NEW YORK, Feb 18 (Reuters) - 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 safe.
“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 is safe.”
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 talk.
The SEC filed charges against three entities, Antigua-based Stanford International Bank, and its affiliated Houston-based investment advisers, Stanford Group Company and Stanford Capital Management.
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 priority.”
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 ominous sign.
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 companies. (Editing by Andre Grenon)