Securities and Exchange Commission v. Standford International Bank, Ltd. et al
Filing
1
SECOND AMENDED ORDER APPOINTING RECEIVER. Signed by David C. Godbey, United States District Judge, July 19, 2010. (Attachments: # 1 Summary, # 2 Preliminary Injunction and Other Equitable Relief as to R. Allen Stanford, # 3 Agreed Preliminary Injunction as to Stanford International Bank, LTD, Stanford Group Company and Stanford Capital Management, LLC and Agreed Order Granting Other Equitable Relief, # 4 Preliminary Injunction and Other Equitable Relief as to James M. Davis, # 5 Agreed Preliminary Injunction as to Laura Pendergest-Holt and Agreed Order Granting Other Equitable Relief)(lw)
S e c u r i t i e s and Exchange Commission v. Standford International Bank, Ltd. et al
D o c . 1 Att. 1
Document9S2 F i l e d01/08/2010 Page1 of 32 CaseS:09-cv-00298-N
IN TEE IJNITED STATESDISTRICT COURT F OR TIIE NORTHERN DISTRICTOT'TEXAS DALLASDTVISION SECURITIESAND EXCIIANGE COMMISSION,
Plaintiff, SECOI\DAMENDEI} COMPLAINT Case No.: 3:09-cv-0298-N
STANFORI}INTERNATIONAL BANK, LTD,, Sl'AjIft'ONN GROUPCOMPANY, STA}IFORI} CAPITAL MANAGEMENT, LLC, R. ALLEN STANFORD.JAMES M. DAVIS, GILBERTO LOPEA LAURA PNNDERGDS'I.HOLT, MARK KUHRT A}IIT LEROY KING
Defendants, end STANFORD FINANCIA,L GROUP COMPANY and THE STA}I'FORD FINA}ICIAL GROUP BLDG INC..
Relief Defendants.
Plaintiff Seouritiesand ExchangeComndssionallcgcs: SUMMARY 1, For at least a decarde. Allen Stanford afld Jaftes M. Davis oxccutoda massive R.
Ponzi sohomethmugh entities under theit control, including Stanford lntemational Bank, Ltd. ('SIB") and its affiliated Houston-basod brdk,r-dealert iflvestment edviseru,Stanftrd Group and Company f'SGC') and Stanford Capital Management("SCM'). Stanfotd and Davis, acting in cof,cert with the other defurdants, misappropriatodbillions of dollars of invostor funde and faleified SIF'* financif,l statenentsin an effort to concealtheit frauduleflt oonduot. 2. "certifrcates By year-emd 2008,SIB had eoldmorethan$7,2billion ofself-styled "CD") by touting: (i) lhe bank's sefely afld security; (ii) coruistcnt, double-digit
ofdeposits" (the
Certtlled atruecopyd,fih hqrrrynt
on file in my offfqeon
Dockets.Justia.com
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rohrms on tho bank's investmeflt portfolio; and (iir) hrgh fetum tates on the cf) that greatly thoeeoffeted by cormnercialbsnkt in the Uniled $tates. exceeded 3. Contary to SIB's public otaternenh,$tanford and Davie, by February2009' had
*'inveeted"an undetermined amountof billioru of dollars of investol fironey and misappropriated contsolledby Stanford. invertor funtls in speculetivg unprofitable private busineses In an effort to concealthcir firaudulentcof,duct and ftaifltsin the flow of investor money into SIB's coffers, Stanford and Davis fabricated thc performance of the bsnk's investnent portfolio and lied to invostots about the naturc and perfotmance of the portfolio. Gilberlo Lopez afld h[ark Kuhrt, accountflnt for Stanford-afliliated oompanies,fabricated the frnanoralstatements. Using a prc-detetminedreturq on illvestnont nufiibel, tyFically provided the by Stanfbrd or Davis, Lopoz and Kuhft tevefse-ef,gineered bank's finanoial statementsto repofi investmoflt inoome that the barrk did not actually eam. Infotmation in SIB's filra cial statemsnts and annual feporh to investors about tle bank's invostrflent poflfolio bofe no relationship to the aotualperformarce of the bank i[v6etments. SIB's financial statefteflts and annual teportt to inveetort were ptepatod, dtafted and approvedby Stanfod, Ilavis, Lopee and Kuhft. Iitflnford and Davis signedthcsefaltified finanoial statomef,ts. 5. the Laum Pondergost-Holt, chief investrnentofficor of Stanford Financial Grcup
