Case 3:09-cv-00298-N Document 1 Filed 02/17/2009 Page 1 of 26 I JL- • o H1G1NAL IN THE UNITED STATES DISTRICT CO RT FOR THE NORTHERN DISTRICT OF TE S DALLAS DIVISION US DISTRICT COURT NORTHERN DISTRICT OF TEXAS --- FEB '12009 SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. STANFORD INTERNATIONAL BANK, LTD., STANFORD GROUP COMPANY, STANFORD CAPITAL MANAGEMENT, LLC, R. ALLEN STANFORD, JAMES M. DAVIS, and LAURA PENDERGEST-HOLT Defendants. § CLERK, U.s. COURT § .By § § § COMPLAINT § 8- 09CV0298 -L § § § § § Plaintiff Securities and Exchange Commission alleges: SUMMARY 1. The Commission seeks emergency relief to halt a massive, ongoing fraud orchestrated by R. Allen Stanford and James M. Davis and executed through companies they control, including Stanford International Bank, Ltd. ("SIB") and its affiliated Houston-based investment advisers, Stanford Group Company ("SGC") and Stanford Capital Management ("SCM"). Laura Pendergest-Holt, the chiefinvestment officer of a Stanford affiliate, was indispensable to this scheme by helping to preserve the appearance of safety fabricated by Stanford and by training others to mislead investors. For example, she trained training SIB's senior investment officer to provide false infonnation to investors. 2. Through this fraudulent scheme, SIB, acting through a network of SGC financial advisors, has sold approximately $8 billion of self-styled "certificates of deposits" by promising high return rates that exceed those available through true certificates of deposits offered by traditional banks.
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Sir Robert Allen Stanford PONZI SEC Court Documents and Lawsuit
Plaintiff, v. STANFORD INTERNATIONAL BANK, LTD., STANFORD GROUP COMPANY, STANFORD CAPITAL MANAGEMENT, LLC, R. ALLEN STANFORD, JAMES M. DAVIS, and LAURA PENDERGEST-HOLT Defendants.
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Case 3:09-cv-00298-N Document 1 Filed 02/17/2009 Page 1 of 26I
JL- • oH1G1NALIN THE UNITED STATES DISTRICT CO RTFOR THE NORTHERN DISTRICT OF TE S
DALLAS DIVISION
US DISTRICT COURTNORTHERN DISTRICT OF TEXAS
FI~:EI>.,_---FEB '12009
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff,
v.
STANFORD INTERNATIONAL BANK, LTD.,STANFORD GROUP COMPANY,STANFORD CAPITAL MANAGEMENT, LLC,R. ALLEN STANFORD, JAMES M. DAVIS, andLAURA PENDERGEST-HOLT
Defendants.
§ CLERK, U.s.~1fCT COURT
§ .By ~
§§§ COMPLAINT§
~ 8- 09CV0298 - L§§§§§
Plaintiff Securities and Exchange Commission alleges:
SUMMARY
1. The Commission seeks emergency relief to halt a massive, ongoing fraud
orchestrated by R. Allen Stanford and James M. Davis and executed through companies they
control, including Stanford International Bank, Ltd. ("SIB") and its affiliated Houston-based
investment advisers, Stanford Group Company ("SGC") and Stanford Capital Management
("SCM"). Laura Pendergest-Holt, the chief investment officer of a Stanford affiliate, was
indispensable to this scheme by helping to preserve the appearance of safety fabricated by
Stanford and by training others to mislead investors. For example, she trained training SIB's
senior investment officer to provide false infonnation to investors.
2. Through this fraudulent scheme, SIB, acting through a network of SGC financial
advisors, has sold approximately $8 billion of self-styled "certificates of deposits" by promising
high return rates that exceed those available through true certificates of deposits offered by
traditional banks.
Case 3:09-cv-00298-N Document 1 Filed 02/17/2009 Page 2 of 26• •3. SIB claims that its unique investment strategy has allowed it to achieve double-
digit returns on its investments over the past 15 years, allowing it offer high yields to CD
purchasers. Indeed, SIB claims that its "diversified portfolio of investments" lost only 1.3% in
2008, a time during which the S&P 500 lost 39% and the Dow Jones STOXX Europe 500 Fund
lost 41 %.
4. Perhaps even more strange, SIB reports identical returns in 1995 and 1996 of
exactly 15.71%. As Pendergest-Holt - SIB investment committee member and the chief
investment officer of Stanford Group Financial (a Stanford affiliate) - admits, it is simply
"improbable" that SIB could have managed a "global diversified" portfolio of investments in a
way that returned identical results in consecutive years. A performance reporting consultant
hired by SGC, when asked about these "improbable" returns, responded simply that it is
"impossible" to achieve identical results on a diversified investment portfolio in consecutive
years. Yet, SIB continues to promote its CDs using these improbable returns.
5. These improbable results are made even more suspicious by the fact that, contrary
to assurances provided to investors, at most only two people - Stanford and Davis - know the
details concerning the bulk of SIB's investment portfolio. And SIB goes to great lengths to
prevent any true independent examination ofthose portfolios. For example, its long-standing
auditor is reportedly retained based on a "relationship of trust" between the head of the auditing
firm and Stanford.
6. Importantly, contrary to recent public statements by SIB, Stanford and Davis (and
through them SGC) have wholly-failed to cooperate with the Commission's efforts to account
for the $8 billion of investor funds purportedly held by SIB. In short, approximately 90% of
SEC v. Stanford International Bank, Ltd., et al.COMPLAINT
2
Case 3:09-cv-00298-N Document 1 Filed 02/17/2009 Page 3 of 26• • •SIB's claimed investment portfolio resides in a "black box" shielded from any independent
oversight.
7. In fact, far from "cooperating" with the Commission's enforcement investigation
(which Stanford has reportedly tried to characterize as only involving routine examinations),
SOC appears to have used press reports speculating about the Commission's investigation as
way to further mislead investors, falsely telling at least one customer during the week of
February 9,2009, that his multi-million dollar SIB CD could not be redeemed because "the SEC
had frozen the account for two months." At least one other customer who recently inquired
about redeeming a multi-million dollar CD claims that he was informed that, contrary to
representations made at the time ofpurchase that the CD could be redeemed early upon payment
of a penalty, R. Allen Stanford had ordered a two-month moratorium on CD redemptions.
8. This secrecy and recent misrepresentations are made even more suspicious by
extensive and fundamental misrepresentations SIB and its advisors have made to CD purchasers
in order to lull them into thinking their investment is safe. SIB and its advisers have
misrepresented to CD purchasers that their deposits are safe because the bank: (i) re-invests client
funds primarily in "liquid" financial instruments (the "portfolio"); (ii) monitors the portfolio through
a team of20-plus analysts; and (iii) is subject to yearly audits by Antiguan regulators. Recently, as
the market absorbed the news ofBernard Madoff's massive Ponzi scheme, SIB has attempted to
calm its own investors by claiming the bank has no "direct or indirect" exposure to Madoff's
scheme.
9. These assurances are false. Contrary to these representations, SIB's investment
portfolio was not invested in liquid financial instruments or allocated in the manner described in its
promotional material and public reports. Instead, a substantial portion of the bank's portfolio was
SEC v. Stanford International Bank, Ltd., et al.COMPLAINT
3
Case 3:09-cv-00298-N Document 1 Filed 02/17/2009 Page 4 of 26• •placed in illiquid investments, such as real estate and private equity. Further, the vast majority
Sill's multi-billion dollar investment portfolio was not monitored by a team ofanalysts, but rather
by two people - Allen Stanford and James Davis. And contrary to Sill's representations, the
Antiguan regulator responsible for oversight of the bank's portfolio, the Financial Services
Regulatory Commission, does not audit Sill's portfolio or verify the assets Sill claims in its
financial statements. Perhaps most alarming is that Sill has exposure to losses from the Madoff
fraud scheme despite the bank's public assurances to the contrary.
10. SGC has failed to disclose material facts to its advisory clients. Alarmingly, recent
weeks have seen an increasing amount of liquidation activity by SIB and attempts to wire money
out of its investment portfolio. The Commission has received information indicating that in just
the last two weeks, SIB has sought to remove over $178 million from its accounts. And, a major
clearing firm - after unsuccessfully attempting to find information about SIB's financial
condition and because it could not obtain adequate transparency into Sill's financials- has
recently informed SGC that it would no longer process wires from SGC accounts at the clearing
firm to SIB for the purchase of SIB issued CDs, even if they were accompanied by customer
letters of authorization.
11. Stanford's fraudulent conduct is not limited to the sale ofCDs. Since 2005, SGC
advisers have sold more than $1 billion ofa proprietary mutual fund wrap program, called Stanford
Allocation Strategy ("SAS"), by using materially false and misleading historical performance data.
The false data has helped SGC grow the SAS program from less than $10 million in around 2004 to
over $1.2 billion, generating fees for SGC (and ultimately Stanford) in excess of $25 million. And
the fraudulent SAS performance was used to recruit registered financial advisers with significant
SEC v. Stanford International Bank, Ltd., et al.COMPLAINT
4
Case 3:09-cv-00298-N Document 1 Filed 02/17/2009 Page 5 of 26• •books ofbusiness, who were then heavily incentivized to re-allocate their clients' assets to sm's
CD program.
12. Moreover, sm and Stanford Group Company have violated Section 7(d) ofthe
Investment Company Act of 1940 by failing to register with the Commission in order to sell sm's
CDs. Had they complied with this registration requirement, the Commission would have been able
to examine each of those entities concerning sm's CD investment portfolio.
13. By engaging in the conduct described in this Complaint, defendants Stanford,
Davis, Pendergest-Holt, SIB, SOC, and Stanford Capital, directly or indirectly, singly or in
concert, have engaged, and unless enjoined and restrained, will again engage in transactions acts,
practices, and courses ofbusiness that constitute violations of Section 17(a) of the Securities Act
of 1933 ("Securities Act") [15 U.S.c. §§ 77e(a), 77e(c) and 77q(a)], and Section 1O(b) of the
Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. § 78j(b)], and Exchange Act Rule
10b-5 [17 C.F.R. § 240.lOb-5] or, in the alternative, have aided and abetted such violations. In
addition, through their conduct described herein, Stanford, SOC, and Stanford Capital have
violated Section 206(1) and (2) ofthe Investment Advisers Act of 1940 ("Adviser's Act") [15
U.S.C. §§ 80b-6(1) and 80b-6(2)] and Davis and Pendergest-Holt have aided and abetted such
violations. Finally, through their actions, SIB and SOC have violated Section 7(d) of the
Investment Company Act of 1940 ("ICA") [15 U.S.C. § 80a-7(d)].
14. The Commission, in the interest ofprotecting the public from any further
unscrupulous and illegal activity, brings this action against the defendants, seeking temporary,
preliminary and permanent injunctive relief, disgorgement of all illicit profits and benefits
defendants have received plus accrued prejudgment interest and a civil monetary penalty. The
Commission also seeks an asset freeze, an accounting and other incidental relief, as well as the
SEC v. Stanford International Bank, Ltd., et al.COMPLAINT
5
Case 3:09-cv-00298-N Document 1 Filed 02/17/2009 Page 6 of 26• •appointment of a receiver to take possession and control ofdefendants' assets for the protection
ofdefendants' victims.
JURISDICTION AND VENUE
15. The investments offered and sold by the defendants are "securities" under Section
2(1) ofthe Securities Act [15 U.S.C. § 77b], Section 3(a)(10) of the Exchange Act [15 U.S.C. §
78c], Section 2(36) of the Investment Company Act [15 U.S.C. § 80a-2(36)], and Section
16. Plaintiff Commission brings this action under the authority conferred upon it by
Section 20(b) of the Securities Act [15 U.S.C. § 77t(b)], Section 21(d) ofthe Exchange Act [15
U.S.C. § 78u(d)], Section 41(d) of the Investment Company Act [15 U.S.C. § 80a-41(d)], and
Section 209(d) ofthe Advisers Act [15 U.S.C. § 80b-9(d)] to temporarily, preliminarily, and
permanently enjoin Defendants from future violations of the federal securities laws.
17. This Court has jurisdiction over this action, and venue is proper, under Section
22(a) of the Securities Act [15 U.S.C. § 77v(a)], Section 27 ofthe Exchange Act [15 U.S.C. §
78aa], Section 43 of the Investment Company Act [15 U.S.C. § 80a-43], and Section 214 ofthe
Advisers Act [15 U.S.C. § 80b-14].
18. Defendants have, directly or indirectly, made use ofthe means or instruments of
transportation and communication, and the means or instrumentalities of interstate commerce, or
of the mails, in connection with the transactions, acts, practices, and courses ofbusiness alleged
herein. Certain of the transactions, acts, practices, and courses ofbusiness occurred in the
Northern District of Texas.
SEC v. Stanford International Bank, Ltd., et al.COMPLAINT
6
Case 3:09-cv-00298-N Document 1 Filed 02/17/2009 Page 7 of 26•DEFENDANTS
•19. Stanford International Bank, Ltd. purports to be private international bank
domiciled in St. John's, Antigua, West Indies. SIB claims to serve 30,000 clients in 131
countries and holds $7.2 billion in assets under management. SIB's Annual Report for 2007
states that SIB has 50,000 clients. SIB's multi-billion portfolio of investments is purportedly
monitored by the SFG's chief financial officer in Memphis, Tennessee. Unlike a commercial
bank, SIB does not loan money. SIB sells the CD to U.S. investors through SGC, its affiliated
investment adviser.
20. Stanford Group Company, a Houston-based corporation, is registered with the
Commission as a broker-dealer and investment adviser. It has 29 offices located throughout the
U.S. SGC's principal business consists of sales of SIB-issued securities, marketed as
certificates ofdeposit. SGC is a wholly owned subsidiary of Stanford Group Holdings, Inc.,
which in tum is owned by R. Allen Stanford ("Stanford").
21. Stanford Capital Management, a registered investment adviser, took over the
management of the SAS program (formerly Mutual Fund Partners) from SGC in early 2007.
Stanford Group Company markets the SAS program through SCM.
22. R. Allen Stanford, a U.S. citizen, is the Chairman of the Board and sole
shareholder of SIB and the sole director ofSGC's parent company. Stanford refused to appear
and give testimony in the investigation.
23. James M. Davis, a U.S. citizen and resident ofBaldwin, Mississippi and who
offices in Memphis, Tennessee and Tupelo, Mississippi, is a director and chief financial officer
of SFG and SIB. Davis refused to appear and give testimony in this investigation.
SEC v. Stariford International Bank, Ltd., et al.COMPLAINT
7
Case 3:09-cv-00298-N Document 1 Filed 02/17/2009 Page 8 of 26• •24. Laura Pendergest-Holt, is the ChiefInvestment Officer of SIB and its affiliate
Stanford Financial Group. She supervises a group of analysts in Memphis, Tupelo, and St. Croix
who "oversee" performance of SIB's Tier II assets.
STATEMENT OF FACTS AND ALLEGATIONSRELEVANT TO ALL CAUSES OF ACTION
A. The Stanford International Bank
25. Allen Stanford has created a complex web ofaffiliated companies that exist and
operate under the brand Stanford Financial Group ("SFG"). SFG is described as a privately~he1d
group of companies that has in excess of$50 billion ''under advisement."
26. SIB, one of SFG's affiliates, is a private, offshore bank that purports to have an
independent Board of Directors, an Investment Committee, a Chief Investment Officer and a
team ofresearch analysts. While SIB may be domiciled in Antigua, a small group of SFG
employees who maintain offices in Memphis, Tennessee, and Tupelo, Mississippi, purportedly
monitor the assets.
27. As ofNovember 28,2008, SIB reported $8.5 billion in total assets. SIB's primary
product is the CD. SIB aggregates customer deposits, and then re-invests those funds in a
"globally diversified portfolio" of assets. SIB claims its investment portfolio is approximately
$8.4 billion. SIB sold more than $1 billion in CDs per year between 2005 and 2007, including
sales to U.S. investors. The bank's deposits increased from $3.8 billion in 2005, to $5 billion in
2006, and $6.7 billion in 2007. SIB had approximately $3.8 billion in CD sales to 35,000
customers in 2005. By the end of2007, SIB sold $6.7 billion of CDs to 50,000 customers.
SEC v. Stanford International Bank, Ltd., et al.COMPLAINT
8
Case 3:09-cv-00298-N Document 1 Filed 02/17/2009 Page 9 of 26• •28. For almost fifteen years, SIB represented that it has experienced consistently high
returns on its investment ofdeposits (ranging from 11.5% in 2005 to 16.5% in 1993):
51AIiFORD INTBlNATIONAL BANKReturn Vs.lnterest Paid To Depositors
29. In fact, since 1994, SIB has never failed to hit targeted investment returns in
excess of 10%. And, SIB claims that its "diversified portfolio of investments" lost only $110
million or 1.3% in 2008. During the same time period, the S&P 500 lost 39% and the Dow
Jones STOXX Europe 500 Fund lost 41 %.
30. As performance reporting consultant hired by SGC testified in the Commission's
investigation, SIB's historical returns are improbable, if not impossible. In 1995 and 1996, SIB
reported identical returns of 15.71%, a remarkable achievement considering the bank's
"diversified investment portfolio." According to defendant Pendergest-Holt -- the chief
investment officer of SIB-affiliate SFG - it is "improbable" that SIB could have managed a
"global diversified" portfolio of investments so that it returned identical results in consecutive
years. SGC's performance reporting consultant was more emphatic, saying that it is
"impossible" to achieve identical results on a diversified investment portfolio in consecutive
years. SIB continues to promote its CDs using these improbable, ifnot impossible, returns.
SEC v. Stanford International Bank, Ltd., et al.COMPLAINT
9
Case 3:09-cv-00298-N Document 1 Filed 02/17/2009 Page 10 of 26• •31. SIB's consistently high returns of investment have enabled the bank to pay a
consistently and significantly higher rate on its CD than conventional banks. For example, SIB
offered 7.45% as ofJune 1,2005, and 7.878% as ofMarch 20,2006, for a fixed rate CD based
on an investment of$100,000. On November 28,2008, SIB quoted 5.375% on a 3 year CD,
while comparable U.S. Banks' CDs paid under 3.2%. And recently, SIB quoted rates ofover
10% on five year CDs.
32. SIB's extraordinary returns have enabled the bank to pay disproportionately large
commissions to SGC for the sale of SIB CDs. In 2007, SIB paid to SGC and affiliates $291.7
million in management fees and commissions from CD sales, up from $211 million in 2006 and
$161 million in 2005.
33. SIB markets CDs to investors in the United States exclusively through SGC
advisers pursuant to a claimed Regulation D offering, filing a Form D with the SEC. Regulation
D permits under certain circumstances the sale of unregistered securities (the CDs) to accredited
investors in the United States. SGC receives 3% based on the aggregate sales ofCDs by SGC
advisers. Financial advisers also receive a 1% commission upon the sale of the CDs, and are
eligible to receive as much as a 1% trailing commission throughout the term ofthe CD.
34. SGC promoted this generous commission structure in its effort to recruit
established financial advisers to the firm. The commission structure also provided a powerful
incentive for SGC financial advisers to aggressively sell CDs to United States investors, and
aggressively expanded its number of financial advisers in the United States.
35. SIB purportedly manages the investment portfolio from Memphis and Tupelo.
SIB's investment portfolio, at least internally, is segregated into 3 tiers: (a) cash and cash
equivalents ("Tier 1"), (b) investments with "outside portfolio managers (25+)" that are
SEC v. Stanford International Bank, Ltd., et al.COMPLAINT
10
Case 3:09-cv-00298-N Document 1 Filed 02/17/2009 Page 11 of 26• •monitored by the Analysts ("Tier 2"), and (c) unknown assets under the apparent control of
Stanford and Davis ("Tier 3"). As ofDecember 2008, Tier 1 represented approximately 9%
($800 million) of the Bank's portfolio. Tier 2, prior to the Bank's decision to liquidate $250
million of investments in late 2008, represented 10% ofthe portfolio. And Tier 3 represented
81 % of the Bank's investment portfolio. This division into tiers is not generally disclosed to
actual or potential investors.
B. SIB's Fraudulent Sale of CDs
1. SIB Misrepresented that Its Investment Portfolio is Invested Primarily in"Liquid" Financial Instruments.
36. In selling the CD, SIB touted the liquidity ofits investment portfolio. For
example, in its CD brochure, SIB emphasizes the importance of the liquidity, stating, under the
heading "Depositor Security," that the bank focuses on "maintaining the highest degree of
liquidity as a protective factor for our depositors" and that the bank's assets are "invested in a
well-diversified portfolio ofhighly marketable securities issued by stable governments, strong
multinational companies and major international banks." Likewise, the bank trained SGC
advisers that "liquidity/marketability of SIB's invested assets" was the "most important factor to
provide security to SIB clients." Davis and Pendergest-Holt were aware, or were reckless in not
knowing, of these representations.
37. In its 2007 annual report, which was signed and approved by Stanford and Davis,
SIB represented that its portfolio was allocated in the following manner: 58.6% "equity," 18.6%
fixed income, 7.2% precious metals and 15.6% alternative investments. These allocations were
depicted in a pie chart, which was approved by Davis. The bank's annual reports for 2005 and
2006 make similar representations about the allocation of the bank's portfolio. Davis and
Stanford knew or were reckless in not knowing of these representations.
SEC v. Stanford International Bank, Ltd., et al.COMPLAINT
11
Case 3:09-cv-00298-N Document 1 Filed 02/17/2009 Page 12 of 26• •
38. SIB's investment portfolio is not, however, invested in a "well-diversified
portfolio ofhighly marketable securities issued by stable governments, strong multinational
companies and major international banks." Instead, Tier 3 (i.e., approximately 90%) consisted
primarily of illiquid investments - namely private equity and real estate. Indeed, it SIB's
portfolio included at least 23% private equity. The bank never disclosed in its financial
statements its exposure to private equity and real estate investments. Stanford, Davis and
Pendergest-Holt were aware, or were reckless in not knowing, that SIB's investments were not
allocated as advertised by SIB's investment objectives or as detailed in SIB's financial
statements.
39. Further, on December 15, 2008, Pendergest-Holt met with her team of analysts
following SIB's decision to liquidate more than 30% of its Tier 2 investments (approximately
$250 million). During the meeting, at least one analyst expressed concern about the amount of
liquidations in Tier 2, asking why it was necessary to liquidate Tier 2, rather than Tier 3 assets,
to increase SIB's liquidity. Pendergest-Holt told the analyst that Tier 3 was primarily invested
in private equity and real estate and Tier 2 was more liquid than Tier 3. Pendergest-Holt also
stated that Tier 3 "always had real estate investments in it." Pendergest's statements contradicts
SEC v. Stanford International Bank, Ltd., et al.COMPLAINT
12
Case 3:09-cv-00298-N Document 1 Filed 02/17/2009 Page 13 of 26• •what she had previously stated to SIB's senior investment adviser, knowing, or reckless in not
knowing, that the senior investment advisor would provide this misrepresentation to investors.
2. SIB Misrepresented that Its Multi-Billion Dollar Investment Portfolio isMonitored By a Team ofAnalysts
40. Prior to making their investment decision, prospective investors routinely asked
how SIB safeguarded and monitored its assets. In fact, investors frequently inquired whether
Allen Stanford could "run off with the [investor's] money." In response to this question, at least
during 2006 and much of2007, the bank's senior investment officer - as instructed by
Pendergest-Holt - told investors that SIB had sufficient controls and safeguards in place to
protect assets.
41. In particular, the SIO was trained by Ms. Pendergest-Holt to tell investors that the
bank's multi-billion portfolio was "monitored" by the analyst team in Memphis. In
communicating with investors, the SIO followed Pendergest's instructions, misrepresenting that
a team of20-plus analysts monitored the bank's investment portfolio. In so doing, the SIO never
disclosed to investors that the analyst only monitor approximately 10% of SIB's money. In fact,
Pendergest-Holt trained the SIO "not to divulge too much" about oversight ofthe Bank's
portfolio because that information ''wouldn't leave an investor with a lot of confidence."
Likewise, Davis instructed him to "steer" potential CD investors away from information about
SIB's portfolio. As a result, both Davis and Pendergest-Holt knew, or were reckless in not
knowing, of these fraudulent misstatements.
42. Contrary to the representation that responsibility for SIB's multi-billion portfolio
was "spread out" among 20-plus people, only Stanford and Davis know the whereabouts of the
vast majority of the bank's multi-billion investment portfolio. Pendergest-Holt and her team of
analysts claim that they have never been privy to Tier 1 or Tier 3 investments. In fact, the SIO
SEC v. Stanford International Bank, Ltd., et al.COMPLAINT
13
Case 3:09-cv-00298-N Document 1 Filed 02/17/2009 Page 14 of 26• •was repeatedly denied access to the Bank's records relating to Tier 3, even though he was
responsible, as the Bank's Senior Investment Officer, for "closing" deals with large investors,
"overseeing the Bank's investment portfolio" and "ensuring that the investment side is compliant
with the various banking regulatory authorities." In fact, in preparing the Bank's period reports
(quarterly newsletters, month reports, mid-year reports and annual reports, Pendergest and the
Analyst send to Davis the performance results for Tier 2 investments. And Davis calculates the
investment returns for the aggregated portfolio of assets.
3. SIB Misrepresented that its Investment Portfolio is Overseen by a RegulatoryAuthority in Antigua that Conducts a Yearly Audit of the Fund's FinancialStatements.
43. SIB told investors that their deposits were safe because the Antiguan regulator
responsible for oversight ofthe Bank's investment portfolio, the Financial Services Regulatory
Commission (the "FSRC"), audited its financial statements. But, contrary to the Bank's
representations to investors, the FSRC does not verify the assets SIB claims in its financial
statements. Instead, SIB's accountant, C.A.S. Hewlett & Co., a small local accounting firm in
Antigua is responsible for auditing the multi-billion dollar SIB's investment portfolio. The
Commission attempted several times to contact Hewlett by telephone. No one ever answered the
phone.
4. SIB Misrepresented that Its Investment Portfolio is Without "Direct orIndirect" Exposure to Fraud Perpetrated by Bernard MadofJ.
44. In a December 2008 Monthly Report, the bank told investors that their money was
safe because SIB "had no direct or indirect exposure to any of [Bernard] Madoffs investments."
But, contrary to this statement, at least $400,000 in Tier 2 was invested in Meridian, a New
York-based hedge fund that used Tremont Partners as its asset manager. Tremont invested
approximately 6-8% of the SIB assets they indirectly managed with Madoffs investment firm.
SEC v. Stanford International Bank, Ltd., et al.COMPLAINT
14
Case 3:09-cv-00298-N Document 1 Filed 02/17/2009 Page 15 of 26.. • •45. Pendergest, Davis and Stanford knew about this exposure to loss relating to the
Meridian investment. On December 15,2008, an Analyst informed Pendergast, Davis and
Stanford in a weekly report that his "rough estimate is a loss of $400k ... based on the indirect
exposure" to Madoff.
5. Market Concerns About SIB's Lack ofTransparency
46. On or about December 12, 2008, Pershing, citing suspicions about the bank's
investment returns and its inability to get from the Bank "a reasonable level of transparency" into
its investment portfolio informed SGC that it would no longer process wire transfers from SGC
to SIB for the purchase ofthe CD. Since the spring of2008, Pershing tried unsuccessfully to get
an independent report regarding SIB's financials condition. On November 28,2008, SGC's
President, Danny Bogar, informed Pershing that "obtaining the independent report was not a
priority." Between 2006 and December 12,2008, Pershing sent to SIB 1,635 wire transfers,
totaling approximately $517 million, from approximately 1,199 customer accounts.
D. From at least 2004, SCM misrepresented SAS performance results.
47. From 2004 through 2009, SCM induced clients, including non-accredited, retail
investors, to invest in excess of $1 billion in its SAS program by touting its track record of
"historical performance." SCM highlighted the purported SAS track record in thousands of
client presentation books ("pitch books").
48. For example, the following chart from a 2006 pitch book presented clients with
the false impression that SAS accounts, from 2000 through 2005, outperformed the S&P 500 by
an average of approximately 13 percentage points:
SEC v. Stanford International Bank, Ltd., et al.COMPLAINT
15
Case 3:09-cv-00298-N Document 1 Filed 02/17/2009 Page 16 of 26• •2005 2004 2003 2002 2001 2000
SAS Growth 12J'9% 1fi15% 32.84% -:tJ3% 4.32% UUM%
4.91% 11188%28.68% -22..10% -11.88% -9.11%
SCM used these impressive, but fictitious, performance results to grow the SAS program from
less than $10 million in assets in 2004 to over $1 billion in 2008.
49. SOC also used the SAS track record to recruit financial advisers away from
legitimate advisory firms who had significant books ofbusiness. After arriving at Stanford, the
newly-hired financial advisors were encouraged and highly incentivized to put their clients'
assets in the SIB CD.
50. The SAS performance results used in the pitch books from 2005 through 2009
were fictional and/or inflated. Specifically, SCM misrepresented that SAS performance results,
for 1999 through 2004, reflected "historical performance" when, in fact, those results were
fictional, or "back-tested", numbers that do not reflect results of actual trading. Instead, SCM,
with the benefit ofhindsight, picked mutual funds that performed extremely well during years
1999 through 2004, and presented the back-tested performance of those top-performing funds to
potential clients as if they were actual returns earned by the SAS program.
51. Similarly, SCM used "actual" model SAS performance results for years 2005
through 2006 that were inflated by as much as 4%.
