Allen Stanford and the Stanford International Bank

Allen Stanford, a Texas financier knighted by Antigua and Barbuda, spent almost two decades selling certificates of deposit from his Antigua-based Stanford International Bank that paid interest far above the market. According to US courts, it was a Ponzi scheme of about $7 billion, and many of the victims were savers from Latin America, above all Venezuela, who were moving their money out of the country out of fear. The SEC charged him on February 17, 2009, and on June 14, 2012, he was sentenced in Houston to 110 years in prison.

In 30 seconds

• Stanford raised money with certificates of deposit from an Antigua bank that promised close to twice the interest of a US bank, sold by advisers who earned a commission on every sale.
• The bank reported a 15.71% return in 1995 and exactly the same figure in 1996; his chief financial officer confessed that the numbers were decided first and the accounts manufactured afterward.
• The SEC suspected as early as 1997 that it was "probably a Ponzi scheme" and took twelve years to act, according to its own inspector general.
• Venezuela was the hardest-hit country: between $1.5 billion and $3.5 billion, depending on the source, from families looking for a safe haven for their savings.

Timeline

1. 1950

   Robert Allen Stanford is born in Mexia, Texas.

2. 1982

   His Waco gym chain goes bankrupt with about $13.5 million in debts.

3. 1985

   He opens his first offshore bank in Montserrat and later moves it to Antigua.

4. 1997

   SEC examiners in Fort Worth conclude it is probably a Ponzi scheme.

5. 2006

   Antigua and Barbuda grants him a knighthood.

6. Feb. 17, 2009

   The SEC charges him with a massive fraud involving about $8 billion in certificates.

7. Feb. 18, 2009

   Venezuela takes over the local Stanford Bank after a run on deposits.

8. Mar. 6, 2012

   A Houston jury convicts him on 13 of 14 counts.

9. June 14, 2012

   He is sentenced to 110 years in prison with no parole.

10. 2023

    TD Bank and other banks pay more than $1.6 billion in settlements with the receiver.

Who is Allen Stanford? From a bankrupt gym to the "Sir" of the Caribbean

Robert Allen Stanford was born in 1950 in Mexia, a small town in Texas. His first business was a chain of gyms in Waco that grew fast and went bankrupt in 1982 with about $13.5 million in debts. He told a different story: that he had made hundreds of millions buying distressed real estate in Houston with his father.

What is documented is that around 1985 he opened a bank in Montserrat, a British Caribbean island where hundreds of paper banks operated. When the British authorities began reviewing them, he moved the business to Antigua. There he became the island's largest private investor: he bailed out the Bank of Antigua in 1990, lent the government at least $85 million, built a cricket ground and in 2006 was knighted by Antigua and Barbuda. From then on he presented himself as Sir Allen Stanford. Forbes once estimated his fortune at $2.2 billion.

In June 2008 he landed by helicopter at Lord's, the home of cricket in London, to launch a match with a $20 million prize displayed in a glass case. According to The Times, the helicopter was rented. Looking rich was part of the business.

How it was set up: selling safety, not returns

Stanford Financial Group's sales network had dozens of offices, mostly in the Americas, and claimed to manage $8.5 billion for more than 30,000 clients. The flagship product was the Antigua bank's certificates of deposit, which paid around 7% when a deposit in the United States offered much less.

In Venezuela the pitch fell on fertile ground. With inflation above 30%, currency controls since 2003 and fear of what the government might do with people's savings, many middle- and upper-class families were looking to get their dollars out of the country. Stanford offered them exactly that: a bank abroad, supervised, insured and paying high interest. Clients were told the money was in liquid assets, watched over by more than twenty analysts and audited by Antigua's regulator, and that there was insurance from Lloyd's of London.

Advisers earned 1% on every certificate sold, plus trailing commissions, bonuses and trips. The offices competed like teams. Clients with more than five million were flown to Antigua by private jet to be shown the bank. They came back convinced.

How did the Stanford Ponzi scheme work? Numbers decided in advance

How could a bank pay twice as much as the others? It couldn't. According to the SEC's 2009 complaint, more than 80% of the portfolio was "other assets": inflated real estate, stakes in companies and personal loans to Stanford himself of at least $1.6 billion. Only he and his chief financial officer, James Davis, knew the full portfolio. The interest was paid with new clients' money: a Ponzi scheme dressed up as a bank.

Davis, Stanford's college roommate, pleaded guilty and was the star witness at the 2012 trial. He testified that the accounts had been fake since 1990, and that first they set the return to be announced and then manufactured the numbers. That is how the bank could report 15.71% in 1995 and the exact same figure in 1996, and, in 2008, when the US stock market fell about 39%, show a loss of only 1.3%.

The Lloyd's insurance existed, but it covered the directors' liability, not the deposits. A Houston adviser, Leyla Wydler, refused to keep selling the certificates, was fired in 2002 and, in a 2003 arbitration, stated that the firm was engaged in a Ponzi scheme. Nobody passed her accusation on to investigators.

