Allen Stanford Financial Scandal

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Case Details:

Case Code : FINC069
Case Length : 21 pages
Period : 2009-2010
Pub. Date : 2011
Teaching Note : Not Available
Organization : Stanford Financial Group, Stanford International Bank, Stanford Group Company, Stanford Capital Management
Industry : Finance Services
Countries : US and Antigua

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Introduction cont...

According to a complaint filed by the Securities and Exchange Commission (SEC)⁵ , Stanford and James M. Davis⁶ (Davis), director and Chief Financial Officer of SFG and Stanford International Bank⁷ (SIB), were involved in running a massive Ponzi scheme using different group companies including SIB, Stanford Group Company⁸ (SGC), and Stanford Capital Management (SCM) by selling self styled Certificates of Deposit (CDs) to the investors. By the end of 2008, SIB had sold out more than US$ 7.2 billion CDs by touting that the bank was safe and strong, and that it had been continuously earning double digit returns on its investment portfolio since 1992. According to the SEC, Laura Pendergest-Holt (Pendergest-Holt),

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Chief Investment Officer of SFG, Gilberto Lopez (Lopez), Mark Kuhrt (Kuhrt), and Leroy King (King) were also involved in this scam. However, some experts felt that the investors were equally responsible. They had forgotten the fundamental rule that risk-free or near risk-free instruments like CDs could not outperform the stock market; only higher risks could generate high returns...

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5] Securities and Exchange Commission is the US government's agency responsible for protecting the investor's interest, enforce securities laws, and regulate the securities industry, and stock exchanges in the US.
6] James M. Davis was Stanford's classmate and roommate at Baylor University, Texas, in the 1970s. A US citizen, he lived in Baldwyn, Mississippi, USA
7] Stanford International Bank, Ltd. (SIB) was an affiliated company of the SFG based in St. John's, Antigua, West Indies. SIB claimed that it had 50,000 clients in more than 100 countries with assets of more than US$ 7.2 billion by the end of 2008. It sold Certificates of Deposit through SGC and did not offer loans like other commercial banks.
8] The Stanford Group Company (SFC) was a Houston-based affiliated company of SFG. It was registered with SEC as a broker-dealer and investment adviser and the main business of the group was sales of securities issued by SIB

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