Allen Stanford by BVI Beacon

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How to clean up a $4.8b fraud VI firms help recover monies lost in Stanford scheme

Piled runway plan driving up costs

By JASON SMITH jsmith@bvibeacon.com

Standing in his Road Town law office one Friday afternoon in January, Martin Kenney flipped open the brown cover of Stanford International Bank’s 2007 annual report. He waved it in the air for dramatic effect, a mixture of outrage and disbelief audible in his voice. “These are all lies. All of them,” he said as he ran his index finger along a row of figures detailing the bank’s total assets. The report listed them as having grown to $7.1 billion by 2007. But the bank lied. It only had about $500 million in assets at the time of its collapse. The world learned on Feb. 17, 2009 that the bank’s founder and owner, Robert Allen Stanford, faked years of financial data in order to cover up what would become known as the second biggest Ponzi scheme in modern history. He is now serving a 110-year prison sentence for the estimated $4.6-$4.8 billion in losses that he caused to some 20,000 investors and others worldwide. Two firms with Virgin Islands offices — the insolvency practitioners Grant Thornton and Mr. Kenney’s eponymous law firm — are key players in the fight to recover as much money for Mr. Stanford’s victims as possible. Those two firms entered the recovery process two years after the fraud’s discovery, substituting in for a team of liquidators who were removed from the case by court order.

Government’s ambitious plans to upgrade the runway and related facilities at the Terrance B. Lettsome International Airport are still moving ahead, but Deputy Premier Dr. Kedrick Pickering said last Thursday that contractors’ initial bids came in far higher than anticipated. Dr. Pickering, whose Ministry of Natural Resources and Labour is overseeing the project, told the House of Assembly that the lowest of the three bids received came from the Cayman Islands-based Sir Robert McAlpine Holdings Ltd. at over $377.1 million. That offer was followed by the

Airport see page 17

Recovery efforts

Photo: NGOVOU GYANG

A member of the BVI Elite Sky Dancers waves the territory’s flag as the group dances toward the Queen Elizabeth II Park on Saturday during the 20th annual Rotary Club of Road Town Kiddies Fiesta. The event is held annually to coincide with the August Emancipation Festival, which kicked off on Friday evening. See story on page 21.

After deploying investigators to the worldwide offices of Mr. Stanford’s financial empire to find out exactly what happened, liquidators and their lawyers are now engaging in a series of massive legal battles in courtrooms from Montreal to Geneva.

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Marcus Wide, the managing director of Grant Thornton’s VI office and the joint liquidator of the bank along with the Cayman Islands-based Hugh Dickson, said that the way Mr. Stanford conducted his business left a mess of multinational proportions. “There was money in Panama; there was money in Colombia; there was money in Venezuela and businesses in those countries,” Mr. Wide said. “There was money in London. There was money in Switzerland in various pots. There was money in Canada, all of which we have to investigate. There was a suggestion that he had money stashed away in his wife’s name or through other family members’ names elsewhere around the world. So it’s a huge amount of stuff you have to look into.” And as the recovery specialists have looked into Mr. Stanford’s case, they have identified a recurring theme: The Ponzi scheme — a con that uses new investors’ money to pay seemingly lucrative returns to existing investors in order to recruit more — could have been stopped much earlier if banks, regulators and others had paid more attention. “This one had more red flags associated with it over the life of the fraud than I’ve ever seen, I think, in contrast to any other case,” Mr. Kenney said. “Which means to say that it was a 20-yearrun fraud. It started in about 1990 and ran almost to the end of the last decade.”

THE COMPLICATED CASE OF ALLEN STANFORD E

xactly 25 years to the day in 1984 that Robert Allen Stanford, a former exercise club owner from Mexia, Texas, declared bankruptcy, his second attempt at fortune spectacularly imploded on Feb. 17, 2009, leaving a multibillion-dollar mess in its wake. Mr. Stanford’s financial empire included his Antigua-based Stanford International Bank, which

sold certificates of deposit to more than 20,000 investors attracted by high interest rates. Mr. Stanford claimed that the depositors’ funds were being placed in safe, liquid investments. Instead, he operated history’s second-largest Ponzi scheme, using the deposits of new investors to pay returns to others. He went on a billion-dollar spending