("SFG') and a rtrombor of SIB's investment commifiee, facilitated the fraudulent schemeby to misrepresenting invesfiorsthat shemanagedSIB's multi-billiou invesfirent portfolio of a*tets and euporvised sizeablcteamof analysb to monito,rthe portfolio. a 6. Leroy King, the adminietratorand chief exccutive officer of Antigua's Financial "FSRC"), facilitated tho Ponz"isohane by cnsuring that
SoruicesRegulatory Commission (the
the FSRC "looked the other wav" and conduotedshamaudits and examirrfltiont of SIB's books
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and reoords. In oxchangefor bribes paid to him ovet a period of severalyears.King made sure portfolio. King also providedStanford.,vitlt t h d rrhe FSRC did not eremine SIB's investment aoooss the FSRC's oonfidential regulatory files, including requeetsby the Commiteion for lo assistaflcein investigating SIB as a postible Poui scheme. King further obstruoted the and Commission's invertigation by allowing Stanfordto diotat the substanoe, evcn content,of that to the FSRC's rssponsos thc Commission that relayed false dssurances thore wn8 no cause by for concem ds to SIB and by withholding information requosted the Commissionthat would havercvealedStanford't fraud. 7. since2004,have sold more In addition to salosofthc CD, SGCand SCM advisere,
than $l billion of a proprietery mutual fund wrap prograrn,called Stenfotd Allocation Srategy data. Tho falsedataenablcd f'SAS"), wing materially falseand misleddfughistoricalperformance SGC/SCMto grow the SASprogramfrom lessthan $ I 0 million in 2004 to over $ I ,2 billion in 2009 (and ultimately Stanford)in exoess $25 million The fraudulent of and geflcratE feesfor SGCVSCM SAS performancercsulb were also used to re$ruit registeredfinqncial adviserswith sgnrficant who wero lhen heavily inomtivized to re-allocdttheir cliflb' assos t'o SIB's books of business, CD program. 8. By engagrng rn the oonduct desoribcd in this Complaint, SIB, SGC, SCM,
Lopez snd Kuhrt direotly ot indirectly, singly or in ooncert, Stanford, Davis, Pendergest-Holt, cngaged,and unlets enjoined and rcstrained,will again engagein hensacton$ aots, ptaotices, and ooursoe businessthat constitute violntions of Section 17(a) of thc SecuritiesAct df 1933 of ("Securities ErchangeAct of Act") [15 U.S.C. $ 77q(a), and Section 10ft) of the Seoudties 1 9 3 4 ("ExchangeAct') [15 t].S.C. $ 78jO)1, and ExchangeAot Rulo l0b-5 [17 C.F.R. $ 240.10b-51or, in the a.ltomativo,aidsd and abetted 6uch violations. Likewise, through hrs
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actions,King aided mrd abetted,and unlsssonjoinodand rostmined,will contrnueto aid and abet Act Rule Act fl5 U.$.C. $ 78j(b)l' and Exchange v i o l a t i o n sof Seotion10(b)of the Exohango herein,Stanfotd,SGC, l 0 b - 5 J17C.F.R.$ 240.10b-51.In addition,thmugh conductdcscribed and SOM violated Section 206(1) and (2) of the Invcstment Advisers Act of 1940 ("Adviser's Aot') Lopez, [15 U.S.C. $$ 80b-6(1)and 80b-6(2)],and Stanford,Davit, Pendetgest-Holt,
Kuhrt, and King aided and abettedsuch violations. Finally, tlmugh thcir actions,SIB and SGC violatcd Section7(d) of thc Invcstrncnt CompanyAot of 1940 (*InvestmontCompafly Aof') [5
u.s.c. $ 80a-7(d)1. IURISDICTION VENUE AND
9, "socuritios" undor The invo$tnents offorod and sold by the Defendants aro
Act Act 3(aXl0) ofthe Exchsnge [15 S e c t i o n2(1) of the Securities [15 U.S.C.$ 77b(l)], Se+tion and Act [15 U.S.C.$ 80a-2{36)], U . S . C .$ 78c(a)(10)1, Section 2(36) of thc InvestnentCompany 202(18)of the AdvisersAct [I5 U,S.C.$ 80b-?(18)J. Section 10. Plainuff Commieoionbrings thie aotion under the authority confened upon it by
Act [15 2l(d) of the Exchange S e o t i o n20ft) ofthe Seouritios [15 U.S.C. $ 77t(b)], Seotion Act [ J . S . C .$ 78u(d)1, and CompanyAot [15 U.S.C. $ 80a-41(d)], Section4l(d) of the Investsnnt Seotion 209(d) of the Advisers Aot [5 U.S.C. $ 80b-9(d)] to temporanly, preliminarily and perffanefltly enjoin Defendant ftom future violatione ofthe federal securitieslaws. ll. This Court has jurisdiotion over thie aotion, and venue is proper, undcr Section
