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SEC Alleges Multibillion-Dollar Fraud

DALLAS (CN) - The SEC on Tuesday charged Robert Allen Stanford and three of his companies with orchestrating a multibillion-dollar fraud based on an $8 billion Certificate of Deposit program.

The companies include Antigua-based Stanford International Bank, Houston-based broker-dealer/investment adviser Stanford Group Co., and investment adviser Stanford Capital Management. The SEC also charged Stanford International Bank CFO James Davis and Laura Pendergest-Holt, chief investment officer of Stanford Financial Group.

U.S. District Judge Reed O'Connor entered a temporary restraining order, froze assets, and appointed a receiver.

"Stanford and the close circle of family and friends with whom he runs his businesses perpetrated a massive fraud based on false promises and fabricated historical return data to prey on investors," SEC enforcement chief Linda Chatman Thomsen said in a statement.

The SEC's Fort Worth Regional Director Rose Romero called it "a fraud of shocking magnitude that has spread its tentacles throughout the world."

The SEC claims that SIB sold roughly $8 billion of CDs by promising improbable and unsubstantiated high interest rates. These rates were supposedly earned through SIB's unique investment strategy, which purportedly allowed the bank to achieve double-digit returns on its investments for 15 years.

But the SEC claims the defendants misrepresented the entire program, falsely claimed to reinvest clients' funds primarily in liquid financial instruments subject to yearly audits by Antiguan regulators.

The Commission says that SIB is operated by a close circle of Stanford's family and friends. SIB's investment committee, responsible managing the bank's multibillion dollar portfolio, is comprised of Stanford; his father, who lives in Mexia, Texas; another Mexia resident with business experience in cattle ranching and car sales; Pendergest-Holt, who before joining SFG had no financial services or securities industry experience; and Davis, who was Stanford's college roommate.

The SEC complaint alleges another scheme, involving $1.2 billion in sales that SGC advisers called Stanford Allocation Strategy, that they allegedly pushed using misrepresentations. The complaint alleges that the false data helped the SAS grow program from less than $10 million in 2004 to more than $1 billion, generating fees for SGC and Stanford of approximately $25 million in 2007 and 2008.

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