Feb. 17, 1984

1999 SIB’s assets have grown to nearly $600

Robert Allen Stanford, 33, declares personal bankruptcy in Texas, listing more than $13.6 million as his debts. Total Fitness Center, the Texas chain of exercise studios that he founded, had gone bankrupt two years prior.

million. Mr. Stanford is appointed to chair an Antiguan task force that removes “false accounting” and “fraud” as charges under the country’s banking laws. Additionally, Mr. Stanford is appointed to chair the body that oversees the Antiguan banking regulator. This prompts US and UK authorities to issue advisories warning the public about the risks of doing business with Antiguan banks.

1994 Guardian, which is renamed Stanford International Bank, enters into an agreement with Antigua Prime Minister Lester Bird to finance a public hospital. The bank eventually loans the Antigua government more than $40 million.

1997 An accountant with

1985 After a brief stint running a hamburger restaurant, Mr. Stanford incorporates Guardian International Bank Limited in Montserrat. The bank begins offering certificates of deposit and is later accused by banking regulators in California, Florida and Texas of operating unlicensed sales offices in those states.

the US Securities and Exchange Commission spends six days at the Houston office of the Stanford Group of Companies examining its books. After questioning the high rate of interest paid on SIB CDs, the accountant reports that Mr. Stanford is running a “possible Ponzi scheme.” But the report is not pursued by the SEC’s enforcement staff.

Early 2000s Mr. Stanford attempts to establish a presence in the Virgin Islands and is rebuffed by thenChief Minister Ralph O’Neal, Mr. O’Neal later claimed.

Dec. 11, 2008 Bernie Madoff, a US

June 19, 2009 Mr. Stanford and three other

financier, is arrested and accused of running the largest Ponzi scheme in history and causing investors more than $11 billion in losses. Concern about other Ponzi schemes and fear of offshore structures leads depositors to start making withdrawals from SIB.

company officials are arrested and charged with fraud and obstruction in US District Court. Also charged is Leroy King, the former administrator of Antigua’s Financial Services Regulatory Commission, who allegedly received bribes from Mr. Stanford to avoid scrutinising SIB.

Nov. 2008 Mr. Stanford reportedly

April 15, 2009 ECSC Justice

reaches out to representatives of Libyan dictator Muammar Gaddafi, asking the country’s sovereign wealth fund to invest over $100 million in CDs, according to a diplomatic cable leaked by Wikileaks. The offer is rejected.

David Harris orders that SIB be liquidated, giving Messrs. Wastell and Hamilton-Smith permission to gather up the bank’s assets for the “general benefit of the bank’s creditors.”

2008 Mr. Stanford pledges $20 million to be paid to the team that wins the Stanford 20/20 Cricket Tournament in Antigua. Mr. Stanford was a major sponsor of Twenty20 cricket, a shortened version of the game, and spent millions to promote it in the Caribbean. Ralph O’Neal, the VI premier, is offered complimentary airfare and accommodations from Mr. Stanford, but declines, opting to pay his own way.

Roller coaster There’s a supremely ironic photograph on page 12 of the Stanford Eagle, a glossy, 60-page booklet produced in 2007 that promoted Mr. Stanford’s financial empire. The photograph shows more than a dozen tourists, their arms waving in the air, just as they’re about to descend down the track of “Blue Streak,” a wooden roller coaster at the Cedar Point amusement park in Sandusky, Ohio. On the facing page is a smiling photo of James Davis, the soon-tobe-indicted chief financial officer of Stanford Financial Group, under the headline: “The Stanford Investment Model: getting clients off the roller coaster.” Also included in the booklet — amidst photo spreads of a smiling Mr. Stanford donating to charities, sponsoring cricket tournaments, and being knighted in 2006 by the An-

spree, buying mansions, supporting cricket and pouring millions into airlines and other investments. Now, two financial services firms with Virgin Islands offices — Grant Thornton and Martin Kenney and Co. — are key players in the efforts to reclaim some of the $4.8 billion that depositors lost.