Why nobody stopped him: Antigua and the SEC

In Antigua, the man meant to supervise the bank was Leroy King, head of the financial regulator. According to Davis, in 2003 King and Stanford became "blood brothers" in a ritual. What prosecutors documented is that King received more than $520,000 in cash, tickets to two Super Bowls and private jet trips, and that he answered SEC requests by saying his agency had no authority to act. He was sentenced to 10 years in prison.

In the United States, the SEC inspector general's 2010 report revealed that Fort Worth examiners concluded in 1997 that Stanford was probably running a Ponzi scheme, and said so again in 1998, 2002 and 2004. The enforcement division did not act. The head of enforcement in Fort Worth left the agency and, the following year, went on to bill hours of work to Stanford. Meanwhile, the bank grew from about $250 million to more than $7 billion in deposits.

How Allen Stanford fell

The 2008 crisis and the collapse of Madoff, in December that year, put investors on alert. The bank assured its clients it had no exposure to Madoff; it had money in a fund that invested with him. In January 2009 the Venezuelan analyst Alex Dalmady, who lived in Florida, published an analysis titled "Duck Tales" in the Caracas magazine VenEconomía: if it has feathers, quacks and walks like a duck, it is a duck.

On February 17, 2009, the SEC announced the case: a "massive fraud" involving about $8 billion in certificates. The group was placed in receivership, and Ralph Janvey was appointed receiver. Two days later the FBI found Stanford in Virginia to serve him with the lawsuit. In June 2009 he was criminally indicted and turned himself in.

In Caracas, lines formed outside Stanford Bank Venezuela, the local subsidiary. Customers withdrew about $93 million, more than a third of the deposits, and on February 18 the Venezuelan government took over the bank, guaranteed its deposits and sold it months later. The irony is bitter: customers of the local bank they had feared so much lost nothing; what evaporated was the Antigua "safe haven."

What happened to Stanford and his victims

In jail, Stanford was badly beaten in 2009 and later claimed to have lost his memory; the psychologist who evaluated him testified that he failed the tests designed to detect malingering, and he was found fit to stand trial. On March 6, 2012, a Houston jury convicted him on 13 of 14 counts. On June 14, 2012, he was sentenced to 110 years in prison. At the hearing he denied having run a Ponzi scheme. Davis received five years.

For the victims, recovery has been slow. The first distributions, in 2013, came to around 1%. Most of the money came from lawsuits against banks that had worked with Stanford: in 2023 TD Bank agreed to pay $1.205 billion, without admitting liability, and other banks added hundreds of millions more. The receiver's law firm puts the total recovered at more than $2.5 billion. Victim counts range from about 18,000 to 30,000 people from more than a hundred countries, depending on the source.

There was one exception. In 2021 Colombia's Supreme Court ordered Stanford's local brokerage to return what its clients had invested, plus twelve years of interest, for failing to advise them properly. Their lawyer maintains they are the only investors in the world who got everything back. Stanford remains in prison in Florida.

Law of Deception No. 7: how to recognize the same trap today

The seventh of The Laws of Deception is this: the saver's fear is the con man's capital. Stanford did not sell returns: he sold safety. To the greed for high interest he added the fear of inflation, devaluation and the government, and the authority of a knighthood, a cricket ground and a regulator who owed him favors.

The warning signs are still recognizable:

• The safe haven that pays more than anyone else. A safe deposit pays little. If you are offered safety and an interest rate far above the market at the same time, one of the two is false.
• A faraway institution and an even more distant regulator. An institution being "regulated" in a small jurisdiction does not mean it is genuinely supervised, or that your money is covered by any deposit guarantee scheme in your country.
• The insurance nobody shows you. Ask for the policy, and look at whom it protects and what it covers.
• The adviser paid to place it. If whoever recommends the product earns a commission on every sale, their interest is not yours.
• Fear as a sales pitch. "Get your money out before it's too late" is the most profitable line any con man has.

How to check it in the US and the UK. In the United States, check that a bank is insured with the FDIC's BankFind tool: FDIC insurance covers deposits up to $250,000 per depositor, per bank, per ownership category, and it does not cover offshore banks. Look up whoever sells you an investment on FINRA BrokerCheck and the SEC's Investment Adviser Public Disclosure site, and report suspected fraud to the SEC or to the FTC at ReportFraud.ftc.gov. In the United Kingdom, check the firm on the FCA Register and Warning List, remember that only UK-authorised banks are covered by the FSCS, and report fraud to Report Fraud (formerly Action Fraud). Be wary of any institution registered only in an offshore territory. You will find more warning signs in our guides on investment fraud and how to check if a broker is registered.

Watch the full episode

The story of the fake "Sir," with archive footage from Lord's, the SEC inspector general's report and the lines in Caracas in February 2009, is in episode 7 of MATERIUM. If you want to see how the scheme that exposed him collapsed two months earlier, read the case of Bernie Madoff.

The full episodeHe Took $7 Billion From Latin America's Savers Premieres on YouTube on 6 November