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)

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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 Case3:0scv-0029fl-N Oocum6nt952 F i l e d01/08/2010 Page2 of32 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 SECv. Stanlonl International BanL Lttl., et sl. Second Amn ded hmDlaint 952 Case 3:09-cv-00298-N D o c u m e n t F i l e d01/08/2010 Page3 of32 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 SECv. Sanford hlatenalionalBa k, Ltd., et al. SernndAmeadedComplaint 952 Case3:09-cv-0029&N Document Filed 01/08/2010 Page4of32 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 tiECv, Stanfo lntF ationa,l Bank,Ltd,, et dSeund AmendedComplaint 952 Case3:09-cv-00298-N D o c u m e n t F i l e d01/08/2010 Page5 of 32 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. $EC v. Sanford Internarional Banh Ltd., et alSecond mendedComolaint A Case 3:0$cv40298-N Document 952 F i l e d01/08/2010 Page6 of32 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 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. SECv. St ford International Bank,Ltd-, et al. Second AmendedComplaint 952 Case3;09-cv-0o298-NDocument F i l e d01/08/2010 Page7 of 32 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. SECv. Sanlod Intemalional Badk, Ltd., et al. Arflended Cot Dlaiqt Secofld 952 Case 3:09-cv-00298-N Documenl F l l e d01/08/2010 Pag6I of 32 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. SEC v. StanfordIntenational Eank,Ltd., a al. Secri,fld AmendedComDlaint 952 Case3:09-cv-00298-NDocument F i l e d01/08/2010 PageI of32 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." SEC !- Stahilrd International Bank, Ltd., et al. aded.Cofi plalnt Se cond 4 mE 952 Gase3lo9+v-00298-N Document 01/08/?010 Page10of 3? Fited 38. 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, SECv, StanfordInterttatio al Barrh Ltd,, et al, Seto d Ame led Co Dla,rzt l0 952 CasB3;09-cv-0o298-N D o c um ent F i l e d01/08/2010 Page11 of 32 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 IEC v. Sta4fordInturnatianal Bank, LtL, et al. Second. AmendedComohint l1 952 Case 3:09-w-00298-N Document F i l e d01/08/2010 Page12 of32 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: EA]I( AIAIfrND FfiHiATFI{AL FJd Ts hForltor| l+tu',' Y* ItL'rrt It-!,r6 Jt,ots rrL046 1Z.t% l0-o![ t.ord +096 ,,tFh 0,olB r$lt lrsN 1rl{ {lrB r|lr leiT 1ir8 {tgi 10oo rpol loox t0oo t0o{ Ioqt xoos SECv, Stanford Internattonal Bank, Ltd, et al. Second AmeadedComplaint 12 13 01i08/2010 Page of 32 Document9S? F i l e d Case3:09-cv-00?98-N 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. SECv. Stanford Intmtatlonal Ear.k,LttL, et aL CohDldidt Se nd Amende.d 13 Document9S2 F i l e d01/08il2010 Page14 of 32 Gase3;09-cv-00298-N 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' 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 $EC v. StenlordIntemarion4l Banll Lld', e, aI. SeaoadAmendedComplaint l4 95? Case3:09-cv-00298-N D oc um ent F i l 6 d01/08il2010 Pag615 of 32 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: SEC StanlordIntuaationalEaahLtd., el al. v. Second Amended Comnlalnt l5 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. SECv. Sunlord Intemational Baah Ltd., et aL Seco Atnended ComPldltrl ad, Document9S2 F i l e d01/08/2010 Page16 of 32 Case3:09-cv40298-N 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 952 Case3;09-cv-0029&N Document 17 F l l e d01/08/2010 Pf,gB of 32 