NEW YORK - The charges laid against Sir Allen Stanford inevitably invite comparisons with Bernard Madoff, the Wall St swindler who turned himself in last December.
Both men claimed to have found a miracle-grow formula for investing, able to return double-digit percentage profits, year in, year out -but were vague when anyone dared ask how. Even the headline numbers coincide: both claimed to be managing about US$50 billion in customers' assets. Both men were faking it, it is now alleged.
The scale and details of Stanford's alleged fraud, as set out in a lawsuit from the US regulator, the Securities and Exchange Commission, are very different.
Unlike Madoff, who used money from new investors to pay old ones, Stanford appears to have been doing something with the billions loaded into Stanford International Bank in Antigua - just not what he was telling clients.
Savvy investors might have known that Stanford's returns were too good to be true. But the company used a network of richly rewarded brokers to solicit money, who added credibility to his claims.
A little over US$8 billion was held in Antigua, paying the returns on certificates of deposit (CD), normally one of the safest investments outside a bank account. A year ago, the average CD was paying about 4 per cent; Stanford was paying 7 per cent.
It claimed to be able to do so because - unusually - funds went into a pool that invested in shares, commodities and hedge funds, which it claimed grew at between 11.5 per cent and 16.5 per cent for 15 years, something that the SEC claims is impossible for that mix of investments.
The SEC claims that four-fifths of the money was in fact handed over to Stanford and his old college roommate, James Davis, to invest secretly as they saw fit. It went into property and private equity, risky investments that were harder to sell than any client was ever told. About US$400,000 was also invested in a Madoff-related fund.
Now the authorities are beginning to piece together exactly where the US$8 billion in Antigua actually is, and whether a further US$1 billion in US mutual fund products has also been fraudulently marketed to Stanford's 50,000 investors.
It seemed unlikely that Stanford's claims to manage US$50 billion are true - but separating fact from fiction won't be an easy business.
