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Many Stanford Victims Were Neither Criminal Nor Stupid
By David Arthur Walters
Last edited: Saturday, May 15, 2010
Posted: Saturday, May 15, 2010

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Miami Mirror Series ‘As the Press Spins – Anatomy of an Award-winning Expose’



The May 7, 2010 Miami Mirror article, ‘How Many Stanford Investors Were Fraudsters?’ drew an overwhelmingly negative response from readers. The article was the first in the series, ‘As the Press Spins – Anatomy of an Award-winning Expose’, and covered an aspect of the Allen Stanford fraud that Miami Herald investigative reporter and investigations editor Mike Sallah was not interested in when it was called to his attention during a telephone conversation. To wit, that many Stanford investors who did business with the Miami office of Stanford Trust may have been hiding assets and evading taxes, not to mention laundering drug money – something Mr. Stanford’s operations had aided in the past.


Indeed, the sales literature at Stanford’s Miami trust representative office emphasized secrecy and tax-haven advantages. The Miami Herald obviously wanted to focus on the swindle of the victims. It would have been terribly incorrect for the major liberal paper in South Florida to suggest that many - not all or even most - of the victims might have been hiding assets from their governments and evading taxes. However, the Internal Revenue Service in the United States was not loath to cover that possibility, and its lawyers obtained a summons to produce the records. Our report explained that United States citizens and resident aliens may not have reported their worldwide income or identified their foreign bank accounts as required by law – the penalties can be severe. The report also pointed out that non-filing of the proper forms can be an innocent mistake, and quoted lawyers on that issue.


How Many Stanford Victims Were Fraudsters?


We received only one positive reader response, some time after being deluged with complaints:


“When I first read your [article] I brushed it off as written by someone who is just trying to get some attention at the expense of others. It appeared that you were throwing granny under the bus.  Now I see that you are serious and responding to facts I want to encourage you to be the champion that no other journalist has wanted to spend the time and energy to achieve on the Stanford issue.  As you can see this was a massive scheme that required the influence of many people outside of the Stanford organization:  the influence of people in powerful positions in Florida, Texas, Louisiana and D.C.  It is mind-blowing that this could happen under the ‘watchful’” eye of tax payer funded government bodies in several states and in the federal government. No other journalist has bothered to pull back the curtains and dig out those facts.  This is a real travesty and violates the integrity of our system. The real expose is hidden behind a scattered group of people who must be sweating under the collar every time a story comes out on this subject.  The web that Allen Stanford weaved was anchored by a lot of people who knew better but chose to violate integrity for some personal gain.  The victims are just that – victims - who now struggle to sleep and to figure out how to regain financial stability.  They are law-abiding citizens who have been destroyed by Allen Stanford in an ugly scheme which like a huge octopus reached out into our state and federal entities and sucked in people in positions all over the nation.  And no one is reporting on those people who were corrupted. Please lift the veil of secrecy and expose these people.” Signed: Victim Who Paid Taxes on Fraudulent CD Interest.


Angela Shaw, director and founder of Stanford Victims Coalition, which has 4,000 members from 38 states and 52 countries,  who said she lost $4.5 million to Stanford, said she believed that our question as to how many Stanford victims were fraudsters themselves, and our "seriously mistaken assumptions," calls for an apology to a lot of Stanford victims:


“Stanford's victims are law-abiding citizens,” Ms. Shaw wrote, “who took every precaution possible to protect their IRAs and savings accounts they built over a lifetime. Listen to their stories and take a look at their faces -- then tell me they are fraudsters. Watch the YouTube video of interviews with the victims and then tell me you still think those victims of a massive crime are criminals themselves. I implore you to look at this a little closer before you throw this kind of opinion out. Take a look at the marketing materials and the credentials of the representatives selling the securities -- and then decide for yourself if we were all trying to get something too good to be true . The only mistake we made was in trusting our licensed financial advisors and our government financial regulators. Call us stupid (which I will still argue), but don't call us criminals.”