2005 After four previous attempts to initiate legal action against Mr. Stanford, SEC examiners are finally successful in making a recommendation to the agency’s enforcement division to open an investigation. But supervisors decline to pursue enforcement and refer the matter to the National Association of Securities Dealers, an industry group.

Feb. 26, 2009 After Antigua’s Financial Services Regulatory Commission sues SIB and Stanford Trust Company Limited, the Eastern Caribbean Supreme Court appoints Peter Wastell and Nigel Hamilton-Smith of the firm Vantis as “joint receiver-managers” over the two companies.

Feb. 17, 2009 The US Securities and 2006 Mr. StanNov. 28, 1990 Months after Guardian is investigated by United States and British authorities allegedy for laundering money for drug traffickers, the financial secretary of Montserrat writes to Mr. Stanford that his banking licence will be revoked. Mr. Stanford incorporates Guardian in Antigua and Barbuda 10 days later and purchases the Bank of Antigua, a local bank. Guardian’s assets total about $14 million.

tiguan government — is the financial group’s slogan: “Hard work. Clear vision. Value for the client.” The financial empire contained a multitude of Mr. Stanford’s companies, providing investment management, investment banking and brokerage services from its offices in Houston, Texas and 32 other cities across the globe. But the

heart of the group and the centre of the fraud took place at the Antigua-based Stanford International Bank.

Financial strategy Spurred on by commissioned salespeople, SIB sold investors certificates of deposits, promising “substantially higher rates of return than were generally offered by

2001 Mr. Stanford launches Caribbean Star Airlines to compete against LIAT. Three years later, he starts another airline, Caribbean Sun, which offers flights across the region, including the Virgin Islands. Both airlines are reportedly funded using money stolen from SIB depositors, liquidators later allege.

banks in the United States,” according to Mr. Stanford’s 2009 criminal indictment. Mr. Stanford had told investors — a large portion of whom came from Latin American countries such as Colombia, Mexico and Venezuela, where the public’s trust in national banks is low — that the bank would invest their CDs in

ford becomes “Sir Allen” after he is named Knight Commander of the Order of the Nation of Antigua and Barbuda for his charitable works. The award is later taken away after news of the Ponzi scheme breaks.

safe, liquid investments generating high returns through a sophisticated “global investment strategy.” Instead, Mr. Stanford took at least $2 billion of the bank’s money in secret “loans” to finance his lavish lifestyle and pour monies into questionable investments in Antiguan real estate, airlines and other businesses that weren’t prof-

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Exchange Commission files a civil lawsuit against Mr. Stanford, SIB, SGC and two executives, seeking “emergency relief to halt a massive ongoing fraud.” The same day a US District Court judge in Houston appoints Ralph Janvey, an attorney, to act as receiver to take control of the companies’ and the executives’ assets.

itable — lying to investors the whole time, Mr. Wide said. For example, in 2008 SIB claimed on paper to have $8 billion available to pay investors’ $7 billion worth of CDs. But the bank really kept the money divided into three tiers, two of which consisted of cash and portfolios of securities invested with global money man-

March 8, 2012 A US grand jury agrees with prosecutors’ assertion that Mr. Stanford and the companies should forfeit 29 bank accounts in London, Zurich, Geneva and elsewhere that prosecutors say are worth more than $300 million.

distributions to the more than 20,000 Stanford investors who lost money may begin later this year. He adds that the liquidators plan to use some of the funds in the March settlement to finance legal battles against other banks and parties that were connected to the fraud.

Feb. 17, 2012 The new liquidators sue TD Bank, a Canada-based company that provided correspondent banking services to Mr. Stanford’s companies. The suit could be worth as much as $3 billion, according to Mr. Kenney. It alleges that TB Bank knew it was reckless and should have known of Mr. Stanford’s fraud and ceased to do business with him.