2 ? ( a ) of the Securitiee [5 U.S.C. $ 77v(a), Soction27 of the Exohange Act [15 U.S.C. $ Aot 7 8 a a l ,Section43 of the Invesunent Cornpany Aot [15 U.S.C. $ 804-43]and Section214 of the A d v i s e r sAot [5 U.S.C.$ 80b-14]. 12. Defendan$ havo, dircotly or indireotly, made use of the meels or insfument$ of
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ftansportationand communication,and the meansor instrumentalitiesof interstatecofiunerteror of the mails, in conneotionwith the ransactiort, aots,praotiocsand coursesofbusiness alleged herein. Certain of the fiansaction$, dcts, ptaotioos and oourse$of bueinest occuted in tho Northern lfistrict of Texas. DEFEITDANTS 13. Stanford International Baflk, Ltd. purports to be a private international batk
d o m i c i l e din $t. John's,Antigua,Wcst Indies. SIB claimeto serve50,000olicntsin over 100 countries,with assotsof more than $7.2 billion. Unlike a oommetcialbank, SIB claims that it does not loan money. SIB eells the CD to U.S. investorsthrough SGC, its affiliated idvestnent adviser. 14. Stanford Group Compeny' a Houston-bascdcotpotation, is registerod with the
Commissionas a bmketdealer and iflve$lfirent adviser. It has ?9 offioss looatedthoughout the consistsof mles of SlB-issucd securities,markotodas United States. SOC's principal businese oetrtificatos depoeit. SGL' it a wholly owned subsidiary of Stanford Group Holdings, Ino-, of which in tum is ovmedby R. Allen Stanford. 15. Stanford Capital Management,a tegi8tercd iflvestment adviso, took ovor ths
managementof the $AS prografl (formetly Mutual Fund Partnors)from SGC in oarly 2007. SCM marketsthe SAS programtlrrough SGC. 16. R. Allen Stanford,a citizen of the U.S. and Antigua and Barbuda,Wcst Indies, is
the chairman of the board and sole shareholdetof SIB ald the sole direaltorof SGC's parent and compsny. During the Commission's investigation, Staflford tefused to produce drrcuments information aocountingfor the bank's nrulti-billion dollar inveetnent portfolio.
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17.
of Jam$s Davis,a U.$' citizcn androsident Baldwyn,Mitsissippi,i8 fl dircctor M.
and the chiof financial officer of SFG and SIB. f)avis maintainsolfices in Memphis,Tonuossee, and Tupolo, Mississippi. During the Commission's investigation, Davis refused to provide and information eccountingfor the bank's multi-billion dollfi investrnentportfolio. documonte 18. Laura Pendergest-Holt,is thc chicf invcsb:ncntoffioer of SFG and a resident of
Baldwyn, Mississippi. Showas appointedto SIB's inveslmefltoommittoeon December7, 2005. '"monitor" the pcrfonnanco of a small portion of SIB's She supervisosa group of analystswho portfolio. 19. Gilberto Lopez, a U.S. citizcn and rcsidef,tof Spring,Toxas,workod in SFG's
Houslofl, Texas, offico, as the chief accounting officet of SFG and its affiliate, Stanford Financial Group Global Managemont, LLC ('SFGGM). In thit capacity, he ptovidod
accountingsenriccsto many entities under Stanford's conftol, including SIB, SFG and SFGGM. l , o p o zis not a CPA. 20. Mark Kuhrt, a U.S. citizen snd resident of Chtistiansted,St. Croi+ U.S. Virgn
Islands.is the global oontoller for SFGGM. In this capaoity,he providod accounfingservioesto many ontitios under Stanford'e contnl, including SIB, SFG, and SFGGM. Kuhfl tepofled at vdf,idustifies to Lopez and Davis, but also directly to Stanford.Kuhrt is not a CPA, 21. Leroy King, a citizen of *re U.S. and of Antigua and Bartrufu WeotIndies,is the
admini8tratormrd ohief cxecutive ofEccr of Antigua's FSRC. Eduoatedin the United Statos,ho in flaintains rosidencos Antigua and in Aflanta, Georgia,where his wife lives. King has over ?0 yeaft of er(perieflcein the United Statesbanking industry. King also Benrcson thc board of directors ofa U.S. rogisteredbroker-dcalerand iflvestnent adviscrbasodin Miami, Florida.
