Miami Mirror Series

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

Many Stanford Victims Were Neither Criminal Nor Stupid

By David Arthur Walters

The May 7, 2010 Miami Mirror article, ‘How Many Stanford

Investors Were Fraudsters?’ drew an overwhelmingly negative
response from readers. The article was the first in the series, ‘As
the Press Spins – Anatomy of an Award-winning Expose’, and
covered an aspect of the Allen Stanford fraud that Miami Herald
investigative reporter and investigations editor Mike Sallah was
not interested in when it was called to his attention during a
telephone conversation. To wit, that many Stanford investors who
did business with the Miami office of Stanford Trust may have
been hiding assets and evading taxes, not to mention laundering
drug money – something Mr. Stanford’s operations had aided in
the past.
Indeed, the sales literature at Stanford’s Miami trust
representative office emphasized secrecy and tax-haven
advantages. The Miami Herald obviously wanted to focus on the
swindle of the victims. It would have been terribly incorrect for
the major liberal paper in South Florida to suggest that many - not
all or even most - of the victims might have been hiding assets
from their governments and evading taxes. However, the Internal
Revenue Service in the United States was not loath to cover that
possibility, and its lawyers obtained a summons to produce the
records. Our report explained that United States citizens and
resident aliens may not have reported their worldwide income or
identified their foreign bank accounts as required by law – the
penalties can be severe. The report also pointed out that non-
filing of the proper forms can be an innocent mistake, and quoted
lawyers on that issue.

How Many Stanford Victims Were Fraudsters?

http://miamimirror.blogspot.com/2010/05/how-many-stanford-
victims-were.html

We received only one positive reader response, some time after

being deluged with complaints:

“When I first read your [article] I brushed it off as written by

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

Angela Shaw, director and founder of Stanford Victims Coalition,

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

“Stanford's victims are law-abiding citizens,” Ms. Shaw wrote,

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

Mr. Walters responded: “I regret that my one piece of many to

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

We then heard from a broker, whose name is withheld here at his

request due to pending legal issues. He said he had once
entertained the idea of becoming a broker for Stanford’s product
while being swindled by Stanford. He had even studied the Bible
and played tennis with Stanford personnel.

“Having been a broker, I asked all the right questions when

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

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

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

“You cannot possibly think that we asked Stanford reps if they

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

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

We also received a fascinating account from a gentleman who

thought he had done sufficient due diligence before investing his
money, certainly taking more personal care than a
broker ordinarily would take:

"I'm taking the liberty of E-mailing you," said the man,

who requested that we identify him only as Russ, “because I fear
that what I have to say will take up more space than your
comment section with allow.

“I am a Stanford investor/victim but I am not a criminal or

fraudster. I paid the taxes due on the interest income on my
Stanford International Bank (SIB) C.D.'s (even though I now know
that interest to be "phantom income") and I filed my Treasury
Form TD F 90-22.1 (FBAR) every year until Stanford's scheme was
revealed in February, 2009.
“I bought my first C.D. from Stanford in December, 2006 and a
couple more in early 2007. I will admit that since Stanford did not
send me a 1099 for this interest, I forgot to report the small
amount I earned for the month of December, 2006. But as soon
as I realized my oversight, I filed an amended return to pick up
that income on my 2006 tax return. Thereafter, I manually
calculated the amount of interest I earned in 2007 by comparing
my yearend statements and timely reported that income on my
2007 tax return. The need to file the FBAR was not brought to my
attention until a friend and fellow investor told me about it. I then
called my Stanford Financial Advisor and asked him about the
filing requirements. He had no idea what I was talking about so I
did my own research and timely filed the form for both 2007 and
2008. So as you as can see, Mr. Walters, I was not trying to hide
my income in some offshore haven nor was I trying to avoid
reporting my foreign bank account.

“I purchased all my C.D.'s through a Stanford Financial Advisor

who happened to sit on the same Board of a small company as I
did. He had been with Stanford for about two years after having
worked with Merrill Lynch for over 25 years. Given his extensive
financial background and because he was highly recommended
by the CEO of the company on whose Board we both sat, I
thought using him to buy my C.D.'s was a prudent move.
“However, my due diligence didn't stop there. Besides reading
everything I could find on Stanford Group Company and SIB, I also
met and had dinner with Laura Pendergast, Stanford's Chief
Investment Officer. I explained to Laura that my main objective
was safety since my investment represented a substantial portion
of my life's savings. She assured me that my money would be
very safe because Stanford only invested in highly liquid and safe
investments like Money Market and Bond Funds, supplemented by
investments in commodities and equities. However, the portion
invested in the latter two was very small in the big picture.

“Given my financial background (CFO of a NYSE traded company),

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

“But my due diligence didn't stop with just meeting Laura. I

actually flew to Antigua and toured the Stanford International
Bank (yes...there really is a bank in Antigua!), met with the bank's
President for several hours and then had dinner with him that
night. Like Laura, he was very impressive and seemed to be
extremely knowledgeable about world finances. After treating me
and my colleagues to a game of golf the next day, we all flew
home thinking we were about to invest in a very outstanding and
legitimate company. Unfortunately, we were wrong.

“Mr. Walters, I may be a lot of things, including husband, father,

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

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

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

“I invested $1,615,000 in SIB C.D.'s. However, when one of my

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

“I did not consult an attorney or accountant prior to making my

investments. But as you said, I'm not sure such a consultation
would have done much good in discovering the fraud. But I do
know several victims who did engage legal and/or financial advice
and these professionals found nothing to dissuade their clients
from investing with Stanford.
“My C.D.'s were not held via Stanford Trust. Since my investments
were not IRA C.D.'s, the actual Certificates was sent directly to me
and I kept them in my Safety Deposit Box. However, my sister
and another friend of mine did have their IRA C.D.'s maintained at
the Stanford Trust Company in Baton Rouge. By the way, my
sister was NOT an "accredited investor" and therefore should
never have been allowed to invest in the Stanford C.D.'s.
However, the Stanford Financial Advisor processed her paperwork
anyway and SIB (out of the goodness of its heart!) allowed her to
invest in spite of her not being a qualified investor.”

XTX - To be continued - XTX