March 2, 2010 The Vantis liquidators are disqualified

June 14, 2012 Mr. Stanford is convicted on 13 charges after a six-week criminal trial in Texas and sentenced to 110 years in prison. He is currently serving time in Coleman United States Penitentiary, a high security prison in Coleman, Florida. The 63-year-old’s projected release date is April 17, 2105, according to the US Bureau of Prisons.

from acting in Canada, after they accidentally erased a large portion of SIB’s computer records. Alexander Fundora, an investor who lost money in the Ponzi scheme, petitions successfully to have Vantis removed as liquidator. Replacing Vantis is the firm Grant Thornton. The new liquidators are Hugh Dickson and Marcus Wide, who works from the firm’s VI office. Martin Kenney, a VI-based lawyer who specialises in fraud matters, becomes the liquidators’ co-general counsel.

agers as the bank advertised, Assistant US Attorney Gregg Costa alleged on Jan. 24, 2012 at the start of Mr. Stanford’s criminal trial. Those two tiers only made up eight percent of the bank’s total assets, the prosecutor told a jury in Houston, Texas. The remaining 92 percent — the tier-three money — masked the secret “loans” made to

June 22, 2013 Mr. Wide says partial

March 12, 2013 After a protracted negotiation, the US Department of Justice, US receiver Mr. Janvey, and Messrs. Wide and Dickson drop legal claims against each other and agree to share the more than $300 million in Stanford group assets that were frozen in Switzerland, Canada and the UK.

Mr. Stanford and hid the core of the Ponzi scheme. “Billions were simply gone,” Mr. Costa said. “Over the years Mr. Stanford had to use that new money each year to pay back the old depositors. And he was paying these interest rates he wasn’t really earning. So lots of it was just gone to keep to the scheme going.”

Guardian Bank For nearly two decades the scheme worked extremely well for Mr. Stanford, who prior to becoming a banker had operated a chain of workout studios marketed toward women. Mr. Stanford’s Total Fitness Centers went bust thanks to overly rapid expansion and a struggling Texas economy, ultimately leading

Graphic: TODD VANSICKLE

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Marcus Wide

Stanford

The BVI Beacon | Thursday, August 1, 2013

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Martin Kenney

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to his personal bankruptcy in 1984, according to a 2009 article in the magazine Vanity Fair. How exactly he transitioned from financial ruin to incorporating Guardian International Bank in Montserrat in 1985 is unclear. But, according to Mr. Kenney, no regulator anywhere

Stanford see page 30

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SPANNING THE GLOBE: THE RECOVERY EFFORTS

rising him to take control of, catalogue and safeguard the individuals’ and companies’ assets. That action set the asset recovery process in motion.

Removal SIB’s only office outside of Antigua was in Montreal, where the firm backed up its data and kept a sales office. When the Vantis liquidators — acting months after the ECSC had broadened the firm’s mandate to liquidate SIB and STC — obtained copies of bank data from the Montreal

A criminal charge has been launched by Swiss officials against Societe General. The bank held an account from which Mr. Stanford allegedly maintained a “slush fund,” part of which was used to pay bribes.

About $80 million in cash, currently frozen in a London bank account. • The liquidators may sue HSBC, which also provided correspondent banking services to SIB. More than $200 million in cash frozen in Switzerland, to be split with the US receiver.

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A lawsuit is before the courts against Canada’s TD Bank, which handled nearly $10 billion in SIB depositors’ money over the life of the fraud, Mr. Kenney said. The lawsuit could be worth as much as $3 billion.

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The liquidators may sue Kroll Advisory Solutions, a firm of private investigators, which provided “counter-intelligence” services to Mr. Stanford, Mr. Kenney said. The firm’s investigators would counter-investigate journalists and others scrutinising Mr. Stanford, according to the lawyer.

(Right) 1,554 acres of raw land, including four small islands and 987 acres of the Crump Peninsula. Estimated to have a value of $50-$200 million • (Left) A portfolio of office buildings, a port facility, Mr. Stanford’s bar, the Sticky Wicket, athletic facilities, and other holdings worth an estimated $75 million

• A lawsuit is also planned against Tom Sjoblom and his two previous employers: the law firms Proskauer Rose and Chadbourne and Park. Mr. Sjoblom’s alleged “negligence” helped Mr. Stanford avoid regulators’ scrutiny, Mr. Kenney said. computers, they removed those copies from the country “without permission, making it impossible for the Canadian court to ever confirm their accuracy,” an ECSC judgment stated. Vantis’ actions meant that the liquidator “did not deserve the trust of the court,” Justice Claude Auclair of the Quebec Superior Court ruled on Sept. 11, 2009. The judge disqualified the firm from representing the bank in Canada. That led Alexander Fundora, a victim of the Ponzi scheme upset with Vantis’ conduct of the liquidation, to ask the ECSC to remove the liquidators and replace them with Grant Thornton. The court agreed, naming Messrs. Wide and Dick-

son to the posts. Mr. Kenney, whose firm represented Mr. Fundora, became co-lead general counsel for the liquidators alongside the Miami-based law firm Astigarraga Davis, which also specialises in fraud recovery.

