HOUSTON (CN) – The Stanford Financial Group, which the SEC accused on Tuesday of running a multibillion-dollar scam in certificates of deposit, faces a federal class action from investors as well. The four named plaintiffs say they turned over $1.75 million to Stanford based on the group’s bogus claims of a track record of 18% returns, though investors actually lost money.
A federal judge in Dallas on Tuesday granted the SEC’s request for a temporary restraining order and froze the company’s assets.
Led by 58-year-old Texas billionaire R. Allen Stanford, who has a reported net worth of $2.2 billion, the Stanford Group consists of 29 affiliated offices and an offshore “flagship” bank called The Stanford International Bank in Antigua.
From 2001 to 2008 the company reported a $7.5 billion increase in assets, the plaintiffs say. The company created a program called “The Contest,” that pressured their advisers to sell foreign CDs for lucrative bonuses, according to the complaint. Some advisers questioned how the company could pay 7% rates of return on investments of $100,000 and were told the group’s investment strategy had garnered high returns. “However, any attempts to discover the specifics of the investment portfolio were rebuffed, and advisors were summarily told that SIB could not disclose details of its asset or portfolio managers, except to say that the assets were in a globally diversified portfolio that was capable of 90 percent liquidations with 48 hours,” the complaint states.
“To allay advisers’ concerns, and facilitate sale of the foreign CD, senior management had to create the appearance of a stable, liquid and secure CD,” according to the complaint.
The plaintiffs are represented by Mike O’ Brien of Washington, Texas.