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RELIEEDEEENDANT$
22. StanfordFinoncial Group Company,a Florida oompanyowned and controlled by
slanford, holds oertain asseb, inoluding real e$tatc, on behalf of stanford and hie afEliated also provide acoounting,legal, marketing and other sewices to many entities. SFG omplOyeer entities undcr Staaford'scontol, inoluding SIB, SGC and SFGGM. 23. The Stanford Financial Crroup Building Inc., a Texas oorporation owned and
oontolled by Stantbrd,holde certain assets,inoluding reel estate,ofl behalf of Staflford and his affiliated entitios, S T A T E M E N T OETAC'IS StalEiord IE!rratiqEfl lIsEts 24. Stanford oontrolc dozens of companies that operate under the name Stanford
Financial Gmup. Stanfordis the sole owner of SFG, SIB, SFOGM snd dozensof othor affiliated cornpanies. 25. 26. SIB, onc of SFG's affiliatoe, is e private, offshore bank looatedin Aatigua. Tho primary pmduct offercd by SIB is a self-styled ce ifioflte of deposit. SIB
sold more than $1 billion of the CD per yeat betwecn 2005 and 2008, iucluding mles to U'Srnve$tols. 27. SIB marketedthe CD to investors in the Unitsd Statesexclusively through SGC
advisers pursuant to a Regulation D private plaosment. In connection with the private placement:SIB filed sevcralForms D with the Commission. 28. for SIB paid disproportionatelylarge commissionsto SOC as oompensation the
sale of tlre CD. SGC rooeiveda 3% t-ailing fec from SIB on salesof thb CD by $GC advisers.
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roceiveda l7o oommissionupon the saleof the CD, a$dWsreeligible to fsoeive fl6 SGC advrsors muoh asa l% htiling commissionthroughoutthe term of ths CD. 29. SGC used this generouscommission struchJreto reoruit oetablithed finanoial
adviseru. The commission stnrcturc also pruvided a powerful incontivo for SGC financial adviterr to aggtossivolyeoll CDs to investors. 30. In 2007, SIB paid SGC and its affiliates more tlun $291 million in managemcnt
up f e e sandCD oommisqione, ftom $21I million in 2006. 3l . oustomft deposits,and than purpottcdly reinvestedthoeofunds in SIB aggregated
a "globally diversified portfolio" of aeeet6. As of November 28, 2008, $Its reported and approximately$8.6 billion in lotal aesets an investmentportfolio in oxcossof $8.4 billion. 32. wete sefe and socure In selling the CD, SIB told invostors thatt (i) their B88et6
"globally diversified portfolio" of"marketable securities;"(ii) the beoauso bank inveotedin a tho bank had averageddouble-digits retums on its invesnnentsfor over 15 years; (iii) Stanford had solidified $IB'e capital position in late 2008 by intusing $541 million in oapital into the bank; "global notwork of portfolio (iv) thc bank's multi-billion dollar portfolio was managodby a managers" (v) by a team ofSFG analystsin Memphis, Tonnossoel the bartk, in
carly 2009, war strongorthan at any timc in its history; and (vi) tho bank did not have erposurc were falso. to lossesftom invesftrontsifl ths Madoff fiaud scheme. :lhesereDtesentations
$IEg-$slenljdeotrqDc
Hvat+Eqaily Miseppropidion af Inveftor Frtnds aad Undlsclased 33, l/'x,estflents
SIB toutod,amongothe,r things,the CD's safeq, In sellingthe CD to iflvestors,
sscurity and liquidity.
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34.
under the heading "DeErtitot In its CD marketing brochure, SIB told i vettrotE,
"anohorcd in time-provan conservative oriteria, Seourity," that its iflvBstflent philosophy is that its '?rudeflt promoting stability in [the bank's] certificate of deposit." SIB also ernphasizcd approachand methodologyhanslateinto dcposit sccurity for our cuttorhers" and the importance "mafutaining the highest degreeof liquidity" of investing in "marketablo" seourities,saying thflt wae a'frotectivo faotor tbr ow dopoeitors." 35. In its 2006 antl 2007 Anmral Reports,SIB told invostorsthat tho beflk's assets
wef,einvested in a "wcll-balanced global portfolio of marketsble finanoial inetruments,namely U.S. and intomational seouritiesand fiduoiary placements." More opecifically, ae goonbelow, SIB ropresentedthat its year-end 2007 poafoho allocation was 58.6% equity, 18.6% fixed income, 7,2Yo urcciausmetalsand 15.6%alkrnative fulvcstsrentt:
36.
