The mechanics of trust
Stanford: the assets behind the certificate
The promise of ready access to money depended on a portfolio that differed sharply from the one described to depositors.
A bank product with an international route
Stanford International Bank issued certificates of deposit from Antigua, but an important part of its sales network sat in Houston. As the Fifth Circuit later described, R. Allen Stanford established Stanford Group Company there to expand the market for the offshore bank's products in the United States. The international structure did not make the Texas connection incidental.
The bank's marketing described conservative investments that could be sold quickly to repay depositors. The Justice Department's June 14, 2012, sentencing account reported that this investment approach applied to only about 10 to 15 percent of the assets. Billions in depositor money instead financed businesses Stanford owned through undisclosed loans.
Value on paper and money available now
The mismatch concerned both ownership and access. Money tied to a private business cannot be treated as immediately available simply because a report assigns it a value. In this case, new certificate sales supplied funds to redeem older certificates. That circulation could continue without demonstrating that the promised portfolio existed.
The appellate account describes the pressure that arrived in 2008: requests for redemptions increased while new sales slowed. A receiver took control of Stanford's companies in February 2009. Reading those events together, the mechanism becomes clearer. The ability to make yesterday's payment was not proof that the bank could honor tomorrow's demands from the assets it claimed to hold. That is an inference from the documented cash flows, not a criticism of depositors for relying on a bank's representations.
A sentence, a judgment, and a separate recovery process
A Houston jury convicted Stanford on 13 of 14 counts. On June 14, 2012, he received a 110-year sentence, and the court imposed a $5.9 billion personal money judgment. That judgment measured an obligation to surrender criminal proceeds. It was not a statement that victims had received $5.9 billion.
The Fifth Circuit affirmed the criminal judgment on October 29, 2015. Those are dated legal outcomes; they do not describe later distributions from the receivership. The Texas Fraud Files examines the case through its Houston connections and the distance between the security of the product being sold and the uses to which customers' money was put.
Sources and further reading
- Allen Stanford Gets 110 Years for Orchestrating $7 Billion Investment Fraud Scheme (June 14, 2012)
U.S. Attorney's Office, Southern District of Texas - United States v. Stanford, No. 12-20411 (October 29, 2015)
U.S. Court of Appeals for the Fifth Circuit
This article is a companion to the series. Send a correction or a later development.