52. SCM told investors that SAS has positive returns for periods in which actual SAS
clients lost substantial amounts. For example, in 2000, actual SAS client returns ranged from
negative 7.5% to positive 1.1%. In 2001, actual SAS client returns ranged from negative 10.7%
SEC v. Stanford International Bank, Ltd., et al.COMPLAINT
16
Case 3:09-cv-00298-N Document 1 Filed 02/17/2009 Page 17 of 26,. • •to negative 2.1 %. And, in 2002, actual SAS client returns ranged from negative 26.6% to
negative 8.7%. These return figures are all gross of SCM advisory fees ranging from 1.5% to
2.75%. Thus, Stanford's claims of substantial market out performance were blatantly false.
(e.g., a claimed return of 18.04% in 2000, when actual SAS investors lost as much as 7.5%).
53. SOC/SCM's management knew that the advertised SAS performance results were
misleading and inflated. From the beginning, SCM management knew that the pre-2005 track
record was purely hypothetical, bearing no relationship to actual trading. And, as early as
November 2006, SCM investment advisers began to question why their actual clients were not
receiving the returns advertised in pitch books.
54. In response to these questions, SOC/SCM hired an outside performance reporting
expert, to review certain of its SAS performance results. In late 2006 and early 2007, the expert
informed SCM that its performance results for the twelve months ended September 30, 2006
were inflated by as much as 3.4 percentage points. Moreover, the expert informed SCM
managers that the inflated performance results included unexplained "bad math" that consistently
inflated the SAS performance results over actual client performance. Finally, in March 2008, the
expert informed SCM managers that the SAS performance results for 2005 were also inflated by
as much as 3.25 percentage points.
55. Despite their knowledge ofthe inflated SAS returns, SOC/SCM management
continued using the pre-2005 track record and never asked Riordan to audit the pre-2005
performance. In fact, in 2008 pitch books, SCM presented the back-tested pre-2005 performance
data under the heading "Historical Performance" and "Manager Performance" along side the
audited 2005 through 2008 figures. According to SCM's outside consultant, it was "[grossly
misleading]" to present audited performance figures along side back-tested figures.
SEC v. Stanford International Bank, Ltd., et al.COMPLAINT
17
Case 3:09-cv-00298-N Document 1 Filed 02/17/2009 Page 18 of 26• •56. Finally, SGC/SCM compounded the deceptive nature of the SAS track record by
blending the back-tested performance with audited composite performance to create annualized 5
and 7 year performance figures that bore no relation to actual SAS client performance. A sample
of this misleading disclosure used in 2008 and 2009 follows:
SASG~h
57. Other than the fees paid by SIB to SGC for the sale of the CD, SAS was the
second most significant source of revenue for the firm. In 2007 and 2008, approximately $25
million in fees from the marketing of the SAS program.
CAUSES OF ACTION
FIRST CLAIMAS TO ALL DEFENDANTS
Violations of Section 10(b) of the Exchange Act and Rule 10-5
58. Plaintiff Commission repeats and realleges paragraphs 1 through 57 of this
Complaint and incorporated herein by reference as if set forth verbatim.
59. Defendants, directly or indirectly, singly or in concert with others, in connection
with the purchase and sale of securities, by use of the means and instrumentalities of interstate
SEC v. Stanford International Bank, Ltd., et al.COMPLAINT
18
Case 3:09-cv-00298-N Document 1 Filed 02/17/2009 Page 19 of 26• •commerce and by use of the mails have: (a) employed devices, schemes and artifices to defraud;
(b) made untrue statements ofmaterial facts and omitted to state material facts necessary in order
to make the statements made, in light of the circumstances under which they were made, not
misleading; and (c) engaged in acts, practices and courses ofbusiness which operate as a fraud
and deceit upon purchasers, prospective purchasers and other persons.
60. As a part of and in furtherance of their scheme, defendants, directly and
indirectly, prepared, disseminated or used contracts, written offering documents, promotional
materials, investor and other correspondence, and oral presentations, which contained untrue
statements of material facts and misrepresentations ofmaterial facts, and which omitted to state
material facts necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading.
61. Defendants made the referenced misrepresentations and omissions knowingly or
grossly recklessly disregarding the truth.
62. For these reasons, Defendants have violated and, unless enjoined, will continue to
66. Plaintiff Commission repeats and realleges paragraphs 1 through 57 ofthis
Complaint and incorporated herein by reference as if set forth verbatim.
67. Defendants, directly or indirectly, singly or in concert with others, in the offer and
sale of securities, by use of the means and instruments of transportation and communication in
interstate commerce and by use of the mails, have: (a) employed devices, schemes or artifices to
defraud; (b) obtained money or property by means ofuntrue statements ofmaterial fact or
omissions to state material facts necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading; and (c) engaged in transactions,
practices or courses ofbusiness which operate or would operate as a fraud or deceit.
68. As part ofand in furtherance of this scheme, defendants, directly and indirectly,
prepared, disseminated or used contracts, written offering documents, promotional materials,
investor and other correspondence, and oral presentations, which contained untrue statements of
material fact and which omitted to state material facts necessary in order to make the statements
made, in light of the circumstances under which they were made, not misleading.
69. Defendants made the referenced misrepresentations and omissions knowingly or
grossly recklessly disregarding the truth.
SEC v. Stanford International Bank, Ltd., et al.COMPLAINT
20
Case 3:09-cv-00298-N Document 1 Filed 02/17/2009 Page 21 of 26• •70. For these reasons, Defendants have violated, and unless enjoined, will continue to
FOURTH CLAIMAS TO STANFORD, SGC, AND STANFORD CAPITAL
Violations of Sections 206(1) and 206(2) of the Advisers Act
71. Plaintiff Commission repeats and realleges paragraphs 1 through 57 of this
Complaint and incorporated herein by reference as if set forth verbatim.
72. Stanford, SGC, and Stanford Capital, directly or indirectly, singly or in concert,
knowingly or recklessly, through the use of the mails or any means or instrumentality of
interstate commerce, while acting as investment advisers within the meaning of Section 202(11)
of the Advisers Act [15 U.S.C. § 80b-2(11)]: (a) have employed, are employing, or are about to
employ devices, schemes, and artifices to defraud any client or prospective client; or (b) have
engaged, are engaging, or are about to engage in acts, practices, or courses ofbusiness which
operates as a fraud or deceit upon any client or prospective client.
73. For these reasons, Stanford, SGC, and Stanford Capital have violated, and unless
enjoined, will continue to violate Sections 206(1) and 206(2) of the Advisers Act [15 U.S.C. §§
80b-6(1) and 80b-6(2)].
FIFTH CLAIMAS TO STANFORD, DAVIS, AND PENDERGEST-HOLT
Aiding and Abetting Violations of Sections 206(1) and 206(2) of the Advisers Act
74. Plaintiff Commission repeats and realleges paragraphs 1 through 57 of this
Complaint and incorporated herein by reference as if set forth verbatim.
75. Based on the conduct alleged herein, Stanford, Davis, and Pendergest-Holt, in the
manner set forth above, knowingly or with severe recklessness provided substantial assistance in
SEC v. Stanford International Bank, Ltd., et al.COMPLAINT
21
Case 3:09-cv-00298-N Document 1 Filed 02/17/2009 Page 22 of 26• •connection with the violations ofAdvisers Act Sections 206(1) and 206(2) [15 U.S.C. §§ 80b-
6(1) and 80b-6(2)] alleged herein.
76. For these reasons, Stanford, Davis, and Pendergest-Holt aided and abetted and,
unless enjoined, will continue to aid and abet violations of Sections 206(1) and 206(2) of the
Advisers Act [15 U.S.C. §§ 80b-6(1) and 80b-6(2)].
SIXTH CLAIMAS TO SIB AND SGC
Violations of Section 7Cd) of the Investment Company Act
77. Plaintiff Commission repeats and realleges paragraphs 1 through 57 of this
Complaint and incorporated herein by reference as if set forth verbatim.
78. SIB, an investment company not organized or otherwise created under the laws of
the United States or of a State, directly or indirectly, singly or in concert with others, made use of
the mails or any means or instrumentality of interstate commerce, directly or indirectly, to offer
for sale, sell, or deliver after sale, in connection with a public offering, securities ofwhich SIB
was the issuer, without obtaining an order from the Commission permitting it to register as an
investment company organized or otherwise created under the laws of a foreign country and to
make a public offering of its securities by use of the mails and means or instrumentalities of
interstate commerce.
79. SGC, directly or indirectly, singly or in concert with others, acted as an
underwriter for SIB, an investment company not organized or otherwise created under the laws
of the United States or of a State that made use of the mails or any means or instrumentality of
interstate commerce, directly or indirectly, to offer for sale, sell, or deliver after sale, in
connection with a public offering, securities ofwhich SIB was the issuer, without obtaining an
order from the Commission permitting it to register as an investment company organized or
SEC v. Stanford International Bank, Ltd., et al.COMPLAINT
22
Case 3:09-cv-00298-N Document 1 Filed 02/17/2009 Page 23 of 26• •otherwise created under the laws of a foreign country and to make a public offering of its
securities by use of the mails and means or instrumentalities of interstate commerce.
80. For these reasons, SIB and SOC have violated, and unless enjoined, will continue
to violate Section 7(d) of the Investment Company Act [15 U.S.C. § 80a-7(d)].
RELIEF REQUESTED
Plaintiff Commission respectfully requests that this Court:
I.
Temporarily, preliminarily, and permanently enjoin: (a) Defendants from violating, or
aiding and abetting violations of, Section 1O(b) and Rule 10b-5 of the Exchange Act; (b)
Holt, SOC, and Stanford Capital from violating, or aiding and abetting violations of, Sections
206(1) and 206(2) of the Advisers Act; and (d) SIB and SCO from violating Section 7(d) of the
Investment Company Act.
II.
Enter an Order immediately freezing the assets ofDefendants and directing that all
financial or depository institutions comply with the Court's Order. Furthermore, order that
Defendants immediately repatriate any funds held at any bank: or other financial institution not
subject to the jurisdiction ofthe Court, and that they direct the deposit of such funds in identified
accounts in the United States, pending conclusion ofthis matter.
III.
Order that Defendants shall file with the Court and serve upon PlaintiffCommission and
the Court, within 10 days of the issuance ofthis order or three days prior to a hearing on the
Commission's motion for a preliminary injunction, whichever comes first, an accounting, under
SEC v. Stanford International Bank, Ltd., et al.COMPLAINT
23
Case 3:09-cv-00298-N Document 1 Filed 02/17/2009 Page 24 of 26• •oath, detailing all of their assets and all funds or other assets received from investors and from
one another.
IV.
Order that Defendants be restrained and enjoined from destroying, removing, mutilating,
altering, concealing, or disposing of, in any manner, any of their books and records or documents
relating to the matters set forth in the Complaint, or the books and records and such documents of
any entities under their control, until further order of the Court.
V.
Order the appointment of a temporary receiver for Defendants, for the benefit of
investors, to marshal, conserve, protect, and hold funds and assets obtained by the defendants
and their agents, co-conspirators, and others involved in this scheme, wherever such assets may
be found, or, with the approval of the Court, dispose of any wasting asset in accordance with the
application and proposed order provided herewith.
VI.
Order that the parties may commence discovery immediately, and that notice periods be
shortened to permit the parties to require production ofdocuments, and the taking of depositions
on 72 hours' notice.
VII.
Order Defendants to disgorge an amount equal to the funds and benefits they obtained
illegally as a result of the violations alleged herein, plus prejudgment interest on that amount.
VIII.
Order civil penalties against Defendants pursuant to Section 20(d) of the Securities Act
[15 U.S.C. § 77t(d)], Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)], Section 41(e) of
SEC v. Stanford International Bank, Ltd., et al.COMPLAINT
24
Case 3:09-cv-00298-N Document 1 Filed 02/17/2009 Page 25 of 26• •the Investment Company Act [15 U.S.C. § 80a-41(e)], and Section 209(e) of the Advisers Act
[15 U.S.C. § 80b-9(e)] for their securities law violations.
IX.
Order that Stanford, Davis, and Pendergest-Holt immediately surrender their passports to
the Clerk of this Court, to hold until further order of this Court.
X.
Order such further relief as this Court may deem just and proper.
For the Commission, by its attorneys:
February 16,2009
SEC v. Stanford International Bank, Ltd., et al.COMPLAINT
Respectfully submitted,
U.S. Securities and Exchange CommissionBurnett Plaza, Suite 1900801 Cherry Street, Unit #18Fort Worth, TX 76102-6882(817) 978-6476 (dbr)(817) 978-4927 (fax)
25
Case 3:09-cv-00298-N Document 1 Filed 02/17/2009 Page 26 of 26JS44'(Rev. 3/9'l)
I.(a) PLAINTIFF DEFEN
SECURITIES AND EXCHANGE COMMISSION STANFORD INTERNATIONAL BANK, LTD., STANFORD
GROUP COMPANY, STANFORD CAPITAL MANAGEMENT,
LLC, R. ALLEN STANFORD, JAMES M. DAVIS, and LAURA
PENDERGEST-HOLT
RECEIVED"
<;~
(b) COUNTY OF RESIDENCE OF FIRST LISTED PLAINTIFF County of Residence of First isted Defendant: Sl. Jot n'sA tigua,
(EXCEPT IN U.S. PLAINTIFF CASES) West Indies~ otlr£B I 1 20m(IN U.S. PLAINTIFF leASE
NOTE: IN LAND CONDEM~IAoTIO CASES, USE THE LOCATIO OF HETRACT OF lAND IN OlV D.
(c) ATTORNEY (FIRM NAME, ADDRESS, AND TELEPHONE NUMBER) ATIORNEYS (If know ):CLERK, U.S. DISTRICT COURT
David B. Reece NORTHERN DISTRICT OF TEXAS
U.S. Securities & Exchange Commission, Burnett Plaza, Ste. 1900,
801 Cherry Street, Unit #18, Fort Worth, TX 76102-6882
(817) 978-6476
II. BASIS OF JURISDICTION (PLACE AN "X" IN ONE BOX ONLY) III. CITIZENSHIP OF PRINCIPAL PARTIES(PLACE AN 'X" IN ONE BOX FORPLAINTIFF AND ONE BOX FOR
(For Diversity Cases Only) DEFENDANT)
PTF PTF PTF PTF
1811 U.S. Government o 3 Federal Question Citizen of This State 01 01 Incorporated or Principal Place 04 04Plaintiff (U.S. Government Not a Party) of Business In This State
Citizen of Another State 02 02o 2 U.S. Government o 4 Diversity Incorporated and Principal Place 05 05Defendant (Indicate Citizenship of Parties Citizen or SUbject of a 03 03 of Business in Another State
in Item III) Foreign CountryForeian Nation 06 06
The JS-44 civil cover sheet and the infonnation contained herein neither replace nor supplement the filing and service of pleadings or other papers as required by law, except asprovided by local rules of court. This fonn, approved by the Judicial Conference of the United States in September 1974, is required for the use of the CJl\k of C<yt for thepurpose of initiating the civil docket sheet. (SEE INSTRUCTIONS ON THE REVERSE OF THE FORM.) ~ 0 9 CV0 2 9 0 - 1.&
IV. NATURE OF SUIT (PLACE AN ")(" /N ONE BOX ONL Y)
CONTRACT TORTS FORFEITURE/PENALTY BANKRUPTCY OTHER STATUTESo 110 Insurance PERSONAL INJURY PERSONAL INJURY o 610 Agriculture o 400 State Reapprotionmento 120 Marine 0310 Airplane o 362 Personal Injury - o 620 Other Food & Drug o 422 Appeal 28 USC 156 o 410 Antitrusto 130 Miller Act o 315 Airplane Product Med. Malpractice o 625 Drug Related Seizure of o 430 Banks and Bankingo 140 Negotiable Instrument Liability o 365 Personal Injury - Property 21 USC 881 o 423 Withdrawal o 450 Commerce/ICCo 150 Recovery of o 320 Assault, Libel & Product Liability o 630 Liquor Laws 28 USC 157 Rates/etc.Overpayment Slander o 460 Deportation
& Enforcement of Judgmento 151 Medicare Act 0 330 Federal Employers' o 368 Asbestos Personal .0 640 R.R. & Truck PROPERTY RIGHTS o 470 Racketeer Influenced
Liability Injury Product Liability and Corrupt Organizationso 152 Recovery of Defaulted 0340 Marine PERSONAL PROPERTY o 650 Airline Regs. o 820 Copy rights o 810 Selective Service
Student Loans (Excl. Veterans) o 345 Marine Product o 370 Other Fraud o 660 Occupational Safety/Health o 830 Patient 181 850 SecuritiesLiability o 371 Truth in Lending o 690 Other o 840 Trademark Commodities/ Exchange
o 153 Recovery OF o 350 Motor Vehicle o 380 Other Personal LABOR SOCIAL SECURITY o 875 Customer ChallengeOverpayment Property Damage 12 USC 3410
of Veteran's Benefitso 160 Stockholders' Suits o 355 Motor Vehicle o 385 Property Damage 0710 Fair Labor Standards Act o 861 HIA (1395FF) o 891 Agricultural Actso 190 Other Contract Product Liability Product Liability o 862 Black Lung (923) o 892 Economic Stabilizationo 195 Contract Product Liability o 360 Other Personal o 720 Labor/Mgmt. Relations 0863 DIWC/DIWW (405(g)) Act
IniurvREAL PROPERTY CIVIL RIGHTS PRISONER PETITIONS o 730 Labor/Mgmt. Reporting & o 864 SSID Title XVI o 893 Environmental Matters
Disclosure Act 0865 RSI (405(0)) o 894 Energy Allocation Act0210 Land Condemnation 0441 Voting o 510 Motions to Vacate 0740 Railway Labor Act FEDERAL TAX SUITS o 895 Freedom of
Sentence Information Acto 220 Foreclosure o 442 Employment Habeas Corpus: o 790 Other Labor Litigation o 870 Taxes (U.S. Plaintiff or o 900 Appeal of Feeo 230 Rent Lease & Ejectment o 443 Housing/ o 530 General Defendant) Determination Under0240 Torts to Land Accommodations o 535 Death Penalty o 791 Empl. Ret. Inc. o 871 IRS - Third Party Equal Access to Justiceo 245 Tort Product Liability o 444 Welfare o 540 Mandamus & Other Security Act 26 USC 7609 o 950 Constitutionality ofo 290 All Other Real Property o 440 Other Civil Rights o 550 Civil Rights State Statutes
o 890 Other Statutory Actions
V. ORIGIN (PLACE AN "X" IN ONE BOX ONLY)
1811 OriginalProceeding
o 2 Removed fromState Court
o 3 Remanded fromAppellate Court
o 4 Reinstated orReopened
VI. CAUSE OF ACTION (CITE THE U.S. CIVIL STATUTE UNDER WHICH YOU ARE FILING AND WRITE BRIEF STATEMENT OF CAUSE. DO NOT CITE JURISDICTIONSL STATUTUESUNLESS DIVERSITY.)
Section 17(a) of the Securities Act of 1933, [15 U.S.C. §77q(a)], Section 1O(b) of the Securities Exchange Act of 1934, [15 U.S.C. §78j(b)] and Rule 10b-5thereunder [17 C.F.R. §240.1 Ob-5], Sections 206(1) and 206(2) of the Investment Advisors Act of 1940, [15 U.S.C. §8'Ob-6(1) and §80b-6(2)] and Section 7(d) ofthe Investment Company Act of 1940 [15 U.S.C. §80a-7(d)].
VII. REQUESTED IN CHECK IF THIS IS A CLASS ACTION
COMPLAINT: 0 UNDER F.R.C.P. 2326 USC 7609
DEMAND $ CHECK YES only if demanded in complaint:
JURY DEMAND 0 YES 181 NO
DOCKET NUMBERSIGN
_____ AMOUNT APPLYING IFP JUDGE MAG. JUDGE _
VIII. RELATED CASE(S) (See Instructions):
IF ANY JUDGE
Case 1:09-mc-00002-JAD Document 1-2 Filed 02/20/2009 Page 1 of 26
IN THE UNITED STATES DISTRICT CO RTFOR THE NORTHERN DISTRICT OF TE S
DALLAS DIVISION
I Case 3:09-CV-00.L Document 1 Filed 02/17/2
01ilGINALPage 1 of 26
US DISTRICT COURTNORTHERN DlSTR1CTOFTEXAS
FIL:ED_
FEB '1 zm
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff,
v.
STANFORD INTERNATIONAL BANK, LTD.,STANFORD GROUP COMPANY,STANFORD CAPITAL MANAGEMENT, LLC,R. ALLEN STANFORD, JAMES M. DAVIS, andLAURA PENDERGEST-HOLT
Defendants.
§ CLERK, U.S.~W1CT COURT
§ '. By ~
§§§ COMPLAINT§
~ I-09CV0 298-L§
I /:Oq mt ~ <S7fJ)§
Plaintiff Securities and Exchange Commission alleges:
SUMMARY
1. The Commission seeks emergency relief to halt a massive, ongoing fraud
orchestrated by R. Allen Stanford and James M. Davis and executed through companies they
control, including Stanford International Bank, Ltd. ("SIB") and its affiliated Houston-based
investment adVisers, Stanford Group Company ("SGC") and Stanford Capital Management
("SCM"). Laura Pendergest-Holt, the chief investment officer ofa Stanford affiliate, was
indispensable to this scheme by helping to preserve the appearance of safety fabricated by
Stanford and by training others to mislead investors. For example, she trained training SIB's
senior investment officer to provide false information to investors.
2. Through this fraudulent scheme, SIB, acting through a network of SGC financial
advisors, has sold approximately $8 billion of self-styled "certificates ofdeposits" by promising
high return rates that exceed those available through true certificates ofdeposits offered by
traditional banks.
Case 1:09-mc-00002-JAD Document 1-2 Filed 02/20/2009 Page 2 of 26Case 3:09-CV-001-L Document 1 Filed 02/17/2' Page 2 of 26
3. sm claims that its unique investment strategy has allowed it to achieve double-
digit returns on its investments over the past 15 years, allowing it offer high yields to CD
purchasers. Indeed, sm claims that its "diversified portfolio of investments" lost only 1.3% in
2008, a time during which the S&P 500 lost 39% and the Dow Jones STOXX Europe 500 Fund
lost 41%.
4. Perhaps even more strange, sm reports identical returns in 1995 and 1996 of
exactly 15.71%. As Pendergest-Holt - sm investment committee member and the chief
investment officer of Stanford Group Financial (a Stanford affiliate) - admits, it is simply
"improbable" that sm could have managed a "global diversified" portfolio of investments in a
way that returned identical results in consecutive years. A performance reporting consultant
hired by SOC, when asked about these "improbable" returns, responded simply that it is
''impossible'' to achieve identical results on a diversified investment portfolio in consecutive
years. Yet, sm continues to promote its CDs using these improbable returns.
5. These improbable results are made even more suspicious by the fact that, contrary
to assurances provided to investors, at most only two people - Stanford and Davis - know the
details concerning the bulk of sm's investment portfolio. And sm goes to great lengths to
prevent any true independent examination of those portfolios. For example, its long-standing
auditor is reportedly retained based on a "relationship of trust" between the head ofthe auditing
finn and Stanford.
6. Importantly, contrary to recent public statements by sm, Stanford and Davis (and
through them SOC) have wholly-failed to cooperate with the Commission's efforts to account
for the $8 billion ofinvestor funds purportedly held by sm. In short, approximately 90% of
SEC v. Stanford International Bank, Ltd., et al.COMPLAINT
2
Case 1:09-mc-00002-JAD Document 1-2 Filed 02/20/2009 Page 3 of 26
• Case 3:09-CV-001-L Document 1 Filed 02/17/2. Page 3 of 26
SIB's claimed investment portfolio resides in a "black box" shielded from any independent
oversight.
7. In fact, far from "cooperating" with the Commission's enforcement investigation
(which Stanford has reportedly tried to characterize as only involving routine examinations),
sac appears to have used press reports speculating about the Commission's investigation as
way to further mislead investors, falsely telling at least one customer during the week of
February 9, 2009, that his multi-million dollar SIB CD could not be redeemed because ''the SEC
had frozen the account for two months." At least one other customer who recently inquired
about redeeming a multi-million dollar CD claims that he was informed that, contrary to
representations made at the time ofpurchase that the CD could be redeemed early upon payment
ofa penalty, R. Allen Stanford had ordered a two-month moratorium on CD redemptions.
8. This secrecy and recent misrepresentations are made even more suspicious by
extensive and fundamental misrepresentations SIB and its advisors have made to CD purchasers
in order to lull them into thinking their investment is safe. sm and its advisers have
misrepresented to CD purchasers that their deposits are safe because the bank: (i) re-invests client
funds primarily in ''liquid'' financial instruments (the ''portfolio''); (li) monitors the portfolio through
a team of20-plus analysts; and (iii) is subject to yearly audits by Antiguan regulators. Recently, as
the market absorbed the news ofBemard Madoff's massive Ponzi scheme, SIB has attempted to
calm its own investors by claiming the bank has no "direct or indirect" exposure to Madoff's
scheme.
9. These assurances are false. Contrary to these representations, sm's investment
portfolio was not invested in liquid financial instruments or allocated in the manner described in its
promotional material and public reports. Instead, a substantial portion ofthe bank's portfolio was
SEC v. Stanford Internationa/ Bank, Ltd., et a/.COMPLAINT
3
Case 1:09-mc-00002-JAD Document 1-2 Filed 02/20/2009 Page 4 of 26Case 3:09-CV-00.L Document 1 Filed 02/17/2. Page 4 of 26
placed in illiquid investments, such as real estate and private equity. Further, the vast majority
sm's multi-billion dollar investment portfolio was not monitored by a team ofanalysts, but rather
by two people - Allen Stanford and James Davis. And contrary to sm's representations, the
Antiguan regulator responsible for oversight of the bank's portfolio, the Financial Services
Regulatory Commission, does not audit sm's portfolio or verify the assets sm claims in its
financial statements. Perhaps most alarming is that sm has exposure to losses from the Madoff
fraud scheme despite the bank's public assurances to the contrary.
10. SOC has failed to disclose material facts to its advisory clients. Alarmingly, recent
weeks have seen an increasing amount of liquidation activity by sm and attempts to wire money
out of its investment portfolio. The Commission has received information indicating that in just
the last two weeks, sm has sought to remove over $178 million from its accounts. And, a major
clearing firm - after unsuccessfully attempting to find information about sm's financial
condition and because it could not obtain adequate transparency into SIB's financials- has
recently infonned sac that it would no longer process wires from SOC accounts at the clearing
finn to SIB for the purchase of sm issued CDs, even ifthey were accompanied by customer
letters of authorization.
11. Stanford's fraudulent conduct is not limited to the sale ofCDs. Since 2005, SOC
advisers have sold more than $1 billion ofa proprietary mutual fund wrap program, called Stanford
Allocation Strategy ("SAS"), by using materially false and misleading historical performance data.
The false data has helped SOC grow the SAS program from less than $10 million in around 2004 to
over $1.2 billion, generating fees for SOC (and ultimately Stanford) in excess of$25 million. And
the fraudulent SAS performance was used to recruit registered financial advisers with significant
SEC v. Stanford International Bank, Ltd., et at.COMPLAINT
4
Case 1:09-mc-00002-JAD Document 1-2 Filed 02/20/2009 Page 5 of 26Case 3:09-CV-001-L Document 1 Filed 02/17/2. Page 5 of 26
books ofbusiness, who were then heavily incentivized to re-allocate their clients' assets to SIB's
CD program.
12. Moreover, SIB and Stanford Group Company have violated Section 7(d) ofthe
Investment Company Act of 1940 by failing to register with the Commission in order to sell SIB's
CDs. Had they complied with this registration requirement, the Commission would have been able
to examine each ofthose entities concerning SIB's CD investment portfolio.
13. By engaging in the conduct described. in this Complaint, defendants Stanford,
Davis, Pendergest-Holt, sm, SOC, and Stanford Capital, directly or indirectly, singly or in
concert, have engaged, and unless enjoined and restrained., will again engage in transactions acts,
practices, and courses ofbusiness that constitute violations ofSection 17(a) of the Securities Act
of 1933 ("Securities Act") [15 U.S.C. §§ 77e(a), 77e(c) and 77q(a)], and Section 1O(b) of the
Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. § 78j(b)], and Exchange Act Rule
lOb-5 [17 C.F.R. § 240.10b-5] or, in the alternative, have aided and abetted such violations. In
addition, through their conduct described. herein, Stanford, SOC, and Stanford Capital have
violated. Section 206(1) and (2) of the Investment Advisers Act of 1940 ("Adviser's Act") [15
U.S.C. §§ 80b-6(1) and 80b-6(2)] and Davis and Pendergest-Holt have aided and abetted such
violations. Finally, through their actions, SIB and SOC have violated Section 7(d) of the
Investment Company !\ct of 1940 ("ICA") [15 U.S.C. § 80a-7(d)].
14. The Commission, in the interest ofprotecting the public from any further
unscrupulous and illegal activity,brings this action against the defendants, seeking temporary,
preliminary and pennanent injunctive relief: disgorgement ofall illicit profits and benefits
defendants have received plus accrued prejudgment interest and a civil monetary penalty. The
Commission also seeks an asset freeze, an accounting and other incidental relief: as well as the
SEC v. Stanford International Bank, Ltd., et al.COMPLAINT
5
Case 1:09-mc-00002-JAD Document 1-2 Filed 02/20/2009 Page 6 of 26Case 3:09-CV-00.L Document 1 Filed 02/17/2. Page 6 of 26
appointment ofa receiver to take possession and control ofdefendants' assets for the protection
ofdefendants' victims.