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 SECv. Sanfo lntentational Baak, Ltd., et aI Seeond AmendedComplaizt 71 952 Case3:09-cv-00298-NDocument F i l e d01/08i2010 Page18 of 32 (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. gEC v. Stanfo lntemdlional Bqnk,Ltd, et al. Suan d A uendetl Comnlaint i8 952 Case3:09-cv-00298-NDocument F i l e d01/08/2010 Page19 of 32 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<ts;(ii) sIB's annual repofts, fin4ndial misap,propriated and quarterly roports to the FSRC were falee; (iii) hundredeof millione of dollars of statements SIB iflvostor$' funds had been invoeted in a marmet inconsietent with tho bank's offering docuneflts (t e-, private equity and roal ostate);and (iv) the puryofisd 2008 oapital infusions by Stanfordwero a fiction. 76. after being introduced as SFG's ohief Dunng her spoech, Penderrgo8t-Holt, "membet ofthe invesfinefltoommitteeof the bank," answertd quostions iflveEthent offiCer and a that shs and her ahout SIB's invertmont portfolio. In so doing, she failed to disoloseto attef,doss team of analysb did nol maflage sIB'$ efltife investment porfolio and only monitored approximately l0% of the bank's inveetnents. She elso failod to disclosethat SIB had invosted {t.d., private equity investors' funde in a mannerinconsisturt with the bank's offering doouments and roal estate). 77. Stanford, Davis and Pendergost-Holtatso failed to disclose tlat ofl or ahout Docember 12, 2008, Feruhing,LLc, sGC's clearing broker-doater,informod sGC that it would no longer procesr wiro transfersfrom sGC to sIB for tie pufchasoof the cD, oiting suspicions "a teasonablolevcl of about SIB'8 iflvcstmont retulas and its inability to gEt ftoft the bank haflsparsnoy"iflto its investrnentportfolio. sEC v. Stanlo lntntndtiondl Bank, Ltd, Et dL f.f"to d imended cd'.pl'],irrt I9 952 Case 3;09-cv-00298-N Documnt F i l e d01/08/2010 Page20 of32 78. Stanfotd, Davrs and Pondergcst Ltew that SGC advinets would use the infonnatiofl proyided to them during the Top Perfotmer'sClub meetingto sell CDs' Eryosurc tu Lo$,t,uFrom Madoff-related fnvettmen'f 7g. "had In the December2008 Monthly Reporl, SIB told CD invostor8tlat the bank no direct or indiroot exposureto any of [Bernard] Madoffs invostnenta." 80. knew, Prior to the Contary to this statcmf,t,Stanford,Davis and Pendergost-Holt with Madoff. relcaseof the Monthly Report,that sIB had exposureto lossesfrom investments 81. On Docomber 12, 2008, and again on December 18' 2008' Pondorgest-Holt reooived e-mails from Meridian Capital Paftrers, a hedgc fund with which SIB had invettod., detailing SIB's exposuroto Madoff-related losses. 82. On Decomber15, 2008, an SFG*affiliatedemployeonotifiod Pendergest-I{oltard Davis that SIB had oxposureto Madoff-relatedloesesin two additional firnds through which SIB had invcstcd. That safie day, Davis, Pendorgest-Holtand others consultod with stanford regmdingthe bank's exposureto Madoff-relatedlosses' 83' in this nevgr oorrercted misrepre$efltation the Stanford,Davis and Pendergost-Holt December2008 monthly repott. Leroy Klag's Role in the Frauduhnt Scheme 84. Leroy King was the administratot and chicf exeoutiveofficer of lho FSRC' which is chmged with thc regulation and suporvieion of all offshore banks liosnBsd in Antigus, i n c l u d i n gSIB. 85. From at least February 2005, and oontinuing ovet a multi-year period, Stanford pairl to Eing thousandsof dollars in bribos, using monoy transferred from SIB to A