By Stephen Young
By Stephen Young
By Stephen Young
By Jim Schutze
By Rachel Watts
By Lauren Drewes Daniels
In the meantime, the red flags kept popping up. In March 2003, just months after Hazlett left Stanford, another employee—a Houston-based broker named Leyla Basagoitia—made even stronger accusations in Texas. In her filings, Basagoitia said the company was "engaged in a Ponzi scheme to defraud its clients" and the company forced her to invest her clients' money in its Antiguan CDs even though she believed them to be "risky in nature and unsuitable."
Like Hazlett's, Basagoitia's claims were summarily dismissed, and both brokers were left to pay hundreds of thousands of dollars in back pay and attorney's fees to Stanford. Neither ever heard from the SEC regarding their accusations. And if their voices weren't loud enough for regulators, another Miami employee took his suspicions to court in 2006 and laid out in even greater detail Sir Allen's alleged schemes.
Lawrence De Maria, a former business journalist for The New York Times and Forbes, was hired by Stanford in 2003 to run the company's internal magazine out of the Miami office. He was fired three years later, and soon thereafter, he claimed in court that the company kicked him out for asking too many questions about its investment strategy.
"And I could never get an answer," De Maria said in court, explaining that James Davis told him the firm got great returns by using better computer programs and analysts than anyone else in the business.
In the filings, De Maria said he told his immediate boss in 2004 he suspected the firm was laundering South American drug money, lying to investors, running a gigantic Ponzi scheme, and paying Antiguan and American politicians to look the other way. The company settled De Maria's case almost immediately after his lawyers got a court order that would have forced Allen Stanford to testify.
De Maria, who now writes novels in Naples, declined through his lawyer to discuss the case because of the settlement.
The regulatory board that heard Hazlett's and Basagoitia's testimony is sanctioned directly by the SEC, and De Maria publicly made his claims in Miami-Dade Circuit Court. Yet the wing of the government charged with rooting out bank and investment fraud did not respond to the concerns piling up around Stanford's operations.
The SEC did open an investigation into Stanford's company in 2006 but dropped the inquiry at the request of another agency that hasn't yet been named, according to several sources. Representative Dennis Kucinich from Ohio, among others in Congress, has demanded an explanation from the regulators about why the case was dropped. In 2007, regulators found the company was violating rules about how much capital it needed to keep on hand, so they levied a fine that amounted to a pittance—$20,000. That same year, the company paid another minuscule fine—$10,000—for "misleading" information about its CDs.
The last, and perhaps most incredible, public warning that Stanford Group was in trouble came only three months ago from a low-key Venezuelan investment analyst named Alex Dalmady.
A thin, 48-year-old Caracas native, Dalmady grew up doing balance sheets for his dad, who worked for the accounting firm Price Waterhouse. He spent most of his adult life in the Venezuelan capital, where he analyzed the small national stock exchange in a subscription newsletter he published.
Six years ago, he moved with his family to Weston, Florida, after getting American residency. Last fall, a friend in Venezuela phoned him after the Madoff scandal and the global banking crisis began, asking him to take a look at his investments.
"Five minutes after I looked at Stanford...I said, 'This just doesn't smell right,'" Dalmady said in late February. "I said, 'Get your money out. Now.'"
"It wasn't just the balance sheets; there's one fishy thing after another," he said. "I looked up their board of directors, and I see it's Stanford, his dad and some other old guy in Mexia. I looked up his address, and it was on this cattle ranch in the middle of nowhere."
After just a few weeks of reading up on the company, he was so certain Stanford was a fraud that this past December, he called a Caracas business paper and asked if they would publish a story laying out his suspicions. The editor agreed. In January, Dalmady's bylined piece ran in two Venezuelan newspapers and on their Web sites.
"I expected some kind of outrage," Dalmady says. "Instead, they send us this beautiful collection of PR bullshit. And then it's absolute silence, which was the final confirmation for me. Stanford was running a Ponzi."
According to the 25-page SEC complaint filed in a Dallas federal court, which formally charged Stanford, Davis and Pendergest-Holt with orchestrating an $8 billion "massive Ponzi scheme," Stanford's company claimed its investments lost only 1.3 percent in 2008—a year when the S&P 500 dropped 39 percent. Stanford and Davis kept 90 percent of the company's supposed $8 billion in investments in a "black box" shielded from outside scrutiny. In essence, the regulators charge, Stanford never invested any of that money except in a few land deals and pet projects. The rest he used for himself and to pay interest on the older investments.