The mainstream media has finally begun to notice the unusual circumstances surrounding R. Allen Stanford and his Houston-based investment firm, Stanford Financial Group (the latest Chronicle story is here).
Although the firm characterized the various investigations as "routine" in news reports, believe me — it’s never "routine" when the FBI starts nosing around. This is doubtful to end well for Stanford and its investors.
But what’s most remarkable about all this is how long it has taken for the media and regulators to catch on to Stanford. It took blogger Alex Dalmody less than 30 minutes to size up the situation, and it didn’t take Felix Salmon (update here) much longer.
Meanwhile, this Business Week article reports that the SEC has been investigating Stanford for the past three years!
Interestingly, I’ve asked dozens of folks in Houston investment community about Stanford over the years and have never once heard one vouch that an investment in the firm would be a good idea except as an absolute flyer. Nevertheless, I cannot recall even one media article over the years examining how Stanford was supposedly paying its lucrative returns to investors. Sure, the firm advertised well and contributed money to a number of powerful politicians. But I kept hearing from competent investment folks — exactly how is the firm paying those kinds of returns on CD’s again? And then there was that whole false association thing with the late Leland Stanford of Stanford University. How could anyone really take this outfit seriously?
Well, as recent news reports indicate, apparently about 30,000 investors did just that.
Now, it appears that many of these investors are from Central and South America, so maybe those investors didn’t have ready access to the information about Stanford that was available in Houston. But the important point here is that — as with Bernard Madoff — no regulatory agency is ever going to do a better job than the information market in preventing or mitigating fraud loss. I mean really, can you imagine how an investor who bought a Stanford CD during the past three years is feeling toward the SEC right now?
Thinking that the government can prevent a slick con man from fleecing investors is about as rational as investing one’s life savings with Stanford Financial Group.
Tom,
I worked for Stanford here in Houston. I can tell you stories about the operation that will knock your socks off. Send me an e-mail if you have questions about this clown and his troop of monkeys. Of course, I can’t discuss what I may or may not have said to the alphabet boys.
Long story short, if Allen Stanford owes you money, I’d ask him for it. And quick.
http://www.dailymail.co.uk/news/article-1082378/Palace-row-crickets-Sir-Allen-knighthood.html
Also, no one I know has ever been able to corroborate Allen’s claim of a lineal connection between Stanford Financial and the insurance sales activities of his grandfather, Lodis B. Stanford.
Employees of Stanford Financial are made aware that Allen got his start doing real estate deals in Houston in the 1980’s after having earlier failed as a health club operator. The bank (first in Montserrat and now in Antigua) was founded in the mid 80’s. The broker/dealer was founded in the early 90’s.
There appears to be no lineal connection between the insurance sales activities of Allen’s grandfather and the companies Allen founded some 50 years later. The overwhelming belief is that Allen yet again fabricated facts, this time having fabricated from whole cloth a lineal corporate history of his companies dating back to 1932 to create an impression of stability and permanence for his companies.
Oh, one more thing. People are wondering exactly what World Finance magazine is. A reporter told me today that his research seems to indicate that Allen owns the magazine through a series of corporate holdings. From what anyone can determine, it appears Allen named himself “Man of the Year.”
I am reminded of an expression used by a lot of old timers in the investment business: “When things don’t add up, they don’t add up.” The imagery recipe – a little Stanford University, some PGA tour, some cricket, borrow some Sir John Templeton, the Caribbean, a big helping of strategic and strongly promoted charity work, jets and choppers, wrap it all up with some Ralph Lauren photos on the website and one establishes instant credibility?
A comment has been posted re: the lack of connection between the early business and Stanford today. It is claimed that Sir Allen built the foundation of his wealth in Houston real estate in the 1908s. Did this really happen, per their website? I expect many of your contacts and readers in Texas are first hand witnesses to this success story and are stepping up to corroborate the legend.
There seems to be a disconnect to me between the failed health club in Waco and #205 on the Forbes list.
There seems to be a growing list on your blog of things “that don’t add up.”
Here is the info on the failed health club.
http://www.businessweek.com/investing/wall_street_news_blog/archives/2009/02/stanfords_faile.html
Here is the info on the fabricated claims connected to his knighthood.
http://www.dailymail.co.uk/news/article-1082378/Palace-row-crickets-Sir-Allen-knighthood.html
Oops. Double post. Sorry, I forgot I posted the knighthood link earlier. The Businessweek link about the health club talks about the origins of the bank.
Looks like the chickens are comin’ home to roost. What kind of reputation does ‘Sir Allen’ have around Houston?
Last year, Forbes put out a poorly researched puff piece about Allen that states:
“Stanford made his fortune buying up distressed real estate in Houston in the 1980s before inheriting his family’s regional insurance business, which he has transformed into Stanford Financial Group.”
http://www.forbes.com/forbes/2008/1006/202.html
I have tried to find any information on the insurance business, including past filings with the Texas Secretary of State and Texas Dept of Insurance and have come up empty. If Allen inherited an existing insurance company there would be past filings showing the date of his first involvement with that insurance company. Again, I can’t find it and I don’t know of anyone who ever has found that lineal connection. I’m not saying it doesn’t exist. I’m saying that no human I have ever discussed the subject with has been able to produce any such documents or direct me to where they may be examined.
http://www.businessweek.com/investing/wall_street_news_blog/archives/2009/02/stanford_scores.html
In your opinion is Stanford Financial/Stanford International Bank primarily smoke and mirrors – is this going to come crashing down as multiple regulators and law enforcement investigate, and concerned customers begin to ask hard questions and take their money out?
i have talked with friends who work there. My opinion is that people are indeed playing it safe and pulling money out. If nothing comes of the allegations, then they can reassess. Personally, I don’t think they will last past the end of next week, but time will tell.
Upon examination one cannot help but to notice the carefully crafted image . . from the website to the personal quotes of individual brokers (accompanying their company photos) and the required wearing of the Stanford lapel pins. I am surprised at who has bought into this. You are right we have a week of reckoning coming up.
The lapel pins are especially funny. They are used to identify clients from employees so that when one sees people walking around in the office employees know the person without the lapel pin is the one to say hello to. Again, its all about crafting the image.
I am surprised, considering the fiercely independent nature of most brokers that they consent to signing on that corporate pin program. Is Sir Allen the brains behind all the image touches and details or has he brought in some talent? Between the very visible charity activities, sports promo, and the high priced branding a disproportionately large amount of money is being spent on creating a special impression. Money is being thrown all over for affect . . . $20 million delivered to a cricket match in a gold plated helicopter. Bernie was a little more low key.