Court Filing: Libyans Knew Stanford Was Running Scam When They Withdrew Millions

By: Scott Cohn
Senior Correspondent, CNBC
Newly unsealed court documents obtained by CNBC allege the Libyan government knew Allen Stanford was running a scam when officials withdrew tens of millions of dollars in Stanford investments in 2008 and early 2009.

The Libyan Investment Authority and the Libyan Foreign Investment Company managed to withdraw nearly $55 million, including $12 million in January, 2009, less than three weeks before Stanford was accused by U.S. authorities of running a $7 billion Ponzi scheme.

The newly unsealed complaint, filed on behalf of the court-appointed receiver who is rounding up assets for investors, says the Libyans deposited all the funds in a Citibank account in the U.S. A federal judge has ordered the funds frozen at least until a hearing in December.

CNBC first reported last week on the claims by receiver Ralph Janvey, but the identity of the bank was not disclosed until now. Citibank has not been accused of wrongdoing.

Also undisclosed until now was the allegation that the Libyans knew before the general public — or Stanford’s 28,000 investors — that the Stanford empire was about to collapse.

Stanford traveled to Tripoli and met with representatives of the Libyan Investment Authority on January 25 and 26, 2009. Two days later, according to the court filing, the Libyans withdrew $12.6 million — the last in a series of withdrawals dating back to November, 2008. On February 16, 2009, the SEC sued Stanford, shutting the business down.

“(I)t is clear the Libyan Defendants had access to Mr. Stanford that was substantially superior to other investors,” the filing says, “and the Libyan defendants were aware of the impending demise of the Stanford investment scheme well before the Receivership was imposed on the Stanford parties.”

The filing cites a U.S. State Department cable first revealed by WikiLeaks as proof the Libyans knew Stanford was in trouble. The cable, sent on January 28, 2010, notes that the head of the Libyan Investment Authority, Mohamed Layas, initially denied the fund invested with Stanford, saying the Texas financier approached the LIA “in the middle of this crisis” — proof, the filing said, that Stanford was seeking help from the Libyans, and the Libyans knew exactly why he was there.

According to the filing, Janvey’s office traced the funds the Libyans withdrew to two Citibank accounts, one with a balance, as of March, of nearly $2.8 million, and the other with a balance of nearly $1.4 billion.

The complaint says all the Libyan withdrawals — $54.8 million — belong to Stanford’s 28,000 investors.

Stanford’s companies “made the payments to the Libyan defendants with actual intent to hinder, delay or defraud their creditors,” the filing says.

While the discovery of the funds is an important step, it is not entirely clear how Janvey will ultimately collect the funds, because of the ongoing Libyan crisis.

For now, the funds are frozen by court order, with a hearing scheduled for December.

Allen Stanford, who faces 14 criminal counts in the alleged Ponzi scheme, has denied wrongdoing. He is currently scheduled to go on trial in January.

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Two Peas in a Pod?

UPDATE: Allen Stanford and Whitey Bulger:
Two Peas in a Pod?
Posted by Larry Doyle on June 23, 2011

I referenced the potential similarity in the cases of alleged financial scammer Allen Stanford and noted Boston gangster James J. “Whitey” Bulger in May 2009.

Our nation and especially Stanford Financial investors continue to wait to learn what may have really happened with Allen Stanford. Was he a pawn for the Department of Justice and/or other government agencies looking to infiltrate the Central and South American drug trade?

As for Whitey, after sixteen years of living on the lam, we wait no longer as news broke overnight that the notorious South Boston gangster was picked up in sunny Santa Monica, California.

I am sure the boys back in Boston may get a real chuckle from the fact that Whitey was allegedly using the alias, Charlie Rosenzweig. That said, there is little to chuckle about the personal damage and destruction Whitey and his Winter Hill Gang wrecked by pushing drugs into the streets of South Boston,… amongst other things as well, including murder and extortion!!

While there is nothing romantic about the story of Whitey Bulger, there is certainly a special place in hell for him.

Here’s hoping America can really learn what happened with Allen Stanford.

For those unfamiliar with Whitey, he is Boston’s greatest gangster, a government informant who simultaneously continued to run his gangland activities, one of the FBI’s Most Wanted, and still on the lam. The Martin Scorsese film, The Departed, was largely based on Whitey and his boys. If Whitey dealt in drugs and murder, is Stanford Financial, operated by Allen Stanford, a financial version of a government cover totally run amuck?

We all know the SEC totally dropped the ball in the oversight of the Bernie Madoff Ponzi scheme. On the heels of that and to alleviate massive pressure on the commission, the SEC quickly moved on Allen Stanford.

Evidence has emerged that the Texan who bankrolled English cricket may have been a US government informer.

Sir Allen Stanford, who is accused of bank fraud, is the subject of an investigation by the BBC’s Panorama.

Sources told Panorama that if he was a paid anti-drug agency informer, that could explain why a 2006 probe into his financial dealings was quietly dropped.

Sir Allen vigorously denies allegations of financial wrongdoing, despite a massive shortfall in his bank’s assets.

But the British receiver of his failed Stanford International Bank – based in Antigua – told Panorama that the books clearly show the deficit.

If in fact this development is accurate, has the U.S. government, via the DEA, facilitated a Ponzi scheme? I am not so naive as to think that there aren’t massive undercover operations ongoing regularly to infiltrate and expose illicit activities. However, if in fact that were the case, how did the DEA lose control of Stanford’s investment activities? Is this situation an indication that the Obama administration will not partake of these types of undercover operations? Is there a massive in-house brawl currently ongoing between the DEA and the SEC?

The BBC reports:

Secret documents seen by Panorama show both governments knew in 1990 that the Texan was a former bankrupt and his first bank was suspected of involvement with Latin American money-launderers.

In 1999, both the British and the Americans were aware of the facts surrounding a cheque for $3.1m (£2.05m) that Sir Allen paid to the Drug Enforcement Administration (DEA).

It was drug money originally paid in to Stanford International Bank by agents acting for a feared Mexican drug lord known as the ‘Lord of the Heavens’.

The cheque was proof that Stanford International Bank had been used to launder Mexican drug money – whether or not Sir Allen knew it at the time.

On 17 February of this year, the US Securities and Exchange Commission (SEC) accused Sir Allen of running a multi-billion dollar Ponzi fraud – when cash from new depositors is used to pay dividends to old depositors – civil charges he has denied.

Two and a half months after the SEC filing, the Texan has not yet faced criminal charges.

He was initially investigated by the SEC for running a possible Ponzi fraud in the summer of 2006, but by the winter of that year the inquiry was stopped.

Is this another version of the Whitey Bulger story in which the criminal turned informant continues to operate his own illicit activities? Whitey is now on the lam and his FBI protection, John J. Connolly, is cooling his heels in a federal penitentiary.

The intrigue of this situation is surreal, but the natural and instinctive question has to be: if Uncle Sam (DEA) provided cover for Allen Stanford in the pursuit of illicit drug related activities, did Uncle Sam also provide cover for Bernie Madoff as well?

National Political Committees Must Return Stanford Donations

Source:Bloomberg
Five Democratic and Republican national political committees must return more than $1.7 million in contributions received from indicted financier R. Allen Stanford to his court-appointed receiver, a federal judge ruled.

U.S. District Judge David Godbey in Dallas today awarded final judgment in favor of receiver Ralph Janvey, who is marshalling assets to repay investors allegedly swindled of more than $7 billion through what the government claims was a Stanford-directed Ponzi scheme.

“Courts adhere to the principle that equality is equity in dealing with the aftermath of an imploded Ponzi scheme,” Godbey wrote in a 61-page ruling. “In disgorging the Stanford defendants’ contributions, the political committees will endure no greater hardship than that suffered by other innocent victims of the Stanford defendants’ Ponzi scheme who must do the same.”

Godbey ordered the Democratic Senatorial Campaign Committee Inc. to return $1,037,347; the Democratic Congressional Campaign Committee Inc., $218,273; the National Republican Congressional Committee, $260,291; the National Republican Senatorial Committee, $90,960; and the Republican National Committee, $140,241. The sums represent the donations the groups got from Stanford plus prejudgment interest, according to Godbey’s order.

Stanford, 61, denies all wrongdoing in connection with civil and criminal allegations that that he defrauded investors through the sale of bogus certificates of deposit sold by his Antigua-based Stanford International Bank Ltd.

‘Important Victory’

“This ruling represents an important victory for the Stanford receivership and the thousands of victims of the Stanford Ponzi scheme,” Kevin Sadler, lead attorney for Janvey, said in an e-mail today. “Unfortunately, the political committees waged a costly campaign to thwart the receiver’s efforts to recover the monies they received from the Stanford Ponzi scheme. The receiver will be filing appropriate papers with the court to recover the hundreds of thousands of dollars in attorneys fees and expenses he was forced to incur in this case.”

Mark Shank, a lawyer for the Republican committees, didn’t immediately return voice or e-mail messages seeking comment on today’s ruling.

“We disagree with the court’s ruling and are weighing our options,’’ Jennifer Crider, a spokeswoman for the Democratic Congressional Campaign Committee, said in an e-mail.

