June 19, 2009 — Allen Stanford, the billionaire accused by the Securities and Exchange Commission of running a $7 billion con through his Stanford International Bank in Antigua, was arrested in Virginia Thursday, as were several of his top officers, including St. Croix resident Mark Kuhrt.
On Friday, the U.S. Justice Department announced it had indicted Stanford on fraud and obstruction charges and confirmed that Stanford, Kuhrt and others were in custody.
Stanford has steadfastly maintained his innocence. Kuhrt, 37, was Stanford Financial Group's global controller, according to the Justice Department, and worked out of St. Croix. He has a residence with a listed telephone number in Estate Recovery Hill, though sources say he worked for Stanford for a number of years before moving to St. Croix recently.
Last year Stanford held a groundbreaking for a large complex by the Henry E. Rohlsen International Airport on St. Croix. The complex was to be the base for the corporate support functions of Stanford's global network of financial services companies. The SEC filed a complaint against Stanford in February, alleging fraud at the Antigua-based Stanford International Bank, triggering the freezing of assets and closures here on St. Croix and elsewhere. (See: "St. Croix Projects Uncertain as Feds File Charges Against Stanford.")
Stanford employees like investment analyst Shaun Dalton were left in the lurch.
"It is almost a relief they have indicted Mr. Stanford," Dalton said Friday. "I adamantly believe in due process and he should be given his day in court to defend himself. He is innocent until proven guilty. But if they had not indicted him it would have shaken even further my faith in the regulatory agencies, which I have very little regard for right now."
He said he and many of Stanford's former employees still hold Stanford in high regard and believe his troubles are as much a product of the state of the financial markets as of any wrongdoing on his part.
"It's a tragedy of epic proportions, and even if he is proven guilty, it may be simply more of a technicality in this case rather than an intentional fraud," he said, with the qualifier that he may change his mind if Stanford is shown to have defrauded investors on purpose.
Charged were Stanford, Kuhrt, Laura Pendergest-Holt, 35, Stanford Financial Group's chief investment officer; Gilberto Lopez, 66, its chief accounting officer; and Leroy King, 63, the former administrator and head of Antiguas Financial Services Regulatory Commission.
Stanford was scheduled to make an initial court appearance Friday in Richmond, the Virginia state capital. Lopez and Kuhrt were arrested Friday morning and made initial appearances in Houston Friday afternoon. Pendergest-Holt, who previously was indicted on obstruction-related charges, will make her initial appearance on the charges unsealed today in Houston in the near future, according to the Department of Justice.
According to the indictment, Stanford and his co-defendants schemed to defraud investors who purchased some $7 billion in certificates of deposit administered by Stanford International Bank Ltd., an offshore bank controlled by Stanford on the island of Antigua. Stanford and his co-defendants allegedly misused and misappropriated most of those investor assets in many ways, such as diverting more than $1.6 billion into undisclosed personal loans to Stanford himself, while lying to investors about the bank's financial condition, its investment strategy and the extent of its regulatory oversight by Antiguan authorities.
The indictment alleges, for instance, that the defendants claimed Stanford International Bank's assets grew from approximately $1.2 billion in 2001 to about $8.5 billion in December of 2008 when they did not. And they say roughly $5 billion of Stanford International Bank's reported assets consisted of notes on loans to Stanford himself and grossly overstated interests in "island properties," including more than $2 billion from an artificial real estate deal invented solely to inflate the banks reported assets.
Stanford and his co-defendants supposedly falsely told investors their investment strategy was to "minimize risk and achieve liquidity" and promised rates of return on certificates of deposit that in the end were simply too good to be true in light of the banks actual investments and assets. While Stanford and his co-defendants were claiming they were tightly regulated by Antiguan authorities, he was making "corrupt payments of more than $100,000" to King to ensure the Antiguan bank regulatory authority King headed did not accurately audit, or verify the assets reported in the banks financial statements, according to the indictment.
Prosecutors are also alleging Stanford, Pendergest-Holt and King conspired to conceal the fraud from the U.S. Securities and Exchange Commission.
The defendants are charged with one count of conspiracy to commit mail, wire and securities fraud; seven counts of wire fraud; 10 counts of mail fraud; and one count of conspiracy to commit money laundering. The indictment also charges Stanford, Pendergest-Holt, and King with conspiracy to obstruct an SEC proceeding.
The indictment seeks forfeiture of the proceeds of the fraud from all defendants, including forfeiture of specific foreign bank accounts controlled by Stanford, Davis and Pendergest-Holt. Stanford faces a maximum sentence of 250 years if convicted of all 21 counts and given the maximum penalty on all charges.
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