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SEC Accusing Stanford Financial Group of Fraud

By JLP | February 17, 2009

This one hits close to home as the Stanford Financial Group is located in Houston.

The SEC has registered a complaint against Stanford Financial Group (StanfordFinancial.com), alleging massive fraud. You can read the PDF of the complaint here. If the SEC’s complaint is to be believed, Stanford Financial Group is evil. Read the complaint for yourself.

The complaint is filled with lots of accusations. I found this one from the SEC’s press release interesting:

According to the SEC’s complaint, the defendants have misrepresented to CD purchasers that their deposits are safe, falsely claiming that the bank re-invests client funds primarily in “liquid” financial instruments (the portfolio); monitors the portfolio through a team of 20-plus analysts; and is subject to yearly audits by Antiguan regulators. Recently, as the market absorbed the news of Bernard Madoff’s massive Ponzi scheme, SIB attempted to calm its own investors by falsely claiming the bank has no “direct or indirect” exposure to the Madoff scheme.

The SEC seems to be overreacting to the Madoff tie. When I dug into the complaint, I found exposure of $400,000. From the complaint:

In a December 2008 Monthly Report, the bank told investors that their money was safe because SID “had no direct or indirect exposure to any of [Bernard] Madoffs investments.” But, contrary to this statement, at least $400,000 in Tier 2 was invested in Meridian, a New York-based hedge fund that used Tremont Partners as its asset manager. Tremont invested approximately 6-8% of the SIB assets they indirectly managed with Madoffs investment firm.

Yes, it is exposure to Madoff, but it is relatively small exposure for a company managing billions of dollars.

I did find something kind of interesting while looking around on Stanford Group’s website. For instance, here is some information on their investment strategy. It sounds eerily similar to Madoff’s “strategy.”

Stanford’s Stanford Investment Model (SIM):

The objective of the Stanford Investment Model (SIM) is to provide consistent returns regardless of market volatility, and it is based on the investment philosophy that has been used successfully for all of Stanford’s proprietary funds. We target a consistent yield or income stream as agreed upon with our clients, while monitoring risk and managing the overall volatility of the portfolio.

Our strategy for diversification to minimize the effects of market volatility is sophisticated and far-reaching. We pursue true global diversification with relentless intensity to meet our objective of targeted returns. We carefully consider asset classes, investment strategies, sectors, and regions of the world that most investors either don’t have easy access to or rarely receive information about. SIM was developed first and foremost to minimize the downside risk of a portfolio.

We recognize taking risk is essential to achieve investor goals, but there is a difference between accepting the risk the market gives you and managing that risk.

Although we may not outperform the indices during a bull cycle, our investment strategy is one of long-term consistency through bull and bear markets. The Stanford Investment Model offers investors a truly different view of wealth management.

This stuff is getting more exciting by the day. The best fiction writers would have a hard time coming up with stuff this good.

Topics: Business News, Fraud, Miscellaneous | 12 Comments »


12 Responses to “SEC Accusing Stanford Financial Group of Fraud”

  1. Ron@TheWisdomJournal Says:
    February 17th, 2009 at 3:53 pm

    We’ve become a nation fearful of any volatility. We think our portfolios should only go up and should go up a measured amount each period and shouldn’t deviate except UP.

    That belief is what enables people like Madoff to fool otherwise smart people IMHO.

  2. Rich Says:
    February 17th, 2009 at 7:01 pm

    It’s all that damn government regulation, if only the “free market” were allowed to reign free these types of things would NEVER happen, right?

    I’d like to see the political contribution matrix from the Standford group officers on who they gave money to in the 2008 election cycle.

  3. JLP Says:
    February 17th, 2009 at 7:13 pm

    Rich,

    That’s a very weak argument. What about the Obama appointees that had to withdraw their names because they didn’t pay their taxes? The laws are in place, MORE regulation is not the answer.

    What about unions? We all know they are corrupt. Guess which party most of their money goes to?

    This was not meant to be a political post. Readers always gripe at me for being too political.

  4. David Says:
    February 17th, 2009 at 7:42 pm

    In response to your conclusion that the best fiction writers would have a hard time coming up with this, I agree.

    To quote one of my favorite authors, the good doctor himself, Hunter S. Thompson – “The truth is weirder than any fiction I’ve seen”

  5. Foobarista Says:
    February 18th, 2009 at 2:31 am

    Here’s an article on Stanford’s political contributions – he spread it around, although mostly to Dems. Madoff was a big Dem backer, BTW.

    http://www.politico.com/news/stories/0209/18955.html

  6. Inga Lingnau Says:
    February 18th, 2009 at 6:32 am

    The Dutch television is looking for Dutch investors of the Stanford International Bank (SIB), Stanford Group Company (SGC) and the Stanford Financial Group (SFG).

    If you have any ideas of advices please contact me as soon as possible.

    Inga Lingnau
    0031356715863
    inga.lingnau@eenvandaag.nl

  7. Mark D Says:
    February 18th, 2009 at 8:23 pm

    This is not the first time a Stanford Group company has been accused of fraud, see: http://arttheftcentral.blogspot.com/

  8. David S Says:
    March 17th, 2009 at 11:56 am

    Hindsight is 20/20 and we all know where the Stanford group now lies.

    My humble opinion is that the laws we have are adequate, the enforcement of said laws are not. The free market mantra works in theory. In execution however regulation is necessary due to human psychology. We (humans, myself included) are not always honest, and do not always provide full disclosure.

    After all, how could the free-market work if Company A is cooking the books and their competitor Company B is being forthright with their financial and performance figures. Company B dies due to competition, then sometime later Company A self-destructs.

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