JURISDICTION AND VENUE
15. The investments offered and sold by the defendants are "securities" under Section
29. In fact, since 1994, SIB has never failed to hit targeted investment returns in
excess of 10%. And, SIB claims that its "diversified portfolio of investments" lost only $110
million or 1.3% in 2008. During the same time period, the S&P 500 lost 39% and the Dow
Jones STOXX Europe 500 Fund lost 41%.
30. As perfonnance reporting consultant hired by SGC testified in the Commission's
investigation, SIB's historical returns are improbable, ifnot impossible. In 1995 and 1996, SIB
reported identical returns of 15.71%, a remarkable achievement considering the bank's
"diversified investment portfolio." According to defendant Pendergest-Holt -- the chief
investment officer of SIB-affiliate SFG - it is "improbable" that sm could have managed a
"global diversified" portfolio of investments so that it returned identical results in consecutive
years. SGC's perfonnance reporting consultant was more emphatic, saying that it is
"impossible" to achieve identical results on a diversified investment portfolio in consecutive
years. SIB continues to promote its CDs using these improbable, ifnot impossible, returns.
SEC v. Stariford International Bank, Ltd.• et aI.COMPLAINT
9
Case 1:09-mc-00002-JAD Document 1-2 Filed 02/20/2009 Page 10 of 26
Case 3:09-CV-002W Document 1 Filed 02/17/2. Page 10 of 26
31. sm's consistently high returns ofinvestment have enabled the bank to pay a
consistently and significantly higher rate on its CD than conventional banks. For example, sm
offered 7.45% as ofJune 1, 2005, and 7.878% as ofMarch 20,2006, for a fixed rate CD based
on an investment of $100,000. On November 28,2008, SIB quoted 5.375% on a 3 year CD,
while comparable U.S. Banks' CDs paid under 3.2%. And recently, SIB quoted rates ofover
10% on five year CDs.
32. sm's extraordinary returns have enabled the bank to pay disproportionately large
commissions to SGC for the sale ofSm CDs. In 2007, sm paid to SGC and affiliates $291.7
million in management fees and commissions from CD sales, up from $211 million in 2006 and
$161 million in 2005.
33. sm markets CDs to investors in the United States exclusively through SGC
advisers pursuant to a claimed Regulation D offering, filing a Form D with the SEC. Regulation
D permits under certain circumstances the sale ofunregistered securities (the CDs) to accredited
investors in the United States. SGC receives 3% based on the aggregate sales ofCDs by SGC
advisers. Financial advisers also receive a 1% commission upon the sale ofthe CDs, and are
eligible to receive as much as a 1% trailing commission throughout the term of the CD.
34. SOC promoted this generous commission structure in its effort to recruit
established financial advisers to the firm. The commission structure also provided a powerful
incentive for SOC financial advisers to aggressively sell CDs to United States investors, and
aggressively expanded its number of financial advisers in the United States.
35. SIB purportedly manages the investment portfolio from Memphis and Tupelo.
SIB's investment portfolio, at least internally, is segregated into 3 tiers: (a) cash and cash
equivalents ("Tier 1"), (b) investments with "outside portfolio managers (25+)" that are
SEC v. Stanford Intemational Bank, Ltd., et al.COMPLAINT
10
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Case 3:09-CV-002W Document 1 Filed 02/17/2. Page 11 of 26
monitored by the Analysts (''Tier 2"), and (c) unknown assets under the apparent control of
Stanford and Davis ("Tier 3"). As of December 2008, Tier 1 represented approximately 9%
($800 million) of the Bank's portfolio. Tier 2, prior to the Bank's decision to liquidate $250
million of investments in late 2008, represented 10% ofthe portfolio. And Tier 3 represented
81 % ofthe Bank's investment portfolio. This division into tiers is not generally disclosed to
actual or potential investors.
B. sm's Fraudulent Sale of CDs
1. SIB Misrepresented that Its Investment Portfolio is Invested Primarily in"Liquid" Financial Instruments.
36. In selling the CD, sm touted the liquidity of its investment portfolio. For
example, in its CD brochure, sm emphasizes the importance of the liquidity, stating, under the
heading "Depositor Security," that the bank focuses on "maintaining the highest degree of
liquidity as a protective factor for our depositors" and that the bank's assets are "invested in a
well-diversified portfolio ofhighly marketable securities issued by stable governments, strong
multinational companies and major international banks." Likewise, the bank trained SGC
advisers that "liquidity/marketability ofSIB's invested assets" was the ''most important factor to
provide security to SIB clients." Davis and Pendergest-Holt were aware, or were reckless in not
knowing, of these representations.
37. In its 2007 annual report, which was signed and approved by Stanford and Davis,
SIB represented that its portfolio was allocated in the following manner: 58.6% "equity," 18.6%
fixed income, 7.2% precious metals and 15.6% alternative investments. These allocations were
depicted in a pie chart, which was approved by Davis. The bank's annual reports for 2005 and
2006 make similar representations about the allocation of the bank's portfolio. Davis and
Stanford knew or were reckless in not knowing of these representations.
SEC v. Stanford International Bank, Ltd., et al.COMPLAINT
11
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38. sm's investment portfolio is not, however, invested in a ''well-diversified
portfolio ofhighly marketable securities issued by stable governments, strong multinational
companies and major international banks." Instead, Tier 3 (i.e., approximately 90%) consisted
primarily of illiquid investments - namely private equity and real estate. Indeed, it sm's
portfolio included at least 23% private equity. The bank never disclosed in its financial
statements its exposure to private equity and real estate investments. Stanford, Davis and
Pendergest-Holt were aware, or were reckless in not knowing, that sm's investments were not
allocated as advertised by sm's investment objectives or as detailed in sm's financial
statements.
39. Further, on December 15, 2008, Pendergest-Holt met with her team ofanalysts
following sm's decision to liquidate more than 30% ofits Tier 2 investments (approximately
$250 million). During the meeting, at least one analyst expressed concern about the amount of
liquidations in Tier 2, asking why it was necessary to liquidate Tier 2, rather than Tier 3 assets,
to increase sm's liquidity. Pendergest-Holt told the analyst that Tier 3 was primarily invested
in private equity and real estate and Tier 2 was more liquid than Tier 3. Pendergest-Holt also
stated that Tier 3 "always had real estate investments in it." Pendergest's statements contradicts
SEC v. Stanford International Bank, Ltd., et al.COMPLAINT
12
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what she had previously stated to sm's senior investment adviser, knowing, or reckless in not
knowing, that the senior investment advisor would provide this misrepresentation to investors.
2. SIB Misrepresented that Its Multi-Billion Dollar Investment Portfolio isMonitored By a Team ofAnalysts
40. Prior to making their investment decision, prospective investors routinely asked
how sm safeguarded and monitored its assets. In fact, investors frequently inquired whether
Allen Stanford could "run off with the [investor's] money." In response to this question, at least
during 2006 and much of2007, the bank's senior investment officer- as instructed by
Pendergest-Holt - told investors that sm had sufficient controls and safeguards in place to
protect assets.
41. In particular, the SID was trained by Ms. Pendergest-Holt to tell investors that the
bank's multi-billion portfolio was "monitored" by the analyst team in Memphis. In
communicating with investors, the SID followed Pendergest's instructions, misrepresenting that
a team of20-plus analysts monitored the bank's investment portfolio. In so doing, the SID never
disclosed to investors that the analyst only monitor approximately 10% ofSm's money. In fact,
Pendergest-Holt trained the SID ''not to divulge too much" about oversight of the Bank's
portfolio because that information "wouldn't leave an investor with a lot ofconfidence."
Likewise, Davis instructed him to "steer" potential CD investors away from information about
sm's portfolio. As a result, both Davis and Pendergest-Holt knew, or were reckless in not
knowing, ofthese fraudulent misstatements.
42. Contrary to the representation that responsibility for sm's multi-billion portfolio
was "spread out" among 20-plus people, only Stanford and Davis know the whereabouts of the
vast majority of the bank's multi-billion investment portfolio. Pendergest-Holt and her team of
analysts claim that they have never been privy to Tier 1 or Tier 3 investments. In fact, the SID
SEC v. Stanford International Bank, Ltd., et al.COMPLAINT
13
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was repeatedly denied access to the Bank's records relating to Tier 3, even though he was
responsible, as the Bank's Senior Investment Officer, for "closing" deals with large investors,
"overseeing the Bank's investment portfolio" and "ensuring that the investment side is compliant
with the various banking regulatory authorities." In fact, in preparing the Bank's period reports
{quarterly newsletters, month reports, mid-year reports and annual reports, Pendergest and the
Analyst send to Davis the performance results for Tier 2 investments. And Davis calculates the
investment returns for the aggregated portfolio of assets.
3. SIB Misrepresented that its Investment Portfolio is Overseen by a RegulatoryAuthority in Antigua that Conducts a Yearly Audit of the Fund's FinancialStatements.
43. sm told investors that their deposits were safe because the Antiguan regulator
responsible for oversight of the Bank's investment portfolio, the Financial Services Regulatory
Commission (the "FSRC"), audited its financial statements. But, contrary to the Bank's
representations to investors, the FSRC does not verify the assets sm claims in its financial
statements. Instead, sm's accountant, c.A.S. Hewlett & Co., a small local accounting firm in
Antigua is responsible for auditing the multi-billion dollar sm's investment portfolio. The
Commission attempted several times to contact Hewlett by telephone. No one ever answered the
phone.
4. SIB Misrepresented that Its Investment Portfolio is Without "Direct orIndirect" Exposure to Fraud Perpetrated by Bernard Madoff.
44. In a December 2008 Monthly Report, the bank told investors that their money was
safe because sm "had no direct or indirect exposure to any of [Bernard] Madoff's investments."
But, contrary to this statement, at least $400,000 in Tier 2 was invested in Meridian, a New
York-based hedge fund that used Tremont Partners as its asset manager. Tremont invested
approximately 6-8% ofthe SIB assets they indirectly managed with Madoff's investment firm.
SEC v. Stanford International Bank, Ltd., et al.COMPLAINT
14
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45. Pendergest, Davis and Stanford knew about this exposure to loss relating to the
Meridian investment. On December 15, 2008, an Analyst infoITIled Pendergast, Davis and
Stanford in a weekly report that his ''rough estimate is a loss of $400k ... based on the indirect
exposure" to Madofl'.
5. Market Concerns About SIB's Lack o[Transparency
46. On or about December 12,2008, Pershing, citing suspicions about the bank's
investment returns and its inability to get from the Bank "a reasonable level of transparency" into
its investment portfolio infoITIled SOC that it would no longer process wire transfers from SOC
to sm for the purchase ofthe CD. Since the spring of2008, Pershing tried unsuccessfully to get
an independent report regarding sm's financials condition. On November 28, 2008, SOC's
President, Danny Bogar, infOITIled Pershing that "obtaining the independent report was not a
priority." Between 2006 and December 12, 2008, Pershing sent to sm 1,635 wire transfers,
totaling approximately $517 million, from approximately 1,199 customer accounts.
D. From at least 2004. SCM misrepresented SAS performance results.
47. From 2004 through 2009, SCM induced clients, including non-accredited, retail
investors, to invest in excess of$1 billion in its SAS program by touting its track record of
''historical perfoITIlance." SCM highlighted the purported SAS track record in thousands of
client presentation books (''pitch books").
48. For example, the following chart from a 2006 pitch book presented clients with
the false impression that SAS accounts, from 2000 through 2005, outperfOITIled the S&P 500 by
an average ofapproximately 13 percentage points:
SEC v. Stanford International Bank, Ltd., et al.COMPLAINT
15
Case 1:09-mc-00002-JAD Document 1-2 Filed 02/20/2009 Page 16 of 26
.. Case 3:09-CV-002.L Document 1 Filed 02/17/2. Page 16 of 26
2005 2004 2003 2002 2001 2000
S&P500
12.09% 16_15% 32.84% -3.33% 4.33 18.04%
4.91lfJ 10.88% 28.68% -Z2.1Q4l1& -11.88% -9.1116
SCM used these impressive, but fictitious, perfonnance results to grow the SAS program from
less than $10 million in assets in 2004 to over $1 billion in 2008.
49. SGC also used the SAS track record to recruit financial advisers away from
legitimate advisory finns who had significant books ofbusiness. After arriving at Stanford, the
newly-hired financial advisors were encouraged and highly incentivized to put their clients'
assets in the sm CD.
50. The SAS perfonnance results used in the pitch books from 2005 through 2009
were fictional and/or inflated. Specifically, SCM misrepresented that SAS perfonnance results,
for 1999 through 2004, reflected "historical perfonnance" when, in fact, those results were
fictional, or '"back-tested", numbers that do not reflect results ofactual trading. Instead, SCM,
with the benefit ofhindsight, picked mutual funds that perfonned extremely well during years
1999 through 2004, and presented the back-tested perfonnance ofthose top-performing funds to
potential clients as if they were actual returns earned by the SAS program.
51. Similarly, SCM used "actual" model SAS perfonnance results for years 2005
through 2006 that were inflated by as much as 4%.
52. SCM told investors that SAS has positive returns for periods in which actual SAS
clients lost substantial amounts. For example, in 2000, actual SAS client returns ranged from
negative 7.5% to positive 1.1%. In 2001, actual SAS client returns ranged from negative 10.7%
SEC v. Stanford International Bank, Ltd., et al.COMPLAINT
16
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to negative 2.1 %. And, in 2002, actual SAS client returns ranged from negative 26.6% to
negative 8.7%. These return figures are all gross of SCM advisory fees ranging from 1.5% to
2.75%. Thus, Stanford's claims of substantial market out performance were blatantly false.
(e.g., a claimed return of 18.04% in 2000, when actual SAS investors lost as much as 7.5%).
53. SGC/SCM's management knew that the advertised SAS performance results were
misleading and inflated. From the beginning, SCM management knew that the pre-2005 track
record was purely hypothetical, bearing no relationship to actual trading. And, as early as
November 2006, SCM investment advisers began to question why their actual clients were not
receiving the returns advertised in pitch books.
54. In response to these questions, SGC/SCM hired an outside performance reporting
expert, to review certain of its SAS performance results. In late 2006 and early 2007, the expert
informed SCM that its performance results for the twelve months ended September 30, 2006
were inflated by as much as 3.4 percentage points. Moreover, the expert informed SCM
managers that the inflated performance results included unexplained "bad math" that consistently
inflated the SAS performance results over actual client performance. Finally, in March 2008, the
expert informed SCM managers that the SAS performance results for 2005 were also inflated by
as much as 3.25 percentage points.
55. Despite their knowledge of the inflated SAS returns, SGC/SCM management
continued using the pre-2005 track record and never asked Riordan to audit the pre-2005
performance. In fact, in 2008 pitch books, SCM presented the back-tested pre-2005 performance
data under the heading "Historical Performance" and "Manager Performance" along side the
audited 2005 through 2008 figures. According to SCM's outside consultant, it was "[grossly
misleading]" to present audited performance figures along side back-tested figures.
SEC v. Stanford International Bank, Ltd., et al.COMPLAINT
17
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56. Finally, SGC/SCM compounded the deceptive nature of the SAS track record by
blending the back-tested performance with audited composite performance to create annualized 5
and 7 year performance figures that bore no relation to actual SAS client performance. A sample
of this misleading disclosure used in 2008 and 2009 follows:
(nat if less thaD 1 lean'\'TO 1J1!il1' 3J11i1Ri 5JIiH 7,.. -InIiIIIlIIm
SASGrowth -7.+4% IUIIl% un, 15.31'lf. It.1J3% ~2.30%
S&P500 ~44% -6.11II% 5.115%. 11.32% 3..711% 2..~"
57. Other than the fees paid by SIB to SGC for the sale of the CD, SAS was the
second most significant source of revenue for the firm. In 2007 and 2008, approximately $25
million in fees from the marketing of the SAS program.
CAUSES OF ACTION
FIRST CLAIMAS TO ALL DEFENDANTS
Violations of Section 1000 of the Exchange Act and Rule 10-5
58. PlaintiffCommission repeats and realleges paragraphs 1 through 57 of this
Complaint and incorporated herein by reference as if set forth verbatim.
59. Defendants, directly or indirectly, singly or in concert with others, in connection
with the purchase and sale of securities, by use of the means and instrumentalities of interstate
SEC v. Stanford International Bank, Ltd., et al.COMPLAINT
18
Case 1:09-mc-00002-JAD Document 1-2 Filed 02/20/2009 Page 19 of 26
• Case 3:09-CV-002IL Document 1 Filed 02/17/2. Page 19 of 26
commerce and by use of the mails have: (a) employed devices, schemes and artifices to defraud;
(b) made untrue statements ofmaterial facts and omitted to state material facts necessary in order
to make the statements made, in light of the circumstances under which they were made, not
misleading; and (c) engaged in acts, practices and courses ofbusiness which operate as a fraud
and deceit upon purchasers, prospective purchasers and other persons.
60. As a part of and in furtherance of their scheme, defendants, directly and
indirectly, prepared, disseminated or used contracts, written offering documents, promotional
materials, investor and other correspondence, and oral presentations, which contained untrue
statements ofmaterial facts and misrepresentations ofmaterial facts, and which omitted to state
material facts necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading.
61. Defendants made the referenced misrepresentations and omissions knowingly or
grossly recklessly disregarding the truth.
62. For these reasons, Defendants have violated and, unless enjoined, will continue to
violate Section 10{b) of the Exchange Act [15 U.S.C. § 78j{b)] and Exchange Act Rule 10b-5
[17 C.F.R. § 240.l0b-5].
SECOND CLAIMAS TO STANFORD. DAVIS, AND PENDERGEST-HOLT
Aiding and Abetting Violations of Exchange Act Section 10M and Rule 10b-5
63. PlaintiffCommission repeats and realleges paragraphs 1 through 57 of this
Complaint and incorporated herein by reference as if set forth verbatim.
64. If Stanford, Davis, and Pendergest-Holt did not violate Exchange Act Section
1O{b) and Rule 10b-5, in the alternative, Stanford, Davis, and Pendergest-Holt, in the manner set
forth above, knowingly or with severe recklessness provided substantial assistance in connection
SEC v. Stanford International Bank, Ltd., et al.COMPLAINT
19
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• • • Case 3:09-CV-002.L Document 1 Filed 02/17/2. Page 20 of 26
with the violations ofExchange Act Section 1O(b) [15 U.S.C. § 78j(b)] and Rule 10b-5 [17
C.F.R. § 240.lOb-5] alleged herein.
65. For these reasons, Stanford, Davis, and Pendergest-Holt aided and abetted and,
-unless enjoined, will continue to aid and abet violations of Section 1O(b) of the Exchange Act
connection with the violations ofAdvisers Act Sections 206(1) and 206(2) [15 U.S.C. §§ 80b-
6(1) and 80b-6(2)] alleged herein.
76. For these reasons, Stanford, Davis, and Pendergest-Holt aided and abetted and,
unless enjoined, will continue to aid and abet violations of Sections 206(1) and 206(2) of the
Advisers Act [15 U.S.C. §§ 80b-6(1) and 80b-6(2)].
SIXTH CLAIMAS TO SIB AND SGC
Violations of Section 'Cd) ofthe Investment Company Act
77. PlaintiffCommission repeats and realleges paragraphs 1 through 57 of this
Complaint and incorporated herein by reference as if set forth verbatim.
78. sm, an investment company not organized or otherwise created under the laws of
the United States or ofa State, directly or indirectly, singly or in concert with others, made use of
the mails or any means or instrumentality of interstate commerce, directly or indirectly, to offer
for sale, sell, or deliver after sale, in connection with a public offering, securities ofwhich sm
was the issuer, without obtaining an order from the Commission permitting it to register as an
investment company organized or otherwise created under the laws ofa foreign country and to
make a public offering of its securities by use ofthe mails and means or instrumentalities of
interstate commerce.
79. sac, directly or indirectly, singly or in concert with others, acted as an
underwriter for SIB, an investment company not organized or otherwise created under the laws
of the United States or ofa State that made use of the mails or any means or instrumentality of
interstate commerce, directly or indirectly, to offer for sale, sell, or deliver after sale, in
connection with a public offering, securities ofwhich sm was the issuer, without obtaining an
order from the Commission pennitting it to register as an investment company organized or
SEC v. Stanford International Bank. Ltd., et al.COMPLAINT
22
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Case 3:09-CV-002. Document 1 Filed 02/17/2. Page 23 of 26
otherwise created under the laws ofa foreign country and to make a public offering of its
securities by use of the mails and means or instrumentalities of interstate commerce.
80. For these reasons, SIB and sac have violated, and unless enjoined, will continue
to violate Section 7(d) of the Investment Company Act [15 U.S.C. § 80a-7(d)].
RELIEF REQUESTED
PlaintiffCommission respectfully requests that this Court:
I.
Temporarily, preliminarily, and permanently enjoin: (a) Defendants from violating, or
aiding and abetting violations of, Section 10(b) and Rule lOb-5 of the Exchange Act; (b)
Defendants from violating Section 17(a) of the Securities Act; (c) Stanford, Davis, Pendergest-
Holt, sac, and Stanford Capital from violating, or aiding and abetting violations of, Sections
206(1) and 206(2) of the Advisers Act; and (d) SIB and sca from violating Section 7(d) of the
Investment Company Act.
IL
Enter an Order immediately freezing the assets of Defendants and directing that all
financial or depository institutions comply with the Court's Order. Furthennore, order that
Defendants immediately repatriate any funds held at any bank or other financial institution not
subject to the jurisdiction ofthe Court, and that they direct the deposit ofsuch funds in identified
accounts in the United States, pending conclusion ofthis matter.
m.
Order that Defendants shall file with the Court and serve upon PlaintiffCommission and
the Court, within 10 days ofthe issuance ofthis order or three days prior to a hearing on the
Commission's motion for a preliminary injunction, whichever comes first, an accounting, under
SEC v. Stanford International Bank. Ltd., et al.COMPLAINT
23
Case 1:09-mc-00002-JAD Document 1-2 Filed 02/20/2009 Page 24 of 26Case 3:09-CV-0021" Document 1 Filed 02/17/201 Page 24 of 26
oath, detailing all of their assets and all funds or other assets received from investors and from
one another.
IV.
Order that Defendants be restrained and enjoined from destroying, removing, mutilating,
altering, concealing, or disposing of, in any manner, any oftheir books and records or documents
relating to the matters set forth in the Complaint, or the books and records and such documents of
any entities under their control, until further order ofthe Court.
v.
Order the appointment ofa temporary receiver for Defendants, for the benefit of
investors, to marshal, conserve, protect, and hold funds and assets obtained by the defendants
and their agents, co-conspirators, and others involved in this scheme, wherever such assets may
be found, or, with the approval of the Court, dispose of any wasting asset in accordance with the
application and proposed order provided herewith.
VI.
Order that the parties may commence discovery immediately, and that notice periods be
shortened to permit the parties to require production of documents, and the taking ofdepositions
on 72 hours' notice.
VII.
Order Defendants to disgorge an amount equal to the funds and benefits they obtained
illegally as a result ofthe violations alleged herein, plus prejudgment interest on that amount.
VITI.
Order civil penalties against Defendants pursuant to Section 20(d) ofthe Securities Act
[15 U.S.C. § 77t(d)], Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)], Section 41 (e) of
SEC v. Stanford International Bank. Ltd., et al.COMPLAINT
24
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the Investment Company Act [15 U.S.C. § 80a-41(e)], and Section 209(e) of the Advisers Act
[15 U.S.C. § 80b-9(e)] for their securities law violations.
IX.~
Order that Stanford, Davis, and Pendergest-Holt immediately surrender their passports to
the Clerk of this Court, to hold until further order of this Court.
x.
Order such further relief as this Court may deem just and proper.
For the Commission, by its attorneys:
February 16, 2009
SEC v. Stanford International Bank. Ltd.• et aI.COMPLAINT
Respectfully submitted,
STEPHEN J. KOROTASHOklahoma BarNo. 5102J. KEVIN EDMUNDSONTexas Bar No. 24044020DAVID B. REECETexas Bar No. 24002810MICHAEL D. KINGTexas Bar No. 24032634D. THOMAS KELTNERTexas Bar No. 24007474
U.S. Securities and Exchange CommissionBurnett Plaza, Suite 1900801 Cherry Street, Unit #18Fort Worth, TX 76102-6882(817) 978-6476 (dbr)(817) 978-4927 (fax)
25
Case 1:09-mc-00002-JAD Document 1-2 Filed 02/20/2009 Page 26 of 26JS44
'(Rev. 3/9'1)Page 26 of 26
The JS-44 civil cover sheet and the infonnation contained herein neither replace nor supplement the filing and service ofpleadings or other papers as required by law, except asprovided by local rules of court. This fonn, approved by the Judicial Conference of the United States in September 1974, is required for the use of the Cl'ik of Ctyt for thepurpose of initiating the civil docket sheet. (SEE INSTRUCTIONS ON THE REVERSE OF THE FORM.) ~0 9 CV0 2 9 {) - .LcI.{a) PLAINTIFF DEFEN
SECURITIES AND EXCHANGE COMMISSION STANFORD INTERNATIONAL BANK, LTD., STANFORD
GROUP COMPANY, STANFORD CAPITAL MANAGEMENT,
LLC, R. ALLEN STANFORD, JAMES M. DAVIS, and LAURA
PENDERGEST-HOLT- .(~:.. RECEIVED '.
"
(b) COUNTY OF RESIDENCE OF FIRST LISTED PLAINTIFF County of Residence of iist isted Defendant: St. Jot n'sA tigua,
(EXCEPT IN U.S. PLAINTIFF CASES) West IndiesS otiij) I 1 2009(IN U.S. PLAINTIFF ~ASE
NOTE: IN LAND CONDEM~ ~TIOI CASES. USE THE LOCATIO OF HETRACT OF LAND IN OLV D.
(c) ATTORNEY (ARM NAME. ADDRESS, AND TELEPHONE NUMBER) AnORNEYS (If know ):CLERK, U.S. DISTRICT COURT
David B. Reece NORTHERN DISTRICT OF TEXAS
U.S. Securities & Exchange Commission, Burnett Plaza, Ste. 1900,801 Cherry Street, Unit #18, Fort Worth, TX 76102-6882(817) 978-6476II. BASIS OF JURISDICTION (PLACE AN oX' IN ONE BOX ONLY) III. CITIZENSHIP OF PRINCIPAL PARTIES
(PLACE AN 'X" I'" ONE sox FORPLAINTIFF ANO O"'E sox FOR
(For Diversity Cases Only) OEFEIIIDANT)
PTF PTF PTF PTF
~ 1 U.s. Government o 3 Federal Question Citizen ofThis State 01 01 Incorporated or Principal Place 04 04Plaintiff (U.S. Government Not a Party) of Business In This State
Citizen of Another State 02 02o 2 U.S. Government o 4 Diversity Incorporated and Principal Place 05 05Defendant (Indicate Citizenship of Parties Citizen or Subject of a 03 03 of Business In Another State
in Item III) Foreign CountryForeian Nation 06 06
IV. NATURE OF SUIT (PLACE AN "X" IN ONE BOX ONLY)
CONTRACT TORTS FORFEITURE/PENALTY BANKRUPTCY OTHER STATUTESo 110lnsursnce PERSONAL INJURY PERSONAL INJURY o 610 Agriculture o 400 State Reapprotionmento 120 Marine o 310 Airplane o 362 Personal Injury - o 620 Other Food & Drug o 422 Appeal 28 USC 156 o 410 Antitrusto 130 Miller Act o 315 Airplane Product Med. Malpractice o 625 Drug Related Seizure of o 430 Banks and Bankingo 140 Negotiable Instrument Liability o 365 Personal Injury - Property 21 USC 881 o 423 Withdrawal o 450 Commerce/ICCo 150 Recovery of o 320 Assault, Libel & Product Liability o 630 Liquor Laws 28 USC 157 Ratesletc.Overpayment Slander o 460 Deportation
& Enforcement of Judgmento 151 Medicare Act 0 330 Federal Employers' o 368 Asbeslos Personal .0 640 R.R. & Truck PROPERTY RIGHTS o 470 Racl<eteer Influenced
Liability Injury Product Liability and Corrupt Organizationso 152 Recovery of Defaulted 0340 Marine PERSONAL PROPERTY o 650 Airline Regs. o 820 Copy rights o 810 Selective Service
Student Loans (Exct. Veterans) o 345 Marine Product o 370 Other Fraud o 660 Occupational Safety/Health o 830 Palient 181 850 SecuritiesLiability o 371 Truth in Lending o 690 Other o 840 Trademark Commoditiesl Exchange
o 153 Recovery OF o 350 Motor Vehicle o 380 Other Personal LABOR SOCIAL SECURITY o 875 Customer ChallengeOverpayment Property Damage 12 USC 3410
of Veleran's Benefitso 160 StOCkholders' Suits o 355 Motor Vehicle o 385 Property Damage o 710 Fair Labor Standards Act 0861 HIA (1395FF) o 891 Agricultural Actso 190 Other Contract Product Liability Product Liability o 862 Black Lung (923) o 892 Economic Stabilizationo 195 Contract Product Liability o 360 Other Personal o 720 LaborlMgmt. Relations o 863 DIWClDIWW (405(g)) Act
In"urv
REAL PROPERTY CIVIL RIGHTS PRISONER PETITIONS o 730 LaborlMgmt. Reporting & o 864 SSID TIlle XVI o 893 Environmenlal MattersDisclosure Act o 865 RSI (405(oll o 894 Energy Allocation Act
0210 Land Condemnation 0441 Voting o 510 Malions to Vacate o 740 Railway Labor Act FEDERAL TAX SUITS o 895 Freedom ofSentence Information Act
o 220 Foreclosure o 442 Employment Habeas Corpus: o 790 Other Labor Litigation 0870 Taxes (U.S. Plaintiff or o 900 Appeal of Feeo 230 Rent Lease & Ejectment o 443 Housingl o 530 General Defendant) Delermination Undero 240 Torts to Land Accommodations o 535 Death Penally o 791 Empl. Ret. Inc. o 871 IRS - Third Party Equal Access to Juslleeo 245 Tort Product liability o 444 Welfare o 540 Mandamus & Other Security Act 26 USC 7609 o 950 Constitutionality ofo 290 All Other Real Property o 440 Other Civil Rights o 550 Civil Rights State Statutes
o 890 Other StatutorY Actions
V. ORIGIN (PLACE AN "X" IN ONE BOX ONLY)
1811 OriginalProceeding
o 2 Removed fromState Court
o 3 Remanded fromAppellate Court
o 4 Reinstated orReopened
VI. CAUSE OF ACTION (CITE THE U.S. CIVIL STATUTE UNDER WHICH YOU ARE FILING AND WRITE BRIEF STATEMENT OF CAUSE DO NOT CITE JURISDICTlONSL STATUTUESUNLESS DIVERSITY.)
