Leading article: Everyone is a loser in the Stanford scandal

Alarm bells should have been ringing over his operations long ago

Share
Related Topics

Like all bank runs, the fall of Allen Stanford’s financial empire this week has been brutal and quick. On Tuesday the FBI seized documents from three of Stanford Financial Group’s US offices, and the Securities and Exchange Commission regulator accused the Texan-born businessman of perpetrating an $8bn fraud on investors around the world.

The next day, depositors began queuing outside branches of Stanford’s various banks across the United States, the Caribbean and Latin America seeking to withdraw their money. Stanford himself was finally served with legal papers and requested to turn in his passport on Thursday in Virginia.

This week’s action was welcomed as a triumph for the American Security and Exchange Commission. But the truth is the Stanford case is almost as embarrassing for the US financial regulator as the recent Madoff scandal. The regulation of the US financial sector, like that of the UK, is often described as “light tough”. But “no touch” would appear to be a better description. For years, the American authorities were no more assiduous in investigating Sir Allen’s operations than the Antiguan regulators of the businessman’s adopted home (and the tax haven where Stanford International Bank is registered). The SEC revealed this week that Stanford International Bank’s investments were not monitored by a team of analysts, as investors had been told, but by Stanford himself and an old college classmate. The group’s auditor was a small accountancy firm based above a shop in a north London suburb.

But why did the SEC uncover these grotesquely improper arrangements only this week? Its job is to stop fraudsters before they take investors’ money, not after they have built up a vast multinational banking empire. Stanford’s 30,000 investors must now sweat to see how much of their money is actually left.

And it is not as if the authorities were given no cause to investigate Stanford. The alarm bells should have been ringing long ago. Stanford promised investors interest rates well above those offered by other banks. And the returns were suspiciously smooth too. The bank reported returns in 1995 and 1996 of exactly 15.71 per cent. That was a clear indicator that something was fishy.

Stanford had dubious connections too. Ten years ago it emerged that the Mexican drug lord Amado Carrillo Fuentes had entrusted some $3m to Stanford’s care. The credulous English Cricket Board welcomed Stanford’s cash as if he were a model of probity, but it is notable that other cricketing authorities steered clear of him.

In fact, it seems that the SEC was aware of impropriety in Stanford’s business affairs. There are reports of investigations into Stanford going back 10 years. But the fact is that it was only after the Madoff case broke that the SEC finally decided to do something. This is no triumph, rather a frantic bolting of stable doors.

Yet culpable though the SEC and others have undoubtedly been, this is not solely a tale of regulatory failure. Those who invested their money with a bank promising implausibly high returns cannot seek to shift all of the blame on to the regulators. There is a reason why certain businesses choose to operate out of places like Antigua and it is not because of the weather. The simple fact is that it is easier to cook the books offshore.

The financial regulators in whose jurisdiction Stanford operated have reason to be ashamed. But so does everyone – from English cricket to careless investors – who bought into the Stanford magic with no questions asked.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Recruitment Genius: Embedded Linux Engineer - C / C++

£35000 - £45000 per annum: Recruitment Genius: A well funded smart home compan...

Recruitment Genius: Senior Software Engineer - Python / Node / C / Go

£35000 - £45000 per annum: Recruitment Genius: *Flexible working in a relaxed ...

Recruitment Genius: Senior Bookkeeper

£20000 - £25000 per annum: Recruitment Genius: This accountancy firm have an e...

Recruitment Genius: Junior Developer / Mobile Apps / Java / C# / HTML 5 / JS

£17000 - £28000 per annum: Recruitment Genius: Junior Mobile Application Devel...

Day In a Page

Read Next
Newspaper stands have been criticised by the Child Eyes campaign  

There were more reader complaints this year – but, then again, there were more readers

Will Gore
 

People drink to shut out pain and stress – arresting them won’t help

Deborah Coughlin
A timely reminder of the bloody anniversary we all forgot

A timely reminder of the bloody anniversary we all forgot

Who remembers that this week we enter the 150th anniversary year of the end of the American Civil War, asks Robert Fisk
Homeless Veterans appeal: Former soldiers pay their respects to a friend who also served

Homeless Veterans appeal

Former soldiers pay their respects to a friend who also served
Downfall of Dustin 'Screech' Diamond, the 'Saved By The Bell' star charged with bar stabbing

Scarred by the bell

The downfall of the TV star charged with bar stabbing
Why 2014 was a year of technological let-downs

Why 2014 was a year of technological let-downs

Security breaches and overhyped start-ups dominated a year in which very little changed (save the size of your phone)
Cuba's golf revolution: But will the revolutionary nation take 'bourgeois' game to its heart?

Will revolutionary Cuba take 'bourgeois' golf to its heart?

Fidel Castro ridiculed the game – but now investment in leisure resort projects is welcome
The Locked Room Mysteries: As a new collection of the genre’s best is published, its editor Otto Penzler explains the rules of engagement

The Locked Room Mysteries

As a new collection of the genre’s best is published, its editor explains the rules of engagement
Amy Adams on playing painter Margaret Keane in Tim Burton's Big Eyes

How I made myself Keane

Amy Adams hadn’t wanted to take the role of artist Margaret Keane, because she’d had enough of playing victims. But then she had a daughter, and saw the painter in a new light
Ed Richards: Parting view of Ofcom chief. . . we hate jokes on the disabled

Parting view of Ofcom chief... we hate jokes on the disabled

Bad language once got TV viewers irate, inciting calls to broadcasting switchboards. But now there is a worse offender, says retiring head of the media watchdog, Ed Richards
A look back at fashion in 2014: Wear in review

Wear in review

A look back at fashion in 2014
Ian Herbert: My 10 hopes for sport in 2015. Might just one of them happen?

Ian Herbert: My 10 hopes for sport in 2015

Might just one of them happen?
War with Isis: The West needs more than a White Knight

The West needs more than a White Knight

Despite billions spent on weapons, the US has not been able to counter Isis's gruesome tactics, says Patrick Cockburn
Return to Helmand: Private Davey Graham recalls the day he was shot by the Taliban

'The day I was shot by the Taliban'

Private Davey Graham was shot five times during an ambush in 2007 - it was the first, controversial photograph to show the dangers our soldiers faced in Helmand province
Revealed: the best and worst airlines for delays

Revealed: the best and worst airlines for delays

Many flyers are failing to claim compensation to which they are entitled, a new survey has found
The stories that defined 2014: From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions

The stories that defined 2014

From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions
Stoke-on-Trent becomes first British city to be classified as 'disaster resilient' by the United Nations

Disaster looming? Now you know where to head...

Which British city has become the first to be awarded special 'resilience' status by the UN?