WASHINGTON -Federal authorities charged a prominent Texas businessman and three of his companies yesterday with carrying out a "massive, ongoing fraud" involving the sale of $8 billion in certificates of deposit, one of the largest alleged financial frauds in U.S. history.
R. Allen Stanford and two colleagues, working through a web of firms in Houston and the Caribbean, lied to customers about how their money was being invested and how the firms' investment portfolios had performed, the Securities and Exchange Commission said in a complaint.
The SEC complaint charged Antigua-based Stanford International Bank and two affiliates in Houston, the Stanford Group and Stanford Capital Management. Also charged were James M. Davis, Stanford International Bank's chief financial officer, and Laura Pendergast-Holt, chief investment officer of Stanford Financial Group.
The SEC said Stanford International Bank, working through Stanford Group advisers, promised "improbable, if not impossible" returns. The firms told customers that their deposits were safe, invested in securities. In fact, the SEC said, the funds were invested in real estate and private equity holdings.
The companies told customers that investments were monitored by more than 20 research analysts and subject to yearly audits by Antiguan regulators, but most of the investments were managed only by Stanford and Davis, the SEC said.
"We are alleging a fraud of shocking magnitude that has spread its tentacles throughout the world," said Rose Romero, director of the SEC's Fort Worth office.
The fate of customer deposits was not immediately clear. The SEC said that a federal judge in Texas has agreed to freeze the defendants' assets.
Federal authorities raided offices in Houston yesterday and posted a notice saying that the Stanford Group had been taken over by a receiver.
The SEC said its investigation is continuing.
Stanford is one of the world's richest men, with an estimated worth of $2 billion, according to Forbes magazine.
The Stanford Group has more than $43 billion under management or advisement, according to the firm's Web site.