Consistent with ie Annufll Reporte and brochures, SIB tainod SGC financial
advisers, in Febnrary 2008, tlut the "liquidity/marketability of SIB's inverted assete"wa.$tho "nrobt imporiant factor to provide soourityto SIB clients." 37. also representod SIB's armualr,eporte that *SIB doesnot exposoits clients to the
risks associated with oommercialloans . . . the Bank'a only lending is on a cashsecured basis."
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Stanford and Davis appmved and/ot sipcd lhc Annual Reports, broohuro and
trairriflg rnatedals. 39. tegarding the liquidiry and safety of its Contrary to SIB'8 rE)resents,tioflB
portfolio, iflvestors' funds wore not invostodin a'kell-diversified portfolio of highly marketable secufities." Instead, Stanford misappropriateda tiEuificant ptxtion of lhe barrk's invettlrent portfolio. And SIB iuternal recordsreflect that inore than halfofthe bank'r investnurt portfolio "Private Equity Real Estate." was comprisedof undisclosed {,0. rnote than $1.6 billion ftom SIB. By year'end 2008, Stanfordhad misappropriatcd
of To conccal the thcft, someof the lf,ansfers CD investor mofley to Stsflford were dooumetrted, "loans." Stanford's signature appearson at least $720 million in aftcr the fact, as persof,al office, including pmmissory notee lc liIB thAt were Iscsvered from his pereonal Eccountant'E promissorynotosdatedDeocnrbor3 I , I 999, December3 I , 2000, December3 I , 200I , Deccrrbot "loans,"particulmlythoscin more tecentyeirs, were 31, 3 1 , 2002 and Dccernber 2003. Othor ftacked in ftrtemal accountingtecotds. 41. Those promissory notes wsre t5pically orcatcd after Davis had, at Stanford's
dircction, wired out billiorrs dollars of SIB investor funds to Stanford or hia dedgnees. Stertford usod tho money to, among othet things, fund his "personal playgroutr{" including mote than
$400 million to firnd personal real estatedeals (e.g., The Sticky Wickct Restauant) and more than $36 million to subsidiee Stdflford 2O/2O,an annual cricket toumame boasting a $20 m i l l i o n purso. 42. Lopez and Kuhtt (in addition to Stanfordand Davis) woro woll awaroof tho morc
ontitJed than $1.6 billion in "loans" to Stanford, tacking many of the tmfisfers iu a spreadsheet "shareholder Funding, Assufiption of Debt and Notes Peyable." Stanford made fow, if flny,
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paymontsrEquiredby thc torms of the ptomissory notss. Instead Stenfordand Davis frequently rcllod the outdtffndi g loan balancesdnd iflterest owed by Stanford to SIB iflto new, larger promissory [otes. 43. Between February 2 and lbbruary 8,2009, Stanford alrd Davis participated rn
meetingswith a core group of senior oxeoutivesin Miami, Florida for the purposeof preparing end SIB's president for ewom testimonybcfore tho Commission staff' During Pendergest-Holt these meetingt, Stanford and Davis admittcd thet thoy had mieapptopriatedhvestor lirnds by making thoseputative loans to Stanford. 44. During tlro Miami meetings, Davis and Pexdetgest-Holt collabomtod on a
presentation that inoluded a pie chert dctailing the allocafion of assetain SIB's invsstnent porlfolio. The pie chart rflectcd, among other thingt, that SIB's invostflont portfolio was
primarily coflprised of (grosely over*valued)real estate(50'7%) and promissory notes payable (29.47%). b y Stanford 45. Four dayo after the Miami meotings, Pendergest-Holt made a two-hour
prsse,ntation tho Commission's staff - and subsoquontlytegtrfiedunder oath - regarding the to whoreaboutsof SIB's multi-billion dollsr investrtnt pottfolio. I)udng hcr presentationand dcnied any knowledge concerniflgthe allocation ofths vaet majority tfftimony, Pendergest-Holt of the bank't adsets,despite knowing that more tlun 80% of SIB's invffitnont portfolio was "loans" to Stanford,undisclosed private equity and roal estate oomprisedofundisclosed personal deals. 46. thst had The peruonal"loans" to Stanford were inconsistentwith reprosofltations
"Rclated-Pafi boen made to invetlols, SIB's annual repoils inoluded a eection ertitled inlo by SIB. But Transaotions"thst purported to disclose all telatod party transactionsentef,ed
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SIB's "loans" to Stanford wErenot disoloeedin that section of SIB'8 a nuel roForts from ?004 throrrgh2008, in its quarterly reportsto the FSRC or snj vhereelse, Stanford,f)avis, Lopoz and "loans" to Stanfbrd, preparsd reviswed and authorizcd the Kuhrt, with full knowlcdge of the fiting and disseminationof thesefalse and mi$leadingannualreports. 47. in Conhery to the reprcscntations lhe balrk's nrmualreportsthat its "only form of
basis solely to existing clionts," SIB cxposedinvettots to the lending is done on a cash-secured "loens"to Stanford. porsonal with r i s k s associatod moto than$1,6billion in unteoured Falsifi+attan of Fhtirrcl&l Staterrrentt 48. Stanford's misappropriation of invsstors' assets(and tho poor perforrnfiloe of
SIB's invesrnent portfolio) croated a giatrt hole in SIB's balance sheet To conceal thelr fraudulent coflduct dfld thereby ensure that i[vsstols continued to purchaseCDs, Davis 8nd Staflford, in concett with Lopez and Kuhrt, fabrioatedthe growth, oomPositionanil performancc ihat the bsflk's inYEtnontowere hig]tly of SIB's investnrentportfalio kr give the appearartoo p'rofittblo. 49. In its training materials for the SGC advisers, SIB representodthat it earned
oonsistentdouble-digit annualretrrm$on its invcstfidnt ofdepoeie (ranging ftom 11.5%in 2005 t o 16,5%in 1993)fbr almostfiftoenyears:
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50. 51.