Stanford- SECv. Slanford Intffiwtiofidl Bdnh Ltd., et dL 5e fld ,{mendedCo pldlttt 20 95? Case 3:O9-cv-00298-N Document F i l e d01/08/2010 Page21 of 32 oonfiolled accoufltat the BSrk of fultigua, an dflEhoreAntigUanbank owned and oontrolled by certain of thesebribet to be depositedinfrr U.S. bank aooounts. Stanford. King caueed 86. In addition to lhe cash paymenls,Stanford gaYeto Kif,g and his wifo signifioant non-oashbonofits, including: (i) use of Stanford's floet of private jets to ftavsl throughout the United Statesand the Caribbean;(ii) use of an SIB co{pomte ca4 and (iii) 2004 Super Bowl hired King'r Supor Bowl oompanion tiokets for King and a oompanion. Stanford subsequerrtly project managerin Houston. asa humanresources 81. In exchangofor the bribes, King faoilitated SIB's ftaud by obsfitcting the SEC's investigationinto SIB and abdicatingthe FSRC's oversightretponsibilitios. 88. to to On June 21, 2005, Kiug, in response an inquiry ftom t}e SEC, roptosented that the SEC stafflhet the FSRC had examinedSIB and basedon its examinatiorshad oonoludod "any fixthor investiguticrn of'possiblo' fraudulent activities of [SIBJ was unwarranted." King "it is the opinion of the FSRC that continuod by saying that [SIB] hae conduotedits banking businest to dalo in a mannet the F$RC considotsto be fully compliant." King had no basis for theserepresentfltione,In exchangefor the bribee from Stanford, King promisod that the FSRC would not audit SIB's investnent pottfolio. In fact, on at least onc oocasionin or about May 2003, King romovedfrom an examinationof nn SIB affiliate an inquisitive FSRC ernployeethat "got too cldse to the fire." 89. to King also provided Stanfod aoooss the FSRC's confidential regulatory files, for including writon requssts by the Commission's shff for infotmation regatding SIB. examplo, ofl September25, 2006, the Commission's staff faxed a letter to King requestingthe FSRC's assistaflcewith its investigation of SIB. That samc day, Stanford, Davis, and SFG's SEC v. StL\fopd h/J,e,?atioflal Bflnk, Ltd., el al. Scco d Amefided Comnlalg.t 2l 952 Case3:09-cv-00298-NDocument F i l e d01/0/2010 Paga22ol 32 gcneral counsel discussodthe Commissiofl letter and outlined for King precisely how tlrey wantedhim to rerpond to dreCommission$tafPsrequest. 90. On Ociobor 10, 2006, Krng did as Stsnford tustructed, sending a letter to the Commission's staff that tracked the responsodictf,ted by Stanfotd, Davis urd SFG's general counsel. King's letter falsely stated: ('We wish to sseurE SEC that the FSRC's most receflt the just fivc moflths ago oonfirmed [SIB's] compliancewith all mcas onsite examinationoonductod of depositorsafety and solvoncy,a$well as all other applicablelaws and regulations. The FSRC has furthor coufirmed through its contruuousvisits and supervision of t$IB] that thsro aro no therc was no baeiefor this othor iesuesot mattors of concern with [SIB.]" In fact, King lcrer,tr assufimce. 91. At or around the ssrne time King was responding to the abovo-referenced inquires, Stanford and King, in ooncsrt rvrth offrett, wiflrheld info,nnation from the SEC, oiting relianoeon inapplicablcbank secreoylaws in Antigua. 