Why Ponzi Schemes Work: An In-Depth Look At The Allen Stanford Fraud

Dec 21 2014 | 11:30am ET

Again, Investors “Comforted” by Number of SEC Investigations

I also found that, as in the Madoff situation, Stanford used the fact that he was examined so many times by the SEC to persuade nervous investors to keep their money with him. During the investigation, I managed to find two former Stanford employees, Mark Tidwell and Charles Rawl, who had serious concerns about Stanford’s investments themselves. They told me that Stanford’s financial advisors used the fact that the SEC had previously examined Stanford to reassure investors about the fund’s safety. I learned that one investor said that her broker told her that “regulators came constantly,” and everything at Stanford was “perfect.” Investors were told that the SEC regulated Stanford, and Stanford had “always passed with flying colors.” Tidwell said that he was comforted when he was told by Stanford management that nothing was found by any regulatory inquiries, and that his understanding that regulatory entities looked into Stanford and found nothing was an “endorsement.” Stanford officials were able to represent persuasively that Stanford had been given a “clean bill of health” by the SEC because, in fact, Stanford had been examined on multiple occasions, and the SEC had not taken any action to sue the company.

Approximately two years after we issued our report of investigation regarding Allen Stanford, Stanford, having been convicted by a jury of perpetrating a $7 billion international fraud, was sentenced in June 2012 to 110 years in jail for what  the judge called “egregious criminal frauds.” The prosecutor told the judge, “This is a man utterly without remorse. He treated his victims like roadkill.”

About The Author

H. David Kotz, a managing director in the global consulting firm of Berkeley Research Group (BRG), conducts internal investigations and consults with and provides expert testimony on behalf of clients in a wide variety of areas relating to securities fraud, Ponzi schemes, securities market regulation, and internal control risk policies. Mr. Kotz served as the inspector general of the Securities and Exchange Commission (SEC) for over four years, where he conducted numerous high-profile investigations and audits, including the investigation of the failure of the SEC to uncover Bernard Madoff’s $50 billion Ponzi scheme.

Reprinted from Why Ponzi Schemes Work and How to Protect Yourself from Being Defrauded, with permission of Thomson Reuters. Copyright © 2014. Further use without the permission of Thomson Reuters is prohibited. For further information about this publication, please visit our website, or call 800.328.9352.

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