SIB ftarketed ths CD usiflg thesepurportedretums on investfleflt. SIB olaimert rhat its high retufll8 on investmenl allowed it to offet significantly
as by higher mtes on the CD than thosc ofTered (J,S-banks' Fot exampio,SIB offered 7.45o/o of J u n e 1, 2005,and 7.878%aeof Maroh20, 2006,for a fixod rate CD basodon &ninvestnentof $ 1 0 0 , 0 0 0 . On Novomber28, 2008, SIB quoted5.3?5%on a 3-ycar flex CD, whilc U.S. bahk C D spaid undcr3.2%. 52, In SIB's Annual Reporls, SIB told invesior8 that the baflk eamsd from its
"diversified" invesurents aprproximately $642 million in 2007 (l l%), and $479 million in 2006
(12w.
53. SIB's investtnent income included in its annual repofi5 weE fictional. In
calculating SIE'8 invosunent incomo, Stanfotd aud Davis typically providcd to SIB'8 intsrnal acccuntaflts,including Lopez and Kuhrt, a portfolio. returfl o investnent fot the bank's
Using this prsdetermincd tetrm, SIB's accouqtafits,inclrrding l,opez a d Kuhfi,
reverse-engineeredtho bank'e finanoi$l stateinents. After they calculated the {ictisnal inve$tmetrt income and as$et grourth and rcceived Stanford and Dans' a4,proval,Kuhtt and Lopez croatedantl booked false accountingenfrieb. 54, Througlr their actiont, Stanford, Davis, Lopez and Kulfit carrsedSIB to report
invostmentincome that the bank did not actually earn and, thoroby, greatly inflatcd the valuo of itE invosf,ncntportfDlio. Specifically, Stanfotd, Davis, Lopez and Kubrl pfparodand reviewed SIB's financial statemonts,including the annusl roports that wero provided to investors and poetsdon the bank's wobsite.
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55.
To hide the fabrication of SIB'8 doublo-digit annualreturnson invef,hnent,Davi$'
Lopez and Kuhrt dweloped and implernurted an elabo'rateand cOmplexsot of protocolB for harrcllingSIB finarrcial information in which: (i) all SlB-telatcd financial and other information was tretsferrcd to thumb drives and thon deleted from servets located in the United Stf,tes;(ii) back-up files wore kept on a pofiable hatd drivc refeffod to as "ths football;" (iii) paper sIE-
relatedfiles were rogulady flown to Antigua via Staflfofd's privatej ets,whoro they weto burned; used to prspate the fraudulant finanoials were proteotedwith and (iv) cleotronic sprcadshoeE (to parswordsthet werre distibuted via text Inessage avoid dctectionon ernail sanors). 56,BetwoenFebruary2andFebruary6,2009,StanfordandDavi8admitted, following a mceting with a core group of sonior executives (includiflg Pondergest-Holt)in Miemi, Florida, that they had faleified $IB's financial ttatements' Tlsnsa'cfror.rs MlsrcFrelr;ntutloa of C*pital lnfusionl dnd Bogas Real Estmte 51. As world firrancial markets cxperioncedsubstantialde+linesin 2008' it became
apparontto Stanford anclDavis that SIB could not oredibly report investmfilt profit$ in the 11% to 15% mngc (as it had done in prcvious yoars). Staflfofd and Davit agreodthat $lB would for the first time show a "modest" loss to avoid ruising too many ted flags. In othor words, they lie." w a n t e dto tell a "morobelievable 58. Stanford rnd Davis knew that ropornUge loss would causc sIB to fall below
minimum reguletory capital requifomentt. Accordingly, Staflfofd infortned Davis and othet anployees that he, in an effort to asEufeinvostor$ that SIB was financially sound, would oapitalto the bank in two if,fusionsof $200million and $541million. SIB toutedthe contribute $541 million capital infusion to investots in a Decanbcr 2008 reportl Althorrgh our oarningswill not meet expootfltionsfu 2008, stsnford Intemational Bank Ld. is strong, safe and fiscally sound. Ws have always believed that
