| NEW YORK
NEW YORK Feb 18 Nearly four months ago, an
employee at Texas tycoon Allen Stanford's financial empire told
the company's investment chief a big customer was preparing to
yank his money if he did not get assurances his funds were
"Laura: I badly need your help," Oreste Tonarelli wrote in
an Oct. 25 e-mail to Laura Pendergest-Holt, chief investment
officer of Stanford International Bank. The client "is getting
every day more concerned" and is "planning to withdraw his
money unless I have convencing (sic) arguments that his money
After saying she would consult with Chief Financial Officer
James Davis to answer the client's concerns, Pendergest-Holt
tried to assure Tonarelli that Stanford's portfolio and capital
condition were solid.
The e-mail exchanges are among a stack of court documents
filed by the U.S. Securities and Exchange Commission in a civil
suit alleging an $8 billion fraud by Allen Stanford, his
companies, as well as Davis and Pendergest-Holt.
The documents give an indication of the chaos behind the
scenes at the Stanford financial operation in the months and
weeks before the charges were unveiled on Tuesday.
Worried clients, widening scrutiny by regulators and
suspicions by Stanford's clearing firm about the accuracy of
the company's reported investment performance are all detailed
in the SEC complaint and other documents in the case filed in
Texas federal court.
And while Allen Stanford was spending the time before the
SEC charges assuring clients their money was safe, his outside
lawyer quit just days before authorities announced the
bombshell case and disavowed his prior representations about
the Stanford entities.
Adding to the chaos of the past weeks: The founder of the
small Antigua-based accounting firm said to have audited
Stanford's books died last month.
The SEC said in its court complaint it tried several times
to contact the firm, C.A.S. Hewlett & Co during its
investigation, but "no one ever answered the phone."
When a Reuters reporter visited the firm on Wednesday in
St. John's, Antigua, there were no principals available to
SEC PROBE HEATED UP
The SEC filed charges against three entities, Antigua-based
Stanford International Bank, and its affiliated Houston-based
investment advisers, Stanford Group Company and Stanford
It said the companies sold investors high-yielding
certificates of deposits on the basis they were safe and liquid
investments. But instead, Stanford's investment portfolio was
an opaque "black box," including holdings in illiquid real
estate and private equity, the SEC contends.
The SEC had been reviewing Stanford Group's operations
since at least last summer. It "began fieldwork" at Stanford's
corporate offices in Houston on Jan. 12 after requesting many
documents to review, according to an affidavit from Craig
Ellis, a staff accountant in the commission's Fort Worth
regional office that was filed with the court.
What may have recently attracted the commission's attention
was a Dec. 12 decision by clearing firm Pershing LLC, a unit of
Bank of New York Mellon Corp (BK.N), to no longer process wire
transfers from Stanford Group to Stanford International Bank
for the CD purchases, even if they were accompanied by customer
letters of authorization.
Pershing in several instances had sought to obtain an
independent report of Stanford Investment Bank's financial
condition "and was not provided with one," according to a Feb.
13 affidavit from John Ward, managing director in Pershing's
global securities services business unit.
He said that potential questions had been raised about the
bank's investment and performance during a routine review. In
November, Ward testified, Pershing was informed by Stanford
Group that getting the independent report "was not a
Last week was frenzied for the Stanford firm as media
reports about the SEC probe began surfacing.
The commission contends the company used the press reports
as a way "to further mislead investors," falsely telling at
least one customer that his CD could not be redeemed because
the SEC had frozen the account for two months.
The SEC said Allen Stanford and Davis, the chief financial
officer, refused to appear before the commission's
investigators as they conducted the probe. Last week though,
Stanford was assuring his employees that the company was
cooperating with regulators.
As the scrutiny intensified last week, there was another
Stanford Financial Group's outside lawyer, Thomas Sjoblom
of law firm Proskauer Rose LLP in Washington D.C., sent a brief
notice to the SEC on Feb. 12 that he had withdrawn from
representing the company and its affiliates in all matters
before the commission, according to a copy of the letter filed
by the SEC in the case.
In a follow-up e-mail to the SEC on Feb. 14, the lawyer
added that he wanted "to disaffirm all prior oral and written
representations" he and his associates had made about the
(Editing by Andre Grenon)