Catch of the Week: The Long Tail of an Infamous Ponzi Scheme
In 2012, R. Allen Stanford, former head of Stanford International Bank (SIB), was sentenced to 110 years’ imprisonment for masterminding a massive Ponzi scheme through which he misappropriated $7 billion from bank customers. That scheme had been running for twenty years when it was shut down in 2009.
Now, in February 2021, ten years after Stanford’s conviction and thirty years after his scheme began, the final defendant has just been sentenced. On that timescale, Catch of the Week might be a misnomer.
Leroy King, the former head of the Financial Services Regulatory Commission (FSRC) in Antigua, was sentenced to ten years in prison for obstruction of justice. In his case, this was not an instance of prosecutors falling back on that charge when they cannot prove the real crime. For Mr. King, obstruction of justice was his primary role in the Stanford conspiracy.
The Stanford Scheme
The Stanford fraud has a storied position in the history of financial crimes. Stanford built a financial empire based on a lie: that he invested customer’s funds in a special version of certificates of deposit (CDs) that paid above-market interest. In 2008, after decades of operation, the bank had $8 billion in CDs outstanding. He told customers the CD funds were invested in marketable and highly liquid securities, with multiple layers of oversight.
Unfortunately, as the cynical reader, or simply one who’s read the news in the last ten years, will know, SIB had done nothing of the sort with 85-90% of the funds. Instead, Stanford caused those funds to be paid out to his various personal companies as purported loans. Once the money was out of SIB, Stanford used it to prop up vanity companies like restaurants and a cricket tournament, as well as to finance a literal high-flying lifestyle, which included six private planes.
Like other Ponzi schemes, it worked as long as the money was coming in the door. When the financial crisis of 2008 hit, however, there was a run on CDs, and Stanford scrambled to come up with the money to cover redemptions and to fabricate stories to shore up confidence in his wavering scheme. Fortunately for his investors, authorities caught on and shut it down.
King’s Role in the Fraud
King was a key figure in the fraud because Stanford bribed him to keep it safe from regulatory scrutiny. As the head of the FSRC, King could influence the level of attention Stanford got from Antiguan regulators. Savvy to this, Stanford paid him off with jet flights, SuperBowl tickets, and more than half a million dollars. In return, King got the FSRC to leave him and SIB alone. Most dramatically, he even fended off the SEC’s initial investigation.
In 2005, four years before the scheme was finally shut down, the SEC attempted to investigate Stanford and SIB. They were limited in what they could learn, however, because the Antiguan authorities – King’s FSRC – refused to respond to requests for help. Instead, King claimed that the requests were contrary to Antiguan law and that the FSRC simply could not assist. Thanks to this obstruction of justice, it is likely Stanford’s scheme went on for several more years, hurting more investors.
With King’s conviction, prosecutors have closed the book on this famous Ponzi scheme, but the next one to steal future headlines may already be cooking. If you have information about it, consider bringing it to the authorities. You may be entitled to 10-30% of any eventual recoveries under the SEC’s very successful whistleblower program.
If you would like more information or would like to speak to a member of the Constantine Cannon whistleblower lawyer team, please contact us for a confidential consultation.
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