My favourite type of blog, blogger or article comes when an expert in their corner of the world can explain tricky concepts in a way that most everybody can understand. It always reminds me of something that particle physicist Richard Feynman used to say about how it's perfectly possible to explain even the most difficult of concepts in his field to a class of freshmen. For the record, this is why I like and appreciate econobiz bloggers such as Brad Setser, Jurgen Schuldt, Felix Salmon, Yves Smith, Farid Matuk, Gary BiiWii, Paul Krugman and also why people like Tim do a great job on El Salvador, RG equally on Mexico, Plan Colombia & Beyond on its subject etc etc. All those people and many more gooduns are linked over there on the right.
Alex Dalmady (Quack!) shows today that, in my opinion and according to the same criteria, he's also a top blogger. Dalmady has written a post today that explains just how the internal structure of the Allen Stanford empire was set up, why the "tier 3" assets are so important and how much of a fraud Stanford really is. I really don't think this subject can be explained better than in Dalmady's post, as anyone with a modicum of financial knowledge and experience will 'get it' straight away. One of those things that, after you read it, makes you ask yourself "Why do people always make finance sound more complicated than it is?".
It's a wonderful piece of writing, edifying, entertaining and educational. Here's the link. Go read.
DALLAS (AP) -- Texas billionaire R. Allen Stanford and one of his top officials have asserted their Fifth Amendment right against self-incrimination in the federal government's fraud case against them and Stanford's companies, according to court documents filed Wednesday.
Stanford said he will "decline to testify, provide an accounting or produce any documents" related to the Securities and Exchange Commission's civil case, which accuses him of running a "massive Ponzi scheme."
Finance chief James M. Davis, using similar language, also asserted his right not to incriminate himself.
The documents were filed Wednesday in federal district court in Dallas, a day before a hearing in which the SEC is expected to make a case for an injunction yada yada continues here
In the days before the interwebnetpipes, human beings had this quaint method of news dissemination. Called "newspapers", they were printed out and sold to passing throngs on street corners.
Here are two clippings from one of those newspapers, scanned and put into the real world by a kind someone who then got them sent as far as IKN (by the way, credit will be given if requested...just not sure whether the person wants fame). Published by The Wall Street Journal and dating back to March 2002, it's a fascinating story about how Cur Allen Stanford used his financial muscle to bribe top Antigua politicians and strongarm his way to getting the best real estate on the island.
Numbers for "loans" to government include $5m, $40m and $65m, with a tendency for those loans to be "forgiven". Also, the main theme through the report is how the gov't suddenly turned hostile against the foreign owners of the Half Moon Hotel, a 100 room luxury hotel on Half Moon Bay that was once lodging space for the rich and famous. Put simply:
The hotel needed investment capital used on it
The Antigua government blocked moves for its then owners to import the necesary capital
The gov't then told its people that the hotel was in a disgraceful condition and would be expropriated
All this at the time that Stanford was saying how he'd like to take the hotel off the gov't's hands one day. But in an above-board manner of course..........
FWIW, the hotel was finally expropriated under these very dubious circumstances, something the US gov't recognized in 2007.
Finally, I've cut down on the resolution of the two clippings to make them lighter for the blog. You can still click to enlarge them but they are a bit difficult to clearly read. So if anyone wants the original hi-res versions just drop me a mail and I'll gladly supply.
Alex Dalmady has got his blog back up and running after yesterday's glitchy moment, which is wholly good news. Here's the link, so go now.
Meanwhile, a thought about James Donaldson, who got an airing with his rather emotional but also cherrypickingly well-informed rebuttal post of yesterday right here on this link. When I saw "James" come back again and post exactly the same comment on another IKN Stanford post I thought it was a little strange, so using sitemeter I tracked his ISP, and lo and behold he was writing from Memphis, Tennessee. I read today that the offices where Stanford's CFO James Davis worked (and that were raided today by the SEC) are also in Memphis. Also, I checked and filtered and crossed-filed and did all sorts on Google for about half an hour but I couldn't pin a James Donaldson with any connection (and I'm usually quite good at the Googling thing, too). Now I know that the home of Elvis music is a big town, but I can't help wondering. Can't help thinking about the coincidence of the "JD" initials, as well....
