Stephen Foley: The returns seemed too good to be true – and they were

Share
Related Topics

The charges laid against Sir Allen Stanford inevitably invite comparisons with Bernard Madoff, the Wall Street swindler who turned himself in last December. Both men claimed to have found a miracle-grow formula for investing, able to return double-digit percentage profits, year in, year out – but were vague when anyone dared ask how. Even the headline numbers coincide: both Madoff and Stanford claimed to be managing about $50bn (£35bn) in customers’ assets. Both men were faking it, it is now alleged.

The scale and details of Mr Stanford’s alleged fraud, as set out in a lawsuit from the US regulator, the Securities and Exchange Commission, are very different. Unlike Mr Madoff, who used money from new investors to pay old ones, his fellow Texan appears to have been doing something with the billions loaded into Stanford International Bank in Antigua – just not what he was telling clients.

Savvy investors might have known that Stanford’s investment returns were too good to be true. But the company used a network of richly rewarded brokers to solicit money, who added credibility to his claims.

His cricket sponsorships, and his deals to get the Stanford logo on to the clothing of stars including the footballer Michael Owen, were all calculated to raise his profile. Some clients were wooed with flowers – but it was the outsized returns that appealed.

A little over $8bn was held in Antigua, paying the returns on certificates of deposit, normally one of the safest investments outside a bank account. A year ago, the average CD was paying about 4 per cent; Stanford was paying 7 per cent. It claimed to be able to do so because – unusually – funds went into a pool that invested in shares, commodities and hedge funds, which it claimed grew at between 11.5 per cent and 16.5 per cent for 15 years – something that the SEC claims is impossible for that mix of investments.

The SEC claims that four-fifths of the money was in fact handed over to Mr Stanford and his old college roommate, James Davis, to invest secretly as they saw fit. It went into property and private equity, risky investments that were harder to sell than any client was ever told. Some $400,000 was also invested in a Madoff-related fund.

Senior staff at Stanford’s Houston headquarters – when quizzed by brokers about oversight of the Antiguan investments – were told to steer their questioners away from the subject. The information “wouldn’t leave an investor with a lot of confidence”, one explained to the SEC.

Now the authorities are beginning to piece together exactly where the $8bn in Antigua actually is, and whether a further $1bn in US mutual fund products has also been fraudulently marketed to Stanford’s 50,000 investors. It seemed unlikely that Mr Stanford’s claims to manage $50bn are true – but separating fact from fiction in the life of Mr Stanford won’t be an easy business.

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Tradewind Recruitment: English Teacher

Negotiable: Tradewind Recruitment: My client is an excellent, large partially ...

Tradewind Recruitment: Science Teacher

£90 - £140 per day: Tradewind Recruitment: I am currently working in partnersh...

Tradewind Recruitment: Year 3 Primary Teacher

£100 - £150 per day: Tradewind Recruitment: Year 3 Teacher Birmingham Jan 2015...

Ashdown Group: Lead Web Developer (ASP.NET, C#) - City of London

£45000 - £50000 per annum + Excellent benefits: Ashdown Group: Lead Web Develo...

Day In a Page

Read Next
 

i Editor's Letter: Science versus religion in the three-parent baby debate

Oliver Duff Oliver Duff
Kylie has helped to boost viewing figures for the talent show  

When an Aussie calls you a ‘bastard’, you know you’ve arrived

Howard Jacobson
Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
Move over, kale - cabbage is the new rising star

Cabbage is king again

Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

Paul Scholes column

The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Frank Warren column: No cigar, but pots of money: here come the Cubans

Frank Warren's Ringside

No cigar, but pots of money: here come the Cubans
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee