In January 2009, Venezuela-based financial analyst Alex Dalmady wrote a probing article in VenEconomy Monthly setting forth his arguments that the consistent market-beating investment returns posted by Sir Allen Stanford’s (pictured left with ladies) Antigua-based Stanford International Bank Ltd. (SIB) seemed to good to be true.  Business Week and FT.com Alphaville blog later raised additional questions.

In contrast to the deaf ears of the U.S. Securities and Exchange Commission (SEC) to analyst warnings as early as May 2001 about Madoff’s inflated returns, this time the SEC appears to have listened.

Yesterday, the SEC charged Sir Stanford, who was knighted by the Antiguan authorities rather than the Queen, and certain of his sundry affiliates with investment fraud.  The SEC complaint, a copy of which is available here, includes charges against SIB, Houston-based broker-dealer and investment advisor Stanford Capital Management (SCP), SIB chief financial officer James Davis, and Stanford Financial Group (SFG) chief investment officer Laura Pendergest-Holt. 

The complaint alleges, among other offenses, that the defendants misrepresented to purchasers of Certificates of Deposit (CDs) that their deposits were safe and falsely claimed that SIB re-invested client funds in “liquid” financial instruments.  At the SEC’s request, U.S. District Judge Reed O’Connor of the Northern District of Texas (Dallas) has entered a temporary restraining order, frozen the defendants’ assets, and appointed a receiver to marshal those assets.

That Mr. Dalmady first warned of SIB’s problems now seems prescient because of significant exposure to SIB instruments among Latin American investors, who today packed SIB affiliates in Venezuela, Panama, and Ecuador seeking to close their accounts, according to a Bloomberg report.

Bloomberg also reported that Mexico’s National Banking and Securities Commission (Comision Nacional Bancaria y de Valores – CNBV) said that Stanford’s unit in Mexico, Stanford Fondos, is only authorized to sell funds that operate in Mexico but the CNBV did not indicate whether it was investigating Stanford Fondos.

In a press release summarized in a Sentido Comun report, Stanford Fondos assured clients that their funds were not affected by the charges against SIB and other affiliates and that its clients should have “full confidence”.  That statement may or may not be true. 

Investors in SIB, Stanford Fondos and any other Stanford affiliate should immediately consult their attorneys to decide on a proper course of action.