Finally, check out the latest at Devil's Excrement, as it shows just how mercenary the Stanford deposit collecting machine really was in Venezuela and gives one pause for thought. According to MO, it's the middle class sector that's going to be hit hardest, not some ultra-rich that might lose 10% of their net worth. The anger will come, unfortunately.
The ECB (guys in blazers that run cricket) has just broken off talks with Cur Allen Stanford over a new sponsorship deal. Apparently it just is not the right thing to do business with cads and bounders.
Felix Salmon has done a nice overview of the SEC complaint with a list of salient points. He calls it "quite astonishing" and after reading it through carefully your humble correspondent has to agree. Go take a look a Salmon's post and while you're there give him the kudos he deserves in the comment boxes. He was the only high traffic blogger with the balls to run with this, he chided MSM all week about being so wishy-washy and he got the story out there and noticed by the larger world. While you're reading Salmon, read the full SEC complaint which you can download right here.
Duck Tales, the excellent report that started all this ball rolling, can be found right here, so go download it now and read a piece of financial history. The SEC moves today would not have happened, repeat would NOT have happened without the initial momentum caused by this brave and insightful report. Alex Dalmady is the unsung (so far) hero of the hour. May his star rise in the firmament.
The Devil's Excrement deserves special mention, as blog owner MO made the Duck Tales report available and wrote an impressive post that allowed Dalmady's note to finally catch the attention of the wider world.
The power of quality econoblogging has been definitively vindicated.
A certain James Donaldson has just left the following long comment on this Stanford related post here at IKN. It has plenty of details and in a nutshell is a rebuttal of the accusations made against the bank.
I can't say I agree with Mr. Donaldson (and I have no idea who he is), but fair is fair so this post gives his comments a little more of an airing on a "right to reply" basis. I can say that it's the first serious piece of writing I've seen that has attempted a rebuttal on the evidence shown so far.
As a former Stanford employee, I have seen a lot of half-truths and some outright lies thrown around regarding Stanford International Bank (SIB). There have been many facts that have not been reported that might interest investors, the public in general, and particularly the media, which seem to rely on bloggers for their sources without doing any fact checking.
Over the last 18 months, there have been unprecedented challenges which have confronted the global financial industry and have led to heightened scrutiny by regulatory bodies, the public and the media. Although Stanford Financial Group has not been the beneficiary of any government bailout money, they are not immune from this crisis; however any comparisons to recently defaulted institutions and scandals are not relevant to the organization and are a disservice to Stanford employees and clients worldwide.
One analyst's opinion regarding Stanford International Bank has been picked up by numerous blogs and reputable news outlets and printed "as fact." These facts need to be known: Stanford International Bank was able to show a positive return for doing what U.S, banks did NOT do: --SIB does not make loans, they have no loan loss reserves, they took no markdowns to capital and had no exposure to subprime. If U.S. Banks had followed this strategy -- chances are they might have shown positive returns.
Has anyone bothered to check out the Analyst -- one Alex Dalmady -- who is he, what is his track record? It is easy to point fingers and make broad statements -- what expertise does this guy have? I would hope the more reputable outlets did this homework, but they seem to have picked his words up verbatim and did no "fact checking" on the source of all of this at all.
The media has a responsibility to report accurately and balanced -- that is not apparent in Stanford's case. He may be flamboyant, but that is not a crime. Misleading and scaring thousands of investors is.
And let's not forget that ALL of this started with two disgruntled employees who owe Stanford a lot of money (Bloomberg link with what they actually owe: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aNO2xKLg68_0) running to regulators accusing Stanford when they found out Stanford expected them to pay back what they owed. To date, there has been NO evidence of wrongdoing on the part of Stanford, but evidence of illegal selling practices by the two employees has been uncovered and turned over to regulators. Why has not one reputable media outlet reported this??