92. During the eametime period that King was adceptitg bribes from Stanford, the FSRC's website asswed potential investors tfiat the regulator oonducted arfiual of,-site exminatrons of all Antiguan offshore bankn(like SIB) to dotorminsthcir solvency,to review the quality of their invostnsnts and to veriff tho aoouraoy theit re ms. The FSRC's webeitealso of told investors thet it performed *continuous off*site supenrisionin tho form of an analysis of quarterly roturns and annual audited financial statementsl with follow-up on prosonbed wete f4lse with regard to the FSRC's oonooti]/e action8," King knew trat thesoreprosontattons " o v e r s i g h f ' ofSIB. 93. King by virtue of the FSRC's review of SIB's market flrnterials and anflual reports, war also aware tilat SIB touted that the bank was tubjoot to the FSRC'8 eudits, $EC v. Stanford Int*natlohdl Bdflh Lld., et aL Second AmendedComplaint 22 952 Case3:09-cv-00?98-N Document F i l e d01/08/2010 Page23 of 32 wore ftgulatory inspeatio s, and liconeing requirorflonts. He lnew that thess l,preselrtatiofls regulaxlytold if,vostorethat their CDs woro safe falso, Moretver, SIB, SGC SndSFG ernployoes that would have bcon publicly debtlrked but becauscof the FsRc'r audits, misrepretentations f o r King's mitconduct. S G C nnd SCMI8 Frnudulent Mutu! 94. From 2004 through 2009, SCC and SCM induced oliurts, including non- accredited,retail iflvostor8,to invest in SAS, a Proprietaryrnutual fufld wrap progrAft' by touttng a fraudulent track rocordof 95. "histotical porfotmance." SGC/SCM highlighted the purported SAS tmck record in thousandeof clicnt prescntationbooks ('!irch books"). For example, the following ohatt from a 2006 pitch book prcscntod clionb with the false imprcssion that SAS flooounts, ftom 2000 through 2005, points: outporformedthe S&P 500 by aa averageof approximately l3 percentage 96. SC'#SCM used theseperformanoerosulb to grow the SAS program to over $1 b i l l i o n in 2008. 97. SG(ySCM also used the SAS tmck rsoond to rec it financial advisers with eignificant books Ofbusine$saway ftom competitors. Affer dffiving at Stanford,the newly-hired in finanoial advisert were incetrtivizedto put their clienb' assets the CI), SEC v. SteE/drdInterlatione,l Eank,Ud., et al. Second AmendedComplaint L) 952 Case 3:09-cv-00298-N Document F i l e d01/08/2010 Page24 of 32 98, Other than the fees paid by SIB td SGC/SCM for CD talct, SAS was the most In 2007 and 2fi)8, SGC/SCM re4eivcd significanr souce of rEvonue fof sGgscM. appoximatoly $25 million in feet ftom tho marketing of SAS. 99. Thc SAS perfurmanoetssults used in the 2005 thruugh 2009 pitch books were fiotional and/or inflated. SGC/SCM misreprtsented ttlat SAS performanceresults, for 1999 through 2004, rcflectod "hietorical performance" whcn, in faot, those redultEwefo fictional, ot "back-testd" nurnborsthat did not refleot tho resultsof ac al trading' 100, SGCySCM,with the benefit of hindsight, picked mutual fundt that perfotmed ofttertrely wcll fi|om 1999through 2004, and presortcd tho potformanceof thosotopporforming lunds to potential cliarB asif they werc actualrotums eamedby tho SAS program. 101. SGC/SCM also uscd "actual" model SAS petformancereeultsfor 2005 and 2006 potnts. that were infleted by asmuoh ar 4 percetrtage 102. SGC/SCMtold investorsthat SAS had positive retums for poriodein whioh aotual SAS clionts lo$t Substantifllamounts, In 2000, aotral SAS cliefit retutls faflged from negative 7 . 5 % to positive 1.1%o.In 2001, actual SAS cliont returnsrangodfrom negative10.7% to negative2.1%. Aud, in 2002, aotual SAS olient rehrrnstanged from negsuve26.6% to nogative 8.Jo/o. 103. knew that the advertissdSAS performancerosultswere SGC/SCM's managoment And they also knew that the pre-2005 fraok record wa.s Putely misleading and inflated. hypothctioal. 