By Calvin Palmer
Texan billionaire and cricket enthusiast Sir Allen Stanford appears to be on the back foot. A U.S. official revealed today that Stanford’s investment firm and Caribbean bank, which have delivered higher-than-average returns to investors and depositors despite the global financial meltdown, are being investigated by U.S. financial regulators.
Yesterday, Stanford announced his $20 million (£14 million) showpiece Twenty20 cricket match will not be staged again, although he is in the advanced stages of negotiating a new three-year deal with the England and Wales Cricket Board for an annual quadrangular tournament at Lord’s featuring his Stanford Superstars XI.
The U.S. official, speaking on the condition of anonymity said investigators visited Florida offices of the Houston-based Stanford Group Co. in January as part of a investigation that dates back at least three months.
The Securities and Exchange Commission, the Financial Industry Regulatory Authority and the Florida Office of Financial Regulation are trying to determine if the investment company and bank violated financial regulations or laws as they prospered and maintained high rates of return on certificates of deposit in recent years, the official said.
A spokeswoman for the Florida agency, Holly Hinson, confirmed its investigation but said she could not disclose details.
A Stanford spokesman denied anything was unusual about the regulators’ visit last month to company offices in Florida.
“We were informed by the three agencies that this was a routine examination,” said spokesman Brian Bertsch.
Stanford, 58, is one of the most prominent businessmen in the Caribbean, with investment advisers around the world helping him grow a personal fortune estimated at $2.2 billion (£1.4 billion) by Forbes magazine, which ranks him as America’s 205th richest man.
He holds dual citizenship having become a citizen of Antigua and Barbuda 10 years ago. He became the first American to be knighted by that Commonwealth nation, in 2006 ,in a ceremony conducted by Prince Edward, the Earl of Wessex.
Stanford International Bank Ltd., said deposits grew from $624 million (£437 million) in 1999 to $8.4 billion (£5.8 billion) in December. The bank is based in the twin-island Caribbean nation of Antigua and Barbuda, which has carved out a niche as a tax haven and offshore base for Internet gambling.
The bank says on its Web site it is able to pay higher interest to depositors “by channeling available resources into profitable activity” through investing and by having lower administrative costs by relying on “services and support of wholly owned Stanford affiliates located throughout the world”.
Some analysts say that its performance has raised concern.
L. Burke Files, president of a Tempe, Arizona-based due diligence firm that specializes in offshore financial organizations, said he steered a client away from Stanford in part because the bank’s CD rates were two to five times higher than the competition, and because the returns seemed to avoid the market swings that show up in the accounts of even the best investors.
“The consistency of returns gave me significant pause,” Files said. “How is this guy smarter than the very smart people at other big-name financial institutions?”
The investigation of his financial group was reported earlier today by Business Week and Bloomberg News.
The SEC and the Financial Industry Regulatory Authority declined to comment as a matter of policy.
The U.S. official said the Stanford probe predates the investigation of money manager Bernard Madoff, who was arrested in December after allegedly confessing to his sons that he had swindled investors out of $50 billion (£35 billion) in a Ponzi scheme.
Stanford International Bank recently told depositors in a letter posted on its Web site that it had no exposure to Madoff funds and that it was in compliance with financial regulators in Antigua.
Independent Florida-based analyst Alex Dalmady recently raised questions about Stanford in a financial journal, saying its returns appear too good to be true.
Bertsch said the Stanford Group disputes Dalmady’s findings: “We see this report as the opinion of an isolated analyst. We obviously disagree with him.”
[Based on reports by the Associated Press, The Daily Telegraph and The Times.]