Stanford International Bank has NEVER failed to make an interest payment or pay funds at maturity in the nearly 25 years of its history. That is 25 YEARS, not weeks or months. Also, while not obligated to, this Bank has always tried to help the customers who needed early withdrawals. This Bank has suspended THE Privilege of early withdrawals to ensure the protection of its entire depositor base. The media hype and continued repetition of half truths is only causing heightened anxiety, and this step has been taken in light of this barrage of negative and misleading statements.
SIB structures, operations and higher returns are no different than other private international banks except that SIB has narrowed its products to CDs and deposit accounts, as well as ancillary products like credit cards and loans to existing clients. The rates for a 5-year jumbo CD are from 1 1/3% to 6 7/8% and are comparable to other international institutions. This information is verifiable on bankrate.com.
This analyst states that it is near to impossible for SIB to show a positive return -- implying there must be fraud for this to occur. Plenty of financial investment vehicles had positive returns -- including more than 1,600 hedge funds. The characterization that positive must be fraudlent is simply false and sensationalism.
Are we going to launch investigations of all firms who did NOT lose money for their investors last year?
Madoff/ponzi characterization -- Separately, at Stanford Group Company, clients assets are held at Pershing LLC, a subsidiary of Bank of New York Mellon—one of the largest custodian organizations in the world. Clients’ brokerage account assets are insured and segregated to assure return of their assets in the event of any catastrophic events like the ones that have occurred to world class financial institutions in the last two years. Madoff was his own custodian.....more sensationalism. Report the truth...report the Pershing relationship. There has not been one fact proving that Stanford International Bank's custodian relationships are not holding sigificant assets or that their independent money managers are not managing significant amounts for the bank.
Federal Agencies are "investigating" Stanford -- regulators are a reality for any U.S. Broker/Dealer....the SEC and Finra were in Stanford offices as part of a routine examination. No one has confirmed or advised an "investigation is ongoing. There was an article in the New York Times earlier this week with headline "Hundreds of Regulators descend on Citi....." Regulators are feeling the sting from their testimony to Congress, and are responding with more oversight. Stanford has no problem with this and has track record of full cooperation with regulators over the years.
Since the first Stanford Company’s founding during the Great Depression, the Stanford Financial Group has grown into a full-service portfolio of companies servicing individuals and institutions. Stanford Financial Group is a privately held global network of independent, affiliated financial services companies including Stanford Group Company, Stanford International Bank and Stanford Trust.
The Stanford International Bank (SIB) is but one aspect of the overall company portfolio and operates in St. John in the Caribbean Island of Antigua and Barbuda. The Bank has a prudent investment approach that it has followed for over 20 years and has over 30,000 clients in over 90 countries. It has stringent know-your customer/anti-money laundering policies and procedures and terrorist financing tracking. SIB remains a strong institution, and even without the benefit of billions in US taxpayer’s dollars SIB is taking a number of decisive steps to reinforce SIB financial strength to keep the capital base intact to protect SIB depositors.
Stanford International Bank has used the same auditing firm for a number of years. Once the external bank auditors are selected by the Board of Directors they must be expressly approved by regulatory agencies. The regulatory framework follows international standards set forth by Basel I and II. For the record, Basel I and Basel II are the highest standards in the industry.
GUEST BLOG GUEST BLOG GUEST BLOG GUEST BLOG GUEST BLOG GUEST BLOG GUEST
Yes indeedy, the guy who started all the fuss has kindly allowed IKN (along with The Devil's Excrementand also here at the Devil's ExcrementWordpress version) to publish his thoughts on how the Stanford International Bank story has developed over the past week. So enough from me; here's Alex Dalmady on SIB, Allen Stanford, regulators, media and all things concerned.