Section 17(a) of the Securities Act of 1933, [15 U.S.C. §77q(a)], Section 10(b) of the Securities Exchange Act of 1934, [15 U.S.C. §78j(b)] and Rule 10b-5thereunder [17 C.F.R. §240.10b-5]. Sections 206(1) and 206(2) of the Investment Advisors Act of 1940. [15 U.S.C. §8'Ob-6(1) and §80b-6(2)] and Section 7(d) ofthe Investment Company Act of 1940 [15 U.S.C. §80a-7(dn.
VII. REQUESTED IN CHECK IF THIS IS A CLASS ACTION
COMPLAINT: 0 UNDER F.R.C.P. 2326 USC 7609
DEMAND $ CHECK YES only if demanded in complaint:
JURY DEMAND 0 YES 181 NO
DOCKET NUMBER
FOR OFFI E USEReceipt # AMOUNT APPLYING IFP JUOGE MAG. JUDGE _
DATE .... SIGLI.
VIII. RELATED CASE(S) (See Instructions):
IF ANY JUDGE
Case 1:09-mc-00002-JAD Document 1-3 Filed 02/20/2009 Page 1 of 10Filed 02/1jU2.Q.OL9-:::-?'3.Qe..1..cli.1jL__--.
',;" U.S. DISTRICT COURTNORTHERN DISTRICT OFTEXAS
FILED
IN THE UNITED STATES DISTRICT OURTFOR THE NORTHERN DISTRICT OF EXAS
DALLAS DIVISION
FEB 11 2009
SECURIT~ES AND .EXCHANGE COMMISSION,
Plaintiff,
v.
STANFORD INTERNATIONAL BANK, LTD.,STANFORD GROUP COMPANY,STANFORD CAPITAL MANAGEMENT, LLC,R. ~LLEN SrANFORD, JAMES M. DAVIS, andLAURA PENDERGEST-HOLT
Defendants.
§§§§§§§§§§§§§
eMe No.: It)1IJ1t~-J71j)S-09CV0298-L
TEMPORARY RESTRAINING ORDER, ORDER FREEZING ASSETS, ORDERREQUIRING AN ACCOUNTING, ORDER REQUIRING PRESERVATION OF
DOCUMENTS, AND ORDER AUTHORIZING EXPEDITED DISCOVERY
This matter came before me, the undersigned United States District Judge, this 16th day
of February 2009, on the application of Plaintiff Securities and Exchange Commission
("Commission") for the issuance of a temporary restraining order against Defendants Stanford
International Bank, Ltd. ("SIB"), Stanford Group Company ("SGC"), Stanford Capital
Management, LLC ("SCM"), R. Allen Stanford ("Stanford"), James M. Davis ("Davis"), and
Laura Pendergest-Holt ("Pendergest-Holt") (collectively, "Defendants"), and orders freezing
assets, requiring an accounting, prohibiting the destruction of documents, pulling the passports of
Stanford, Davis, and Pendergest-Holt, authorizing expedited discovery, and alternative service of
process and notice. On the basis of the papers filed by the Commission, and argument of
Commission counsel, the Court finds as follows:
1. This Court has jurisdiction over the subject matter of this action and over the
Defendants.
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2. The Commission is a proper party to bring this action seeking the relief sought in
its Complaint.
3. Venue is appropriate in the Northern District ofTexas.
4. There is good cause to believe that Defendants have engaged in, and are engaging
Ill, acts and practices which did, do, and will constitute violations of Section 17(a) of the
Securities Act of 1933 ("Securities Act") [15 U.S.C. § 77q(a)], Section 10(b) of the Securities
C.F.R. § 240.l0b-5], Sections 206(1) and 206(2) of the Investment Advisers Act of 1940
("Advisers Act") [15 U.S.c. §§ 80b-6(1), (2)], and Section 7(d) of the Investment Company Act
of 1940 ("Investment Company Act") [15 U.S.C. § 80a-7(d)].
5. There is good cause to believe that Defendants will continue to engage in the acts
and practices constituting the violations set forth in paragraph 4 unless restrained and enjoined
by an order of this Court.
6. There is good cause to believe that Defendants used improper means to obtain
investor funds and assets. There is also good cause to believe that Defendants will dissipate
assets and that some assets are located abroad.
7. An accounting is appropriate to determine the disposition of investor funds and to
ascertain the total assets that should continue to be frozen.
8. It is necessary to preserve and maintain the business records of Defendants from
destruction.
9. This proceeding is one in which the Commission seeks a preliminary injunction.
SEC v. Stanford International Bank, Ltd., et al.Temporary Restraining Order, Order Freezing Assets,and Other Relief
2
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10. The timing restrictions of Fed. R. Civ. P. 26(d) and (£), 30(a)(2)(C) and 34 do not
apply to this proceeding in light of the Commission's requested relief and its demonstration of
good ~ause.
11. Expedited discovery is appropriate to permit a prompt and fai~ hearing on the
Commission's Motion for Preliminary Injunction.
12. There is good cause to believe that Stanford, Davis, and Pendergest-Holt may
seek to leave the United States in order to avoid responsibility for the fraudulent acts alleged
herein.
IT IS THEREFORE ORDERED THAT:
A. Defendants, their officers, directors, agents, servants, employees, attorneys, and
all other persons in active concert or participation with them, are restrained and enjoined
from violating Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)], directly or
indirectly, in the offer or sale of any security by the use of any means or instruments of
transportation or communication in interstate commerce or by the use of the mails, by:
(1) employing any device, scheme, or artifice to defraud; or
(2) obtaining money or property by means of any untrue statement of material
fact or any omission to state a material fact necessary in order to make the
statement(s) made, in the light of the circumstances under which they were
made, not misleading; or
(3) engaging in any transaction, practice, or course ofbusiness which operates or
would operate as a fraud or deceit upon the purchaser;
B. Defendants, their officers, directors, agents, servants, employees, attorneys, and
all other persons in active concert or participation with them, are restrained and enjoined
SEC v. Stanford International Bank, Ltd., et al.Temporary Restraining Order, Order Freezing Assets,and Other Relief
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from violating Section 1O(b) of the Exchange Act or Rille 1Ob-5 [15 U.S.C. § 78j(b) and 17
C.F.R. §240.l0b-5], directly or indirectly, in connection with the purchase or sale of any
security, by making use of any means or instrumentality of interstate commerce, or of the
mails, or ofany facility ofany national securities exchange:
(1) to use or employ any manipulative or deceptive device or contrivance in
contravention of the rules and regulations promulgated by the
Commission;
(2) to employ any device, scheme, or artifice to defraud;
(3) to make any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading; or
(4) to engage in any act, practice, or course ofbusiness which operates or would
operate as a fraud or deceit upon any person;
C. Stanford, Davis, Pendergest-Holt, SGC, SCM, their officers, directors, agents,
servants, employees, attorneys, and all other persons in active concert or participation
with them, are restrained and enjoined from violating Sections 206(1) and 206(2) of the
Advisers Act [15 U.S.C. §§80b-6(1), (2)], directly or indirectly, by use of the mails or any
means or instrumentality of interstate commerce, by:
(1) employing any device, scheme, or artifice to defraud any client or
prospective client; or
(2) engaging in any transaction, practice, or course of business which operates
as a fraud or deceit upon any client or prospective client;
SEC v. Stanford International Bank, Ltd., et al.Temporary Restraining Order, Order Freezirig Assets,and Other Relief
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D. SIB, SGC, their officers, directors, agents, servants, employees, attorneys, and all
other persons in active concert or participation with them, are restrained and enjoined
from violating Section 7(d) of the Investment Company Act [15 U.S.c. §80a-7(d)], directly
or indirectly, by use of the mails or any means or instrumentality of interstate commerce,
by:
(1) acting as an investment company, not organized or otherwise created
under the laws of the United States or of a State, and offering for sale,
selling, or delivering after sale, in connection with a public offering, any
security of which such company is the issuer; or
(2) acting as a depositor of, trustee of, or underwriter for such a company;
unless
(3) the Commission, upon application by the investment company not
organized or otherwise created under the laws of the United States or of a
State, issues a conditional or unconditional order permitting such company
to register and to make a public offering of its securities by use of the
mails and means or instrumentalities of interstate commerce.
5. Defendants, their officers, directors, agents, servants, employees, attorneys, and
all other persons in active concert or participation with them, who receive actual notice of this
Order by personal service or otherwise, and each of them, are hereby restrained and enjoined
from, directly or indirectly, making any payment or expenditure of funds belonging to or in the
possession, custody, or control of Defendants, or effecting any sale, gift, hypothecation, or other
disposition of any asset belonging to or in the possession, custody, or control of Defendants,
pending a showing to this Court that Defendants have sufficient funds or assets to satisfy all claims
SEC v. Stanford International Bank. Ltd., et al.Temporary Restraining Order, Order Freezing Assets,and Other Relief
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arising out of the violations alleged in the Commission's Complaint or the posting of a bond or
surety sufficient to assure payment of any such claim. This provision shall continue in full force
and effect until further ordered by this Court and shall not expire.
6. All banks, savings and loan associations, savings banks, trust companies,
securities broker-dealers, commodities dealers, investment companies, other financial or
depository institutions, and investment companies that hold one or more accounts in the name,
on behalf or for the benefit of Defendants are hereby restrained and enjoined, in regard to any
such account, from engaging in any transaction in securities (except liquidating transactions
necessary to comply with a court order) or any disbursement of funds or securities pending
further order of this Court. This provision shall continue in full force and effect until further order
by this Court and shall not expire.
7. All other individuals, corporations, partnerships, limited liability companies, and
other artificial entities are hereby restrained and enjoined from disbursing any funds, securities,
or other property obtained from Defendants without adequate consideration. This provision shall
continue in full force and effect until further order by this Court and shall not expire.
8. Defendants are hereby required to make an interim accounting, under oath, within
ten days of the issuance of this order or three days prior to any hearing on the Commission's
Motion for Preliminary Injunction, whichever is sooner: (1) detailing all monies and other
benefits which each received, directly or indirectly, as a result of the activities alleged in the
Complaint (including the date on which the monies or other benefit was received and the name,
address, and telephone number of the person paying the money or providing the benefit); (2)
listing all current assets wherever they may be located and by whomever they are being held
(including the name and address of the holder and the amount or value of the holdings); and (3)
SEC v. Stanford International Bank, Ltd., et at.Temporary Restraining Order, Order Freezing Assets,and Other Relief
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listing all accounts with any financial or brokerage institution maintained in the name of, on
behalf of, or for the benefit of, Defendants (including the name and address of the account holder
and the account number) and the amount held in each account at any point during the period
from January 1, 2000 through the date of the accounting. This provision shall continue in full
force and effect until further order by this Court and shall not expire.
9. Defendants, their officers, directors~ agents, servants, employees, attorneys, and
all other persons in active concert or participation with them, including any bank, securities
broker-dealer, or any financial or depositary institution, who receives actual notice of this Order
by personal service or otherwise, and each of them, are hereby restrained and enjoined from
destroying, removing, mutilating, altering, concealing, or disposing of, in any manner, any books
and records owned by, or pertaining to, the financial transactions and assets of Defendants or any
entities under their control. This provision shall continue in full force and effect until further order
by this Cowt: and shall not expire.
10. The United States Marshal in any judicial district in which Defendants do
business or may be found, or in which any Receivership Asset may be located, is authorized and
directed to make service of process at the request of the Commission.
11. The Commission is authorized to serve process on, and give notice of these
proceedings and the relief granted herein to, Defendants by U.S. Mail, e-mail, facsimile, or any
other means authorized by the Federal Rules of Civil Procedure.
12. Expedited discovery may take place consistent with the following:
A. Any party may notice and conduct depositions upon oral examination and
may request and obtain production of documents or other things for
inspection and copying from parties prior to the expiration of thirty days
SEC v. Stanford International Bank, Ltd., et al.Temporary Restraining Order, Order Freezing Assets,and Other Relief
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after service of a summons and the Plaintiff Commission's Complaint
upon Defendants.
B. All parties shall comply with the provisions of Fed. R. Civ. P. 45
regarding issuance and service of subpoenas, unless the person designated
to provide testimony or to produce documents and things agrees to provide
the testimony or to produce the documents or things without the issuance
. of a subpoena or to do so at a place other than one at which testimony or
production can be compelled.
C. Any party may notice and conduct depositions upon oral examination
subject to minimum notice of seventy-two (72) hours.
D. All parties shall produce for inspection and copying all documents and
things that are requested within seventy-two (72) hours of service of a
written request for those documents and things.
E. All parties shall serve written responses to written interrogatories within
seventy-two (72) hours after service of the interrogatories.
13. All parties shall serve written responses to any other party's request for discovery
and the interim accountings to be provided by Defendants by delivery to the Plaintiff
Commission address as follows:
UNITED STATES SECURITIES AND EXCHANGE COMMISSIONFort Worth Regional OfficeAttention: David ReeceBurnett Plaza, Suite 1900801 Cherry Street, Unit #18Fort Worth, TX 76102-6882Facsimile: (817) 978-4927
SEC v. Stanford International Bank, Ltd., et al.Temporary Restraining Order, Order Freezing Assets,and Other Relief
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and by delivery to other parties at such addressees) as may be designated by them in writing.
Such delivery shall be made by the most expeditious means available, including e-mail and
facsimile.
14. Stanford, Davis, and Pendergest-Holt shall surrender their passports, pending the
determination of the Commission's request for a preliminary injunction, and are barred from
traveling outside the United States.
15. Defendants, their directors, officers, agents, servants, employees, attorneys,
depositories, banks, and those persons in active concert or participation with anyone or more of
them, and each of them, shall:
(a) take such steps as are necessary to repatriate to the territory of the United States
all funds and assets of investors described in the Commission's Complaint in this
action which are held by them, or are under their direct or indirect control, jointly
or singly, and deposit such funds into the Registry of the United States District
Court, Northern District ofTexas; and
(b) provide the Commission and the Court a written description of the funds and
assets so repatriated.
16. Defendants shall serve, by the most expeditious means possible, including e-mail
and facsimile, any papers in opposition to the Commission's Motion for Preliminary Injunction
and for other relief no later than 72 hours before any scheduled hearing on the Motion for
Preliminary Injunction. The Commission shall serve any reply at least 24 hours before any
hearing on the Motion for Preliminary Injunction by the most expeditious means available,
including facsimile.
SEC v. Stanford International Bank, Ltd., et aJ.Temporary Restraining Order, Order Freezing Assets,and Other Relief
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17. Unless extended by agreement of the parties, the portion of this order thatl
constitutes a temporary restraining order shall expire at~ o'clock fm. on the L day of
f'A+r"k 2009 or at such later date as may be ordered by this Court. All othe~ pro~sions o!
this order shall remain in full force and effect until specifically modified by further order of this
Court. Unless the Court rules upon the Commission's Motion for Preliminary Injunction
pursuant to Fed. R. Civ. P. 43(e), adjudication of the Commission's Motion for Preliminary
Injunction shall take place at the United States CourthoUse,~allas,
Texas, on the )J.. day of J\N.rc.k ,2009, at to o'clock -'L.m. II 00 Co WlM~( c€ ~<etua,lla.s "~tt S 1'5',1.4J.. (~a.(' 1 Ca. b(.ll13IJ~). .
EXECUTED AND ENTERED at 1/:*0 . o'clock£R.m. CST this 16th day of February2009.
SEC v. Stanford International Bank, Ltd., et al.Temporary Restraining Order, Order Freezing Assets,and Other Relief
10
E
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF LOUISIANA SANDRA ALLEN, ON * BEHALF OF HERSELF AND ALL * OTHERS SIMILARLY SITUATED, * * PLAINTIFFS, * C.A. NO. _________________ * VERSUS * * STANFORD GROUP COMPANY, * STANFORD FINANCIAL GROUP, * STANFORD INTERNATIONAL * BANK LTD., STANFORD HOLDINGS, INC., * STANFORD CAPITAL * MANAGEMENT, LLC, R. ALLEN * STANFORD, JAMES DAVIS, and * LAURA PENDERGREST-HOLT, * * DEFENDANTS. * ______________________________________________________________________________
CLASS ACTION COMPLAINT
1. NOW INTO COURT, through undersigned counsel, comes Plaintiff, Sandra
Allen, individually and as representative of all persons and entities similarly situated, who
alleges as follows:
2. This is a class action suit brought pursuant to the provisions of the Rule 23 of the
Federal Rules of Civil Procedure, by Plaintiff Sandra Allen, individually, and on behalf of all
other persons and entities similarly situated (hereinafter referred to as “Plaintiffs”), who are
residents of the United States, to obtain relief from Defendants Stanford Group Company,
Stanford Financial Group, Stanford International Bank, LTD., Stanford Holdings, Inc., Stanford
Capital Management, LLC (collectively referred to as “Stanford”), R. Allen Stanford, James
Davis and Laura Pendergest-Holt, collectively referred to as “individual Defendants”), based on
the facts and causes of action stated below.
THE PARTIES
3. Plaintiff, Sandra Allen, is a person of full age of majority who is domiciled in the
Parish of East Baton Rouge, State of Louisiana. Plaintiff is a member of the Plaintiff Class
defined herein, and Plaintiff will adequately represent the interests of the Plaintiff Class as the
class representative in this case.
4. Named as Defendants are: Stanford Group Company, Stanford Financial Group,
Stanford International Bank, LTD., Stanford Holdings, Inc., Stanford Capital Management, LLC
(collectively referred to as “Stanford”), R. Allen Stanford, James Davis and Laura Pendergest-
Holt, (collectively referred to as “individual Defendants”).
JURISDICTION AND VENUE
5. The investments offered and sold by Stanford are “securities” under Section 2(1)
of the Securities Act of 1933 [15 U.S.C. § 77b], and Section 3(a)(10) of the Securities Exchange
Act of 1934 [15 U.S.C. § 78c].
6. This Court has jurisdiction over this action, and venue is proper, under Section
22(a) of the Securities Act of 1933[15 U.S.C. § 77v(a)], and Section 27 of the Securities
Exchange Act of 1934[15 U.S.C. § 78a].
7. Venue is proper in this district pursuant to 28 U.S.C. § 1391(b) because (1) a
substantial part of the events or omissions giving rise to Plaintiff’s claims occurred in this district
and (2) the defendants are subject to personal jurisdiction in this district.
INTRODUCTION
8. This is an action brought by Plaintiff pursuant to various provisions of the
Securities Act of 1933 and the Securities Exchange Act of 1934.
9. Stanford and the individual Defendants engaged or participated in the
implementation of manipulative devices to falsely report investment returns to customers, made
or participated in the making of false and misleading statements, and participated in a scheme to
defraud, or a course of business that operated as a massive fraud or a deceit on its customers. As
a result of Defendants’ wrongful conduct and scheme, thousands of investors placed millions of
dollars into Stanford’s managed portfolios, including the purchase of “depositor-secured”
Certificates of Deposit, and have sustained significant financial losses.
10. This fraud was accomplished through the direction and active participation of the
individual Defendants who knowingly violated Securities and Exchange Commission (“SEC”)
and the Financial Industry Regulatory Authority regulatory provisions, and federal securities
law. When certain employees of Stanford complained about discrepancies in certain investment
results, Stanford, through its officers and directors (including the individual Defendants),
knowingly attempted to “cover up” this information, opting instead to hide and obstruct the truth,
and Stanford’s duty of compliance with regulatory and statutory law, and its fiduciary duty of
full and fair disclosure to its customers. Accordingly, Plaintiff and the Class members are
entitled to rescind the sales and recover damages.
FACTS RELEVANT TO PLAINTIFF
11. In 2008, Plaintiff, Sandra Allen, individually entrusted a significant amount of
money to Stanford for investment on her behalf, including the purchase of a Certificate of
Deposit issued by Stanford International Bank, Ltd. (“SIB”), based upon materially false and
misleading information disseminated by Defendants, to the effect that Stanford was a legitimate
enterprise engaged in the lawful brokerage and sale of investment securities, with the purported
rates of return on investment.
12. In determining to invest monies through Stanford, Plaintiff naturally, reasonably,
and justifiably relied upon Defendants’ misrepresentations in deciding to make such investment.
13. As a consequence of Defendants’ fraud as alleged herein, Plaintiff has been
damaged in an amount to be proven at trial.
FACTS RELEVANT TO DEFENDANTS
14. Stanford is composed of the above named U.S. companies and its flagship entity,
an offshore bank known as Stanford International Bank, Ltd. All of these companies are
controlled by R. Allen Stanford, who is either the founder, chairman, and/or chief executive
officer of all related Stanford companies.
15. Defendant R. Allen Stanford, 58, is a Texas billionaire with a reported net worth,
according to Forbes, of an estimated $2.2 billion, making him the 205th on Forbes 2008 list of the
richest people in the U.S. worldwide. He often refers to the meager beginnings of his father’s
insurance business in Mexia, Texas during the Depression, but he equally touts his prominent
business and political influence in the twin island Caribbean nation of Antigua and Barbuda,
where he was knighted by Sir Allen in 2006, and where his Antiguan-based offshore bank is
located.
16. With reported assets of $1 billion in 2001, SIB now has more than $8.5 Billion in
total assets, according to the bank’s report in December 2008. To do so, R. Allen Stanford and
his key management engaged in a campaign to substantially increase SIB assets in Antigua by
selling high-yield certificates of deposits to affluent U.S. investors through Stanford’s network of
U.S. companies. U.S. investors are actively solicited to purchase SIB-issued CDs through his
array of affiliated companies. Stanford Group Company is owned by Stanford Group Holdings,
Inc., which is in turn owned by R. Allen Stanford. For all practical and legal reasons, all related
companies are owned and controlled by R. Allen Stanford. 17. Defendant R. Allen Stanford has created a complex web of affiliated companies
that exist and operate under the brand Stanford Financial Group (“SFG”). SFG is described as a
privately-held group of companies that has in excess of $50 billion “under advisement.”
18. SIB, an Antiguan bank charted under the laws of the sovereign nation of Antigua
and Barbuda, boasts in its promotional literature that “deposit safety” is its “number one
priority.” Acting in concert with Stanford’s U.S. based companies, the offshore bank taps into
the lucrative U.S. investor market through the conduit of Stanford Group Companies (“SGC”),
and its 29 affiliated offices throughout the U.S. In all cases, SGC aggressively pushed its
advisors to sell the SIB CD’s program and rewarded them handsomely for their success.
19. Among the platform of financial products offered by SGC, the sale of SIB CDs
offered the greatest incentive to financial advisors. The campaign involved direct pressure on
the financial advisors to sell the foreign CDs, coupled with bonus incentives for employees who
could generate the greatest number of deposits. The program was aptly named as “The Contest.”
An “SIB Scoreboard” was kept, listing each group’s performance in meeting their quota, which
determined the size of bonus they would receive.
20. From a 3% referral fee payable to SGC on every SIB CD sold, SGC advisers
received a 1% commission if they sold $2 million of SIB CDs in a quarter. They would also
receive as much as a 1% trailing commission throughout the term of the CD if they maintained
the $2 million per quarter production hurdle. This commission structure provided a powerful
incentive for SGC financial advisers to aggressively sell CDs to the U.S. investors, and was used
extensively to recruit new advisors to SGC.
21. SGC aggressively expanded its number of financial advisors in the United States.
Through this expansion, SIB’s network of representatives who sold CD products grew
substantially. According to the Annual Report and information provided to advisors, the total
assets at SIB grew exponentially from 2001 to 2008, from approximately $1.0 billion in July
2001, to approximately $5.0 billion in October 2006. By the end of 2007, SIB sold $6.7 billion
of CDs, and in its latest report of December 2008, SIB reports over 30,000 clients, representing
$8.5 billion in total assets.
22. SIB aggregated all funds from the sale of CDs, and purportedly reinvested those
funds pursuant to an investment strategy monitored by a group of analysts in Memphis,
Tennessee, who reported to senior investment officers. According to SIB’s Annual Reports for
2005 and 2006, which were signed by R. Allen Stanford and James Davis, the bank invested
customer deposits “in a well-balanced global portfolio of marketable financial instruments,
namely U.S. and international securities and fiduciary placements.”
23. SIB CDs are offered in three forms at varying terms: Fixed, Flex and Index
Linked. Each CD offers a substantially higher rate of return compared to domestic certificates of
deposit. For example, SIB offered 7.45% as of June 1, 2005, 7.878% as of March 20, 2006 for a
fixed rate CD based on an investment of $100,000. Plaintiff’s 60 month CD, issued in 2008,
promised to pay interest at a base rate of 8.275%, with an annual yield of 10.25%.
24. SGC advisors who questioned how SIB could pay such high rates of return for
CDs compared to U.S. banks were told that the bank’s investment strategy had garnered
consistently high investment returns on its portfolio. However, any attempts to discover the
specifics of the investment portfolio were rebuffed, and advisors were summarily told that SIB
could not disclose the details of its assets or portfolio managers, except to say that the assets
were safe in a globally diversified portfolio that was capable of 90% liquidation within 48 hours.
25. To allay advisors’ concerns, and facilitate sale of the foreign CDs, senior
management at SGC and SIB, including the individual Defendants, had to create the appearance
of a stable, liquid, and secure CD, comparable to the low risk associated with a familiar domestic
CD. Advisors were deceived by senior management, including the individual Defendants, to
make the following misrepresentations which operate as a fraud or a deceit on purchasers of the
SIB CDs:
• The CDs are liquid, minimally leveraged, and can be redeemed at any time.
• SIB is strongly capitalized with R. Allen Stanford’s own personal funds, and
depositor security is the number one priority.
• The SIB investment portfolio was monitored by a team of analysts and
consistently generates more investment return than is paid out in CD interest
and expenses so that the principal is not really ever in jeopardy.
• The SIB CDs are secure because of insurance coverage from Lloyd’s and
other underwriters, and Excess FDIC.
• The SIB investment portfolio is overseen by a regulatory authority in Antigua,
and an independent auditor who verified and audited financial statements of
SIB.
26. These misrepresentations were false and misleading when made to customers who
purchased the SIB CDs.
27. SGC/SCM induced clients, including non-accredited, retail investors, to invest in
excess of $1 billion in its managed investment program called “Stanford Allocation Strategies”
(“SAS”) by touting its track record of “historical performance.” SGC/SCM highlighted the
purported SAS track record in thousands of client presentation books.
28. SGC/SCM used these impressive, but fictitious, performance results to grow the
SAS program from less than $10 million in assets in 2004 to over $1 billion in 2008.
29. SGC/SCM also used the SAS track record to recruit financial advisors away from
legitimate advisory firms who had significant books of business.
30. SGC/SCM told investors that SAS has positive returns for periods in which actual
SAS clients lost substantial amounts. Upon information and belief, in 2000, actual SAS client
returns ranged from negative 7.5% to positive 1.1%. In 2001, actual SAS client returns ranged
from negative 10.7% to negative 2.1%. And, in 2002, actual SAS client returns ranged from
negative 26.6% to negative 8.7%. These return figures are all gross of SCM advisory fees
ranging from 1.5% to 2.75%. Thus, Stanford’s claims of substantial market out performance
were blatantly false (e.g., a claimed return of 18.04% in 2000, when actual SAS investors lost as
much as 7.5%).
31. SGC/SCM’s management knew that the advertised SAS performance results were
misleading and inflated. From the beginning, SCM management knew that the pre-2005 track
record was purely hypothetical, bearing no relationship to actual trading. And, as early as
November 2006, SGC/SCM investment advisors began to question why their actual clients were
not receiving the returns advertised in pitch books.
32. In response to these questions, SGC/SCM hired an outside performance reporting
expert to review certain of its SAS performance results. In late 2006 and early 2007, the expert
informed SGC/SCM that the performance results for the twelve months ended September 30,
2006 were inflated by as much as 3.4 percentage points. Moreover, the expert informed
SGC/SCM managers that the inflated performance results included unexplained “bad math” that
consistently inflated the SAS performance results over actual client performance. Finally, in
March 2008, the expert informed SGC/SCM managers that the SAS performance results for
2005 were also inflated by as much as 3.25 percentage points.
33. Despite their knowledge of the inflated SAS returns, SGC/SCM management
continued using the pre-2005 track record. In fact, in 2008 pitch books, they presented the back-
tested pre-2005 performance data under the heading “Historical Performance” and “Manager
Performance” along side the audited 2005 through 2008 figures.