Mr. Walters responded: “I regret that my one piece of many to come is misinterpreted by victims who are naturally so sensitive as to pick up on anything that feels like salt in their wounds and to ignore the rest, which expressed sympathy for innocent victims who tend to rely on authorities and accountants and lawyers for protection, and referred them to lawyers in the event they were unaware of some law and broke it - new laws are being signed as we speak. The state lawyers who were persuaded by Greenberg Traurig's legal arguments here (in Miami) are certainly not stupid or criminals, and do not deserve the abuse heaped on them due to the erroneous reports of the local paper - another ‘respected institution’ and ‘watchdog’ that people rely too much on. Odd as this might seemed, very intelligent people can be more easily hoodwinked than some ‘redneck’ in the woods, something I first noticed years ago when two of the brightest post-grad science students were ‘abducted’ by a fundamentalist Christian sect.”


We then heard from a broker, whose name is withheld here at his request due to pending legal issues. He said he had once entertained the idea of becoming a broker for Stanford’s product while being swindled by Stanford. He had even studied the Bible and played tennis with Stanford personnel.


“Having been a broker, I asked all the right questions when investing with Stanford. As a registered rep (broker) with 3 registrations, 7, 63 and 65, I knew that the brokers and the management had a fiduciary responsibility to put me in a suitable investment and to know what the investment was, how the monies were invested and to only put me in a safe investment vehicle since close to half of my investment was my IRA and I was planning to retire soon. I knew that they should have known that the excessive commissions were illegal, but we really never knew what their commissions were. I had asked what the commissions would be if I sold CDs as a broker for them and they told me 0.03%  because I was not coming over with my own book of business and I would have to share commission with my broker. I don't know if that was their ploy to steer me away or what, but I decided not to join the company because of having to split the commission with another broker.


“In 2001 I invested $600k and I did not have a job and was financially struggling. So, why in world would I put my money in something legal or unsafe. I told my broker I did not want to be in the market and I needed a steady income and the CDs were what he suggested I buy. Also, having over one million in CDs at the time I was entertaining going on board their thoughts may have been; we will tell this guy a fictitious commission and  discourage him  from coming on board because they would be losing commission since I would be getting the commissions  from my own CDs. I really don't know that for sure, but the thought has crossed my mind NOW that I know what kind of outrageous commission they were getting.


“We paid taxes on this bogus interest and our returns were barely over what the banks offered. We did not fly to Antigua to invest in an offshore bank.  We were advised by brokers registered here in the US to invest in CDs because they told us that they were safer than the market.  They told us that we had excess FDIC insurance and the bank had purchased put options to protect us on the downside.


“You cannot possibly think that we asked Stanford reps if they had something illegal and fraudulent we could invest in. How asinine would that be: 28,000 people invested in this for 12 years. Don't you think that I was looking for every reason not to believe them? But, for every question I asked they had credible answers and asserted that they were in good standing with the SEC since they had been examined periodically.  Doctors, lawyers, judges, engineers, CPAs, teachers, business owners and people a hell of lot smarter than you and I fell prey to this lie that was endorsed by the government and its political leaders.


“Sounds to me that you read the OIG report and you are still not convinced where to place the blame. My wife and I grew up poor. Both of our Dads were truck drivers supporting large families. We had literally crawled ourselves out of poverty.  I don't think that you can find too many folks like us that you could place the label "Fraudster" on and feel good about it.”


We also received a fascinating account from a gentleman who thought he had done sufficient due diligence before investing his money, certainly taking more personal care than a broker ordinarily would take:


"I'm taking the liberty of E-mailing you," said the man, who requested that we identify him only as Russ, “because I fear that what I have to say will take up more space than your comment section with allow.


“I am a Stanford investor/victim but I am not a criminal or fraudster. I paid the taxes due on the interest income on my Stanford International Bank (SIB) C.D.'s (even though I now know that interest to be "phantom income") and I filed my Treasury Form TD F 90-22.1 (FBAR) every year until Stanford's scheme was revealed in February, 2009.

“I bought my first C.D. from Stanford in December, 2006 and a couple more in early 2007. I will admit that since Stanford did not send me a 1099 for this interest, I forgot to report the small amount I earned for the month of December, 2006. But as soon as I realized my oversight, I filed an amended return to pick up that income on my 2006 tax return. Thereafter, I manually calculated the amount of interest I earned in 2007 by comparing my yearend statements and timely reported that income on my 2007 tax return. The need to file the FBAR was not brought to my attention until a friend and fellow investor told me about it. I then called my Stanford Financial Advisor and asked him about the filing requirements. He had no idea what I was talking about so I did my own research and timely filed the form for both 2007 and 2008. So as you as can see, Mr. Walters, I was not trying to hide my income in some offshore haven nor was I trying to avoid reporting my foreign bank account.


