U.S. accuses Stanford of running a “Ponzi scheme”

WASHINGTON, D.C.: The United States Securities and Exchange Commission (SEC) has accused Texas financier, Allen Stanford, of committing a multi-billion-dollar fraud in a similar manner as Wall Street financier, Bernard Madoff.

“For at least a decade, R. Allen Stanford and (his accomplice) James M. Davis, through companies they control…executed a massive Ponzi scheme,” the Securities and Exchange Commission (SEC) said in an amended complaint.

A Ponzi scheme, named after a crook in the 1920s, is a pyramid scheme where new investors’ money is used to pay profits to existing clients.

Madoff was accused in December of masterminding a similar scheme for $50 billion.

“In carrying out the scheme, Stanford and Davis misappropriated billions of dollars of investor funds and falsified SIB’s (Stanford International Bank) financial statements in an effort to conceal their fraudulent conduct,” the SEC stated.

According to the SEC, by February 2009, Stanford and Davis “had misappropriated at least $1.6 billion of investor money through bogus personal loans to Stanford and ‘invested’ an undetermined amount of investor funds in speculative, unprofitable private businesses controlled by Stanford”.

“Stanford and Davis fabricated the performance of the bank’s investment portfolio. Each month, Stanford and Davis decided on a pre-determined return on investment for SIB’s portfolio. Using this pre-determined number, SIB’s internal accountants reverse-engineered the bank’s financial statements to report investment income that the bank did not actually earn,” the SEC said.

The Houston Chronicle reported that Stanford owed massive back taxes. Citing public records, the Texas newspaper said the Internal Revenue Service (IRS) is seeking $186 million in back taxes and penalties from Stanford.

“The bulk of that, $107 million, stems from personal income taxes Stanford and his estranged wife owe from 2002 to 2004, court documents show. The remainder, $79 million, is on unpaid taxes from 1999 to 2001. The couple is disputing that in U.S. Tax Court,” it added.

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