34. Finally, SGC/SCM compounded the deceptive nature of the SAS track record by
blending the back-tested performance with audited composite performance to create annualized 5
and 7 year performance figures that bore no relation to actual SAS client performance.
35. Other than the fees paid by SIB to SGC for the sale of the CDs, SAS was the
second most significant source of revenue for the firm. In 2007 and 2008, SCG earned
approximately $25 million in fees from the marketing of the SAS program.
CLASS ACTION ALLEGATIONS
36. This action is brought as a class action pursuant to Rule 23 of the Federal Rules of
Civil Procedure. Plaintiffs are pursuing this action to secure redress on behalf of all persons and
entities in the United States who have suffered damages as a consequence of Defendants’
violations of federal securities laws and regulations. Plaintiff brings the claims herein on behalf
of herself and all other persons and entities similarly situated, and seeks certification of the
following Plaintiff Class:
All persons or entities in the United States who purchased securities and certificates of deposit sold by or through the Defendant Stanford entities, or other selling agents affiliated with the Stanford entities, from January 1, 2000 until February 17, 2009 inclusive (the “Class Period”), excluding Defendants and all officers and directors of Defendants during the Class Period (“the Class”).
37. Specifically excluded from the proposed Plaintiff Class are the Judge to whom the
case is assigned; the Defendants, officers, directors, agents, trustees, representatives or
employees of Defendants; or entities controlled by Defendants, and their heirs, successors,
assigns, or other persons or entities related to or affiliated with Defendants and/or their officers
and/or directors.
38. Membership in the Class is so numerous as to make it impractical to bring all
class members before the Court as individual Plaintiffs. The exact number of Class members is
unknown, though believed to be in the tens of thousands, but can be reasonably determined from
the records maintained by Defendants.
39. A class action is superior to other available methods for the fair and efficient
adjudication of this litigation. Individual litigation would be unduly burdensome to the courts in
which individual litigation would proceed. The disposition of these claims in a class action will
provide substantial benefits to the Class members, the public, and the courts.
40. Defendants’ process and procedure for marketing, promoting, and selling
investment products, including CDs and securities, were uniform. Total uniformity in this
respect is consistent with class action principles. This action alleges violations of specific
federal securities laws and regulations during a specific time period by Defendants, and thus a
singular legal focus on the nature and content of Defendants’ conduct is present.
41. Individual litigation would present the potential for varying, inconsistent, or
contradictory judgments and would magnify the delay and expense to all parties and to the court
system resulting from multiple trials of the same factual issues. Plaintiff knows of no difficulty
to be encountered in the management of this action that would preclude its maintenance as a
class action. Accordingly, relief concerning Plaintiff’s rights under the laws herein alleged and
with respect to the Plaintiff Class would be proper. This class action provides the benefits of
unitary adjudication, economies of scale and comprehensive supervision by a single court.
42. Plaintiff is a member of the Plaintiff Class described herein and will adequately
and fairly represent the interests of the classes. Plaintiff has retained counsel who are
experienced in class action litigation and are well-qualified and competent to represent the
Plaintiff Class.
43. Neither Plaintiff nor her attorneys have any interests which are contrary to, or
conflicting with, those of the Class members. Accordingly, the interests of the Class members
will be adequately protected and advanced. In addition, the interests of Plaintiff and members of
the Class are aligned because they have a strong interest in securing their right to recover
damages.
44. This action has been brought and may properly be maintained as a class action
under the Federal Rules of Civil Procedure. The Class satisfies the numerosity, commonality,
typicality, adequacy, and superiority requirements of Rule 23 of the Federal Rules of Civil
Procedure because there is a well-defined community of interests and common questions of law
and fact which predominate over any questions affecting only individual members of the classes.
These common legal and factual questions do not vary from one class member to another, and
may be determined on a class-wide basis without reference to the individual circumstances of
any class member. These questions include, but are not limited to, the following:
(a) whether Defendants violated Section 10b and rule 10b-5 of
the Securities Exchange Act of 1934, 15 USC § 78a, by
fraudulently inducing Plaintiffs and the Class to purchase
investments marketed by Stanford through the use of
materially false and misleading Monthly Account
Statements, sales materials and oral presentations;
(b) whether Defendants violated the provisions of the
Securities Exchange Act Section 10b and rule 10b-5 by
knowingly or with severe recklessness providing the
substantial assistance in connection with the violations of
and Rule 10b-5 [17 C.F.R. § 240.10b-5] alleged herein;
(c) whether Defendants violated the provisions of the
Securities Exchange Act Section 12 by knowingly or with
severe recklessness communicating material misstatements
and/or omissions that were disseminated by use of the
means and instruments of transportation or communication
in interstate commerce or of the mails; and,
(d) whether Defendants violated the provisions of the
Securities Exchange Act Section 17(a) by knowingly or
with severe recklessness (a) employing devices, schemes or
artifices to defraud; (b) obtaining money or property by
means of untrue statements of material fact or omissions to
state material facts necessary in order to make the
statements made, in light of the circumstances under which
they were made, not misleading; and (c) engaging in
transactions, practices or courses of business which operate
or would operate as a fraud or deceit.
45. Plaintiff’s claims are typical of the class she represents. Plaintiff and members of
the class all invested in CDs or securities through Stanford and based on representations made by
Defendants. The losses experienced by Plaintiff were caused by the same events and conduct
that gives rise to the claims of the other class members.
46. Notice can be provided to members of the Plaintiff Class by a combination of
published notice, Internet notice, and first-class mail using techniques and forms of notice
similar to those customarily used in product liability cases and class actions.
CAUSES OF ACTION FIRST CLAIM
FIRST CLAIM FOR RELIEF
(Violations of § 10(b) of the Securities and Exchange Act and Rule 10-b5)
47. Plaintiff repeats and re-alleges each and every allegation contained in the
foregoing paragraphs as if set forth herein.
48. As more fully set forth in the factual allegations above, Defendants, through the
use of the mails and the means and the instrumentalities of interstate commerce, fraudulently
induced Plaintiff and the Class to purchase investments, being marketed by Stanford through the
use of materially false and misleading Monthly Account Statements, sales materials and oral
presentations.
49. Defendants knowingly transmitted to Plaintiff and the Class and disseminated,
directly and through its agents, materially false and misleading statements, as more fully
described above, describing and recommending the purchase of the securities purchased by
Plaintiff and the Class.
50. At the time of the misstatements and omissions described above, Defendants
knew or should have known that such statements were materially false and misleading and
omitted facts required in order to make the statements made, in light of the circumstances under
which they were made, not misleading, but knowingly or recklessly made such statements to
Plaintiff and the Class in order to induce them to purchase the investments.
51. Plaintiff and the Class reasonably relied upon the information provided to them
and statements made by Stanford and its agents recommending the purchase of the securities. At
the time of such investments, Plaintiff and the Class had no knowledge that the information and
recommendations provided by Defendants contained material misstatements and omissions.
52. Plaintiff and the Class would not have purchased the CDs and securities but for
the materially false and misleading information provided to them by Defendants.
53. As a result of their investments, Plaintiff and the Class have been damaged and
their original investment capital has been substantially depleted.
SECOND CLAIM AS TO STANFORD, DAVIS, COMEAUX, PARRISH AND PENDERGEST-HOLT
Aiding and Abetting Violations of Securities Exchange Act Section 10(b) and Rule 10b-5
54. Plaintiff repeats and re-alleges each and every allegation contained in the
foregoing paragraphs as if set forth herein.
55. In addition to violating the provisions of the Securities Exchange Act Section
10(b) and Rule 10b-5, Stanford, Davis, and Pendergest-Holt, in the manner set forth above,
knowingly or with severe recklessness provided substantial assistance in connection with the
violations of Securities Exchange Act Section 10(b) [15 U.S.C. § 78j(b)] and Rule 10b-5 alleged
herein.
56. For these reasons, Stanford, Davis, Pendergest-Holt, Comeaux, and Green aided
and abetted violations of Section 10(b) of the Exchange Act [15 U.S.C. . § 78j(b)] and Rule 10b-
5.
THIRD CLAIM (Violations of Section 12 of the Securities Act)
57. Plaintiffs repeat and re-allage each and every allegation contained in the
foregoing paragraphs as if set forth herein.
58. Defendants sold the securities to Plaintiff by means of oral and written
communications, which contained material misstatements and/or omissions and were
disseminated by use of the means and instruments of transportation or communication in
interstate commerce or of the mails.
59. Plaintiff and the Class, without knowledge of the falsity of Defendants’
statements and of the material omissions in the written materials provided by Defendants
including, but not limited to, Monthly Account Statements and other misrepresentations made by
Defendants, as described above, and reasonably believing such statements to be true and
complete, purchased investments from Defendants.
60. Plaintiff and the Class would not have purchased the investments but for the
materially false and misleading information provided to them by Defendants.
61. By virtue of the foregoing, Plaintiff and the Class have been damaged and are
entitled to damages and other relief for Defendants’ violations of Section 12 of the Securities Act
as alleged herein.
FOURTH CLAIM (Violations of Section 17(a) of the Securities Act)
62. Plaintiff repeats and re-alleges each and every allegation contained in the
foregoing paragraphs as if set forth herein.
63. Defendants, directly or indirectly, singly or in concert with others, in the offer and
sale of securities, by use of the means and instruments of transportation and communication in
interstate commerce and by use of the mails, have: (a) employed devices, schemes or artifices to
defraud; (b) obtained money or property by means of untrue statements of material fact or
omissions to state material facts necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading; and (c) engaged in transactions,
practices or courses of business which operate or would operate as a fraud or deceit.
64. As part of and in furtherance of this scheme, Defendants, directly or indirectly,
prepared, disseminated or used contracts, written offering documents, promotional materials,
investor and other correspondence, and oral presentations, which contained untrue statements of
material fact and which omitted to state material facts necessary in order to make the statements
made, in light of the circumstances under which they were made, not misleading.
65. Defendants made the referenced misrepresentations and omissions knowingly or
grossly recklessly disregarding the truth.
66. For these reasons, Plaintiff and the Class have been damaged, and are entitled to
damages and other relief for Defendants’ violation of Section 17(a) of the Securities Act as
alleged herein.
67. Plaintiff prays for a trial by jury.
PRAYER FOR RELIEF
Wherefore, Plaintiff prays for judgment as follows:
1. For an order certifying that this action may be maintained as a class action against
Defendants, establishing an appropriate Class, appointing Plaintiff Sandra Allen
as Class Representative and her counsel to represent the Class, and directing that
reasonable notice of this action be given to the Class members;
2. For an award of all remedies and damages incurred as a consequence of the
liability of the Defendants, together with legal interest thereon from the date of
judicial demand until paid;
3. For disgorgement and restitution of all earnings, profits, compensation and
benefits received by Defendants as a result of their unlawful acts and practices;
4. For an award of a reasonable sum for attorney fees;
5. For the costs of these proceedings;
6. For such other and further relief as this Court may deem just and proper; and,
7. For trial by jury.
BY ATTORNEYS: /s/ Patrick W. Pendley
PATRICK W. PENDLEY (LSBA# 10421) CHRISTOPHER L. COFFIN (LSBA# 27902) STAN P. BAUDIN (LSBA# 22937) NICHOLAS R. ROCKFORTE (LSBA #31305) PENDLEY, BAUDIN & COFFIN, L.L.P. P.O. DRAWER 71 24110 EDEN STREET PLAQUEMINE, LOUISIANA 70765 TEL: (225) 687-6396 FAX: (225) 687-6398
~JS 44 (Rev. 12/07) CIVIL COVER SHEETThe JS 44 civil cover sheet and the information contained herein neither replace nor supplement the filing and service ofpleadings or other papers as required by law, except as providedby local rules ofcourt. This form, approved by the Judicial Conference ofthe United States in September 1974, is required for the use ofthe Clerk ofCourt for the purpose ofmitiatingthe civil docket sheet. (SEE INSTRUCTIONS ON THE REVERSE OF THE FORM.)
I. (a) PLAINTIFFSSANDRA ALLEN, ON BEHALF OF HERSELF AND ALL OTHERSSIMILARLY SITUATED,
(b) County of Residence of First Listed Plaintiff EAST BATON ROUGE(EXCEPT IN U.S. PLAINTIFF CASES)
DEFENDANTSStanford Group Company, Stanford Financial Group, StanfordInternational Bank LTD., Stanford Holdings, Inc:, Stanford CapitalManagement, LLC, R. Allen Stanford, James Davis, and Laura Holt
County of Residence of First Listed Defendant
(IN U.S. PLAINTIFF CASES ONLY)
NOTE: IN LAND CONDEMNATION CASES, USE THE LOCATION OF THE
LAND INVOLVED.
Attorneys (If Known)
Citizen ofThis State
III. CITIZENSHIP OF PRINCIPAL PARTIES(Place an "X" in One Box for Plaintiff(For Diversity Cases Only) and One Box for Defendant)
PTF DEF PTF DEFo I 0 I Incorporated or Principal Place 0 4 0 4
of Business In This State
l!!I 3 Federal Question(U.S. Government Not a Party)
U.S. GovernmentPlaintiff
01
(c) Attornej"s.O'inn Name, Address and Telephone NumbedChristopher L coffin, Patrick W. Pendley, Stan P. Baudin, Nicholas R.Rockforte; Pendley, Baudin & Coffin, LLP; P.O. Drawer 71,24110 EdenStreet Pia uemine LA 70765' 225 687-6396
II. BASIS OF JURISDICTION (Place an "X" in One Box Only)
o 2 U.S. GovernmentDefendant
o 4 Diversity
(Indicate Citizenship ofParties in Item III)
Citizen ofAnother State
Citizen or Subject of aForei n COUll
o 2 0 2 Incorporated and Principal PlaceofBusiness In Another State
o 3 0 3 Foreign Nation
o 5 0 5
o 6 0 6
IV TUREO S TNA F VI (Place an "X" in One Box Only)
"':,',:,'I""!"!,, "M' ,",",,"", ,'"",,,,,""'11,
o 110 Insurance PERSONAL INJURY PERSONAL INJURY o 610 Agriculture o 422 Appeal 28 USC 158 0 400 State Reapportionmento 120Marine 0 310 Airplane 0 362 Personal Injury • o 620 Other Food & Drug o 423 Withdrawal 0 410 Antitrusto 130 Miller Act 0 315 Airplane Product Med. Malpractice o 625 Drug Related Seizure 28 USC 157 0 430 Banks and Bankingo 140 Negotiable Instrument Liability 0 365 Personal Injury . ofProperty 21 USC 881 0 450 Commerceo 150 Recovery ofOverpayment 0 320 Assault, Libel & Product Liability o 630 Liquor Laws PllfOPERT¥iiRIGilliJJS''','''''''", 0 460 Deportation
& Enforcement ofJudgment Slander 0 368 Asbestos Personal o 640 RR. & Truck o 820 Copyrights 0 470 Racketeer Influeuced ando 151 Medicare Act 0 330 Federal Employers' Injury Product o 650 Airline Regs. o 830 Patent Corrupt Organizationso 152 Recovery ofDefaulted Liability Liability o 660 Occupational o 840 Trademark 0 480 Consumer Credit
Student Loans 0 340 Marine PERSONAL PROPERTY Safety/Health 0 490 Cable/Sat TV(ExcL Veterans) 0 345 Marine Product 0 370 Other Fraud o 690 Other 0 810 Selective Service
o 153 Recovery ofOverpayment Liability 0 371 Truth in Lending ,','",''''',,::::::,,:,: ll!l 850 Securities/Commodities/of Veteran's Benefits 0 350 Motor Vehicle 0 380 Other Personal o 710 Fair Labor Standards o 861 HIA (1395fl) Exchange
o 160 Stockholders' Suits 0 355 Motor Vehicle Property Damage Act o 862 Black Lung (923) 0 875 Customer Challengeo 190 Other Contract Product Liability 0 385 Property Damage o 720 LaborlMgmt. Relations o 863 D1WCIDIWW (405(g» 12 USC 3410o 195 Contract Product Liability 0 360 Other Personal Product Liability o 730 Labor/Mgmt.Reporting o 864 ssm Title XVI 0 890 Other Statutory Actionso 196 Franchise Iniurv & Disclosure Act o 865 RSI (405(g» 0 891 Agricultural Acts,,,,,,,,,,,,':' PllfISOl!lER:,flEIFLTI01\lS " 0 740 Railway Labor Act 0 892 Economic Stabilization Acto 210 Land Condemnation 0 441 Voting 0 510 Motions to Vacate o 790 Other Labor Litigation o 870 Taxes (U.S. Plaintiff 0 893 Environmental Matterso 220 Foreclosure 0 442 Employment Sentence o 791 EmpL Ret. Inc. or Defendant) 0 894 Energy Allocation Acto 230 Rent Lease & Ejectment 0 443 Housing! Habeas Corpus: Security Act o 871 IRS-Third Party 0 895 Freedom ofinfonnationo 240 Torts to Land Accommodations 0 530 General 26 USC 7609 Acto 245 Tort Product Liability 0 444 Welfare 0 535 Death Penalty 0 900Appeal of Fee Determinationo 290 All Other Real Property 0 445 Amer. w/Disabilities • 0 540 Mandamus & Other o 462 Naturalization Under Equal Access
Employment 0 550 Civil Rights o 463 Habeas Corpus· to Justice0 446 Amer. w/Disabilities • 0 555 Prison Condition Alien Detainee 0 950 Constitutionality of
Other o 465 Other Immigration State Statutes0 440 Other Civil Rights Actions
V. ORIGIN
~ 1 OriginalProceeding
(Place an "X" in One Box Only)o 2 Removed from 0 3
State CourtRemanded fromAppellate Court
o 4 Reinstated or 0 5 Transferred from 0 6 MultidistrictReopened another district Litigation
s eClf
o 7Appeal to DistrictJudge fromMagistrateJud ment
violation of SEC re ulations & defrauded laintiffs
Cite the U.S. Civil Statute under which you are filing (Do not cite jurisdictional statutes unless diversity):
VI. CAUSE OF ACTION ~15~U:.::.S~.C~..,,!-7.!..7~b·:---!1~5...\:U~.S~.~C.....7w7...l!.vu:au..·...!1~5~U~.S"-:..C~.:..!7~8~a·'-1~5~U:(.:.;.S~.~C~. 7~8~a~ ~ _Brief description of cause:
Defen ants artici ated i fraudulent inve tment scheme iVII. REQUESTED IN
COMPLAINT:
IiZI CHECK IF THIS IS A CLASS ACTION DEMAND $UNDER F.RCP. 23 8,000,000,000.00
Sandra Allen, on behalf of herself and all othersPlaintiff
v.Stanford Group Company, et al.
Defendant
)))))
Civil Action No.
SUMMONS IN A CIVIL ACTION
To: (Defendant's name and address) LAURA PENDERGREST-HOLT408 E. Clayton StreetBaldwyn, MS 38824
OR WHEREVER FOUND
A lawsuit has been filed against you.
Within 20 days after service of this summons on you (not counting the day you received it) - or 60 days if youare the United States or a United States agency, or an officer or employee of the United States described in Fed. R. Civ.P. 12 (a)(2) or (3) - you must serve on the plaintiff an answer to the attached complaint or a motion under Rule 12 ofthe Federal Rules of Civil Procedure. The answer or motion must be served on the plaintiff or plaintiff's attorney,whose name and address are: Christopher L. Coffin
Pendley, Baudin & Coffin, LLPP.O. Drawer 7124110 Eden StreetPlaquemine, LA 70765
If you fail to respond, judgment by default will be entered against you for the relief demanded in the complaint.You also must file your answer or motion with the court.
CLERK OF COURT
Date: _Signature ofClerk or Deputy Clerk
Case 1:09-mc-00002-JAD Document 1-4 Filed 02/20/2009 Page 1 of 3Case 3:09-cv-00298-L Document 11 Filed 02/17/2009 Page 1 of 3
IN THE UNITED STATES DISTRICT COURTFOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff,
v.
STANFORD INTERNATIONAL BANK, LTD.,STANFORD GROUP COMPANY,STANFORD CAPITAL MANAGEMENT, LLC,R. ALLEN STANFORD, JAMES M. DAVIS, andLAURA PENDERGEST-HOLT,
Defendants.
§§§§§§§§§§§§§
Case No.: 3:09-CV-00298-L
/:01 /Y) L~..-:s!f])
NOTICE OF APPEARANCE OF COUNSEL FOR RECEIVER
The undersigned counsel hereby give notice that they have been retained to
serve as counsel of record for Ralph S. Janvey in his capacity as Receiver in the above-
referenced matter. Counsel hereby requests that copies of all notices, orders and
pleadings relating to this matter be served on the undersigned counsel.
Case 1:09-mc-00002-JAD Document 1-4 Filed 02/20/2009 Page 2 of 3Case 3:09-cv-00298-L Document 11 Filed 02/17/2009 Page 2 of 3
Respectfully submitted,
BAKER BOTTS L.L.P.
By: /s/ Kevin SadlerKevin M. Sadler, Lead AttorneyState Bar No. [email protected] I. HowellState Bar No. [email protected] T. ArlingtonState Bar No. [email protected] San Jacinto Center98 San Jacinto BoulevardAustin, Texas 78701-4078Tel: 512.322.2500Fax: 512.322.2501
Timothy S. DurstState Bar No. [email protected] BOTTS L.L.P.2001 Ross AvenueDallas, Texas 75201-2980tel.: (214) 953-6500fax.: (214) 953-6503
Attorneys for Ralph Janvey, Receiver
2
Case 1:09-mc-00002-JAD Document 1-4 Filed 02/20/2009 Page 3 of 3Case 3:09-cv-00298-L Document 11 Filed 02/17/2009 Page 3 of 3
Certificate ofService
On February 17, 2009 I electronically submitted the foregoing document with the
clerk of court for the U.S. District Court, Northern District of Texas, using the electronic
case filing system of the court. I hereby certify that I have served all counsel and/or pro
se parties of record electronically or by another manner authorized by Federal Rule of
Civil Procedure 5(b)(2).
/s/ Kevin SadlerKevin Sadler
3
Case 3:09-cv-00298-N Document 3 Filed 02/17/2009 Page 1 of 4
• ORIGINALIN THE UNITED STATES DISTRICT COFOR THE NORTHERN DISTRICT OF T
DALLAS DIVISION
U.S. DISTRICT COURTNORTHERN DISTRICT OF TEXAS
FILED
FEB 172~,
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff,
v.
STANFORD INTERNATIONAL BANK, LTD.,STANFORD GROUP COMPANY,STANFORD CAPITAL MANAGEMENT, LLC,R. ALLEN STANFORD, JAMES M. DAVIS, andLAURA PENDERGEST-HOLT
Defendants.
§§§§§§§§§§§§§
Case No.:
S-09CV0298-L
CERTIFICATION UNDER FED.R.CIV.P. 65(b)
I, James Kevin Edmundson, do hereby declare under penalty of perjury, in accordance
with 28 U.S.C. §1746, that the following is true and correct, and further that this declaration is
made on my personal knowledge and that I am competent to testify as to the matters stated
herein:
1. I am an attorney-at-law.
2. I am currently admitted to practice in the State ofTexas.
3. I have worked in the Enforcement Division of the United States Securities and
Exchange Commission for 14 years. I currently serve as Fort Worth Assistant Regional Director
of Enforcement. I served for 10 years in the trial unit of the Enforcement Section, two years as
Supervisory Trial Counsel directing the operations of the trial unit.
4. Between October 1, 1998, and the present, the Fort Worth District Office of the
United States Securities and Exchange Commission has filed 61 civil injunctive actions in which
Case 3:09-cv-00298-N Document 3 Filed 02/17/2009 Page 2 of 4• •the Commission sought emergency relief. I In several of those cases, including ones in which the
1. SEC v. Star Exploration, Inc., et aI, No. 3:08-cv-2248-0 (N.D. Tex. 2008)(O'Connor, R.)(orderappointing receiver); SEC v. Patrick Henry Haxton, et al., No. 3-08CYI467-L (N.D. Tex. 2008)(Lindsay, J.)(granting asset freeze, temporarily restraining order, requiring accountings; prohibiting document alteration ordestruction, authorizing expedited discovery; and authorizing alternative methods of service); SEC v. W FinancialGroup, LLC, et al., No. 3:08-CY-499-N (N.D. Tex. 2008)(Godbey, D.)(granting temporary restraining order, orderfreezing assets, requiring preparation of sworn accountings, prohibiting document alteration or destruction,authorizing expedited discovery, repatriating all funds and assets and authorizing alternative methods of service);SEC v. McNaul, IL et al., No.08-1159-JTM (D. Kan. 2008)(Marten, J.)(granting order freezing assets and requiringpreservation of documents, and order appointing receiver); SEC v. T-Bar Resources, LLC, et al., No. 3-07-CY-1994(N.D. Tex. 2007)(Boyle, 1.)(granting agreed preliminary injunction and emergency asset freeze, and appointment ofreceiver); SEC v. Terax Energy, Inc., No. 3-07-CY-1554 (N.D. Tex. 2007)(Lynn, B.) (granting temporaryrestraining order, order freezing assets, requiring an accounting, requiring preservation of documents, andauthorizing expedited discovery); SEC v. Roberts, et al., No. 4:07-CY786-JLH (E.D. AR. 2007)(HoImes,J.)(granting agreed order of preliminary injunction, order freezing assets, requiring an accounting, and requiringpreservation of documents); SEC v. AmeriFirst Funding, et al., No. 3-07-CY-1188 (N.D. Tex. 2007)(Fitzwater,S.)(granting temporary restraining order, order freezing assets, requiring an account, requiring preservation ofdocuments, requiring repatriation of assets and authorizing expedited discovery, and order appointing temporaryreceiver); SEC v. Longs, et al., No. 4-07-cv-537-SWW (E.D. AR, Western Div.)(Wrights, S.)(agreed order ofpreliminary injunction, order freezing assets, requiring an accounting, requiring repatriation of assets, and requiringpreservation of documents); SEC v. One or More Unknown Purchasers of Call Options for the Common Stock ofTXU Corp, et al., No. 01-07-CY-1208 (N.D. Tex. 2007)(Lindberg, G.) (granting temporary restraining order andorder freezing assets); SEC v. ABC Viaticals, et aI., No. 3-06-CY-2136-P (N.D. Tex. 2006) (Solis, J.)(grantingtemporary restraining order and order appointing receiver); SEC v. Seaforth Meridian, LTD., et al. (No. 06-4107RDR)(D. Kan. 2006)(granting ex parte order freezing assets, requiring repatriation of assets, authorizing expediteddiscovery, order requiring preservation of documents and order appointing receiver); SEC v. Integrated Equities,Inc., et al., No. 2:06-CY-00779-RCJ-GWF (D. Nevada 2006)(Jones, R.)(granting preliminary injunctions and orderappointing temporary receiver), SEC v. Sunray Oil Company, Inc., et al., No. 3:06-CY-1097-R (N.D. Tex.2006)(Buchmeyer, J.)(granting temporary restraining order, order freezing assets, and order appointing temporaryreceiver), SEC v. EFS, LLC, et al., No. 3-06CY0793-M (N.D. Texas 2006)(Sanders, B)(granting ex parte temporaryrestraining order and order freezing assets and order appointing temporary receiver), SEC v. ATM Alliance, et ai.,No.A-05-CA-190-LY (W.D. Tex. 2005)(granting ex parte temporary restraining order, order freezing assets, andorder appointing temporary receiver); SEC v. Travis Correll, et al., No. 4:05-CY-472 (E.D. Tex. 2005)(Schell,R.)(granting ex parte temporary restraining order, order freezing assets and order appointing temporary receiver),SEC v. Allixon International Corp., et ai., No. 3:05-CY-2260-P (N.D. Tex. 2005)(Godbey, D)(granting temporaryorder freezing assets); SEC v. Nelson, et al., No. 5:05-CY-0266-C (N.D. Tex. 2005)(Cummings, S.)(granting exparte order freezing asset and order appointing temporary receiver); SEC v. Megafund, Inc., No. 3:05-CY-1328-L(N.D. Tex. 2005)(Lindsey, J.)(granting ex parte temporary restraining order, order freezing assets and orderappointing receiver); SEC v. David Tanner, No. 05-4057-SAC (D. Kan. 2005)(Crow, J.)(granting ex parte temporaryrestraining order and asset freeze order); SEC v. Philip D. Phillip, No. 2-05CY-I07-J (N.D. Tex. 2005)(Robinson,J.)(granting temporary restraining order and order freezing assets); SEC v. Jack A. Brown, No. 6:04-CY-537 (E.D.Tex. Dec. 2004)(Schneider, J.)(granting ex parte order freezing assets and order appointing receiver); SEC v. Kaye,No. 04-1275-MLB (D. Kan. 2004) (Belot, 1.) (granting ex parte temporary restraining order, order freezing assetsand order appointing receiver); SEC v. Kings Real Estate Inv. Trust, No. 5:04-04006-RDR-KGS (D. Kan. 2004)(Rogers, J.) (granting ex parte temporary restraining order, order freezing assets and order appointing receiver); SECv. Cash Link Systems Inc., No. 3-04-CY-1573-L (N.D. Tex. 2004) (Lindsay, J.) (granting ex parte temporaryrestraining order, order freezing assets and order appointing receiver); SEC v. Levy, No. 304-CY- 00351-N (N.D.Tex. 2004) (Godbey, J.) (granting order freezing assets); SEC v. Montana, No. CIY-04-542 (S.D. Tex. 2004) (Kent,J.) (granting ex parte temporary restraining order, order freezing assets and order appointing receiver); SEC v. Holt,No. Civ-03-1825 (D. Ariz. 2003) (Rosenblatt, J.) (granting ex parte temporary restraining order, order freezingassets and order appointing receiver); SEC v. Henderson, No. 3-03-CY-2661-K (N.D. Tex. 2003) (Kinkeade, J.)(granting ex parte temporary restraining order, order freezing assets, and order appointing receiver); SEC v. IPICInt'l, Inc., No. 3-03-CY-2781-P (N.D. Tex. 2003) (Solis, 1.) (granting ex parte temporary restraining order, order
SEC v. Stanford International Bank, Ltd., et al.Certificate Under Fed.R.Civ.P. 65(b)
2
Case 3:09-cv-00298-N Document 3 Filed 02/17/2009 Page 3 of 4• •asset freeze was granted ex parte, one or more defendants or relief defendants violated the asset
freeze.