“I purchased all my C.D.'s through a Stanford Financial Advisor who happened to sit on the same Board of a small company as I did. He had been with Stanford for about two years after having worked with Merrill Lynch for over 25 years. Given his extensive financial background and because he was highly recommended by the CEO of the company on whose Board we both sat, I thought using him to buy my C.D.'s was a prudent move.


“However, my due diligence didn't stop there. Besides reading everything I could find on Stanford Group Company and SIB, I also met and had dinner with Laura Pendergast, Stanford's Chief Investment Officer. I explained to Laura that my main objective was safety since my investment represented a substantial portion of my life's savings. She assured me that my money would be very safe because Stanford only invested in highly liquid and safe investments like Money Market and Bond Funds, supplemented by investments in commodities and equities. However, the portion invested in the latter two was very small in the big picture.


“Given my financial background (CFO of a NYSE traded company), I asked her how SIB was able to pay rates that were about 2% higher than the banks in the States were paying. Her answer was: 1) SIB didn't pay U.S. taxes, 2) SIB didn't have the expense of the bricks and mortar and employees associated with multiple bank branches and 3) Stanford made astute investments with good returns. She said the combination of these three things was passed on to their customers in the form of higher rates on their C.D. products. Since this all made sense to me, I was satisfied that this rate difference was justified. Laura was extremely impressive in her appearance and the amount of knowledge she possessed of the world markets. Overall, she made me feel very comfortable investing in the products of her company.


“But my due diligence didn't stop with just meeting Laura. I actually flew to Antigua and toured the Stanford International Bank (yes...there really is a bank in Antigua!), met with the bank's President for several hours and then had dinner with him that night. Like Laura, he was very impressive and seemed to be extremely knowledgeable about world finances. After treating me and my colleagues to a game of golf the next day, we all flew home thinking we were about to invest in a very outstanding and legitimate company. Unfortunately, we were wrong.


“Mr. Walters, I may be a lot of things, including husband, father, grandfather and retired executive, but the one thing that I am NOT is a criminal or fraudster. Your painting me as such with the broad brush of your article is not only wrong but insulting to me and I'm sure to most of the other Stanford victims who were also duped by the elaborate web that "Sir" Allen Stanford used to catch his unsuspecting prey. And to have one of our own governmental agencies, the SEC, know about his scheme for over a decade and not warn U.S. citizens, borders on being a criminal act. So, if anyone else, besides Allen Stanford, is a criminal, it may be our very own SEC, but it's certainly not the vast majority of the Stanford victims! Personally, I think you owe all of us an apology!”


Mr. Walters did not apologize, but he stated his intentions for the Miami Mirror series of articles focused on Miami. He asked Russ how much he had lost, whether or not he had consulted an attorney or accountant, and if his CDs were held in a trust via Stanford trust:


Thanks for the quick response and your update on the real intent of your article. What the Stanford debacle needs is someone like you who will dig in and investigate this whole sordid mess so that maybe our "regulators" (and I use that word with my tongue firmly implanted in my cheek) can do a better job in the future of sniffing out shysters like Stanford before they can hurt so many people like he did. As to your questions, here are my answers:


“I invested $1,615,000 in SIB C.D.'s. However, when one of my C.D.'s matured in September, 2008, I redeemed $279,702 and rolled the remaining $300,000. That left me with a net loss of $1,335,298. In addition to this amount, I paid taxes on $192,372 in "phantom income". Hopefully, I will get a tax deduction for the sum of my principal losses and the phantom income.


“I did not consult an attorney or accountant prior to making my investments. But as you said, I'm not sure such a consultation would have done much good in discovering the fraud. But I do know several victims who did engage legal and/or financial advice and these professionals found nothing to dissuade their clients from investing with Stanford.


“My C.D.'s were not held via Stanford Trust. Since my investments were not IRA C.D.'s, the actual Certificates was sent directly to me and I kept them in my Safety Deposit Box. However, my sister and another friend of mine did have their IRA C.D.'s maintained at the Stanford Trust Company in Baton Rouge. By the way, my sister was NOT an "accredited investor" and therefore should never have been allowed to invest in the Stanford C.D.'s. However, the Stanford Financial Advisor processed her paperwork anyway and SIB (out of the goodness of its heart!) allowed her to invest in spite of her not being a qualified investor.”


XTX - To be continued - XTX







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