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depositor safcty was our numbet o'ne priority. To furtlret support tho Bank's growth and provide I strong cushion for any further markot volatility, lhe Bank's Boad of Directott madea decisionto inuease the Bank's capital by $541 million on Novsmber 28. 2008. This oonfibution briugs total share*roldcrequity to $ 1 , 0 2 0 , 0 2 9 , 8 0with a oapitaltd assehratio of 1L87% and a capitalto doposits 2 r a t i o of 13.48%. 59. Stanford, Davis and PendcrgcsFHolt approved the December 2008
Monthly Report. 60. The purported oapital infirsione by Stanford wete baokclated,fictrtiouo and
"desircd" levels ofoapital. to that engineered give the appeamnoe SIB had achieved 61. Stanfotd, Davis, Lopoz and l{uhrt cdf,oideredtwo altemativoefor disguising the Fitet, Kuhrt and his subotdinates propoeed a matsive
fiohtious capilal oontributions.
resbuoturingprojoct in which Stanfordwould oontributsporsonalholdiugs, including most ofhis "oapital." Whon ono of Kuhrt'e subordinfltes real estflts and global banking interestt, to SIB as complainedthat thc tesk could not be complotodon the requiled timelfue" and that the Yaluoof "none of them the oompanietto be contributed to SIB vould havo to be impaired first be+ause had ever tumed a profit," Stafiford, Davis, Kuhrt and Lopcz trmed to anotherstrategy. 62. In Dscember2008, well after Stanfotd had purportedly intused the $200 million
and $54t million in additional capital inlo SIB, Stanford, Davis, Lopez and Kuhrt concocted another scheme. Staaford, Davis, Lopez and Kuhrt approved and implemented a tcheme whereby they 'lapered" a scrics of fraudulent round-rip real oetats kanoactroneutilizing undovelopodAntiguan rcal estateacquirul by tilB in 2008 for approximately $63.5 million (or roughly $40,000per acro), 63. To give the appearancethat the flbove-refcrenocdcapital infirsions aotually
ooourredn Sbnforl, Davit, Kuhrt afld Lopez hlsified aooountingteoordsto give the appearanoe that:
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oontibuted to sIB $1.7 bitlion ofthe fiaudulently-inflated stock (using tho inflated $2 million per acrc valuation); r to Stanfordthen contributerJ SIB additional st'ookin dre real estateholding compaflies vrlued at $200 million end $541 million (again using the iriflated $2 million per acrc capital oontributions, valuation) to ftnd the baokdated 64. did Thcsetransaotrons not infuse real capital into sIB, In fact, the entire process
was fabdcated after the reportod oapital contributions allegedly occurtsd. Moranvet, the purportedhsneectionsdo not vaiiilate the oapital infusion claims bscausetlre inflation in value of the real estatefrom $40,000 to $2 million pef acfc was not justifiable under applioabloU.$. ot intemational acoountingprinciplss. SIB did not securean appraisaland had no other reatonable support for such a drfletic inctease in value, And the transaotionsamong Stanford-oontrolled Entitieswero not the kind of arm'rJength fiflNactiofl$ required to justiff a 5000% increascin on value" Nevertheloss, a mete ptomise ftom Stanford that the land would appraisefor ovsr $3 billion, srsxford, Davis, Kuhrt and Inpez used$63.5 million ofteal estatoto plug a multi-billion dollar hole in SIB's balanceshoFtand wipe-out a poftion of Stanford's billions in debt owed to SIB.
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to SIB sold the Antiguan roal Fdtate sevralnewly-createdStanford-contolled entities paid that Stanford thsreis no evidence a t the originalcost of$63.5 million (elthough S I B the $63,5million); the Stanfottl-cnntrolled entities, at Stanford and Davis's itstuction, immediately wroto'up the value of ths roal estate to approximately $3.2 billion dollars (or $2 million por acte), therebyexponontiallyinueasing the value of the entities' stooki in an effort to satisfu a portion of Stadord's porsonal debt to SIB, Stanford
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65.