5. Based on those experiences and the information I have been provided about the
freezing assets and order appointing receiver); SEC v. Rocky Mountain Energy Corp., No. H-03-1133 (S.D. 2003)(Lake, J.) (granting ex parte temporary restraining order, order freezing assets and order appointing receiver); SEC v.United States Reservation Bank and Trust, No. CIV-02-0581 (D. Ariz. 2002) (Carroll, J.) (granting ex partetemporary restraining order, order freezing assets, and order appointing receiver); SEC v. Southmark Advisory, Inc.,No. 02CV-830E-(M) (N.D. Okla. 2002) (Ellison, J.) (granting ex parte temporary restraining order, order freezingassets, and order appointing receiver); SEC v. Tyler, No. 3-02-CV-0282-P (N.D. Tex. 2002) (Solis, J.) (grantingpreliminary injunction, order freezing assets and order appointing receiver); SEC v. Res. Dev. Int'l, L.L. c., No. 3-02CV-0605-H (N.D. Tex. 2002) (Buchmeyer, J.) (granting ex parte temporary restraining order, order freezing assetsand order appointing receiver); SEC v. Dillie, No. Civ-01-2493 (D. Ariz. 2001) (Teilborg, J.) (granting ex partetemporary restraining order, order freezing assets and order appointing receiver); SEC v. Stroud, No. Civ-01-999-L(W.D. Okla. 2001) (West, 1.) (granting ex parte temporary restraining order, order freezing assets and orderappointing receiver); SECv. English, No. Civ-01-223-W (W.D. Okla. 2001) (West, 1.) (granting ex parte temporaryrestraining order, order freezing assets and order appointing receiver); SEC v. Hill, No. 3-01-CV-2189-X (N.D. Tex.2001) (Fitzwater, J.) (granting ex parte temporary restraining order, order freezing assets and order appointingreceiver); SEC v. C-Tech, LLP., No. 3-01-CV-2542-P (N.D. Tex. 2001) (Solis, 1.) (granting order freezing assetsand an order appointing a receiver); SEC v. First Americap Corp., No. H-01-1l53 (S.D. Tex. 2001) (Buchmeyer, J.)(granting ex parte temporary restraining order and an order freezing assets); SEC v. Perennial Fund I LP, No. COO21181 (N.D. Cal. 2000) (Ware, J.) (granting ex parte temporary restraining order, order freezing assets and orderappointing receiver); SEC v. Broadband Wireless Int'l Corp., No. Civ-00-1375 (W.D. Okla. 2000) (Russell, 1.)(granting ex parte temporary restraining order, order freezing assets and order appointing receiver); SEC v. Garland,No. 3-00-CV-1149-X (N.D. Tex. 2000) (Kendall, 1.) (granting temporary restraining order and order freezingassets); SEC v. New World Web Vision. Com, Inc., No. 4-00-CV-0231-Y (N.D. Tex. 2000) (Means, J.) (grantingtemporary restraining order, order freezing assets and order appointing receiver); SEC v. Stadtt Media, L.L.c., No.3-00-CV-1489-P (N.D. Tex. 2000) (granting temporary restraining order, order freezing assets and order appointingreceiver) ; SEC v. Ellis, No. 3-00-CV-1040-P (N.D. Tex. 2000) (Solis, J.) (granting ex parte temporary restrainingorder and an order freezing assets); SEC v. Le Club Prive, S.A., No. 3-00-CV-1851-R (N.D. Tex. 2000) (Buchmeyer,J.) (granting ex parte temporary restraining order, order freezing assets, and order appointing receiver); SEC v.Houston Texans NFL Football Team Holding Co., No. H-00-30n (S.D. Tex. 2000) (Rainey, J.) (granting ex partetemporary restraining order and order freezing assets); SEC v. Oracle Trust Fund, No. 99-1483-MLB (D. Kan.1999) (Belot, J.) (granting ex parte temporary restraining order, order freezing assets, and order appointing receiver);SEC v. Cornerstone Prodigy Group, Inc., No. 4-99-CV-0978-Y (N.D. Tex. 1999) (Means, J.) (granting orderfreezing assets and order appointing receiver); SEC v. Highland Financial Corp., No. 4-99-CV-07l9-D (N.D. Tex.1999) (granting ex parte restraining order, order freezing assets and order appointing a receiver); SEC v. Brooks, No.3-99-CV-1326-D (N.D. Tex. 1999) (Fitzwater, J.) (granting ex parte temporary restraining order and order freezingassets); SEC v. Redbank Petroleum, Inc., No. 3-99-CV-1267-T (N.D. Tex. 1999) (granting ex parte temporaryrestraining order, order freezing assets, and order appointing receiver); SEC v. Cook, No. 3-99-CV-051-X (N.D.Tex. 1999) (Buchmeyer, J.) (granting ex parte temporary restraining order, order freezing assets, and orderappointing receiver); SEC v. Inverworld, Inc., No. SA-99-CA-0822-FB (W.D. Tex. 1999) (Biery, J.) (granting orderfreezing assets and order appointing receiver); SEC v. Great White Marine and Recreation, Inc., No. W-99-CA-230(W.D. Tex. 1999) (Smith, J.) (granting temporary restraining order); SEC v. Sunpoint Securities, Inc., No. 6-99-CV667 (E.D. Tex. 1999) (Hannah, J.) (granting ex parte temporary restraining order, order freezing assets, and orderappointing receiver); SEC v. American Automation, Inc., No. 3-98-CV-1596-D (N.D. Tex. 1998) (Fitzwater, J.)(granting ex parte temporary restraining order and order freezing assets); SEC v. Trinity Gas Corp., et al., No. 4:97cv-01018 (N.D. Tex. 1997) (Means, J.) (granting temporary restraining order, order freezing assets, order foraccounting, order prohibiting destruction, order granting expedited discovery, order setting hearing date forpreliminary hearing and appointing receiver).
SEC v. Stanford International Bank, Ltd., et al.Certificate Under Fed.R.Civ.P. 65(b)
3
Case 3:09-cv-00298-N Document 3 Filed 02/17/2009 Page 4 of 4• •Defendants named herein, I believe that irreparable injury and loss is likely to occur if the Court
requires notice and a hearing.
SIGNED this Ie.". day of February 2009 at Fort Worth, Texas.
j~i:hJames Kevin Edmundson
SEC v. Stanford International Bank, Ltd., et al.Certificate Under Fed.R.Civ.P. 65(b)
4
Case 3:09-cv-00298-N Document 5 Filed 02/17/2009 Page 1 of 7
FEB 17.
•ORIGINAL• V.S. DISTRICT COURTNORTHERN DISTRICT OF TEXAS
IN THE UNITED STATES DISTRICT CO RT FILEDFOR THE NORTHERN DISTRICT OF T XAS
DALLAS DIVISION
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff,
v.
STANFORD INTERNATIONAL BANK, LTD.,STANFORD GROUP COMPANY,STANFORD CAPITAL MANAGEMENT, LLC,R. ALLEN STANFORD, JAMES M. DAVIS, andLAURA PENDERGEST-HOLT
Defendants.
§§§§§§§§§§§§§
C~~RK, V.S.D~CT COURT
Dlputy
Case No.:
S-09CV029S-L
APPLICATION FOR ISSUANCE OF A TEMPORARY RESTRAININGORDER, PRELIMINARY INJUNCTION, AND ORDERS FREEZING
ASSETS, REQUIRING AN ACCOUNTING, REQUIRING PRESERVATIONOF DOCUMENTS, AND AUTHORIZING EXPEDITED DISCOVERY
Plaintiff Securities and Exchange Commission ("Commission"), pursuant to Sections 20(b)
and 20(d) ofthe Securities Act of 1933 ("Securities Act") [15 U.S.C. §§ 77t(b) and 77t(d)], Sections
21(d) and 21(e) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. §§ 78u(d) and
78u(e)], Sections 41(d) and 41(e) of the Investment Company Act of 1940 ("Investment Company
Act") [15 U.S.C. §§ 80a-41(d) and 80a-41 (e)], Sections 209(d) and 209(e) of the Investment
Advisers Act of 1940 ("Advisers Act") [15 U.S.C. §§ 80b-9(d) and 80b-9(e)], and this Court's
general equitable jurisdiction to issue orders providing ancillary remedies and relief, requests that
this Court issue temporary relief as follows:
1. Orders temporarily restraining and preliminarily enjoining:
A. Defendants, their officers, directors, agents, servants, employees,
attorneys, and all other persons in active concert or participation with them, from
Case 3:09-cv-00298-N Document 5 Filed 02/17/2009 Page 2 of 7• •violating Section 17(a) of the Securities Act [15 U.S.C. §77q(a)], directly or
indirectly, in the offer or sale of any security by the use of any means or
instruments of transportation or communication in interstate commerce or by the
use of themails.by:
(1) employing any device, scheme, or artifice to defraud; or
(2) obtaining money or property by means of any untrue statement of
material fact or any omission to state a material fact necessary in
order to make the statement(s) made, in the light of the
circumstances under which they were made, not misleading; or
(3) engaging in any transaction, practice, or course of business which
operates or would operate as a fraud or deceit upon the purchaser;
B. Defendants, their officers, directors, agents, servants, employees,
attorneys, and all other persons in active concert or participation with them, from
violating Section lO(b) of the Exchange Act or Rule lOb-5 [15 U.S.C. §78j(b) and
17 C.F.R. §240.1 Ob-5], directly or indirectly, in connection with the purchase or sale
of any security, by making use of any means or instrumentality of interstate
commerce, or of the mails, or of any facility of any national securities exchange:
(1) to use or employ any manipulative or deceptive device or
contrivance in contravention of the rules and regulations
promulgated by the Commission;
(2) to employ any device, scheme, or artifice to defraud;
(3) to make any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made, in the
SEC v. Stanford International Bank, Ltd., et al.Application for Issuance of Temporary Restraining Order
2
Case 3:09-cv-00298-N Document 5 Filed 02/17/2009 Page 3 of 7• •light of the circumstances under which they were made, not
misleading; or
(4) to engage in any act, practice, or course of business which operates
or would operate as a fraud or deceit upon any person;
C. R. Allen Stanford, James M. Davis, Laura Pendergest-Holt, Stanford
Group Company, Stanford Capital Management, LLC, their officers, directors,
agents, servants, employees, attorneys, and all other persons in active concert or
participation with them, from violating Sections 206(1) and 206(2) of the Advisers
Act [15 U.S.C. §§80b-6(1), (2)], directly or indirectly, by use of the mails or any
means or instrumentality of interstate commerce, by:
(1) employing any device, scheme, or artifice to defraud any client or
prospective client; or
(2) engaging in any transaction, practice, or course of business which
operates as a fraud or deceit upon any client or prospective client;
D. Stanford International Bank, Ltd., Stanford Group Company, their officers,
directors, agents, servants, employees, attorneys, and all other persons in active
concert or participation with them, from violating Section 7(d) of the Investment
Company Act [15 U.S.c. §80a-7(d)], directly or indirectly, by use of the mails or
any means or instrumentality of interstate commerce, by:
(1) acting as an investment company, not organized or otherwise
created under the laws of the United States or of a State, and
offering for sale, selling, or delivering after sale, in connection
SEC v. Stanford International Bank, Ltd., et a/.Application for Issuance of Temporary Restraining Order
3
Case 3:09-cv-00298-N Document 5 Filed 02/17/2009 Page 4 of 7• •with a public offering, any security of which such company is the
Issuer; or
(2) acting as a depositor of, trustee of, or underwriter for such a
company; unless
(3) the Commission, upon application by the investment company not
organized or otherwise created under the laws of the United States
or of a State, issues a conditional or unconditional order permitting
such company to register and to make a public offering of its
securities by use of the mails and means or instrumentalities of
interstate commerce.
2. An order prohibiting Defendants, their respective officers, directors, agents, assigns,
servants, employees, attorneys, and all other persons in active concert or participation with them,
including any bank, securities broker-dealer, or any financial or depository institution, who receives
actual notice of this Order by personal service or otherwise, from directly or indirectly assigning,
transferring, conveying, encumbering, selling, dissipating, spending, or disbursing properties owned
by or in actual or constructive possession of these Defendants.
3. An order requiring Defendants to file with this Court and serve upon Plaintiff
Commission within ten days of the issuance of this order or three days prior to any hearing on the
Commission's Motion for Preliminary Injunction, whichever is sooner, an interim accounting,
under oath: (l) detailing all monies and other benefits which each received, directly or indirectly,
as a result of the activities alleged in the Complaint (including the date on which the monies or
other benefit was received and the name, address, and telephone number of the person paying the
money or providing the benefit); (2) listing all current assets wherever they may be located and
SEC v. Stanford International Bank, Ltd., et al.Application for Issuance ofTemporary Restraining Order
4
Case 3:09-cv-00298-N Document 5 Filed 02/17/2009 Page 5 of 7• •by whomever they are being held (including the name and address of the holder and the amount
or value of the holdings); and (3) listing all accounts with any financial or brokerage institution
maintained in the name of, on behalf of, or for the benefit of the Defendants (includi.ng the name
and address of the account holder and the account number) and the amount held in each account
at any point during the period from January 1, 2000 through the date of the accounting.
4. An order prohibiting Defendants, their officers, directors, agents, servants,
employees, attorneys, and all other persons in active concert or participation with them, including
.any bank, securities broker-dealer, or any financial or depository institution, who receives actual
notice of this Order by personal service or otherwise, from destroying, removing, mutilating,
altering, concealing, or disposing of, in any manner, any books and records owned by, or pertaining
to, the financial transactions and assets ofDefendants or any entities under their control.
5. An order authorizing the Commission to serve process on, and give notice of
these proceedings and the relief granted herein to, Defendants by u.s. Mail, e-mail, facsimile, or
any other means authorized by the Federal Rules of Civil Procedure.
6. An order authorizing expedited discovery consistent with the following guidelines:
A. Any party may notice and conduct depositions upon oral examination and
may request production of documents or other things for inspection or
copying, or both, from parties and nonparties prior to the expiration of
thirty (30) days after service of a summons and Plaintiff Commission's
Complaint upon Defendants.
B. Any party may notice and conduct depositions upon oral examination
subject to minimum notice of three days.
SEC v. Stanford International Bank, Ltd., et al.Application for Issuance ofTemporary Restraining Order
5
Case 3:09-cv-00298-N Document 5 Filed 02/17/2009 Page 6 of 7• •C. All parties shall produce for inspection and copying all documents and
things that are requested within three days of service of a written request
for those documents and things.
D. All parties shall serve written responses to any other party's request for
discovery and the interim accountings to be provided by Defendants by
delivery to Plaintiff Commission addressed as follows:
UNITED STATES SECURITIES AND EXCHANGE COMMISSIONFort Worth Regional OfficeAttention: David ReeceBurnett Plaza, Suite 1900801 Cherry Street, Unit #18Fort Worth, TX 76102-6882Facsimile: (817) 978-4927
and by delivery to other parties at such address(es) as may be designated
by them in writing. Such delivery shall be made by the most expeditious
means available, including facsimile machine.
7. An order requiring Stanford, Davis, and Pendergest-Holt to surrender their
passports, pending the determination of the Commission's request for a preliminary injunction,
and barring them from traveling outside the United States.
8. An order, pending determination of the Commission's request for a Preliminary
Injunction, that Defendants, their directors, officers, agents, servants, employees, attorneys,
depositories, banks, and those persons in active concert or participation with anyone or more of
them, and each of them, shall:
(a) take such steps as are necessary to repatriate to the territory of the United States
all funds and assets of investors described in the Commission's Complaint in this action
which are held by them, or are under their direct or indirect control, jointly or singly, and
SEC v. Stanford International Bank, Ltd., et al.Application for Issuance of Temporary Restraining Order
6
Case 3:09-cv-00298-N Document 5 Filed 02/17/2009 Page 7 of 7• •deposit such funds into the Registry of the United States District Court, Northern District
of Texas; and
(b) provide the Commission and the Court a written d~scription of the funds and
assets so repatriated.
This Application for Issuance of a Temporary Restraining Order, Preliminary Injunction,
and Orders Freezing Assets, Requiring an Accounting, Requiring Preservation of Documents,
and Authorizing Expedited Discovery is based on Plaintiff Commission's Complaint, supporting
-memorandum, declarations and exhibits thereto, and the argument of counsel.
February 16, 2009 Respectfully submitted,
U.S. Securities and Exchange CommissionBurnett Plaza, Suite 1900801 Cherry Street, Unit #18Fort Worth, TX 76102-6882(817) 978-6476 (dbr)(817) 978-4927 (fax)
SEC v. Stanford International Bank, Ltd., et at.Application for Issuance of Temporary Restraining Order
7
Case 3:09-cv-00298-N Document 6 Filed 02/17/2009 Page 1 of 35, I '. ORIGINAL •
U.S. DlSTRICT COURTIN THE UNITED STATES DISTRICT C UR'EORTHERNDlSTRICTOFTEXASFOR THE NORTHERN DISTRICT OF T XAS FI~J~l)
DALLAS DIVISIONFEB 11 2009
Case 0.:
CL~RK,U.~RICT COURT
, D pnty
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff,
v.
STANFORD INTERNATIONAL BANK, LTD.,STANFORD GROUP COMPANY,STANFORD CAPITAL MANAGEMENT, LLC,R. ALLEN STANFORD, JAMES M. DAVIS, andLAURA PENDERGEST-HOLT,
Defendants.
§§§§§§ ..
~ I-09CV0298-L§§§§§
MEMORANDUM OF LAW IN SUPPORT OF MOTION FOREX PARTE TEMPORARY RESTRAINING ORDER,
PRELIMINARY INJUNCTION AND OTHER EMERGENCY RELIEF
I. PRELIMINARY STATEMENT
Plaintiff Securities and Exchange Commission submits this Memorandum of Law in
Support of its Motion for Ex Parte Temporary Restraining Order, Preliminary Injunction and
Other Emergency Relief to halt a massive, ongoing fraud orchestrated by Robert Allen Stanford
and James M. Davis and executed through companies they control, Antiguan-based Stanford
International Bank, Ltd. ("SIB"), and its affiliated Houston-based investment advisers, Stanford
Group Company ("SGC") and Stanford Capital Management ("SCM").
Certificates ofDeposit
Acting through a network of SGC financial advisers, SIB has sold approximately $8
billion of so-called "certificates of deposit" to investors by promising high interest rates. SIB
claims that it offers high yields because of its unique investment strategy, which has purportedly
Case 3:09-cv-00298-N Document 6 Filed 02/17/2009 Page 2 of 35, I , y • •
enabled the bank to achieve double-digit returns on its investments over for past 15 years. As
further described below, the bank's claims are improbable and unsubstantiated.
Further, SIB and its advisers have misrepresented to CD purchasers that their deposits are
safe because the bank: (i) re-invests client funds primarily in "liquid" financial instruments (the
"portfolio"); (ii) monitors the portfolio through a team of 20-plus analysts; and (iii) is subject to
yearly audits by Antiguan regulators. Recently, as the market absorbed the news of Bernard
Madoffs massive Ponzi scheme, SIB told investors that the bank had no "direct or indirect"
exposure to Madoffs scheme.
These assurances are false. SIB's investment portfolio was not invested in liquid
financial instruments or allocated in the manner described in its promotional material and public
reports. Instead, a substantial portion of the bank's portfolio was invested in illiquid
investments, such as private equity and real estate. Further, the vast majority SIB's multi-billion
dollar investment portfolio was not monitored by a team of analysts, but rather by two people
Allen Stanford and James Davis. And contrary to SIB's representations, the Antiguan regulator
responsible for oversight of the bank's portfolio, the Financial Services Regulatory Commission,
does not audit SIB's portfolio or verify the assets SIB claims in its financial statements. Finally,
SIB has exposure to losses from the Madofffraud scheme despite the bank's public assurances to
the contrary.
SGC has also failed to disclose material facts to its advisery clients. In December 2008,
SGC's clearing broker advised SGC that it would no longer facilitate wire transfer requests to
SIB on behalf of existing clients who desire to purchase SIB CDs. The clearing broker decided
to stop transferring money to the bank because of suspicions about the bank's purported
investment returns and the overall lack of "transparency" into the bank's portfolio of
SEC v. Stanford International Bank, Ltd., et al. 2
Case 3:09-cv-00298-N Document 6 Filed 02/17/2009 Page 3 of 35, , , w • •
investments. SGC never disclosed to clients that Pershing refused to transfer client funds to
SIB.
During the past several weeks, the Securities and Exchange Commission subpoenaed SIB
bank records and witnesses in an effort to account for the $8 billion of investor funds held by the
bank. Among others, the SEC issued subpoenas to Stanford, Davis, and O.Y. Goswick, a SIB
board member residing in Texas, who is purportedly responsible for "investments." None of
these witnesses appeared for testimony or produced a single document. Further, SIB represented
that Juan Rodriquez, SIB's president who resides in Antigua, would voluntarily appear in the
United States to give sworn testimony to the SEC and account for investor funds. Mr. Rodriguez
failed to appear for testimony. The SEC did, however, take sworn testimony from Stanford
Financial Group's Chief Investment Officer and SIB investment committee member (Laura
Pendergest-Holt) and a former Senior Investment Officer (the "SIO"). Neither Ms. Pendergest
Holt nor the SIO could account for the $8 billion entrusted to the bank by its clients. In fact,
Pendergest-Holt and the former SIO could only identify Stanford and Davis as people having
knowledge and access to the vast majority of SIB's portfolio.
Stanford Allocation Strategy
Stanford's fraudulent conduct is not limited to the sale of CDs. Since 2005, SGC
advisers have sold more than $1 billion of a proprietary mutual fund wrap program called
Stanford Allocation Strategy ("SAS"), using materially false and misleading historical
performance data. The false data has helped SGC grow the SAS program from less than $10
million in around 2004 to over $1 billion, generating fees for SGC/SCM (and ultimately
Stanford) in excess of $25 million. And the fraudulent SAS performance was used to recruit
SEC v. Stanford International Bank, Ltd., et al. 3
Case 3:09-cv-00298-N Document 6 Filed 02/17/2009 Page 4 of 35" , t • •
registered financial advisers with significant books of business, who were then heavily
incentivized to re-allocate their clients' assets to SIB's CD program.!
Emergency ReliefIs Appropriate
The SEC has learned that Allen Stanford, on or about February 6, 2009, imposed a "two-
month moratorium" on CD redemptions, and instructed SGC advisers that the bank would not
honor redemption requests from clients. Moreover, at least one SGC financial adviser
misrepresented to a client that the Commission had frozen CD-related accounts for two months.
[App. 672-73, 1118]. Finally, last week, SIB's counsel notified the Commission that he was
withdrawing as counsel. [App. 1121]. In so doing, SIB's counsel advised the Commission that
he and his law firm "disaffirm all prior oral and written representations" regarding Stanford
Financial Group and its affiliates. [App. 1122].
The fraudulent scheme is ongoing. SIB is continuing to sell CDs. And SGC/SCM is
continuing to sell SAS. Moreover, the vast majority of investor funds have not been accounted
for and remain under the control of the Defendants. Investor funds and bank assets need to be
located, secured and marshaled by a Receiver for the benefit of investors. Emergency relief is,
therefore, necessary and appropriate in this matter.
To protect investors and to halt this fraudulent scheme, the Commission seeks: (1) an ex
parte temporary restraining order and preliminary injunction against future violations by
Defendants; (2) an immediate freeze of all assets of Defendants; (3) an order requiring
Defendants to provide an immediate accounting; (4) a repatriation order; (5) an order that
Stanford and Davis surrender their passports; (6) an order prohibiting the destruction of records;
In addition to the antifraud violations described above, SIB, SGC and SCM violated Section 7(d) of theInvestment Company Act, which prohibits foreign investment companies and their underwriters from sellingsecurities in the U.S. without registering with the Commission. Had SIB complied with the law and registered as aninvestment company, SIB would have been subject to examination by the Commission.
SEC v. Stanford International Bank, Ltd., et al. 4
Case 3:09-cv-00298-N Document 6 Filed 02/17/2009 Page 5 of 35, , , , • •(7) an order expediting discovery; and (8) the appointment of a Receiver to take control of the
assets of the Defendants to marshal and preserve assets for the benefit of the investors defrauded
by the Defendants.
II. DEFENDANTS
Stanford International Bank, Ltd. purports to be private international bank domiciled
in St. John's, Antigua, West Indies. [App. 527, 859, 887]. SIB claims to serve 30,000 clients in
131 countries and holds $7.2 billion in assets under management. [App. 538].1 SIB's multi
billion portfolio of investments is managed by the SFG's chief financial officer in Memphis,
Tennessee. [App. 058,388,936]. Unlike a commercial bank, SIB does not loan money. [App.
50, 668, 862, 1011, 1017]. SIB sells the CD to U.S. investors through SGC, its affiliated
investment adviser. [App 668].
Stanford Group Company, a Houston-based corporation, IS registered with the
Commission as a broker-dealer and investment adviser. [App. 585]. SGC has offices located
throughout the U.S., including Dallas, Texas. [App. 928, 945]. SGC's principal business
consists of sales of SIB-issued securities, marketed as "certificates of deposit." [App. 590, 668].
SGC is a wholly owned subsidiary of Stanford Group Holdings, Inc., which in tum is owned by
Robert Allen Stanford ("Stanford"). [App. 46, 586, 942].
Stanford Capital Management, a registered investment adviser [App. 585], took over
the management of the SAS program (formerly Mutual Fund Partners) from SGC in early 2007.
Stanford Capital Management markets the SAS program through SGC. [App. 679].
Robert Allen Stanford, a U.S. citizen, is the Chairman of the Board and sole shareholder
of SIB and the sole director ofSGC's parent company. [App. 46, 76, 586,881-82].
2 SIB's Annual Report for 2007 states that SIB has 50,000 clients [App. 859].
SEC v. Stanford International Bank, Ltd., et al. 5
Case 3:09-cv-00298-N Document 6 Filed 02/17/2009 Page 6 of 35, r • •
James M. Davis, a U.S. citizen and resident of Baldwin, Mississippi and who offices in
Memphis, Tennessee and Tupelo, Mississippi, is a director and chief financial officer of SFG and
SIB. [App. 80,881-82].
Laura Pendergest-Holt is the Chief Investment Officer of SIB-affiliate Stanford
Financial Group and a member of SIB's investment committee. [App. 31, 74-75, 524}. She
supervises a group of analysts in Memphis, Tupelo, and St. Croix who "oversee" performance of
SIB's "Tier II" assets. [App.80-8l}.
III. STATEMENT OF FACTS
A. The Stanford Empire
Allen Stanford has created a web of affiliated companies that exist and operate under the
brand Stanford Financial Group ("SFG"). [App.926-37}. According to the company's website,
SFG is a privately-held group of companies that has in excess of $50 billion "under advisement."
[www.stanfordfinancia1.com}.
SIB, one of SFG's affiliates, is a private, offshore bank that purports to have an
independent Board of Directors, an Investment Committee, a Chief Investment Officer and a
team of research analysts. [App. 524, 882, 895}. While SIB is domiciled in Antigua, a small
group of SFG employees who maintain offices in Memphis, Tennessee, and Tupelo, Mississippi,
purportedly monitor the bank's assets. [App. 80-81,388].
SIB is operated by a close-nit circle of Stanford's family, friend and their confidants. For
example, Davis was Stanford's college classmate at Baylor University in the 1970s. SIB's Board
of Directors includes Davis, Stanford, Stanford's father James A. Stanford, and O.Y. Goswick, a
Stanford family friend from Mexia, Texas, whose business experience includes cattle-ranching
and car sales. [App. 882, 899}. SIB's investment committee, which is purportedly responsible
SEC v. Stanford International Bank, Ltd., et al. 6
Case 3:09-cv-00298-N Document 6 Filed 02/17/2009 Page 7 of 35• •for the management of the bank's multi-billion dollar portfolio of assets, is comprised of
Stanford, Stanford's father, Davis, Goswick and Laura Pendergest-Holt. [App. 524].
4
Pendergest-Holt, who became acquainted with Davis at their church in Baldwin, Mississippi,
joined SFG in 1997, after graduating from Mississippi State University with a master's degree in
mathematics. [App. 73]. Prior to joining SFG, Pendergest-Holt had no experience in the
financial services or securities industries. [App. 73].3 Based on these relationships, and the fact
that Stanford is the sole shareholder of SIB and SGC, it appears that Stanford is subject to little
or no independent oversight.
B. Stanford International Bank
As of November 28, 2008, SIB reported $8.6 billion in total assets. [App. 541]. SIB's
primary product is the CD. [App. 74, 403, 590, 668-70].4 SIB aggregates customer deposits,
and then purportedly re-invests those funds in a "globally diversified portfolio" of assets.