104. Ae esrly as Novemberr2006, SGCiSCM invesuncnt advisers began to question why thoir oliertts were not receiving the retums advcttised in the pitch books. In rcspoflsoto SECv. StdIofl Intsrrnthwl Bank, Ltd", et aL SecondAmendedComplaint u 952 Case3:09-cv-00298-N Document 25 Filed 01/08/2010 Page of32 those questions, SGC/SCM hirod an outsido performanceroporting expert to review the SAS performanoo rosultt. 105. In late 2006 and early 2007, ths experl intbrmed scc/scM th*t its performance results for tho twelvc months ended septomber 30, 2006 were inflatod by as muoh as 3.4 pcrofltago points. Moreovet, tho expert informod SGCySCM rnanegersthat the inflated *bad math" that consi$tentlyinflated the putpofted Finally, in Maroh ?008, tho expert perforrDnflc4results includcd unexplained sAS performanceresults ov$r achEl olisnt perforfiffice. informed scc/scM mfiragefs that the sAS performancercsults for 2005 were also inflated by a $muohaB3.25percantagc Points. 106. Despite its lorowlcdgc of the inflated SAS retums, SGC/SCM firanagement oontinuedusing the pre-2005 taok reoord and nevor aekedthe perfollnance expert to sudit the pre-2005 perfonnsrce. In faot, in 2008 pitoh books, sGC/scM presentedthe back-tetted pro'Tlistorioal PerfOrmance" "ManAgerPorformanCe" and 2005 perfotmanoodataunder the heading alongsidethe audited 2005 through 2008 figrrter. SGC/SCM'8outside consultsnttestified that it figurcs' duditodperformanoefigurF8f,longsidcback-teated was 'tnisleading'r to prE$eflt 1 0 7 . Finally, as indicated the chat below, SGC/SCM b]onded the back-tosted to porformancowith auditedcompositoperformanoe oredtebflnualizod5 and 7 year performance figures that boro no relation to actual SAS clicnt porformance: SECv. Sunlord Intenrational Bank, Ltd", et al. Seund Ametded Complaint 25 952 Case3:09-cv-00298-NDocument F i l e d01/08/2010 Fage?S of 32 fID 2n07 lm6 tt'Itt '{G fl16 ffxt1 lttB 1i1# 2Un ztrOl 2!00 t{0 -4fltr a:q SASGffirth -tflE dlEE rt[t?r s&P500 4Int fr* Erg* lifit tt Ffi tfi** ,tt.!lt* 1F lFr glEr![ EFrr tt3tE 7tE ttE sAS Grcryth -r-1* o-sx fl"F!r 12.ti* s&P5m l0B. {/t+t 4-BA aE!r( tt.ffi 3.?tft L#X rosultt in the pihh As evidenccby it6 useoffiotional and/orinflated performsrrce with the sale of SAS' boolcs,SGC/SCMknowingly mislcd inve$torsin oonneotion CAUSESCEACq0N FIRfIT CLAIM AS TO I]OPEZAND KIJHRT DAI.IS, PEF{DERGEST-HOLT' SIB, SGC,SCM,STA"FIFORD, Vlohtlonc of Scflo paragrdphs thrcugh 108above' l repoabandrealleges 1 0 9 . PlaintiffCommisoion I10. lnpez and Huhtt, directly or Davis, Fendergest-Holt, SIB, SGC, SCM, Stanford, elrd indirectly, singly or in ooncertwith othcrs,in connootionwith the pu1ohase salo of seountres, by use of the mEansand inrtumentalitios Of ifterstate oommolceand by u8e of tho mails have: of aud artifioes to defraud; (ii) made unfru$ stEtements matoriel (i) employeddevioes,schemos tnade,in light in fsdk and ofiritted td statematerial facts necessary ordor to m8ke tho statements of the circumstancesunder whioh they wore mf,de, flot misleading; ond (iii) engagedin acts, pmctices and coursos of businese which operate as a fraud and deceit upon purchasers, puchasersandothr persons. prospedtive Ltd', et 4l' SECv. Sunford,Iaternatianal Ei,,ttk, Second AmendedComplaint 26 952 Case3:09-cv-00298-N Document F i l e d01/08/2010 Page27 of 32 I rI- SrB, SGC, SCIvI,Stanfotd' Davis' As a part of and in furthetanceoftheir sohome, Pendergest-Holt,l,opez and Krrhrt, directly and indireotly, pteparod, diseeminatedor