Stanford,Davis, Kuhrt and Lopez, by vittue oftheir panicipation in the purported
reel estatotansaotions,knsw that: (i) Staflford did ndt ftake a $541 million capital infusion into SIB; and (ii) the value of the roal ostats used to suppoft the puportcd cash infusion wan approximately $63.5million, not $3.2billion. 66. Following Stanlbrd, Davis, Lopez and Kuhrt's creetion of the ftaudulent capital
porfolio would havebesn $3.2 billiofl in infusions, the largestsognrentof the banl<'sinvestme,nt ovsr*vatusd real eetate. Yet, SIB did not disclote the fuqnsactionein its Dessrnber 2008 flewsletter, which touted Stanford's purportod capital in-firsion.Moreovo, Stanford's real estate to investmef,tswere wholly iflconsistent with SIB'g t,presentations iflvestdrs regarding Slts's invostrnentporfolio (r'.e.,marketablcsecuritiesand no real estato). Mi.srcpresentdlons RegardingManagament of SIB's Intrcstm rt Pd4fdhd . 6'7 Priot to making inveetmentdocisions,prospectiveinvettom p6inely aekodhow
and SIB safeguarded ftoflitored its aosetc.Investors ftequcntly inquired whether $tanford could "run olf with the money." 68. ln responseto thit queBtion,at loaet during 2006 and much of 2007' Pendorgest-
Holt trained SIB'$ senior investmentoffrcor ('SIO') to tell investon that tho bank's multi-billion "global network ofportfolio flrflnagers"and "monitored" by a dollar portfolio was managcdby a teain of SFG aualyste in Memphu, Tennessee. Irr communicating with investots, the SIO followed Pendorgest-Holt'sinstructions, telling invostors tlnt SIB's entire inve$finont poftfolio was managodby a global network of money managetsand monitored by a toam of 2O-plus anelysts. 69. its nor Neithor Pendergest-Holt the SIO disclosedto investorsthst SIB eogregated
invesfinent portfolio into thtee tiors: (i) oash and oash equivalents("Tier l"); (ii) tuve$hnents
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(25{")" that wffe monitoted by tho SFG analysts('Tier 2"); and wilh "out$ide poflJblio marragets (iii) unrlisclosedassetrmanagod Stanfordand Davis ("fier 3"). As of Deoembcr2008, Tier I by 9% ($800 million) of sIB's portfotio. Tier 2, prior to tho bank's f E p r o 8 e n t eapproximately d approxirnately10% of decisionto liquidate $250 million ofiflvesftlonts in late 2008, replEsented the portfolio. And Tier 3 reprose ted approximately80% of SIB't invesunentpor"tfolio' 70. nor tho SIO disolosedthat the batk's Tier 3 astetswore Neither Pendergost-I{olt
managedand/or monitored exclusively by Stanfondend Davis. Likewise, thoy did not disolose that Stanford and Davis surroundedthemsolvoeurith a close-lsrit circle of family, friends and overoightof SIB's assete. oonfidants,thcreby olimirratingany independent 71. "global Neither Pendergett-Holt nor the SIO disolosed to invostors that the
network" of monoy managersafld tho tedrn of analystr did not managesf,y of SIB's Tier 3 invoBtmentsand, in reality, only monitorcd approximately 10% of SIB's portfolio' Pendergest-Holu'flinedlhe SIO t becausethat infbrmation In fact,
"not td divulge too mudh" abouttho oversight of SIB's portfolio
'lrouldn't leeve afl iflvestol with a lot of confide,nce."Likewiso, Davis
instucted the SIO to "Bteer" potsntlfll CD investors away from information about SIB'B portfolio. Mlsrepresentation Thdt SIB lfas #Stroager' Than Ewr Beforc 7?. On January 10, 2009, Stanford Devis and Pondergest-Holtspoko to SGC's Top
Porformer's club (a collection of high performing stanford firrancial advisors)in Miami' Florida' 73. "sfronger, than at aty time in ite During thc meeting, Davit statedthat SIB wat
that SIB was secureerd built on e history. Stanford, Davis and Pondergeet'Holtrepreeonted strong foundation,and that it$ financial condition wae shoredup by Stanford's capital infusions.
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74.
But Davis failed to dirclose that he had beon informed only days earlier by the
sIB's cash h o a d of sIB's treasurythat despiteSIB'E be6t efforts to liquidate Tier 2 assots, position had fallen ftom the June 30, 2008 reportod balance of $779 million to less than $28 million. 75. Stanfordand Davie failed to di$closeto tho sGC salesforoe that: (i) stanford had
more than $1.6 billion of iuvostor fun
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