It’s over. Regulatory bodies have caught on. WSJ just announced that the FBI is investigating. “Duck Tales” is in the hands of dozens of analysts who “get it”, including many with ties to the MSMs (that’s Mainstream Media for you, Toby LOL). The press is flowing more freely. The MSMs have sent guys to Antigua. It’s big. They “get” it. THE EMPEROR HAS NO CLOTHES. Stanford has no answer. “Sir Allen” has been silent since over three days ago, as that spokesman who was beginning to look a lot like Jim Carrey at the beginning of “Fun with Dick and Jane”.
Hope he gets even like Carrey did.
The Antiguan regulators are on it. They made a complete “about face” on Friday, going from “not probing Stanford” to “to quiz Stanford” and “its not a Friday afternoon cocktail anymore”. It’s obvious that someone told them to “wake up and smell the guavaberry”.
They are still in denial, however. A Mr. King says “I know Allen Stanford personally put close to half a billion dollars of his own money to beef up the capital structure of the bank.” Did you see the check, Mr. King?
NO ONE and I mean NO ONE has disputed the facts in my article. The central issue of Show me the money! has not been addressed by Stanford or anyone else. Some MSMs have asked me how I got to my figures and I’ve sent them my dinky little spreadsheet. No questions. Maybe I should pretty it up a bit.
Now comes the ugly part. The Antiguan regulators with perhaps some special “help” are going to go see about those assets. I hope for the best, but I’m afraid for the worst. There may not be much there. If there’s a broker statement showing $2-3 billion in T-bills somewhere, you can be sure it’s false. Better confirm that with the brokerage company, guys. My best guess is that those assets are going to be stuff like eLandia, which Stanford poured like $100 million into, only to lose it. HSSO, which was trying to become “something” by buying EMAG, Transwitch (TXCC), which some guy named “Peabody” on the BW blog turned up. Seems that Stanford, grasping for cash, sold $15 million of short-term notes back to the company for $9.5 million back in December. Talk about “liquidity crunch” (it works to about a very high yield, for those mathematically challenged). I guess then there are the movies, the restaurant in Memphis and other “market-beating” investments.
I can imagine the ledger now…one coffee pot: $50,000.00, one helicopter: $500,000,000…one corrupt politician: priceless!
The human part is going to hit home really quick. I already had a taste, and my blood is boiling. I’m MAD and I’m SAD. Yesterday, I get a call on my home phone from a lady in Venezuela. She was desperate. She tells me her 99-year-old aunt’s money, the income from which she uses for her medical needs, is in a Stanford CD. “Can you help me, Mr. Dalmady?” What do you say? “Should I redeem, Mr. Dalmady” Yes, “redeem” I said…broke my heart.
It’s becoming painfully obvious that this was in a death spiral anyway and the story was going to blow really soon. Matt Goldstein had plenty of research he was ready to go forward with, as was Allison Fitzgerald at Bloomberg. They were googling for Stanford regularly when my stuff came up. More stuff will come forward anyway. I’d say if not for “Duck Tales” this had maybe a week or two more to go, before it blew itself up (ran out of money) or the press blew it up.
That’s really bad if you think about it. Ponzi schemes live off liquidity. If these guys are strapped for cash, after pulling in $2 billion in fresh money in 2008 and “injecting fresh capital” in December…well.
It’s obvious that this isn’t just a product of the 2008 market crash, stuff has been going on for a while. If I had to guess, I’d say this might have been legit until 2000 or at least a “viable model”, since the markets were doing well, but somewhere back it took a bad turn and a little hole grew into a crater. They were filling it in and perhaps trying to build up a business on the side (Stanford Group?). But its just speculation here and we won’t know unless an insider talks.
So…there it is. It’s my 15 minutes. Thanks for lending me your blog (I really should get my own).
Matthew Goldstein at BusinessWeek has got his teeth into the Stanford International Bank story now and he's not letting go. As well as giving deserved props to the instigator of the investigation in this note, Goldstein has just published this excellent report that shows even more shady details emerging. It's a must read, especially about the "whistleblower lawsuit" that was settled by Stanford just before going to trial in late 2007. However the part that caught my eye was early on in the story. Here it is:
"For months now, securities regulators have interviewed dozens of former employees of Stanford Financial, trying to get to the bottom of the firm's staple investment product..."
