Montserrat’s Montaña Rosa: R. Allen Stanford Sentenced for $7 Billion Ponzi Scheme

On a defining day for R. Allen Stanford, the former chairman of Stanford International Bank (SIB), he was handed a total of 110 years in prison sentence for masterminding a 20-year investment fraud worth an astounding $7 billion.

Heading to Prison - A Day of Reckoning

Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division, U.S. Attorney Kenneth Magidson of the Southern District of Texas, FBI Assistant Director Kevin Perkins, Assistant Secretary of Labor Phyllis C. Borzi, Chief Postal Inspector Guy J. Cottrell, and IRS-CI Chief Richard Weber came together to announce the sentencing.

Guilty Verdict for Stanford

In March 2012, a federal jury found Stanford, 62, guilty on 13 of 14 counts. Stanford’s convictions included conspiracy to commit wire and mail fraud, wire fraud, conspiring to obstruct an SEC investigation, and obstruction of an SEC investigation. The jury also ruled that 29 foreign financial accounts worth roughly $330 million were proceeds of Stanford’s fraud and should be forfeited.

Stanford International Bank: The Origins and Evolution

SIB, an offshore bank, was founded in Montserrat, the British West Indies, in 1985 as Guardian International Bank. In 1990, it was relocated to Antigua and Barbuda and renamed Stanford International Bank. SIB became renowned for issuing certificates of deposit (CDs) offering premium rates over U.S. banks. By 2008, SIB owed its CD depositors over $8 billion.

Questionable Investment Strategy

Despite reporting a safe, conservative investment strategy, only about 10-15% of SIB’s funds were actually invested. The remaining billions were diverted into Stanford’s personal businesses, contributing to hundreds of millions of dollars in net losses each year.

Financing a Lavish Lifestyle

Evidence at the trial showed that depositor funds were used to finance Stanford’s opulent lifestyle, including a 112-foot yacht, six private planes, gambling trips to Las Vegas, and more.

Perpetuating the Scheme

To sustain the fraud, Stanford used new CD sales to pay out redeeming depositors. When new CD sales plummeted and depositor redemptions surged during the 2008 financial crisis, Stanford falsely announced an injection of $741 million into the bank to boost its capital base. To support his false claim, Stanford’s accountants artificially inflated the value of a real estate purchase by 5,000%, leading to a false sense of solvency.

Bribing Key Players

The evidence also revealed that Stanford had paid bribes from a Swiss slush fund to SIB’s auditor, C.A.S. Hewlett, and the head of the Antiguan Financial Services Regulatory Commission, Leroy King.

Collaborators Charged

Sixty-three individuals, including former SIB executives James Davis, Laura Holt, Gil Lopez, and Mark Kuhrt, were indicted alongside Stanford. To date, Davis has pleaded guilty and faces a potential 30-year prison term; the cases of Holt, Lopez, and Kuhrt, scheduled for trial on September 10, 2012, are ongoing.

The Investigation

The case was led by the FBI’s Houston Field Office, the U.S. Postal Inspection Service, IRS-CI, and the U.S. Department of Labor, Employee Benefits Security Administration. The case was prosecuted by Deputy Chief William Stellmach and Trial Attorney Andrew Warren of the Criminal Division’s Fraud Section, and former AUSA Gregg Costa of the Southern District of Texas. Assistant U.S. Attorneys Kristine Rollinson and Jason Varnado, along with Fraud Section Deputy Chief Jeffrey Goldberg, provided crucial assistance in the forfeiture and sentencing proceedings.

International Cooperation

The Justice Department expresses gratitude to the governments of Antigua and Barbuda, Switzerland, the Cook Islands, the United Kingdom, and the Isle of Man for their invaluable cooperation throughout the investigation and prosecution of Stanford and his co-conspirators.

End of an Era

With the sentencing, Stanford, a once-prominent businessman, will now face the consequences of his actions, marking the close of a sad chapter in Montserrat’s financial history.