used promotronal rnatfials,investor and contftrcts,written offering documents,financial stBternents' facto which containeduntue statorflen$o1*u161i61 and othrr cone3pofldonoo, oral pfeeentations, in of and misrapresontations matorial facts, efld which omitted to statematorial facts nooeseary uadef whioh thoy woro made' made, in light of the cilcufilsLalrces order to make the stfltemonts f l o t mislcading. Itz. Lopoz and Kuhrt madethe $IB, SGC, SCM, Stanford,Davis, Pendergest-Holt, And referencedmisrepresc!fltfltions omissionslarowingly or with severeand grossfeskless e5s' Lopezand Davi8,Pendefgest-Holt, SIB, SGC,SCM, Stanford, 1 1 3 . For thesereasons, Kuhrt hnve violated and, unledsenjoifled, will continueto violate sootion 10ft) ofthe Exchange Aot A c t [15 U.S.C.$ 7Sj(b)]andExohango RulE l0b-5 [t7 C.F'R. $ 240.10b-51. CI.AIM SECONIT LOPEZ' HUIIRTAND XING PENDERGEST-HOI,T, AS TO STANT'ORI},ITAVIS, Abetttns Violttlo Atdlns snd I14. paragraphsthrougtr108above' I and repeats reallegos PlaintiffCommissiof, Lopezand Kuhrt did not violateExohango 115. lf $lanfotd,Davis,Pandergcst-Ho[ A c t So0tion 10ft) and Rule I0b-5, in the altemative,each in the rnfi rer set fotth above, in knowingty ot with severerccklessnessprovided substantial a8sistance connootionwith the Act Scotion 10(b) tls U.S.C. $ 78j(b)l and Rulc 10b-5 [17 C'F'R' $ v i o l a t i o r s of Exchange 240.10b-51alleged hettin. Likewise, King, in the mannet set forl]r above, knowingly or witt sevefe fecklessflsss, provided substantial flssistflno$ in connection with the violations of E x c h e n g eAct Sectiotl 10{b) tls U.S.C. $ 78j(b) and Rulc l0b-5 [17 C.F.R. $ 240 10b-5i a l l e g c dherein. Intenrational Batk, Ltd", et al' SECv. Staaford, I Second A hended Compdi rt 27 952 Case 3:09cv-00298-N D o c u m e n t F i l e d01/08/2010 Page28 of32 Lopez, Kuhrt and King aided Stanford,Davis, Pendergest-Holt, 116. For thcsoreasons, and abettedan4 unleesenjoined,will continuc to aid snd abet violatione of $ection l0(b) ofthc Aot E x c h a n g e [5 U.S.C.$ 78j(b)] andRule 10b-5[17 C.I'I.R. 240.I0b-5]. $ TIIIND CL{IM ASTO SC}4 STAI{FORD,I}AVIS, PENDERGEST-HOLT, LOPEZANIT KUIIRT SIB, SGC, Viohfiorg of Secflonl1(a) of the Securtfier A+t It7. I 18. I Plaintiff Commissionre,peats reallegesparagraphs through 108 above. and SIB, SGC, SCM, Stanford, Davio, Pendcrgcst-Holt,I"lpez and Kuhrt, directly or by in indirectly, Biflgly or in concertwith othe,rs, the offer and saloof oecuritiee, useof the means and instuments of transportationand commuf,icationin interstetedofirmetosand by use of tho mails, havo; (i) employed dovicetn schcmes or artifices to dcfraud; (ii) obtairted money or property by means of untruo staternents matorial fact or omissioneto Btatematcrial faots of under whioh they in neoossary order to make the Eteteftentsmado, in light of the circumstanoes were made, not misleading; and (iii) engagedin fiensaction$,ptaoticos or courscdof businoss whioh operateor would operatofls a fraud or decit. I 19. As part of and in furtheranceof thie eoheme,SIB, SGC, SCM, Stanford, Davis, Pendergest-Holt,Lopez and Kulrrt, diru:tly and indirectly, prepared, disseminated or used contacts, writtcn offeriug docunents, promohonalmaterials,investot and othor correspondcncc, and oral prosentntionr,which containodurttrue $tatenentsof matorial fact and which omitted to in mado,in light of the oiroumstanceE statsmatenal factsnecessary ordor to make the statemonts underwhich thoy were made,not misloadiug, 