Why do I like this little line? Well, basically because it's bullshit. The SEC had done a bit of looking around but hadn't moved on Stanford in any way. Then suddenly the Madoff affair hits and people are shouting "where was the SEC?" and now they're suddenly in danger of being upstaged by a single (albeit very smart) individual who had the guts to go public on this story which then combined with the collective power of the blogosphere (like it or not, suckaz..we're here to stay and showing the way).
So in that little quote we see the first chapter of "The SEC Get Out Clause". We're going to be told how the SEC had been carefully collecting its data over the last few months and how they were building a case and how it was only a matter of time before yada yada blah blah. Well, if their bruised egos need it that's ok by me because it's now pointing to something far more important to the greater good, namely that the SEC are going after Stanford right here and right now. And frankly I don't care how this ends and what spin is used by the guys in suits as long as justice is done.
A last word: The MSM and "serious" business publications are all over this story. Reuters has a crack guy on the scene in Antigua. Bloomberg, DJNW, WSJ, NYT, FT, all the UK dailies (to cover the cricket angle) and there are plenty of names missing from that roster for sure. The major biz media are moving and shaking. This is all good and the more we hear from the established outlets the better. Also note the scramble between bullshit analysts, bankers and financial advisors in New York, Miami, Antigua, Houston Caracas and all points between is now on to get a place in the sun and a quote on the news saying, "Yeah, well I knew there was something wrong at Stanford years ago blah blah....." like the bunch of hangers-on they were, they are and they always will be.
And so it goes. Because of all that and more this will probably be my last post on the issue, but remember where you saw it first, yeah? And whoever says whatever in the days and weeks to come, be absolutely clear that the whole thing has happened because of the momentum produced by a quality report written by a smart, independent analyst named Alex Dalmady.
".............As Dalmady dug deeper, he found lots of problems with Stanford's products, documented them in a report called "Duck Tales" (if it looks like a duck, walks like a duck, and quacks like a duck...), then uploaded that report to the 'net for public consumption. Dalmady published the report in a Venezuelan econo-mag, but noticed that his work on Stanford only "really exploded once it hit the blogs. Miguel Octavio's The Devil's Excrement [at Salon.com] took up the story on Monday the 9th, as did Caracas Gringo."
Salon's Octavio noted at the time: "For many years, I have been hearing stories about SIB. When most banks paid 3% in deposits, SIB paid 6-8%. No amount of digging or understanding would clarify what it was they were doing, much like Madoff did in the US, where he managed to trap some very smart people."
Latin American blog Inca Kola News carried the torch further on Tuesday: "I really stopped what I was doing and pulled the Stanford filings...and looked again. The fact that the bank has missed two relatively small recent payments while supposedly boasting a large liquid asset base is rather strange..."
Allen Stanford looking cool, calm and relaxed. A photograph that was not taken this week.
Over at Devil's Excrement there are two new posts up and both are required reading for all you people looking into the Allen Stanford / Stanford International Bank story (and that's a heap of you by the looks of my Google search hits).
1. This story by DiabloCaca himself that gives a pretty accurate timeline of how the story has gone from bubbling under in the Venezuelan blogosphere to hitting the world business (and sport for that matter) headines. M.O. is even kind enough to link this humble corner of cyberspace (and I hear ya MO on the H man).
2. Alex Dalmady, author of the report Duck Tales that is at the centre of the whole media turmoil, has written a post too. This is an unmissable post that shows how Alex stumbled upon the SIB story and how it moved from the Venezuelan inside biz circle to where it is today. And sincere thanks for writing a kind word about IKN, Alex. Appreciated. Finally, there's this: An extensive December 2008 interview with Allen Stanford in World Finance Magazine. Stanford is named "World Finance Man of the Year". The interview starts on page 32. Well worth a read.