Cash flow problems When the new SIB liquidators assumed their post in May 2011, they faced a big, immediate problem: The bank’s estate, which was to fund their expenses, was broke. “[Vantis] didn’t secure the cash in any way. They didn’t deal with any assets, didn’t generate any revenues. So there’s very little cash in our estate,” Mr. Wide said. During its two years as liquidator, Vantis claimed that it

generated $18 million in bills for which it was never paid. The accountancy firm, citing in part its non-payment for work on the Stanford fraud, went into restructuring and sold off its assets in 2010. Cash, Mr. Wide added, is needed not only to distribute to Mr. Stanford’s victims and pay for the administration of the liquidation but also to fund lawsuits against third parties that may have played a role in the fraud. Those legal actions will significantly enhance the pool of funds available for victims, Messrs. Kenney and Wide hope. Sympathetic to the liquidators’ cash flow issues, a London judge advanced the team $20 million from the frozen funds in London

Graphic: TODD VANSICKLE

Mr. Janvey’s mandate — as ordered by US District Court Judge David Godby — technically applied to all of the companies in Mr. Stanford’s financial empire, including those outside the US, such as SIB and Stanford Trust Company in Antigua. But two weeks after Mr. Janvey was named to his post, a lawsuit against the companies from the Antigua Financial Services Regulatory Commission prompted Eastern Caribbean Supreme Court Justice David Harris to appoint two men from the British firm Vantis Business Recovery Services as receiver-managers of the Antiguan-registered SIB and STC. The men, Peter Wastell and Nigel HamiltonSmith, initially had a similar mandate as the US receiver: to investigate and preserve the companies’ assets. Both Mr. Janvey and Vantis had the same aim: to recover as much as possible of the estimated $4.8 billion for those who lost money in the fraud. Each party concentrated on the assets in their country: For instance, Mr. Janvey took possession of Mr. Stanford’s mansions in St. Croix for the estate, while the SIB liquidators gathered in $75 million worth of largely undeveloped lands in Antigua for their pool of resources. But the receiver and Vantis had overlapping claims to bank accounts with cash frozen in SIB’s name in London, Geneva and Montreal totaling more than $300 million. And while fighting to be recognised by a Montreal court as the group with the best claim to the $20 million frozen in bank accounts there, the Vantis team made a mistake that led to its removal from the matter.

he Stanford International Bank liquidators’ efforts to recover the estimated $5 billion stolen from bank depositors spans the globe. The main targets of the liquidators’ efforts are the more the $280 million frozen in bank accounts in London and Switzerland and thousands of acres of land and finished properties in Antigua. Additionally, a multitude of lawsuits have been filed, and more may be forthcoming, against firms and individuals that provided services to Mr. Stanford and SIB, said Martin Kenney, the co-lead general counsel for the SIB liquidators. In addition to these efforts, United States receiver Ralph Janvey is in the midst of his own recovery campaign, concentrating mostly on Mr. Stanford’s assets in the US.

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to finance the estate. That money helped, but it wasn’t nearly enough to finance the dozens and potentially hundreds of lawsuits planned, Mr. Wide said. As plaintiffs who sue unsuccessfully in UK or Canadian courts can be ordered to pay a substantial portion of the opposing side’s legal costs, litigants should be well funded to guard against that risk, he explained. But attempts to gain access to the remainder of the money frozen in SIB’s accounts were further stymied when the US Department of Justice brought criminal charges against Mr. Stanford in May 2009. As part of the criminal trial, Stanford see page 32

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Stanford from page 31 prosecutors asked and were granted a request to have the $300 million in cash in the UK, Canada and Switzerland declared as “proceeds of crime” and forfeited to the US government so that it could be redistributed to the victims. While seizure of assets from drug dealers and other criminals who don’t have easily identifiable victims makes sense, Mr. Wide said, in this case, in his experience, the decision didn’t. “Governments are not well positioned to run a claims process. It’s not what they do for a living,” Mr. Wide said. “You don’t want to duplicate the process, so why would government run a claims process and then have the liquidator run another claims process?”

