to employees (in person) as they closed offices. Funds for payroll are reportedly in Stanford’s Treasury department, employees were called in to process payroll, but the Receiver has not approved the transfer of funds to meet this payroll obligation. Funds should have been transferred into employee bank accounts at midnight tonight, and paper checks mailed tomorrow.

Stanford employees were told they were not terminated last week, that in fact “it was business as usual” per the Receiver’s email to global Stanford employees. “Consider it a paid vacation,” a Stanford employee was told in Memphis, Tennessee. This means employees were not able to begin the process to file for unemployment or make other arrangements with creditors that their income had been suspended.

In fact, many employees were called in to assist the Receiver in many departments. All employees have been working under the assumption that the Receiver would honor the commitment made to meet payroll. Were these employees called back under false pretenses? Funds are in-house to pay employees per Receiver’s promise – Receiver now apologizes for the hardship. Why is Receiver now denying to release the monies? Are the lawyers and other “outside experts” hired by the Receiver being paid with funds promised to meet payroll?

While criminal charges against Allen Stanford or Jim Davis have not been filed, most employees feel that a crime has been committed against them by the Receiver. Intentionally misleading and making false statements to employees (who are not under suspicion) should not be allowed by an entity acting on behalf of a federal agency. These employees are contacting their local, state and federal elected officials for relief and to investigate the actions and compensation agreement of the Receiver.

It is alleged that the Receiver gets paid based on the amount of assets preserved, leading one to conclude that an obvious conflict of interest exists as it relates to using assets to pay employees. Sources have indicated that Cigna, the health insurance provider, has not received payment and many employees were denied treatment today by their physicians due to refusal by Cigna. This nonpayment of the premium could mean that employees of Stanford are no eligible for COBRA benefits.

Many are remarking that the SEC has acted in haste to shut down Stanford offices in more than 25 U.S. cities, as a small percentage of CD purchasers are actually investors domiciled in the United States. Why put thousands of employees out of work on a suspicion? Most employees worked to support the U.S. Broker Dealer, the majority of whose assets are custodied at Pershing, an insured and regulated entity owned by the Bank of New York Mellon. SEC needed a compelling headline and destroyed hard-working Americans’ lives in the process, just as they have frightened and hurt innocent investors who had zero monies with Stanford Intl Bank.

The current Administration, the Department of Labor and elected state representatives must act to demand promises made by the Receiver are kept with regards to payroll obligations due to Stanford employees. Employees were not allowed to make provisions to care for their families due to stated commitments made to employees in person.

Stanford employees have been wronged by sweeping and, as yet unproven, allegations made and the ensuing closing of offices. A second victimization is occurring right now. Why wait until 9 pm EST to advise that payroll will not be met? Are employees terminated and therefore free to collect unemployment? What about 401K plans? Deferred Comp? When applying for creditor new employment, will the Receiver verify employment or will they continue not to answer the phone? When will employees be allowed to retrieve personal effects from their offices? The message on the receiver’s web site does not address any of these real issues–and seems deliberately vague and once again prevents employees from making provisions to keep their homes and take care of their families.

Employees are having babies, burying loved ones and trying to cope with the news that their jobs have been eliminated in the worst recession in their lifetimes. Tragically, health insurance premiums, life insurance payments and other benefits these employees have paid for, are not being honored. Employee’s payroll of February 15 included deductions from their checks for 401K plans. These monies have yet to be added to employees 401k accounts. Who has this money? Employees have received no communication for more than one week since Receiver took over (except for the one that stated “business as usual,”) and in fact, Receiver and Stanford HR only responded when employees began bouncing expense checks and calling with inquiries today.

Where is the media coverage of this tragic and unfair situation?

Brandon

February 27, 2009 11:22 AM

Forgive me if I don't shed a tear for the Stanford employees who lost their benefits. While I'm sure there are many honest, hard working employees who are suffering in this deal, other innocents suffered much more.

As for our local office here in Little Rock, my wife worked for their group before they became part of Stanford. They hired my wife to set up their office while they pilfered their client lists and got their ducks in a row to leave Merrill Lynch. Without boring you with a lot of details, they conspired to wrongfully terminate my wife because she had the gall to get pregnant shortly after being hired. She lost her insurance, and the $100 medical bill for the pregnancy became $12,000.

Life has worked out great for us after this mistreatment, to the point that we are likely in better financial shape right now than those who wronged us - even before the pending lawsuit against three of them over this Ponzi scheme is settled. It is nice to see evil people receive their just rewards every once in a while.

BCR

February 27, 2009 06:44 PM

News Flash... Ms. Holt has already posted her $300,000 bail, and is out. Might as well call her gone!!!

wylieman

February 27, 2009 07:40 PM

Why doesn't the comments of the employees of Stanford give the Receiver's name, instead of using the genric name Receiver. The reciever has a name please print it!!!

Bill

March 4, 2009 12:22 PM

Forgive me if I don't shed a tear for the Stanford employees who lost their benefits. While I'm sure there are many honest, hard working employees who are suffering in this deal, other innocents suffered much more. strip that fat

Joe

June 25, 2009 12:44 PM

I think it is rediculous how our courts allow a prisoner to be paraded in front of the media like this. Whether he is guilty or not is irrelevant. In a country where people are supposed to be presumed innocent until proven guilty, this type of spectacle should not be allowed. I guarantee you these prosecuters are fully aware of how the media can make anyone appear guilty, and are purposly taking advantage of that fact.

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

 

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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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