For almost fifteen years, SIB represented that it has experienced consistently high returns
on its investment of deposits (ranging from 11.5% in 2005 to 16.5% in 1993):
Further, Ken Weeden holds the title of Managing Director-Research and Investments. He supervises agroup of "analysts" that work in Memphis and Tupelo. Weeden reports to Pedergest-Holt, who is Weeden's sisterin-law. [App. 588]. Davis' son, and at least one of his college classmates, are research analysts whoseresponsibilities include, in part, oversight of a small portion of SIB's portfolio ofassets.
SIB sold more than $1 billion in CDs per year between 2005 and 2007, including sales to U.S. investors.The bank's deposits increased from $3.8 billion in 2005, to $5 billion in 2006, and $6.7 billion in 2007. [App.856].SIB markets CDs to investors in the United States exclusively through SGC advisers pursuant to a Regulation Dprivate placement. In connection with the private placement, SIB filed a Form D with the Commission. [App.668,906-12].
SEC v. Stanford International Bank, Ltd., et al. 7
Case 3:09-cv-00298-N Document 6 Filed 02/17/2009 Page 8 of 35• •18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
STAfIFORDINTERNATIONAL BAf'I<Return Vs.lnterest Paid To Depositors
Since 1994, SIB claims that it has never failed to hit targeted investment returns in excess
of 10%. [App 407, 590]. And, SIB claims that its "diversified portfolio of investments" lost
only $110 million or 1.3% in 2008. [App.541]. During the same time period, the S&P 500 lost
39% and the Dow Jones STOXX Europe 500 Fund lost 41 %. Id.
SIB's historical returns are improbable, if not impossible. After reviewing SIB's returns
on investment over ten years, a performance reporting consultant hired by Stanford characterized
SIB's performance as "not possible - almost statistically impossible." [App. 159-150]. Further,
in 1995 and 1996, SIB reported identical returns of 15.71%, a remarkable achievement
considering the bank's "diversified investment portfolio." [App. 345, 670] According to
Pendergest-Holt, it is "improbable" that SIB could have managed a "globally diversified"
portfolio of investments so that it returned identical results in consecutive years. [App. 106].
Likewise, the above-referenced performance reporting consultant believes that it is "impossible"
to achieve identical results on a diversified investment portfolio in consecutive years. [App.
SEC v. Stanford International Bank, Ltd., et al. 8
Case 3:09-cv-00298-N Document 6 Filed 02/17/2009 Page 9 of 35, ~ • •
151]. Nonetheless, sm continues to promote its CDs using these improbable/implausible
returns. [App 345, 590,670].
SIB's consistently high returns of investment have enabled the bank to pay a significantly
higher rate on its CD than conventional banks. [App. 531, 533]. For example, sm offered
7.45% as of June 1, 2005, and 7.878% as of March 20, 2006, for a fixed rate CD based on an
investment of $100,000. [App. 668]. On November 28,2008, sm quoted 5.375% on a 3-year
Flex CD, while comparable U.S. Banks' CDs paid under 3.2%. [App.541].
SIB's extraordinary returns have also enabled the bank to pay disproportionately large
commissions to SGC for the sale of sm CDs. [App. 591,669].5 SGC receives a 3% fee from
sm on sales of CDs by SGC advisers. [App. 591]. Financial advisers receive a 1% commission
upon the sale of the CDs, and are eligible to receive as much as a 1% trailing commission
throughout the term of the CD. [App. 591, 669]. SGC promoted this generous commission
structure in its effort to recruit established financial advisers to the firm. [App. 669]. The
commission structure also provided a powerful incentive for SGC financial advisers to
aggressively sell CDs to United States investors, and aggressively expanded its number of
financial advisers in the United States. Id.
sm purportedly managed the investment portfolio from Memphis and Tupelo. sm's
investment portfolio, at least internally, was segregated into three tiers: (a) cash and cash
equivalents ("Tier I"), (b) investments with "outside portfolio managers (25+)" that are
monitored by the Analysts ("Tier 2"), and (c) unknown assets under the apparent control of
Stanford and Davis ("Tier 3"). [App. 31, 586]. As of December 2008, Tier 1 represented
approximately 9% ($800 million) of the bank's portfolio. [App. 586]. Tier 2, prior to the bank's
In 2007, SIB paid to SGC and affiliates more than $291 million in management fees and commissions fromCD sales, up from $211 million in 2006. [App.869-870].
SEC v. Stanford International Bank, Ltd., et al. 9
Case 3:09-cv-00298-N Document 6 Filed 02/17/2009 Page 10 of 35• •
6
decision to liquidate $250 million of investments in late 2008, represented approximately 10% of
the portfolio. [App. 586]. And Tier 3 represented 80% of the bank's investment portfolio. [App.
586].
c. SIB's Fraudulent Sale of CDs
1. SIB Misrepresented that Its Investment Portfolio is InvestedPrimarily in "Liquid" Financial Instruments.
In selling the CD, sm touts the liquidity of its investment portfolio. [App. 85, 352]. For
example, in its CD brochure, sm emphasizes the importance of liquidity, stating, under the
heading "Depositor Security," that the bank focuses on "maintaining the highest degree of
liquidity as a protective factor for our depositors" and that the bank's assets are "invested in a
well-diversified portfolio of highly marketable securities issued by stable governments, strong
multinational companies and major international banks." [App.528].6
In its 2007 annual report, which was signed and approved by Stanford and Davis [App.
881], sm represented that its portfolio was allocated in the following manner: 58.6% equity,
18.6% fixed income, 7.2% precious metals and 15.6% alternative investments. [App. 871].
These allocations were depicted in a pie chart [App. 871], which was approved by Stanford and
Davis. [App. 881].
Likewise, the bank trained SGC advisers that "liquidity/marketability of SIB's invested assets" was the"most important factor to provide security to SIB clients." [App. 1040].
SEC v. Stanford International Bank, Ltd., et al. 10
Case 3:09-cv-00298-N Document 6 Filed 02/17/2009 Page 11 of 35, .. • •
[App.871]
7
SIB's investment portfolio is not, however, invested in a "well-diversified portfolio of
highly marketable securities issued by stable governments, strong multinational companies and
major international banks." Instead, a significant portion of the bank's portfolio is invested in
illiquid investments - namely private equity and real estate. [App. 97, 588]. In fact, in 2008, the
bank's portfolio included at least 23% private equity. [App. 1123-24]. The bank never disclosed
in its financial statements its exposure to private equity and real estate investments.? [App. 504,
871].
Further, on December 15, 2008, Pendergest-Holt met with her team of analysts by
teleconference following the bank's decision to liquidate more than 30% of its Tier 2
investments (approximately $250 million). [App. 587-88]. During the meeting, at least one
analyst expressed concern about the amount of liquidations in Tier 2, asking why it was
necessary to liquidate Tier 2, rather than Tier 3 assets, to increase SIB's liquidity. Id.
One of the bank's analysts candidly admitted that including private equity and real estate in the Equityallocation "does not make sense." [App. 589].
SEC v. Stanford International Bank, Ltd., et al. 11
Case 3:09-cv-00298-N Document 6 Filed 02/17/2009 Page 12 of 35• •Pendergest-Holt told the analyst that Tier 3 was primarily invested in private equity and real
estate and that Tier 2 was "more liquid" than Tier 3.8 [App. 97, 587-88].
2. SIB Misrepresented that Its Multi-Billion Dollar Investment Portfolio isMonitored By a Team ofAnalysts
Prior to making their investment decision, prospective investors routinely asked how Sill
safeguarded and monitored its assets. [App. 37]. In fact, investors frequently inquired whether
Allen Stanford could "run off with the [investor's] money." Id. In response to this question, at
least during 2006 and much of 2007, the SIO told investors that Sill had sufficient controls and
safeguards in place to protect assets. Id. In particular, the SIO was trained by Pendergest-Holt to
tell investors that the bank's multi-billion portfolio was "monitored" by the analyst team in
Memphis. !d. In communicating with investors, the SIO followed Pendergest-Holt's
instructions, misrepresenting that a team of 20-plus analysts monitored the bank's investment
portfolio. Id. In so doing, the SIO never disclosed to investors that the team of analysts only
monitor approximately 10% of SIB's money. Id. In fact, Pendergest-Holt trained the SIO "not
to divulge too much" about oversight of the bank's portfolio because that information "wouldn't
leave an investor with a lot of confidence." Id. Likewise, Davis instructed the SIO to "steer"
potential CD investors away from information about SIB's portfolio. [App. 37,43].
Contrary to the bank's representation that responsibility for SIB's multi-billion portfolio
was "spread out" among 20-plus people, even Pendergest-Holt and the SIO did not know the
whereabouts of the vast majority of SIB's investment portfolio. [App. 356]. In fact, the only
people that Pendergest and the SIO could identify as knowing the whereabouts of the bulk of
SIB's portfolio were Stanford and Davis. [App. 31, 98, 588]. According to Pendergest-Holt, she
Pendergest-Holt also stated that Tier 3 always included real estate. [App. 588]. Pendergest-Holt'sstatements contradict what she had previously stated to SIB's senior investment adviser. [App. 40, 45].
SEC v. Stanford International Bank, Ltd., et al. 12
Case 3:09-cv-00298-N Document 6 Filed 02/17/2009 Page 13 of 35• •and her team of analysts have never been privy to Tier I or Tier 3 investments. [App. 86, 586].
Similarly, the SID did not have access to the bank's records relating to Tier 3, even though he
was responsible, as the bank's Senior Investment Officer, for "closing" deals with large
investors, "overseeing the bank's investment portfolio" and "ensuring that the investment side is
compliant with the various banking regulatory authorities." [App. 32, 359]. In fact, in preparing
the bank's periodic reports (quarterly newsletters, month reports, mid-year reports and annual
reports), Pendergest and one of the analysts send to Davis the performance results for Tier 2
investments. [App. 64]. And Davis calculates the investment returns for the aggregated portfolio
of assets. !d.
3. SIB Misrepresented that its Investment Portfolio is Overseen by aRegulatory Authority in Antigua that Conducts a Yearly Audit ofthe Fund'sFinancial Statements.
SIB told investors that their deposits were safe because the Antiguan regulator
responsible for oversight of the bank's investment portfolio, the Financial Services Regulatory
Commission (the "FSRC"), audited its financial statements. [App. 391] But, contrary to the
bank's representations to investors, the FSRC does not audit or verify the assets SIB claims in its
financial statements. [App.675]. Instead, SIB's accountant, C.A.S. Hewlett & Co., a small local
accounting firm in Antigua is responsible for auditing the multi-billion dollar SIB's investment
portfolio.9 [App. 675, 512, 881]
4. SIB Misrepresented that Its Investment Portfolio is Without "Direct orIndirect" Exposure to Fraud Perpetrated by Bernard Madoff.
In a December 18, 2008, letter to investors and a December 2008 Monthly Report, the
bank told CD investors that their money was safe because SIB "had no direct or indirect
exposure to any of [Bernard] Madoffs investments." But, contrary to this statement, at least
9
phone.The Commission attempted several times to contact Hewlett by telephone. No one ever answered the
SEC v. Stanford International Bank, Ltd., et al. 13
Case 3:09-cv-00298-N Document 6 Filed 02/17/2009 Page 14 of 35• •$400,000 in Tier 2 was invested in Meridian, a New York-based hedge fund that used Tremont
Partners as its asset manager. Tremont invested approximately 6-8% of the SIB assets they
indirectly managed with Madoffs investment firm. [App. 1110]. Pendergest-Holt, Davis and
Stanford knew about this Madoff exposure. Pendergest-Holt and an analyst were personally
notified by Meridian of the Madoff exposure. [App. 1122-1124]. On December 15, 2008, the
analyst confirmed the Madoff exposure through a weekly report (entitled "Laura Report") that
was typically sent to Pendergest-Holt, Davis and Stanford. The report estimated "a loss of$400k
... based on the indirect exposure" to Madoff. [App. 1125-1126].
5. Pershing Transparency
On or about December 12,2008, Pershing, citing suspicions about the bank's investment
returns and its inability to get from SIB "a reasonable level of transparency" into its investment
portfolio, informed SGC that it would no longer process wire transfers from SGC to SIB for the
purchase of the CD. [App. 675]. Since the spring of 2008, Pershing tried unsuccessfully to get
an independent report regarding SIB's financials condition. /d. On November 28,2008, SGC's
President, Danny Bogar, informed Pershing that "obtaining the independent report was not a
priority." Id. Between 2006 and December 12,2008, Pershing sent to SIB 1,635 wire transfers,
totaling approximately $517 million, from approximately 1,199 customer accounts. Id.
C. SGC and SCM Misrepresented SAS Performance Results.
From 2004 through 2009, SGC and SCM induced clients, including non-accredited, retail
investors, to invest in excess of $1 billion in its SAS program by touting its track record of
"historical performance." [App. 679]. SCM highlighted the purported SAS track record in
thousands of client presentation books ("pitch books"). [App. 679-681]. For example, the
following chart from a 2006 pitch book presented clients with the false impression that SAS
SEC v. Stanford International Bank, Ltd., et al. 14
Case 3:09-cv-00298-N Document 6 Filed 02/17/2009 Page 15 of 35• •accounts, from 2000 through 2005, outperfonned the S&P 500 by an average of approximately
13 percentage points [App. 757]:
S&PSOO
2005 2004- 2003 2002 2001 2000
12"~ 16.15% 32J!4% -3.33% 4.32% UHI4%
4.91% 10.88% 28.68% -22.10% -11.88% ~.11%
SCM used these impressive, but fictitious, perfonnance results to grow the SAS program to over
$1 billion in 2008. [App.679].10
The SAS perfonnance results used in the pitch books from 2005 through 2009 were
fictional and/or inflated. Specifically, SCM misrepresented that SAS perfonnance results, for
1999 through 2004, reflected "historical perfonnance" when, in fact, those results were fictional,
or "back-tested", numbers that do not reflect results of actual trading. [App. 9-12; App. 682-
685]. Instead, SCM, with the benefit of hindsight, picked mutual funds that perfonned extremely
well during years 1999 through 2004, and presented the perfonnance of those top-perfonning
funds to potential clients as if they were actual returns earned by the SAS program. I I [App. 10-
10 SGC also used the SAS track record to recruit financial advisers away from legitimate advisory firms whohad significant books of business. [App. 594; 681] After arriving at Stanford, the newly-hired financial advisorswere encouraged and highly incentivized to put their clients' assets in the SIB CD. [App. 669-670).
liOn occasion, the pitch books included disclaimers describing the back-tested performance as hypothetical.These disclaimers were wholly insufficient because they (i) appeared in only some of the pitch books, (ii) wereburied in small text at the back of the document, and (iii) did not adequately dispel the misleading suggestion thatthe advertised performance represented actual trading. [App. 800-801]
SEC v. Stanford International Bank, Ltd., et al. 15
Case 3:09-cv-00298-N Document 6 Filed 02/17/2009 Page 16 of 35• •
12
13
14
11]. Similarly, SCM used "actual" model SAS performance results for years 2005 through 2006
that were inflated by as much as 4%.12 [App. 577-582; 681-684; 757].
SCM's management knew that the advertised SAS performance results were misleading
and inflated. [e.g., App. 10-13]. From the beginning, SGC/SCM management knew that the pre-
2005 track record was purely hypothetical. [Id.]. And, as early as November 2006, SCM
investment advisers began to question why their actual clients were not receiving the returns
advertised in pitch books. [App. 12-15; 597]. In response to these questions, SCM hired an
outside performance reporting expert, to review certain of its SAS performance results. [App.
111]. In late 2006 and early 2007, the expert informed SCM that its performance results for the
twelve months ended September 30, 2006 were inflated by as much as 3.4 percentage points.
[App. 122-126]. Moreover, the expert informed SCM managers that the inflated performance
results included unexplained "bad math" that consistently inflated the SAS performance results
over actual client performanceY [App. 123, 152]. Finally, in March 2008, the expert informed
SCM managers that the SAS performance results for 2005 were also inflated by as much as 3.25
percentage points. 14 [App. 140-145].
SCM told investors that SAS has positive returns for periods in which actual SAS clients lost substantialamounts. [App. 682-683]. For example, in 2000, actual SAS client returns ranged from negative 7.5% to positive1.1%. In 2001, actual SAS client returns ranged from negative 10.7% to negative 2.1 %. [Id.]. And, in 2002, actualSAS client returns ranged from negative 26.6% to negative 8.7%. [Id.] These return figures are all gross of SCMadvisory fees ranging from 1% to 2.75%. [App. 842] Thus, Stanford's claims of substantial market outperformance were blatantly false. (e.g., a claimed return of 18.04% in 2000, when actual SAS investors lost asmuch as 7.5%). [App.682-683].
During sworn testimony, the expert characterized this "bad math" problem as "fishy," and could notprovide any innocent explanation as to why the supposed mathematical errors worked consistently to the favor of theSAS models. [App.123].
Despite being informed in early 2007 that its 2006 performance results were materially inflated, SCMcontinued using inflated results for 2005 until in early 2008 it received irrefutable evidence of the inflated 2005results. SCM did not inquire into the accuracy of the pre-2005 numbers until the SEC exam staff in early 2009asked SCM management pointed questions about pre-2005 performance. [App. 131; 681; 684].
SEC v. Stanford International Bank, Ltd., et al. 16
Case 3:09-cv-00298-N Document 6 Filed 02/17/2009 Page 17 of 35• •Despite their knowledge of the inflated SAS returns, SCM management continued using
the pre-2005 track record and never asked the performance expert to audit the pre-2005
performance. [App. 131; 577-582; 681; 684]. In fact, in 2008 pitch books, SCM presented the
back-tested pre-2005 performance data under the heading "Historical Performance" and
"Manager Performance" along side the audited 2005 through 2008 figures. [App.794]. SCM's
outside consultant testified that it was "misleading" to present audited performance figures along
side back-tested figures. [App. 154].
Finally, SCM compounded the deceptive nature of the SAS track record by blending the
back-tested performance with audited composite performance to create annualized 5 and 7 year
performance figures that bore no relation to actual SAS client performance. [App. 682; 794]. A
sample of this misleading disclosure used in 2008 and 2009 follows:
SASGmwth
S&PSOO
Other than the fees paid by SIB to SGC/SCM for the sale ofthe CD, SAS was the second
most significant source of revenue for the firm. In 2007 and 2008, SGC/SCM received
approximately $25 million in fees from the marketing ofSAS. [App.680].
SEC v. Stanford International Bank, Ltd., et al. 17
Case 3:09-cv-00298-N Document 6 Filed 02/17/2009 Page 18 of 35•IV. LEGAL DISCUSSION AND ARGUMENT
•Because the Commission is "not ... an ordinary litigant, but ... a statutory guardian
charged with safeguarding the public interest in enforcing the securities laws," its burden to
secure temporary or preliminary relief is less than that of a private party. SEC v. Management
Dynamics, Inc., 515 F.2d 801, 808 (2nd Cir. 1975). "[W]hen 'the public interest is involved in a
proceeding of this nature, [the district court's] equitable powers assume an even broader and
more flexible character than when only a private controversy is at stake.'" FSLIC v. Sahni, 868
1982). For example, the Commission does not need to show irreparable injury or a balance of
equities in its favor. Id.; see also SECv. Unifund SAL, 910 F.2d 1028,1035 (2nd Cir. 1990). Nor
does the Commission need to demonstrate the lack of an adequate remedy at law, as private
litigants must. See SEC v. Cavanagh, 155 F.3d 129, 132 (2nd Cir. 1998); SEC v. Scott, 565 F.
Supp. 1513, 1536 (S.D.N.Y. 1983), affd sub nom., SEC v. Cayman Islands Reins. Corp., 734
F.2d 118 (2nd Cir. 1984).
Moreover, the ancillary remedy of a freeze order requires a lesser showing than that
needed to obtain injunctive relief. See SEC v. Gonzalez de Castilla, 145 F. Supp. 2d 402, 415
(S.D.N.Y. 2001) ("courts may order a freeze even where the SEC has failed to meet the standard
necessary to enjoin future violations"). For example, to obtain an asset freeze, the Commission
need not show a reasonable likelihood of future violations. CFTC v. Muller, 570 F.2d 1296,
1300 (5th Cir. 1978). Instead, when there are concerns that defendants might dissipate assets, a
freeze order requires only that the court find some basis for inferring a violation of the federal
securities laws. Unifund Sal, 910 F.2d at 1041. Similarly, it is well-established that the Court
has the authority to grant any form of ancillary relief where necessary and proper to effectuate
SEC v. Stanford International Bank, Ltd., et al. 18
Case 3:09-cv-00298-N Document 6 Filed 02/17/2009 Page 19 of 35• •
15
the purposes of the federal securities laws. SEC v. Materia, 745 F.2d 197, 200 (2d Cir. 1984),
cert. denied, 471 U.S. 1053 (1985). Included in the court's equitable powers is the authority to
appoint receivers. See, e.g., SEC v. First Fin. Group, 645 F.2d 429,439 (5th Cir. 1981).
A. The Defendants Violated the Antifraud Provisions of theSecurities Act and Exchange Act.
1. Section 17(a) ofthe Securities Act and Section 10(b) ofthe ExchangeAct and Rule 10b-5 Thereunder.
Section 17(a) of the Securities Act prohibits the employment of a fraudulent scheme or
the making of material misrepresentations and omissions in the offer or sale of a security.
Section 1O(b) of the Exchange Act and Rule 10b-5 thereunder prohibit the same conduct, if
committed in connection with the purchase or sale of securities. 15 A violation of these provisions
occurs if the alleged misrepresentations or omitted facts were material. Information is material if
there is a substantial likelihood that the omitted facts would have assumed significance in the
investment deliberations of a reasonable investor. Basic, Inc. v. Levinson, 485 U.S. 224 (1988).
Establishing violations of Section 17(a)(I) of the Securities Act and Section lOeb) of the
Exchange Act and Rule lOb-5 thereunder requires a showing of scienter. Aaron v. SEC, 446
U.S. 680 (1980). However, actions pursuant to Sections 17(a)(2) and (3) of the Securities Act do
not require such a showing. Id. Scienter is the "mental state embracing intent to deceive,
manipulate or defraud." Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 (1976). Scienter is
established by a showing that the defendants acted intentionally or with severe recklessness. See
Broad v. Rockwell Int'l Corp., 642 F. 2d 929 (5th Cir.) en bane, cert. denied 454 U.S. 965
Even if the investments offered do not exist, the antifraud provisions of the federal securities laws stillapply. SEC v. Lauer, 52 F.3d 667,670 (7th Cir. 1995).
SEC v. Stanford International Bank, Ltd., et al. 19
Case 3:09-cv-00298-N Document 6 Filed 02/17/2009 Page 20 of 35• •
16
(1981). Stanford, Davis, Pendergest-Holt, and the Stanford corporate defendants violated these
antifraud provisions. 16
2. Defendants' Fraud Was in Connection with Offer or Sale ofSecurity.
There is little doubt here that the defendants fraud was in connection with the offer, sale
or purchase of securities.
a. Defendants' Clients Sold Other Securitiesin Order to Purchase CDs.
First, even the "scratch the surface" level of evidence able to be compiled in advance of
this emergency motion confirms that defendants fraudulent behavior, statements and omissions
concerning SIB's CD program coincided with significant - and successful - efforts to lure
investors to convert (i.e. sell) their existing securities holdings into investments in SIB's CDs.
From August 2008 through December 2008 alone, approximately 50 SGC clients liquidated
approximately $10.7 million in stocks, bonds, and other similar securities and invested that
money in SIB's CDs. [App.593]. This sampling, particularly when viewed in light of the heavy
incentives SGC gave to its advisers to push SIB's CDs, strongly suggests that the fraudulent
behavior outlined above coincided directly with the selling of, at least, millions of dollars in
investments that are quintessential securities, such as stock. Accordingly, there can be no serious
dispute that Defendants fraudulent conduct was in connection with the offer or sell of securities.
See SEC v. Zandford, 535 U.S. 813,825 (2002) (holding that the "in connection with" element is
satisfied by "a fraudulent scheme in which the securities transactions and breaches of fiduciary
duty coincide").
To the extent the Court concludes that Stanford, Davis and Pendergest-Holt should not be held directlyliable for violating Section lO(b) of the Exchange Act and Rule lOb-5 thereunder, the evidence demonstrates thatthey are liable for aiding abetting violations of those provisions.
SEC v. Stanford International Bank, Ltd., et al. 20
Case 3:09-cv-00298-N Document 6 Filed 02/17/2009 Page 21 of 35• •b. The CD is a security.
In addition to fraud in connection with the selling of securities, the defendants' fraud was
also in connection with the purchase of securities, i.e., SIB's CDs. In fact, SIB itself admits that
"[b]y making this offering to Accredited Investors in the United States, SIBL and its officers are
subject to certain laws of the United States, including the anti-fraud provisions ofthe U.S.
federal securities laws and similar state laws." [App. 888]
The Supreme Court has emphasized that all notes - including products such as the
"certificate of deposits" sold in this case - are presumed to be securities. Reves, 494 U.S. at 64.
This presumption may be rebutted only by a showing that the note bears a strong resemblance to
certain enumerated non-securities such as "the note delivered in consumer financing, the note
secured by a mortgage on a home, the short term note secured by a lien on a small business or
some of its assets, the note evidencing a "character" loan to a bank customer, short-term notes
secured by an assignment of accounts receivable, or a note which simply formalizes an open
account debt incurred in the ordinary course ofbusiness. Reves, 494 U.S. at 65. To determine
whether such resemblance exists, the Supreme Court has applied a "family resemblance test,"
instructing that it is necessary to analyze the following four factors: (1) the motivation of the
parties; (2) the plan of distribution; (3) the reasonable expectations ofthe investing public; and
(4) the existence of factors which would reduce the risk of the instrument. Id. Notably, no one
factor by itself is dispositive. Id.
A comparison of the instruments deemed to be securities in Reves to the current CDs
demonstrates that there should "be little difficulty in concluding that the notes at issue here are
'securities:'" Reves, 494 U.S. at 67.
SEC v. Stanford International Bank, Ltd., et al. 21
Case 3:09-cv-00298-N Document 6 Filed 02/17/2009 Page 22 of 35
Factor
Motivation ofParties
Plan of distribution
Public's ReasonableExpectation
Whether some factor suchas the existence of anotherregulatory scheme"significantly reduces therisk of the instrument,thereby renderingapplication of theSecurities Actsunnecessary."
•Reves
"the Co-Op sold the notes in an effort toraise capital for its general businessoperations and purchasers bought themin order to earn a profit in the form ofinterest." Reves, 494 U.S. at 67-68.
Notes were "offered and sold to a broadsegment of the public, and that is all wehave held necessary to establish therequisite 'common trading' in aninstrument."
"Advertisements for the notescharacterized them as 'investments' ...and there were no countervailing factorsthat would have led a reasonable personto question this characterization."Reves, 494 U.S. at 68-69.
"notes here would escape federalregulation entirely if the [Securities]Acts were held not to apply." Reves,494 U.S. at 69.
•SIB
SIB sold the notes in an effort toraise capital for its generalbusiness operations andpurchasers buy them in order toearn a profit in the form ofinterest.
Notes were offered to a broadsegment of the public.
SIB provides to its U.S. investors,among other things, a documenttitled "Disclosure Statement U.S.Accredited Investor CertificateofDeposit Program. Thisdocument prominently features apage labeled, "SECURITIESINVESTMENT STATEMENT,"and refers to the purchase as "aninvestment decision."
Absent securities laws, no federalregulation over fraudulentstatements and omissions made insale of CDs appears to apply.
Importantly, the Reves Court held that if the seller's purpose is to finance substantial
investments and the buyer is interested primarily in the profit the instrument is likely to generate,
the instrument is likely to be a security. Id. at 66. That is precisely the situation here. Likewise,
when the issuer solicits individuals, as compared to solicitations of sophisticated institutions, that
indicates "common trading" and weighs in favor of finding the instrument a security. Again, that
is the case here, where SIB, acting through its affiliated investment adviser and broker-dealer
routinely solicits individuals via retail investments. [App. 593, 668]. Third, the public would
reasonably view these instruments as securities investments, particularly where SIB itself
SEC v. Stanford International Bank, Ltd., et al. 22
Case 3:09-cv-00298-N Document 6 Filed 02/17/2009 Page 23 of 35• •
17
18
describes them repeatedly as investments and advises clients that the offering of the CDs is
subject to the antifraud provisions of the federal securities laws. Importantly, in Stoiber v. SEC,
161 F.3d 745, 750 (D.C. Cir. 1998), the D.C. Circuit Court held that courts should consider
instruments to be securities on the basis of public expectations, "even where an economic
analysis of the circumstances of the particular transaction might suggest that the instruments are
not securities as used in that transaction."I?
The only factor that arguably weighs against the conclusion that the CDs are securities
concerns the existence of some other risk-reducing system, given that SIB is subject to some
regulatory oversight by the Financial Services Regulatory Commission of Antigua. To put it
simply, this putative oversight is irrelevant. I8
First, unlike some earlier lower court decisions, in Reves, the United States Supreme
Court made it clear that its fourth factor considered the existence of alternate federal regulatory
system, such as FDIC protection. 494 U.S. at 69. (citation omitted and emphasis added). For
example, in evaluating this factor after Reves, the Tenth Circuit noted that regulation by a state is
not enough. See also Holloway v. Peat, Marwick, Mitchell & Co., 900 F.2d. 1485, 1488 (10th
Cir. 1990), cert. denied, 498 U.S. 958 (1990) (holding that the Supreme Court in Reves clearly
required an alternative federal regulatory system); see also Bradford v. Moench, 809 F. Supp.