Parties’ settlement But looking to avoid the prospect of duplication and further costly legal wrangling, the SIB liquidators, Mr. Janvey, the Department of Justice, and a few other related US parties began negotiations last year to resolve their differences. An agreement reached in March divides the $300 million between the US receivers and the SIB liquidators. Additionally, it allows both groups access to each other’s records and clarifies which rights each recovery team has to file lawsuits against third parties. For the swindled depositors, the settlement means that a to-be-determined portion of that cash will be available to be disbursed, while the SIB liquidators will be able to finance their legal battle. The major factor in determining how fast that happens, Mr. Wide said, is the speed at which the Swiss government can release its frozen SIB accounts. But if all goes well, Mr. Stanford’s victims could see their first proceeds from the liquidation in the coming months. “Our objective is try and make a distribution before year end. That’s our objective. The question is how much,” Mr. Wide said. And with the disagreements about the frozen cash coming to a close, liquidators are also making progress on gathering in the bank’s other assets, including the large swathes of coastland in Antigua Mr. Stanford bought for future development.

Antiguan coast On the northeastern coast of Antigua, not far from the island’s Jumby Bay Resort, are four islands and the Crump Peninsula, total-

ing 1,554 acres. Mr. Stanford bought the undeveloped lands in 2008 from a Malaysian developer, according to Edward Childs, a director of the VI-based office of Smiths Gore. The real estate advisor was hired last year by Mr. Wide’s team to assess and market the portfolio of lands. The state of the economy and the availability of properties across the region make that difficult, but Mr. Childs said the firm and its partner, the US broker CB Richard Ellis, have seen some interest. “If you’ve got land at the moment, there’s not that many international investors that are looking to purchase land because it’s so speculative,” Mr. Childs said. “So quite often land will go to people in the local market.” The acreage is being sold as one joint parcel, though the 32acre Pelican Island can be split off from the group if a buyer wants to pursue a “Necker Island-style development,” Mr. Childs said. He added that he’s optimistic about the properties’ prospects because they combine land on the peninsula with a sought-after island: “When you can say, ‘Oh, you’ve got an island,’ that always helps.” Additionally, the broker said, the Antigua government recently launched the “Citizenship by Investment” programme, allowing foreigners who donate more than $250,000 to the country’s development fund or purchase more than $400,000 worth of property to obtain an Antiguan passport. The promise of a second passport — though the programme doesn’t confer voting rights — is a plus for some investors because it could allow them visa-free travel to countries in North America or Europe, Mr. Childs said.

Other properties Mr. Kenney, the liquidators’ lawyer, estimated that the Crump Peninsula portfolio could fetch anywhere from $50 million to $200 million, depending on market conditions. He has high hopes, too, for a portfolio of buildings and properties owned by Stanford Development Company, another SFG subsidiary that will likely be liquidated by Mr. Wide’s team. Those properties include four office buildings constructed to top US commercial standards; Mr. Stanford’s bar The Sticky Wicket; The Stanford Cricket Ground; the upscale Pavilion Restaurant, from which a $2 million wine collection was sold off for $400,000

Special Report before Vantis made efforts to secure it, Mr. Kenney said; and a port facility complete with refrigeration that cost $55 million to build. “Anything Mr. Stanford would build would usually be built at the highest level,” the lawyer said. In some cases, Mr. Kenney added, liquidators will sue to recover assets that they feel should have been part of the estate. For example, last November the government of St. Kitts and Nevis purchased from SDC six acres of land at the country’s airport that was the former headquarters of Caribbean Star Airlines. “The Kittian government paid $3.6 million in cash for it under circumstances that make me nervous,” Mr. Kenney said. “And we’ve frozen one million of the proceeds of that little funny business in the trust account of Hugh Marshall Jr., the lawyer for SDC in Antigua. We’ve got to figure out who made off with the rest of the other $2.6 million of that $3.6 million.”

