By Jim Schutze
By Rachel Watts
By Lauren Drewes Daniels
By Anna Merlan
By Lee Escobedo
In the weeks since the SEC brought charges against Allen Stanford and his associates, the fallout has been monumental.
Besides all the people who lost their jobs, tens of thousands of investors have had their accounts frozen until the case is resolved. The 30,000 investors worldwide who sank money into Stanford International Bank CDs, meanwhile, have lost life savings, retirement funds and charitable endowments—probably forever.
Antigua has been thrown into chaos. Stanford was the island's second-largest employer, and hundreds have gone unemployed for the past few weeks. Panicked residents have made a run on the island's banks and government financial centers since the SEC complaint was filed.
Three weeks after the company was charged with massive fraud and Laura Pendergest-Holt was hit with felony criminal charges for allegedly lying to regulators, police found Allen Stanford hiding in one of his girlfriends' homes in rural Virginia. He had tried to pay a private pilot to fly him to Antigua, but his credit cards had already been frozen. He surrendered his passport and remains free today. On April 6, he tearfully told ABC News that he expected to be indicted by a federal grand jury within two weeks, but called allegations that he was running a Ponzi scheme "baloney."
His lawyer, well-known Houston attorney Dick DeGuerin offered a less emotional defense.
"From what I've been able to figure out, this is not a Ponzi scheme, it is not toxic assets, and it is not toxic loans," DeGuerin told Reuters. "There were hard assets for all the investments. And then SEC came in like gangbusters and has just incinerated the companies and caused a panic."
But Stanford may find his legal options narrowing. James Davis has hired Dallas criminal defense attorney David Finn, who says his client "accepts full responsibility for his actions" and is "actively cooperating" with the government. "There is a basic rule in fraud cases: follow the money," Finn says. "I think when the investigators and the prosecutors follow the money, it will lead them directly to Sir Allen."
Government inquiries have begun into how the SEC and other regulators could miss such a gargantuan fraud for so long. A new anti-money-laundering bill to stiffen regulations on offshore banks has been introduced in the Senate. And state attorneys general across the nation announced last month an initiative to crack down on financial fraud.
But some experts say all of those measures won't prevent the next Madoff or Stanford from preying on Americans again.
One problem, says Phillip Phan, a business professor at Johns Hopkins University who has studied large-scale frauds, is that regulators are usually lawyers and accountants trained to look for problems only in companies' balance sheets. If SEC agents had been more attuned to the most basic problems at Stanford, such as a board of directors with 85-year-old Mexia cattle ranchers at the top, the firm might never have built such a large scheme.
"We really should look at regulation more like intelligence gathering," Phan says. "We should be trying to spot all warning signs out there, in the same way the CIA employs linguists and sociologists and all the specialties. There's so much information out there beyond the balance sheets."
Two weeks ago, Lawrence Messina opened a new office in Preston Center, but he's hardly put the Stanford experience behind him; indeed, it's quite the opposite. At least 10 times a week he's on the phone with attorney Larry Friedman, who's among the hundreds of attorneys trying to force the government to let go of investors' assets, which were frozen when the U.S. District Judge David Godbey put Stanford's Antigua-based bank into receivership following the feds' February raid.
Friedman represents some 150 investors who can't touch a cent of their assets while Dallas receiver Ralph Janvey combs through their accounts, trying to discern how much of their money was raised via Stanford-related investments. Time is of the essence for many of these former investors, who now can't pay their bills and are in danger of losing their homes while the government ties up their money without allowing for any relief whatsoever.
Which is why Friedman says he was quick to the courthouse: Two days after the feds filed their case against Stanford, Friedman was at the Dallas federal courthouse on behalf of a client, attempting to wrest his money away from the government.
So far, no luck—though on Monday, attorneys representing investors were in federal appeals court in New Orleans demanding that Godbey let go of the purse strings. Says Friedman, this could be "a lengthy, arduous process [that] could take many months or even years."
But Friedman has Messina on his side, which, the attorney says, is among the reasons he has so many clients. "Lawrence really brought me up to speed quickly," he says. The men were introduced by a mutual acquaintance shortly after the SEC filed its complaint.
"When I filed my first suit on behalf of one of Stanford's victims, my name spread like wildfire," he says. "And somebody introduced Lawrence to me as one of the best and brightest down there. So when people called to interview me as their attorney, I knew the company. I could talk the talk."