Securities and Exchange Commission investigators failed to stop Stanford International Bank from selling billions of dollars in risky certificates of deposit, even though the SEC suspected as far back as 2005 that the CDs might pose a problem.
FOX Business obtained a letter and questionnaire the SEC’s Fort Worth office sent to some Stanford Investors in the spring of 2005. The letter from SEC Enforcement Attorney Jennifer D. Brandt says the commission “has initiated an informal inquiry” regarding Stanford Group. The letter focuses almost immediately on the sale of CDs issued by Stanford International Bank [SIB] and sold by Stanford Group brokers worldwide. Those CDs are at the heart of the $7.2 billion Ponzi scheme that the SEC, in 2009, says cost investors their hard earned savings.
“You have received this questionnaire because you have been identified as an investor in Stanford’s Certificate of Deposit Program [CD Program] who may have knowledge of facts that would be relevant to our inquiry. Because our inquiry relates to Stanford’s CD Program, any information you are able to provide would greatly assist the staff in its inquiry.”
The letter asks investors to return the questionnaire no later than June 8, 2005.
The questionnaire asks specific questions about SIB CDs and if investors knew how money from the sale of the CDs was invested, or if investors recall claims by Stanford brokers that the CDs were safe and insured.
One question asks, “Did you receive a document entitled Disclosure Statement, U.S. Accredited Investor Certificate of Deposit Program?” Another asks, “Did anyone tell you that funds invested in the CD Program were insured against loss?”
The SIB CDs were not insured — neither privately nor through the U.S. Federal Deposit Insurance Corp. — but Stanford victims say they were led to believe they were covered. The SEC declined to comment about the letter or questionnaire, and will not say why it took four years for the agency to move against Stanford and stop the sale of the CDs.
David Cibrian, a lawyer representing victims of the Stanford scandal, says “The focus of the SEC’s 2005 investigation shows that Stanford wove a web of false safety and soundness by touting insurance that never existed.”
Cibrian represents 500 Stanford victims from Mexico who are part of a class-action lawsuit against insurance brokers that Cibrian says helped Stanford create a false perception of security around the CDs. Evidence in that case includes letters from Willis of Colorado, part of the international insurance company Willis (WSH: 26.07, -0.12, -0.46%). A letter dated Oct. 18, 2006, from Willis of Colorado’s Vice President Amy Baranoucky, was sent to potential Stanford CD investors stating that Stanford International Bank has insurance from Lloyds of London and goes on to say, “In order to qualify for the above coverages, the Bank [SIB] underwent a stringent Risk Management Review conducted by an outside audit firm.”
That letter was sent more than a year after the SEC had opened its inquiry into Stanford. Willis declined to comment about the lawsuit.
But a Stanford victim who purchased the CDs told FOX Business she believed they were insured based on the letter from Willis and a similar letter from another insurance broker.
“I think the problem that we all face is that we trust sometimes the people who invite us to invest,” she said.
Her lawyer, Ed Valdespino, told FOX Business, “They knew or should have known there was a problem. They crossed the line with being an insurance broker and went kind of hand in hand into this marketing effort with Stanford financial.”
Former Stanford broker and SEC whistleblower Leyla Wydler says the SEC could have stopped the Stanford scandal in 2003, a full two years before it sent investors the questionnaire in 2005. “Absolutely, the lack of insurance — you know, the FDIC insurance — that was a big red flag, I was not going to put my clients into a CD that seemed safe and very liquid when in fact it was not,” she told FOX Business in her first and only public interview on the Stanford case.
Wydler first warned the SEC in 2003 about Stanford when she sent a letter to the agency saying, “Stanford Financial is the subject of a lingering corporate fraud scandal perpetuated as a massive Ponzi scheme that will destroy the life savings of many…”
Wydler says she was fired from her job at Stanford because she refused to sell the CDs.
“I knew they were not FDIC insured, I looked at their financial statements their financials were not audited by a US reputable accounting firm, instead it was done by an unknown firm in Antigua, to me that was a red flag.”
A warning sign the SEC appears to have known about in 2005, but did nothing to stop until 2009.
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