Lawsuits But the best prospects by far for depositors to get their money back, Messrs. Wide and Kenney said, are the series of lawsuits that have been filed or will be filed against the third parties that should have known about the Ponzi scheme and stopped it. Foremost among those responsible, the recovery specialists feel, is the Canada-based TD Bank, which is the subject of a claim that could be worth as much as $3 billion to the swindled depositors, Mr. Kenney said. TD Bank provided “correspondent banking” services to SIB, allowing at least $10 billion of wire transfers from CD investors to be sent and received from accounts that SIB held at TD Bank, Mr. Wide said. “It was like rent-a-bank in the sense that in order for a customer from Mexico to deposit $100,000 US dollars at SIB there was no place to wire transfer it to in Antigua,” he said. “Because SIB couldn’t receive a wire transfer. They weren’t set up as a proper bank.” SIB was very dependent on TD’s services, Mr. Kenney said, and TD was bound to follow antimoney-laundering regulations, performing “know-your-customer” checks and other due diligence verification to make sure that SIB’s activities were aboveboard. Correspondent relationships between foreign banks are often used to offer customers the con-

venience of dealing in their own currencies abroad, Mr. Kenney said. For instance, an Antiguan taxi driver earning Eastern Caribbean dollars who had an account at the Bank of Antigua — a small bank Mr. Stanford purchased in 1990 and merged with SIB forerunner Guardian Bank when he relocated to the island — would be able to use his bank’s correspondent account at TD Bank to access his funds while visiting relatives in Canada. When SIB set up a correspondent account, TD Bank should have checked into Mr. Stanford’s history, the lawsuit alleged. Those checks would have uncovered Mr. Stanford’s personal bankruptcy, the revocation of his Montserratian banking licence, regulators’ previous scrutiny, law enforcement concern that Antigua was a haven for money laundering, and many other red flags, Mr. Kenney said. He added that a “reasonable bank” would have decided not to do business with Mr. Stanford or his companies. Instead, because SIB’s sister entity, the domestic Bank Of Antigua, had an existing correspondent relationship with the Bank of New York, the assets of which were later purchased by TD Bank, SIB was able to “piggyback” on the domestic bank’s prior relationship and extensive due diligence that previously occurred. “We think they were recklessly indifferent and negligent with the stewardship of their relationship as correspondent bank for Stanford, and did know enough information to put an honest banker on his guard — to shut down the account, go to police and blow the whistle on this thing — at least as far back as the year 2000,” Mr. Kenney said.

‘Slush fund’ TD Bank isn’t the only major financial institution to face the liquidators’ recovery efforts. Societe Generale Credit Suisse, a Parisheadquartered bank, provided SIB with accounts in Switzerland, Mr. Kenney said. At Mr. Stanford’s criminal trial, Mr. Davis, SFG’s former chief financial officer, described those accounts as the companies’ “slush fund.” “They were the font of what I would characterise as bribes paid to Charles Hewlett, who was auditor of SIB’s books. And he was paid to issue audit opinions that were clean as a whistle when this thing stank to high heaven, and no

auditor would have done that if he wasn’t being bribed with a lot of money,” Mr. Kenney said. The lawyer added that the SGCS accounts were a mechanism for SIB to “wash the money stolen by Stanford.” Liquidators have petitioned the Swiss government to launch a criminal complaint against the bank and its then-executive vice president, Blaise Friedl, who reportedly had a long friendship with Mr. Stanford. The liquidators are also investigating a third bank, HSBC, which also provided correspondent banking services to SIB, Mr. Kenney said. HSBC recently was fined $2 billion by US regulators because its Panamanian-based compliance department allegedly didn’t detect and turn away drug traffickers’ funds from entering the banking system, Mr. Kenney said. That same compliance department was responsible for watching SIB’s activities, he asserted.

