WASHINGTON, Feb 17 (Reuters) - Allen Stanford’s investment companies were exposed to losses from the alleged Ponzi scheme run by financier Bernard Madoff, and falsely reassured investors otherwise, federal regulators charged on Tuesday.
The Securities and Exchange Commission outlined the Madoff link in its charges against Stanford that also said the firm sought to remove nearly $200 million from its accounts in recent weeks. The firm also falsely told at least one customer earlier this month that he could not withdraw a multimillion dollar certificate of deposit because the SEC had frozen the account.
The agency charged Stanford, two aides, and three of his companies with financial fraud in an $8 billion CD program. It said his Stanford International Bank (SIB) and other units sold CDs by promising higher returns than CDs offered by traditional banks.
“Recently, as the market absorbed the news of Bernard Madoff’s massive Ponzi scheme, SIB has attempted to calm its own investors by claiming the bank has no ”direct or indirect“ exposure to Madoff’s scheme,” the SEC said.
“These assurances are false.” The agency cited several misrepresentations and said, “Perhaps most alarming is that SIB has exposure to losses from the Madoff fraud scheme, despite the bank’s public assurances to the contrary.”
It gave no more details, and a Stanford spokesman did not return calls seeking comment.
Other SEC allegations included:
-- SIB reported identical returns of 15.71 pct in 1995 and 1996, which the SEC called “improbable” and suspicious.
-- Ninety percent of SIB’s claimed investment portfolio is in a “black box” shielded from any independent oversight, and only Stanford and aide James Davis, also charged, knew details of the bulk of the portfolio.
-- Stanford failed to cooperate with the SEC’s probe and continued to mislead investors by falsely saying the SEC had frozen accounts to withdrawal or the company had ordered a moratorium on CD redemptions.
-- A major, unidentified clearing firm stopped processing wires to SIB for purchase of SIB-issued CDs after the clearing firm was unable to obtain information about the company’s financial condition.
-- Stanford used also false information to promote a mutual fund wrap program separate from the CDs. The program grew to more than $1.2 billion from less than $10 million in 2004.
There was no sign of imminent federal criminal charges against Stanford.
Citing policy, U.S. Justice Department spokesman Ian McCaleb, said “We cannot confirm or deny the existence of a criminal investigation at this point.” (Editing by Jeffrey Benkoe)