120, SlB, SGC, SCM, Stanford, Davis, Pendergost-Holt,Lopoz and Kuhn made the and omissio'nsknowingly or gms$ly recklcssly disregardingthe referencedmisrepresentations truth. SECv. StanlordIntcflittlofldl Bdnk Ltd., et al. Sennd Ammded Complaint 28 952 Caee3:09-cv-00298-NDocument 29 Page of 32 Filed 01/0er/2010 t?1. Lopezand Devis,Pefldergost-Holt, SIB, SGC,SCM, Stanford, Fot thosereasons, Kuht have violatsd, and unlessenjoined,will continueto violate Sootion17(e)of the Socurities A c t [l5II.S.C. $ 7?q(a)]. FOURTH CLAIM AS TO STANTORII, SGC, AND STANFOND CAPITAL Yiolaflonc oIEE{{ons 206(1)rEd?l!0ffD aIlhe AdrlgersAct ef,d 122. Plaintiff Comnission re,poats rcallogospmgraphs I through 108 abovc. 123. StfiIford, SGC and $CM, directly or indirectly, singly or in concef,twith othets' larowingly or recklessly, through the use of the mails or any mesno ot iflstrumontality df while acting as iuvestnent advisetswithin tho meaningof Soction 202(l l) ifltcfstato aaprmerce, of the Advisers Act [5 U.S.C, $ 80b-2fl 1)]; (i) have employed,aro omploying, or ate about to clisnt; or (ii) have employ devices, schomos,snd drtifices to deftaud any client or proEPective ongaged,are engaging,or aro about to engagein acts, practiccs' or coursssof businesswhich operate$ a fraud ot deoeitupon any cliurt or proepectivecliurt. as 124. For thesereasons,Staflford, $GC and SCM have violatod, and unless enjoined, 206(1)and 206(2) of tho AdvisetsAot [15 U.$.C. $$ 80b-6(t) w i l l continuoto vidldteSections a n d 80b-6(2)1. F'IT'TII CLAIM AS TO STAT{FORD,I}AVTS, PENDERGEST.HOLT, LOPEZ' KUHRT AND KING Aidins rnd AbEtulE Iioladonr of Scdons206(l) 125, Plaintiff Commissionrepeatsand reallegosparagaphs I thtough 108abovc. 126. Bascd on the conduct altcgcd hetein, Stanford, Dnvis, Pondergest-Holt,Lops?' provided Kuhrt, antl King, in tho marmerset fofih above,larowingly ot with sovererocklessness in substantial assi$tance conneotion with the violations of Advieers Act Sections 206(l) and herein' 2 0 6 ( 2 )[15 tr,S.C.$$ 80h6(l) and 80b-6(2)]alloged SEC v. |itanford International BEnk, Ltd", et flL Second Amended Comnlaint 29 952 Case3:09-cv40298-N Document F i l e d01/08/?010 Page30 of 32 l?7. For theso rsasons, Sti.nford, Davis, Pendergest-Holt,Lopez, Kuhrt' and King airled and abethd and, unless enjoined, will continue to aid and abet violations of Sections 2 0 6 ( l ) antt206(2)of theAdvisersAct [15 U.S.C.$$ 80h6(l) and 80h6(2)J' SD(TH CLAIM A S TO SINAND $GC Violrflons of Secfion 7(d) of thc Inve ntmert Coops4r4tt 128. 129. Plaintiff Commissionrepeatsand reallegcsparagraphslthrough 108above. SIB, an inveshnentcompluy not otganizedor othefwise oreatedundft tho laws of thE United Statesor ofa State,dircotly or indirectly, singly or in conoortwith others,madeuseof the mails or a$y mefirs or illstumentslity of intsstatc commroo,diroctly or indirectly, to offer with a puhlio ofTonng,secudtiesof which SIB for sale, soll, or doliver aftet sale, in oonnechon was the isstrcr, without obtaining an ordcr from tho Commission permittiflg it to registor as an inveshnentcompany organizedor otherwisecteated undtr the laws ofa forcign country and to make a public offering of its securitiesby use of thc mails and IrteanEor iflslturnffitalities of . interstatooommoroe 130. SGC, directly or indirectly, singly or in concort with othors, aoted as an underwriter for SIB, an inveglrnentcompany not organizedor otherwise crsatEdunder the lawa of the Unitcd Statcsor of a Statethat made