Other suits Mr. Kenney’s laundry list of lawsuits may not stop at bankers. Included in the liquidators’ sights is Kroll Advisory Services, which Mr. Kenney said provided private investigators who would scrutinise journalists and others who were investigating Mr. Stanford. “So if you’re sitting in Road Town and you’re being aggressive against Stanford because you detect something that’s bad, you would have Kroll counter-investigating you, looking for rubbish in order to disseminate that to discredit you,” Mr. Kenney said. “That was the kind of thing he was doing. It’s like out of a Hollywood movie, this stuff.” The New York-based firm doesn’t yet face a lawsuit but could in the future, the lawyer added. Additionally, Tom Sjoblom, a former SEC lawyer who represented Mr. Stanford’s companies while in private practice, could be sued, along with two of the law firms at which he worked, Mr. Kenney said. In Mr. Davis’ 2011 guilty plea agreement, Mr. Sjoblom is described as “Outside Attorney A,” Mr. Kenney said. According to the plea agreement, when the outside attorney “heard through the grapevine” that the SEC was investigating Mr. Stanford’s companies in 2006, he called the agency, touting his previous anti-fraud experience, and gave

Stanford see page 33

Special Report Stanford from page 32 his opinion that SIB was an “incredible institution” that was “credible in all its dealings.” Though it’s a lawyer’s job to represent a client’s interests, Mr. Sjoblom’s actions crossed the line, Mr. Kenney said, and his loyalties should have been to the bank’s depositors, not to Mr. Stanford. “That means if the bank’s management is doing something wrong, his mission in life should be to protect the bank, not to prolong fraud,” Mr. Kenney said. Even some SIB depositors — those who scrambled to the bank to cash out their CDs in the weeks before the 2009 collapse — may have to give back their withdrawn funds only to see them redistributed by the liquidators, Mr. Wide said. “If you were knocking on the door [of SIB] before your CD was due and you were paid in that last very short period of time when over a billion dollars went out of the bank, we’re saying that you just got lucky at the expense of your neighbour,” he explained.

Recovery process Mr. Wide has liquidated more than 30 banks during his career. He’s seen depositors lose money many times. And what sticks out in the Stanford fraud, he said, is the Texan’s brazenness and the scale of depositors’ losses.

“There are some real tragedies in this file. There are some people whose life work was in the bank. And they’ve lost it,” he said. For Mr. Kenney, the Ponzi scheme is notable for its size and the number of “red flags” it should have raised. “As a fraud recovery lawyer, I get access to victims’ impact statements, evidence indicative of human pain and suffering,” he said. “The scale of human pain and suffering in this case is nothing short of massive. Endemic. Ludicrous. Ludicrous for the number of times when it could have been stopped.” Mr. Wide added that despite past delays, many of the hurdles the liquidators had to overcome have been cleared. A claims verification process, through which depositors detail and submit their losses in order to receive future payment, is almost finished. The team has received more than 16,000 claims, he said, noting that the discrepancy between that number and the estimated 20,000 victims is typical. “There is, in any insolvency, a number of people who just don’t claim for all sorts of reasons,” he said, adding that he hopes to announce soon when depositors will receive their payments.

Table talk But how much of the financial damage caused by the Ponzi

scheme can be undone by the liquidators’ efforts? Messrs. Wide and Kenney say that while they’d like to recover the full amount for victims, this isn’t likely. Sitting in the conference room of his Road Town office a few weeks ago, Mr. Kenney demonstrated the enormity of the liquidators’ task by motioning to his 25-foot-long boardroom table as if it were the more than $4.6 billion in depositors’ losses. He held his hands a few feet apart. “If we draw a line here and are talking about recovering $300 million from Canada, Switzerland, the UK, you can see we’re not even beginning to fill it up,” he said. He widened the distance between his hands as he described the land sales, totaling assets worth $500 million. “That’s ten percent, ten cents on the dollar. Are victims going to be happy with ten cents on the dollar?” he said. Listing the US receiver’s contributions and the lawsuits, he walked closer to the end of the room and stopped. “Various judges and various settlement discussions and various things may result in not achieving the full amount, the $4.6 billion,” he said. “We may get stuck halfway down. But halfway down is $2.3 billion and that’s a heck of a lot better than peanuts. Fifty cents on the dollar is a lot better than ten.”

The BVI Beacon | Thursday, August 1, 2013

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