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Due Diligence

Allen Stanford: The Curtains are Drawn

Posted on 15 Jun 2012

On 14 June 2012, Allen Stanford was sentenced to life in prison for operating a USD 7 billion dollar Ponzi scheme over the course of more than 20 years. Following on from the charges made by the U.S. Securities and Exchange Commission earlier this year, Judge David Hittner handed out a sentence that was less than the 230 years that prosecutors had asked for.

As described in the courts’ sentencing memorandum, Allen Stanford was accused of (amongst other things):

1. Falsifying financial statements for his businesses, which also included hiding reasons as to why he moved his businesses from Montserrat to Antigua (the Government of Monteserrat threatened to revoke his banking licence),

2. Falsifying marketing material, which also included producing a document issued from a fake London firm, which one of Stanford’s employees had to transmit from a London fax machine which Stanford rented during the employee’s one day trip to London,

3. Stealing more than USD 1 million every day by 2008 in order to keep his failing businesses open,

4. Spending client’s money on himself and his family during the course of the fraud, including:

  • USD 13 million on a private yacht,
  • USD 400,000 to buy personal suits over a 2 year period (i.e. a USD 200,000 clothing budget per year),
  • USD 515,000 for gambling purposes which he lost at the Bellagio in Las Vegas during a trip in January 2009, and
  • An undisclosed amount of money throughout the fraud in order to constantly purchase new laptops as Stanford “destroyed his repeatedly”.

In order to pull off his Ponzi scheme, Stanford hired a very small audit firm (C.A.S. Hewlett in Antigua) and bribed them to the tune of USD 3.4 million in order to rubber stamp his company’s fake financial statements. In addition, he went on to corrupt the Antiguan regulator, by forcing out the chief banking regulator and instead appointing two of his ex-employees to head up the division, which also helped cover-up and obstruct various investigations from the SEC for many years.

Despite his lawyers trying to shift a part of the blame on Stanford’s Chief Financial Officer and also arguing that a much shorter sentence would be more appropriate due to time already served, the judge sentenced Stanford to a jail-term of 110 years, which is40 years shy of the 150 years sentence Madoff was handed in 2009.

This sentencing is yet another reminder to all investors of the importance of due diligence and how crucial it is to be undertaken before investing in any type of investment vehicle. For more information about Laven Partners’ Independent Process of Operational Due Diligence services please visit our website.