Reuters - U.S. charges Stanford with massive Ponzi scheme

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U.S. charges Stanford with massive Ponzi scheme

Saturday, Feb 28, 2009 1:38AM UTC

By Anna Driver

HOUSTON (Reuters) - U.S. securities regulators on Friday accused Texas billionaire Allen Stanford, his college roommate and three of their companies of carrying out a "massive Ponzi scheme" over at least a decade and misappropriating at least $1.6 billion of investors' money.

Meanwhile, a Houston judge ruled on Friday that Laura Pendergest-Holt, the only person arrested in the $8 billion Allen Stanford fraud investigation, could walk free after she posted a $300,000 bond.

In an amended complaint filed in a federal court in Dallas, the Securities and Exchange Commission increased its civil charges against Stanford to include a Ponzi scheme where early investors are paid with the money of new clients.

Along with his former Baylor University roommate James Davis, the 58-year-old golf, cricket and polo promoter "misappropriated billions of dollars of investor funds and falsified" financial statements issued by Antigua-based Stanford International Bank, the SEC charged.

Stanford and Davis could not be reached immediately for comment and have yet to name their legal representatives in the case. The company is directing all inquiries to the SEC.

It was the second high-profile alleged Ponzi scheme revealed by U.S. regulators, after charges that Wall Street veteran Bernard Madoff carried out a $50 billion fraud that allegedly involved a giant Ponzi scheme.

In the amended complaint, the SEC alleged that by February, Stanford and Davis - who have not been charged with criminal wrongdoing - had misappropriated at least $1.6 billion in investor money through "bogus personal loans" to Stanford. The funds were invested in "speculative, unprofitable private businesses controlled by Stanford," it said.

Every month, Stanford and Davis set a predetermined rate of return for certificates of deposit issued by their Antigua bank, then bank accountants reverse-engineered financial statements to "report investment income that the bank did not actually earn," the SEC charged.

The $1.6 billion in loans first came to light in a criminal complaint filed by the Justice Department against Pendergest-Holt, the 35-year-old chief investment officer for the Stanford Financial Group who was arrested by the FBI on Thursday.

The criminal complaint referenced a $1.6 billion loan from a Stanford account labeled "Loan to Shareholder," which was the focus of the SEC's questions to Pendergest-Holt.

After spending a night in a Houston detention center Pendergest-Holt faced U.S. Magistrate Judge Mary Milloy in court on Friday.

U.S. prosecutors had asked the judge to set bond at $1 million, an amount that Pendergest-Holt's attorney, Dan Cogdell, called "outrageous."

While agreeing it was a serious case, Milloy lowered the amount to $300,000 and ordered Pendergest-Holt, who appeared in court dressed in a dark pants suit and heels, to wear an electronic tracking device after her release.

The tall, slender brunette appeared grim for most of the hearing but occasionally turned in her chair to smile at her husband, equity fund manager Jim Holt.

FBI agents had arrested her at Stanford's Houston-based headquarters and accused her of obstructing a probe into what the SEC called "massive ongoing fraud" by Stanford and his companies.

Under questioning from Pendergest-Holt's lawyer, FBI agent Vanessa Walther said there is no arrest warrant for Stanford, who was served with the SEC's earlier civil complaint last week.

Meanwhile, Stanford's assets are under the control of a court-appointed receiver -- Dallas attorney Ralph Janvey -- who must sort out dozens of claims by Stanford account holders who have seen their funds frozen indefinitely.

A Dallas judge is expected to rule on Monday on whether to extend a temporary restraining order that gives Janvey control of Stanford's assets -- pegged by the company at $50 billion.

Pendergest-Holt's criminal case also moves to U.S. District Court in Dallas, where the charges were filed, lawyers said.

The receiver thus far has identified only about $90 million in actual assets, the FBI's Walther told the judge on Friday. That does not include a Credit Suisse account containing about $160 million that Pendergest-Holt had access to and signed over to the receiver shortly before her arrest.

"There are billions missing in this case," Justice Department attorney Paul Pelletier told Judge Milloy on Friday.

Meanwhile the Antigua and Barbuda's Senate on Friday approved a government takeover of more than 250 acres of Stanford-owned land before Janvey moves to seize it.

Pendergest-Holt's lawyer Cogdell said his client was innocent of the charges, and will "fight these accusations with every ounce of energy she has."

"They set her up like a bowling pin," Cogdell told reporters after the court hearing, "My suspicion is by Mr. Stanford and Davis." He was referring to James Davis, Stanford's one-time roommate at Baylor University who serves as the company's chief financial officer.

"I see a billionaire who has not been charged," said Cogdell. "I see a semi-millionaire who has not been charged. I see a multi-thousandaire who is being charged. That's just wrong."

The FBI's Walther said Pendergest-Holt's salary in 2007 and 2008 was near $1 million, including bonuses.

(Additional reporting by Eileen O'Grady, writing by Chris Baltimore; Editing by Gary Hill and Carol Bishopric)