use of the mails of i ry meaflsot instumefltality of intorstflte oommorgo, diroctly or indirootly, to offer for sale, sell, or deliver after sale, in co rectiofl with a public offering, securitiesof which SIB was the ieeuer,witlout obtaiuing an order from the Commission permitting it to regieter ae sn invesfinent ooffipany organized or othcrwise crcated under the laws of a foreign country fiId ts nleke a public offtring of ite securitiesbv use of the mailt and mesngor instrumsntslitiesof interstatooommerce. SECv. Stanlord Intemational Bdnh Ltd, et aL A Second mendad Complalnt 30 Document9S2 F i l e d01/08/?010 Page31 of 32 Case3:09-cv-00298-N will cofltinue 1 3 1 . For rhcsorrasons,sIB and sGC haveviolated,andunlessenjoined, Company lrct [15 U-S.C.$ 80a-7(d)]. ?(d) ofthe Inveehflent t o violateSection S H V E N T H CI,AIM .{S TO REILEF DETENDANIS dnd 132. PlaintiffCommissiol repeat-s reallegospamgraphsl t}rough I08 above. 133. eachwore reoipients,without coflsidoration,ofpruCeedsof the Relief Dcferndants ftaudulent and iltegal CD salesallegedhorein.Each ofthere ReliefDofendantr prolited from the fraud by obtaining illegal proceedsundercilcumstaflcosin which it is no1imt' oquitable,or eachofthern haebeennamed ConscquentJy, for oonscionable thcrn to retain the illogrl prooeeds. at a Relief Defen<lant. 134. Relief Defendantsshould disgorgetheir ill-gottcn gaim and any othet property or purchased with euchgainr. assets RELIEFREQUESTED tlrat the Court: Plaintiff Commissiontespectfully requoste I. Ternporarily, prsliminarily and permflnentlyonjoin: (D SIB, SGC, SCM, Stanfotd,Davis' Pendorgest-I'Iolt, Lopez, Kuhtt, and King from violating, or aiding and abetting violations of, Seotion 10ft) and Rule 10b-5 of the Exchango Act; (ii) SIB, SGC, SCM, Stanfotd, Davis' Pendergest-Ilolt,Lopoz and Kuhrt from violating Swtion 17(a)of the SecuritiosAot (iii) SGC, $ClvI, Stanford, Dame, Fondetgest-Holt!Lopez, Kuhrt and King from violating, or aiding anti abetting violations of, Scotious206(l) and 206(2) of the Adviseis Act; and (iv) SIB and SCG ftom violating Seotron7(d) of the InvestmontCofirpanyAot. International Batk, Ltd, et al' SECv. Etanladrd $e4ondAmerded CDmblaint 3l 952 Case 3:09-cv-0029&N Document F i l e d01/08/2010 Page32 of 32 il. ordcr Defentlantsand Relief Defendantsto disgorge 8n aiflount oqual to thc funds and bonofits they obtained illegally as a result of the violations allegod hcrein, plus prejudgfient interestofl that amourt. ilL Order civil penalties ageinstDefendsntspufsuantto Section 20(d) of the SecuritiosAct 4l(e) of Act $ection?l(d) of the Exohange [15 U,S.C. $ 78u(d)]' Se+tion l l 5 U.S.C. $ 77t(d)1, t h o InvestnantCompanyAot [15 U.S.C. $ 80a-41{e), and Seotion209(e)of the AdvisersAct law for [ 1 5 U.S.C.$ 80b-9(e)] thoir seourities violations. rv. Order suchfurthor rolief ar this Court mfly deefirjust and ptopct. 8, D a t e dJafluary 2010 Respoctfulsubmittcd, ly -WaYi{!. lssg4 STEPIIEN KOROTASH J. O k l a h o m a No. 5102 Bar J. KEVINEDMTNDSON TexasBar No. ?,4044420 D A V I D B . REECE T e x a sBat No. ?4002810 MICIIAELD.KING TsxasBar No. 24032634 D. THOMAS KELTNER TexasEar No. 24007474 JASONROSB Terdb Bar No. ?40(t946 end U . S . Seouritios EtchangeCommission B u m s t tPlaza.Suitc 1900 80I Cherry Street,Unit # I I F o r t Worflr,TX 76102"6882 (dbr) ( 8 1 7 ) 978-6476 ( 8 u) 978-4927 (fax) SECv- 6\anford Internatlotrdl Banli,Ltd., et EI. Seco AmendedConwlalnt ad 3?

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