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Wall Street fraud hits Houston

Published on 17/02/09
by Phil

When thinking of fraud and Houston, you can probably conjure up images of Ken Lay and Enron. Add another one to that list, Robert Allen Stanford and the Stanford Financial Group. This case is allegedly one of outright fraud a la Bernie Madoff with up to $8 Billion missing. The coming days will see many articles exploring what happened at Stanford, but initial indications show that there are two main instances of fraud that are alleged to have occurred, essentially promising unrealistic returns on CDs and fabricating the historical returns of a mutual fund.

Stanford issued certificates of deposit from its Antigua based bank that promised returns 2 to 4 times higher than prevailing domestic rates. Guaranteed returns of 5 to 10 percent no doubt were quite attractive in the current market, and it appears that Stanford had been ratcheting up interest rates lately. The SEC’s problem with the CDs lies in the fact that no one seems to know where the $8 Billion in assets backing the CDs is. This story has been whispered about in the halls of Bauer for the last couple of weeks ever since the Federal government began issuing subpoena’s to those involved, and it’s likely that many professors and students will be going into much deeper detail in the coming weeks.

Between AIM, Stanford, and the likes of Citi and JP Morgan, Houston has a thriving financial sector that until this had largely been able to weather the current market. The government has placed the firm in receivership and currently anyone calling the firm is greeted by a message stating as such. Stanford and it’s employees may emerge from receivership, but if any of these accusations are true, Robert Allen Stanford’s career is over. Hopefully the losses are not as high as early reports are stating, when this situation develops a bit more I’ll go into it with a bit more depth. If you’d like to comment, or email me anonymously about this story, shoot me an email at jp cool <at> uh.edu (no spaces).

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