The criminal case is U.S. v. Stanford, 09cr342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank, 09cv298, U.S. District Court, Northern District of Texas (Dallas).

Allen Stanford’s Criminal Trial Delayed to January While He’s in Treatment

Source:Bloomberg

Indicted financier R. Allen Stanford’s criminal trial was postponed to January from September so he can complete rehabilitation treatment for dependence on anti-anxiety drugs prescribed by prison doctors.

U.S. District Judge David Hittner in Houston said doctors treating Stanford said that it will take him as long as four more months to kick his dependence on anti-anxiety drugs prescribed after he was severely beaten by another inmate in September 2009.

Hittner found Stanford incompetent to assist in his own defense in January after three psychiatrists testified the former billionaire’s mental capacities were diminished from over-medication and lingering head injuries suffered in the prison fight.

Stanford was moved in February from a Houston jail to the federal medical center at the Butner, North Carolina, prison complex, on the expectation his rehabilitation would take as long as four months. Last month, Hittner scheduled the Stanford Group Co. founder for trial in September based on his expected return to Houston this month.

“However, the court now finds it has no alternative but to grant FMC’s request for an additional four months to continue treating Stanford,’’ Hittner said in a ruling handed down today. “Assuming FMC needs the entire four months to treat Stanford, the court now sets Stanford’s jury trial to commence January 2012.’’

Hittner said if Stanford recovers more quickly and returns to Houston sooner than expected, his trial may be moved up again.

Stanford Denies Wrongdoing
Stanford, 61, denies all wrongdoing in connection with civil and criminal allegations he defrauded investors of more than $7 billion through allegedly bogus certificates of deposit issued by Antigua-based Stanford International Bank Ltd.

Stanford has been incarcerated as a flight risk since his indictment and arrest in June 2009.

Ali Fazel, a lawyer for Stanford, declined to comment on today’s order, citing a ruling by Hittner barring lawyers from publicly discussing the case.

Laura Sweeney, a spokeswoman for the Justice Department, also declined to comment, citing the judge’s gag order.

The criminal case is U.S. v. Stanford, 09cr342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank, 09cv298, U.S. District Court, Northern District of Texas (Dallas).

SEC concludes Stanford is guilty

Securities News Network
Monday 20 June 2011

Sir Allen Stanford has not been convicted of any offence. Nor have any regulatory proceedings been concluded against him. Yet the USA’s Securities and Exchange Commission has decided that he ran a Ponzi scheme and that “investors” are entitled to certain statutory protections.

A statement issued by the SEC on 15th June says ” The Securities and Exchange Commission today concluded that certain individuals who invested money through the Stanford Group Company – a U.S. broker-dealer owned and used by Allen Stanford to perpetrate a massive Ponzi scheme – are entitled to the protections of the Securities Investor Protection Act of 1970 (SIPA).”

The commission does not, in fact, appear to have concluded any formal inquiry. Instead it appears to be relying on a report by a Court Appointed Receiver for the Stanford Group Company that there were a number of companies which “were operated in a highly interconnected fashion, with a core objective of selling” the CDs.

Among other things, the receiver also says that “[c]orporate separateness was not respected within the Stanford empire. … Money was transferred from entity to entity as needed, irrespective of legitimate business need. Ultimately, all of the fund transfers supported the Ponzi scheme in one way or another, or benefited Allen Stanford personally.”

It is the finality of the wording that causes concern: “the” features strongly, juxtaposed with “Ponzi scheme.”

The SEC does – almost – recognise that there has been no finding in any court of competent jurisdiction that there was in fact a Ponzi scheme: indeed, the best it can do is to refer to its early filings: “According to its 2009 complaint, the SEC alleged that Allen Stanford operated a Ponzi scheme in which certain investors were sold certificates of deposit (CDs) issued by Stanford International Bank Ltd. (SIBL) through the Stanford Group Company (SGC). SGC is a SIPC Member.”

This is nothing more than an attempt to use its own earlier filings to bolster its current statements.The analysis upon which the SEC bases its current statements can be found (pdf) at http://sec.gov/rules/other/2011/stanford-sipa-analysis.pdf.

The fact remains that Stanford remains not guilty and not subject to any formal finding of impropriety within the regulatory regime. The SEC’s actions and the wording it has adopted are tainting the jury pool for the eventual criminal trial, and producing a background which prosecutors will be able to use to great prejudicial effect.

Of course, if there was a ponzi scheme (and that remains uncertain although there are sufficient grounds for suspicion of some kind of impropriety), then victims should be able to use the full weight of the law to protect themselves against loss. But the other side of the coin is that Stanford is entitled to a clean run at a defence.

The SEC, by its choice of language, is seriously undermining that entitlement