In Stoiber, the D.C. Circuit Court noted that the Supreme Court in Reves described this factor as "a oneway ratchet" that "allows notes that would not be deemed securities under a balancing of the other three factorsnonetheless to be treated as securities if the public has been led to believe they are. It does not, however, allownotes which under the other factors would be deemed securities to escape the reach of regulatory laws." 151 F.2d at751.
The Commission has noted elsewhere certain facets of the FSRC's regulatory role. The question is notwhether the FSRC carries out those prescribed responsibilities, but whether that oversight - as designed - "virtuallyguarantees" the full recovery of deposits. In evaluating that question, it is worth noting how the administrator andchief executive of the FSCR was quoted late last week in the press, when he described his agency's new approach tooverseeing SIB's activities: "it's not a Friday afternoon cocktail anymore ...." (emphasis added).
SEC v. Stanford International Bank, Ltd., et al. 23
Case 3:09-cv-00298-N Document 6 Filed 02/17/2009 Page 24 of 35• •
19
20
1473, 1483 (D. Utah 1992) (following Holloway decision and holding Utah regulatory system
cannot serve as risk reducing factor).19
As the Supreme Court made clear in Marine Bank, a certificate of deposit does not
invariably fall outside the definition of a 'security' and "each transaction must be analyzed and
evaluated on the basis of the content of the instruments in question, the purposes intended to be
served, and the factual setting as a whole." Marine Bank, 455 U.S. 551 n.l1 (1982). Here, the
factual setting weighs strongly in favor of subjecting SIB's CDs to the federal securities laws.
There simply is nothing here suggesting that the regulatory oversight provided by Antigua comes
close to providing the "virtual guarantee" of repayment the holder of the particular CD at issue in
Marine Bank or Wolfhad, in contrast to an ordinary long-term debt holder who assumed the risk
of the borrower's insolvency. Here, SIB's CDs have no FDIC protection, or any insurance
protection from any Antiguan regulatory or government authority.zo
Indeed, SIB itself admits in various offering documents that its customers assume the risk
of SIB's insolvency, stating in substance that "the ability of SIB to repay principal and interest
The Commission recognizes that several circuits, including the Fifth Circuit, have concluded - prior toReves and under significantly different circumstances - that certain certificates of deposit should not be considered"securities" under the Securities Act and Exchange Act. See Wolfv. Banco Nacional de Mexico, S.A., 739, F.2d1458 (9th Cir. 1984), cert. denied, 469 U.S. 1108 (1985); Callejo v. Bancomer, S.A., 764 F.2d 1101 (5th Cir. 1985);Tafflin v. Levitt, 865 F.2d 595 (4th Cir. 1989), ajJ'd on other grounds, 493 U.S. 455 (1990 (Pre-Reves)) (holdingthat certificates of deposit which were regulated by the banking system of Mexico or a state in the United Stateswere not securities.). Due to the emergency nature of this request and because, regardless of how the Court appliesReves to SIB's CDs, it is clear that defendants fraudulent conduct was, as discussed above, in connection with theselling of securities, the Commission has not extensively addressed why those pre-Reves cases do not control here.Likewise, we have not addressed here the question of whether SIB's products could be considered "investmentcontracts" covered by the federal securities laws. Should the Court wish additional briefing on that issue, theCommission is prepared to provide it.
It should be noted, however, that the Commission - the primary agency responsible for determiningwhether the securities laws cover certain instruments - has applied the Securities Act to instruments the offeringparty claimed were similar to certificates of deposits, despite the existence of certain oversight by a foreignregulator. See In the Matter ofState Bank ofPakistan, Admin Proc. File No. 3-7727, 1992 SEC Lexis 1041 (May 6,1992)
This lack of refund guarantee is only exacerbated by SIB's attempts to lull investors with various claims of"insurance" that do not provide protection to the investor.
SEC v. Stanford International Bank, Ltd., et al. 24
Case 3:09-cv-00298-N Document 6 Filed 02/17/2009 Page 25 of 35• •
21
on the CD Deposits is dependent on our ability to successfully operate by continuing to make
consistently profitable investment decisions" and "you may lose your entire investment." [App.
890]. This is precisely the sort of risks the antifraud provisions and other protections of the
federal securities laws were designed to address.
3. Defendants Misrepresentations and Omissions Were Material.
The misrepresentations to and information withheld from investors in this case concern,
among other things, the disposition of offering proceeds, the security of investment principal, the
returns associated with the investment, and the liquidity of the investment. These issues go to
the core of an individual's investment decision. There is a substantial likelihood that these false
representations and omissions would have assumed actual significance in the investment
deliberations of a reasonable investor. They are therefore material. See SEC v. Research
concerning the use of money raised from investors were material as matter of law); see also
United States v. Siegel, 717 F.2d 9, 14-15 (2d Cir. 1983) (holding that failure to disclose the
misappropriation ofmore than $100,000 was a fact which would be important to a stockholder in
his decision making).
4. The Defendants Acted With Scienter
In making their material misstatements and omissions, the Defendants acted with
scienter, which is a mental state embracing intent to deceive, manipulate, or defraud. Ernst &
Ernst v. Hochfelder, et al., 425 U.S. 185, 193 (1976).21 Here, the misrepresentations go to the
core of the investment model marketed to investors. Selling investments marketed as highly
A violation of Section 17(a)(1) of the Securities Act also requires a showing of scienter. However, the U.S.Supreme Court has held that scienter need not be shown in order to establish violations of Sections 17(a)(2) and (3)of the Securities Act. Aaron v. SEC, 446 U.S. 680, 696-97 (1980).
SEC v. Stanford International Bank, Ltd., et al. 25
Case 3:09-cv-00298-N Document 6 Filed 02/17/2009 Page 26 of 35• •liquid, but which were in fact heavily invested in illiquid private equity and real estate, while
knowing that only two people actually knew the portfolio allocation and kept that information
under lock and key is, at a minimum, severely reckless. Indeed, this action speaks of a high
degree of scienter. Moreover, the actions of controlling individuals, and therefore their scienter,
are attributable to the controlled company. See SEC v. Manor Nursing Centers, Inc., 458 F.2d
1082, 1094 (2d Cir. 1971).
B. Stanford, SGC and SCM Violated, and Davis and Pendergest-Holt Aidedand Abetted Violations of, the Antifraud Provisions of the InvestmentAdvisers Act of 1940.
Through their deceitful and fraudulent conduct in selling the CDs and SAS, Defendants
violated the antifraud provisions of the Investment Advisers Act. This is true, even if the Court,
for the sake of argument, determines that the defendants' fraud was not in connection with the
offer, sale or purchase of securities for purposes of Section 17(a) of the Securities Act or Section
1O(b) of the Exchange Act.
1. Section 206 Imposes a Fiduciary Duty on Defendants ProhibitingDefendants Fraudulent Conduct
Sections 206(1) and 206(2) of the Advisers Act (15 U.S.C. §§ 80b-6(1) & 80b-6(2)),
prohibit an investment adviser from defrauding any client or prospective client by, directly or
indirectly, employing any device, scheme, or artifice to defraud or engaging in any transaction,
practice or course of business which operates as a fraud or deceit upon any client or prospective
client. While scienter is required to establish a violation of Section 206(1), negligence alone is
sufficient to establish fraud liability under Section 206(2). SEC v. Capital Gains Research
Bureau, Inc., 375 U.S. 180, 195 (1963); Steadman v. SEC, 603 F.2d 1126, 1134 (5th Cir. 1979),
ajJ'd on other grounds, 450 U.S. 91 (1981). Unlike the antifraud provisions of the Securities Act
and the Exchange Act, Sections 206(1) and 206(2) of the Advisers Act do not require that the
SEC v. Stanford International Bank, Ltd., et al. 26
Case 3:09-cv-00298-N Document 6 Filed 02/17/2009 Page 27 of 35• •activity be "in the offer or sale of any securities" or "in connection with the purchase or sale of
any security." SEC v. Lauer, 2008 WL 4372896, *24 (S.D. Fla. September 24,2008); Advisers
Act Release No. 1092, 6 Fed. Sec. L. Rep. (CCH) ~ 56,156E, at 44,057-7 to 44,058 (Oct. 8,
1987).
Instead, Section 206 establishes federal fiduciary standards to govern the conduct of
investment advisers. Transamerica Mortgage Advisers, Inc. v. Lewis, 444 U.S. 11, 17 (1979).
The fiduciary duties of investment advisers to their clients include the duty to act for the benefit
of their clients, the duty to exercise the utmost good faith in dealing with clients, the duty to
disclose all material facts, and the duty to employ reasonable care to avoid misleading clients.
SEC v. Capital Gains Research Bureau, Inc. et ai., 375 U.S. 180, 194 (1983). An adviser has
"an affirmative obligation to employ reasonable care to avoid misleading [his or her] clients."
Id. Scienter is required to establish a violation of Section 206(1) but is not a required element of
violation only requires proof ofnegligence, not scienter).
2. Stanford, SGC and SCM are Investment Advisers Subject to HeightenedFiduciary Duties.
The definition of an investment adviser in Section 202(a)(11) of the Advisers Act, 15
U.S.C. § 80b-2(a)(II), includes "any person who, for compensation, engages in the business of
advising others, either directly or through publications or writings, as to the value of securities or
as to the advisability of investing in, purchasing, or selling securities." SGC/SCM do exactly
that on a daily basis. Likewise, Stanford, as control person of both of those entities, satisfies the
statutory definition of an investment adviser. See In re Jay Deforest Moore, et al., Investment
Advisers Act ReI. No 1548 (Jan. 19, 1996),61 SEC Docket 544, 545 (charging individual with
SEC v. Stanford International Bank, Ltd., et al. 27
Case 3:09-cv-00298-N Document 6 Filed 02/17/2009 Page 28 of 35• •direct violations of Sections 206(1) and (2) of the Advisers Act because he "exercised exclusive
control over" the finn and, therefore, was the finn's alter ego).
Likewise, Davis and Pendergest-Holt aided and abetted the Adviser Act violations.
Aiding and abetting liability requires a showing of: (1) a primary violation; (2) knowledge or a
general awareness of the aider and abettor of having played a role in an overall activity that was
improper; and (3) knowing and substantial assistance by the secondary violator of the conduct
that constitutes the violation. Woodward v. Metro Bank ofDallas, 522 F.2d 84, 94-95 (5th Cir.
1975); In the Matter of Glen Copeland, (CCH) ~83,903, at 87,732 (July 5, 1985); Investors
Research Corp. v. SEC, 628 F.2d 168, 178 (D.C. Cir.), cert. denied, 449 U.S. 919 (1980).
Recklessness satisfies the knowledge requirement, especially as to fiduciaries. See In the Matter
Both Davis and Pendergest-Holt knew of the representations made to clients as to the
securities that would be purchased to support their CD investment, and in fact, actually trained
them to mislead investors. There is no doubt both Davis and Pendergest-Holt knowingly
provided substantial assistance to the fraud violations of SBI, SCM and Stanford.
3. Each ofthe Defendants Acted with Scienter
As described in detail above, the defendants intentionally misled their clients. For
example, knowing the importance to which investors would assign to the issue of exposure to the
Madoff fund, the defendants voluntarily undertook to assure investors that SIB "had no direct or
indirect exposure" to any Madoffinvestments. Pendergest-Holt, Davis and Stanford knew when
this statement was made that it was false. In the market environment of December 2008, it is
SEC v. Stanford International Bank, Ltd., et al. 28
Case 3:09-cv-00298-N Document 6 Filed 02/17/2009 Page 29 of 35• •
22
hard to imagine a more material breach of an investment adviser's heightened duty of care owed
to clients.
C. SIB and SGC Failure to Register as an Investment Company ViolatedSection 7(d) of the Investment Company Act of 1940.
Section 7(d) of the Investment Company Act of 1940 prohibits investment companies
organized under the laws of foreign jurisdictions from making a public offering of securities in
the United States, except by entry of an order from the Commission pennitting registration. See
Investment Funds Institute ofCanada (1996 SEC No. Act. Lexis 334 (March 4, 1996). Both sm
and SOC (acting as SIB's underwriter) were bound by this requirement and failed to register,
which was intended to, and had the effect of, shielding SIB's CD program from Commission
oversight.
SIB qualifies as an "investment company" under either a "traditional" or an "inadvertent"
investment company analysis. The "traditional" investment company is defined by ICA Section
3(a)(1)(A) as any issuer that holds itself out as primarily engaged, or proposes to be primarily
engaged, in the business of investing, reinvesting or trading in securities. SIB's primary business
is to manage the deposits of its customers, not any commercial banking activity. Moreover,
these customer deposits are invested primarily in securities.22 [App. 867].
Likewise ICA Section 7(d), in addition to prohibiting SIB's offering, prohibits SOC's
activities as an underwriter for sm. SOC acted as an underwriter pursuant to ICA Section 2(40)
because of its activities in connection with the sale of SIB's CDs.
Alternatively, SIB also qualifies as an "inadvertent" investment company pursuant to leA Section3(a)(I)(C)'s definition of "any issuer which is engaged or proposes to engage in the business of investing,reinvesting, owning, holding, or trading in securities, and owns or proposed to acquire investment securities havinga value exceeding 40 per centum of the value of such issuer's total assets (exclusive of Government securities andcash items) on an unconsolidated basis." In every year since 2004, equity investments have accounted for at least 48percent of SIB's total assets.
SEC v. Stanford International Bank, Ltd., et al. 29
Case 3:09-cv-00298-N Document 6 Filed 02/17/2009 Page 30 of 35.. • • •
23
24
v. APPROPRIATE RELIEF
A. Injunctive Relief
In analyzing the need for injunctive relief, courts focus on whether there is a reasonable
likelihood that the defendant, if not enjoined, will engage in future illegal conduct. See, e.g.,
SEC v. Comserv Corp., 908 F.2d 1407, 1412 (8th Cir. 1990); SEC v. Bonastia, 614 F.2d 908 (3d
Cir. 1980); SEC v. Commonwealth Chem. Sec., Inc., 574 F.2d 90, 100-101 (2d Cir. 1978). In
determining the likelihood of future violations, the totality of the circumstances is to be
considered. Murphy, 626 F.2d at 655. In granting or denying injunctive relief, courts have
considered the following factors: (1) the egregious nature of the defendant's actions; (2) the
isolated or recurrent nature of the violations; (3) the degree of scienter involved; (4) the sincerity
of the defendant's assurances, if any, against future violations; (5) the defendant's recognition of
the wrongful nature of his conduct;23 and (6) the likelihood that the defendant's occupation will
present opportunities (or lack thereof) for future violations.24 Additionally, other courts consider
the defendant's age and health. See SEC v. Youmans, 729 F.2d 413 (6th Cir. 1984); SEC v.
Wash. County Uti!. Dist., 676 F.2d 218,227 n.19 (6th Cir. 1982); SEC v. Universal Major Indus.
Preliminary and permanent injunctive relief against Defendants are appropriate. Their
violations were not merely technical in nature, but, rather, lie at the very heart of the remedial
statutes.
This consideration is limited in other circuits by SEC v. First City Fin. Corp., 890 F.2d 1215, 1219 (D.C.Cir. 1989), in which the Court of Appeals said that the '''lack of remorse' is relevant only where defendants havepreviously violated court orders, see SEC v. Koenig, 469 F.2d 198, 202 (2d Cir. 1972), or otherwise indicate thatthey do not feel bound by the law, see SEC v. Savoy Indus., 587 F.2d 1149, 1168 (D.C. Cir. 1978)."
See SEC v. Carriba Air, Inc., 681 F.2d 1318, 1322 (11th Cir. 1982); see also, SEC v. Bonastia, 614 F.2d908,912 (3d Cir. 1980); SEC v. Commonwealth Chemical Securities, Inc., 574 F.2d 90, 100-101 (2d Cir. 1978).
SEC v. Stanford International Bank, Ltd., et al. 30
Case 3:09-cv-00298-N Document 6 Filed 02/17/2009 Page 31 of 35• •Moreover, Section 20(a) of the Securities Act and Section 21 (d)(I) of the Exchange Act
authorize the Commission to seek emergency reliefwhen it appears that a person is engaged or is
about to engage in acts or practices in violation of the federal securities laws. 15 U.S.C. § 77t(a),
15 U.S.C. § 78u(d)(I). Defendants fraud is ongoing. A temporary restraining order is
appropriate under the circumstances.
B. Ancillary Relief
1. Asset Freeze
An order freezing assets is appropriate to ensure that sufficient funds are available to
satisfy any final judgment the Court might enter against the Defendants and to ensure a fair
distribution to investors. See, e.g., Manor Nursing Ctrs., 458 F.2d at 1106 (freeze of assets
pending transfer to trustee); Unifund, SAL, 910 F.2d at 1041-42. An asset freeze as to each
defendant's assets is appropriate to assure satisfaction of whatever equitable relief the court
ultimately may order and to preserve investor funds. Id.; CFTC v. Muller, 570 F.2d 1296, 1300
(5th Cir. 1978). Additionally, an asset freeze "facilitate(s) enforcement of any disgorgement
remedy that might be ordered" and may be granted "even in circumstances where the elements
required to support a traditional SEC injunction have not been established." See SEC v. Unifund
Sal, 910 F.2d 1028, 1041 (2d Cir.) reh 'g. denied, 917 F.2d 98 (1990). It is well recognized that
an asset freeze is sometimes necessary to ensure that a future disgorgement order will not be
rendered meaningless. See, e.g., United States. v. Cannistraro, 694 F. Supp. 62, 71 (D.N.J.
1988), modified, 871 F.2d 1210 (3d Cir. 1989); SEC v. Vaskevitch, 657 F. Supp. 312, 315
(S.D.N.Y. 1987); SEC v. RJ Allen & Assocs., Inc., 386 F. Supp. 866, 881 (S.D. Fla. 1974).
The ancillary remedy of a freeze order requires a lesser showing than that needed to
obtain injunctive relief. See SEC v. Gonzalez de Castilla, 145 F. Supp. 2d 402, 415 (S.D.N.Y.
SEC v. Stanford International Bank, Ltd., et al. 31
Case 3:09-cv-00298-N Document 6 Filed 02/17/2009 Page 32 of 35.. • •2001) ("courts may order a freeze even where the SEC has failed to meet the standard necessary
to enjoin future violations"). For example, to obtain an asset freeze, the Commission need not
show a reasonable likelihood of future violations. CFTC v. Muller, 570 F.2d at 1300. This
lower standard results from the recognition that injunctive relief raises the possibility of future
liability for contempt; an asset freeze only preserves the status quo. Unifund Sal, 910 F.2d at
1039. Accordingly, when there are concerns that defendants might dissipate assets, a freeze
order requires only that the court find some basis for inferring a violation of the federal securities
laws. Unifund Sal, 910 F.2d at 1041.
Here, there is a clear basis for fearing dissipation of funds. It appears that $250 million
has been liquidated from Tier 2 since December 2008, and the Commission has learned of
significant attempts to liquidate the portfolio within the last week. Moreover, not only is there
"some basis for inferring a violation of the federal securities laws," for the reasons set out above,
the Commission is more than likely to succeed on the merits of its case for antifraud violations.
2. Defendants Should Be Ordered to Preserve Relevant Evidence.
The Commission seeks an order prohibiting the movement, alteration, and destruction of
books and records and an order expediting discovery. Such orders are appropriate to prevent the
destruction ofkey documents and to ascertain what additional expedited relief may be necessary.
3. Expedited Discovery Is Appropriate.
The Federal Rules of Civil Procedure give District Courts discretion to permit expedited
discovery. Defendants are usually given until at least 45 days after the service of a summons and
complaint to respond to document requests, Fed. R. Civ. P. 34(b), and 30 days after such service
to appear for a deposition, Fed. R. Civ. P. 30(a) or respond to interrogatories, Fed. R. Civ. P.
33(a). But each of these Rules provides that the Court, in its discretion, may shorten these
SEC v. Stanford International Bank, Ltd., et al. 32
Case 3:09-cv-00298-N Document 6 Filed 02/17/2009 Page 33 of 35• •
25
periods. See also Gibson v. Bagas Restaurants, Inc., 30 Fed. R Servo 2d 792, 87 F.RD 60
(W.D. Mo. 1980) (accelerated discovery is allowable within the discretion of the Court).
Moreover, where urgent relief is sought and expedited discovery is needed to accomplish that
result, a court may grant accelerated discovery. See Notaro v. Koch, 35 Fed. R Servo 2d 580, 95
F.RD. 403 (S.D.N.Y 1982). Expedited discovery is required in this case to enable the
Commission more fully to develop the evidence prior to the conduct of a preliminary injunction
hearing. The Commission should have the opportunity to supplement a complete evidentiary
record prior to the preliminary injunction hearing. Also, expedited discovery is vital to
determining the scope of the fraud and the whereabouts of investor funds. Accordingly, the
Commission requests depositions on notice of3 days, with notice provided as noted below.25
4. Alternative Service and Notice Provisions
Rule 4(f)(3) of the Federal Rules of Civil Procedure provides that the Court may
authorize alternative means for service of process in foreign countries. The Commission
respectfully requests that the Court authorize service upon the defendants by serving them, in the
manner described in the Commission's proposed order, by providing notice and service of
process on each Defendant bye-mail transmission and by facsimile.
5. Accounting
The Commission seeks an order requiring Defendants and Relief Defendants to make an
immediate accounting. An accounting will enable the Commission to determine more accurately
the scope of the fraud and disposition of investor funds. It will help ensure the proper
distribution of the assets. See SEC v. Int'l Swiss Invs. Corp., 895 F.2d 1272, 1276 (9th Cir.
1990); Manor Nursing Ctrs., 458 F.2d at 1105-06. An accounting is particularly justified
This is particularly important here because Defendants have not produced any documents during theinvestigation, and have failed to comply with lawfully issued subpoenas.
SEC v. Stanford International Bank, Ltd., et al. 33
Case 3:09-cv-00298-N Document 6 Filed 02/17/2009 Page 34 of 35• •because of Tyler's use of investor funds and the Relief Defendants' receipt ofproperty traceable
to Tyler's illicit conduct and to investor funds.
6. Appointment ofa Receiver
As noted above, the defendants in this case have made every effort to deny access to the
records and data necessary to enforce the federal securities laws. In addition, many of the funds
appear to be easily transferrable outside the United States. A receiver is necessary here to
marshal, liquidate and distribute assets to the victims of the defendants' scheme and especially
warranted in light of the Defendants' efforts to shield relevant financial data and other key
documents from independent review, the recent effort to remove operations from the United
States, and recent large liquidations and lying to investors seeking to redeem their CDs.
7. An Order For Passport Surrender Are Appropriate.
An order for repatriation of funds and records sent offshore and still under the control of
the defendants is appropriate. There is evidence that funds and records have been transferred
overseas. In addition, based on the defendants' frequent foreign travel, the fact that Stanford
maintains vast holdings (including residential real estate) in foreign locales, and Stanford's self
proclaimed dual residency, the Commission seeks an order requiring the defendants to surrender
their passports to the court. These orders will ensure the efficacy of whatever equitable relief
might ultimately be granted. See R.J Allen & Assocs., Inc., 386 F. Supp. at 881.
8. A Repatriation Order is Necessary.
The Commission also seeks a repatriation order requiring the Defendants to return to
identified accounts in the United States, all trading proceeds that may be located outside this
Court's jurisdiction. Such equitable relief is appropriate where the Commission is seeking
disgorgement in its prayer for relief. SEC v. R.J Allen & Assoc., Inc., 386 F. Supp. 866, 880-
SEC v. Stanford International Bank, Ltd., et al. 34
Case 3:09-cv-00298-N Document 6 Filed 02/17/2009 Page 35 of 35• •881 (S.D. Fla. 1974).
SEC v. Stanford International Bank, Ltd., et al.
Respectfully submitted,
~p~~TEPHENJ.KOROTASH
Oklahoma Bar No. 51021. KEVIN EDMUNDSONTexas Bar No. 24044020DAVID B. REECETexas BarNo. 242002810MICHAEL D. KINGTexas Bar No. 24032634D. THOMAS KELTNERTexas Bar No. 24007474
u.S. Securities and Exchange CommissionBurnett Plaza, Suite 1900801 Cherry Street, Unit #18Fort Worth, TX 76102-6882(817) 978-6476 (dbr)(817) 978-4927 (fax)
35
Case 3:09-cv-00298-N Document 12 Filed 02/17/2009 Page 1 of 10
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•
I
Case 3:09-cv-00298-N Document 12 Filed 02/17/2009 Page 2 of 10Page 1 Page 2
UNITED STATES SECURITIES AND EXCHANGE COMMISSION APPEARANCES:
In the Matter of:
File No. FW-02973-ll, On behalf of the Securities and Exchange Commission:
STANFORD GROUP COMPANY Amended, 2/6/2009 M. THOMF.S KELTNER, ESQ.
WITNESS: Michael J. Zarich
PAGES, 1 through 118 OORIGINALMICHAEL KING, ESQ.
KEVIN EDMUNDSON, ESQ.
PLACE, Securities and Exchange CommissionDAVID REECE, ESQ.
Case 3:09-cv-00298-N Document 12-17 Filed 02/17/2009 Page 2 of 10
STANFORD GROUP COMPANY
APP0158
prepared by (Advisor Name)phone (555.555.5555)email ([email protected])
A personal investment proposal for(Client Name)(Date)
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•
. -----.----------
INTRODUCTION
•
Case 3:09-cv-00298-N Document 12-17 Filed 02/17/2009 Page 3 of 10
APP0159
prepared by (Advisor Name}phone (555.555.5555)email ([email protected])
A personal investment proposal for(Client Name)(Date)
Portfolio Strategy Target
Cash &Fiduciary Deposits:
Government Bonds:
Corporate Bonds:
Equity:
Alternative Investments:
Coins & Bullion:
Real Estate:
Private Equity:
.. About Investment CategoriesA portfolio's composition usually includes ablend of Core, Act"e and Mernative investmentcategories. Acbve and Alternative investmentswill comprise more of a portfoho's percentageas goals become more agressille; conversely,as goals become less aggress"e, Active andAtternatWe invesbnents decrease in percentageto the overportfolio.
Case 3:09-cv-00298-N Document 12-17 Filed 02/17/2009 Page 6 of 10
APP0162
prepared by (Advisor Name)phone (555.555.5555)email (advisor@;tanfordgroup.com)
.. Performance
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•
M tu IF d P PI A personal investment proposal for
•
u a un artners us (Client Name)Lfypothetical Performance (Date)
Case 3:09-cv-00298-N Document 12-17 Filed 02/17/2009 Page 7 of 10
M tu I F d P PI A personal investment proposal for
•
u a un artners us (Oient Name). Hypothetical Performance (Date)
..Risk &Risk-Adjusted Return
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prepared by (Advisor Name)phone (555.5555555)email (advisor@}:;tanfordgroup.com)
APP0163
Case 3:09-cv-00298-N Document 12-17 Filed 02/17/2009 Page 8 of 10
APP0164
prepared by (Advisor Name)phone (555.555.5555)email (advisor<.@;tanfordgroup.com)
A personal investment proposal for(Qient Name)(Date)
STANFORD GROUP COMPANYe----.----------
Managers Invesbnent Group llC('Managers") is an invesbnent advisory
e linn offering awide range of invesbnentdisciplines and solutions, indudingmutual funds, separate accountstrategies, multiple attJibute portfolios,and sub-advisory services. Theinvestment disciplines available throughManagers span most asset classes andcapitalization ranges. Virtually all of theassets are managed by outsideinvestment management linns that arenotable for their long-tenn track record,consistent adherence to invesbnentprocess, and strength of themanagement team.
Manager Profiles
e.Managers Fremont BondMBDFX
Case 3:09-cv-00298-N Document 12-17 Filed 02/17/2009 Page 9 of 10
APP0165
prepared by (Advisor Name)phone (555555.5555)email (advlsor@;tanfordgroupcom)
A personal investment proposal for(Oient Name)(Date)
111 Performance
Manager Profiles
e..
Managers Fremont BondviBDFX
e
e- __ ISTANFORD GROUP COlviPANY
Case 3:09-cv-00298-N Document 12-17 Filed 02/17/2009 Page 10 of 10
APP0166
prepared by (Advisor Name)phone (555.555.5555)email (advisor(§tanfordgroup.com)
• Risk &Risk-Adjusted Return
Manager Profiles Apersonal investment proposal for
•Managers Fremont Bond (Oient Name)
. v1.BDFX (Date)
e-- __ ISTANFORD GROUP COlv1PANY
•
Case 3:09-cv-00298-N Document 12-18 Filed 02/17/2009 Page 1 of 10
Manager Profiles A personal investment proposal for
•
Pioneer Global High Yield A (Oient Name), PGHYX (Date)
Andrew Feltus, portfolio manager, isresponsible for the day-to-dayeeanagement of the Fund. Mr. Feltus. 'ned Pioneer in 1994. A team ofexperienced fixedincome portfoliomanagers and analysts, reporting toKenneth J. Taubes, director of fixedincome, supports Mr. Feltus. The teammay draw upon the research andinvestment management expertise ofPionee~s affiliate, Pioneer InvestmentManagement Limited, based in Dublin,Ireland.
STANFORD GROUP COMPANY
prepared by (Advisor Name)phone (5555555555)email ([email protected])
APP0167
Case 3:09-cv-00298-N Document 12-18 Filed 02/17/2009 Page 2 of 10
STANFORD GROUP COMPANY
APP0168
prepared by (Advisor Name)phone (5555555555)email (advisor@itanfordgroupcom)
.. Performance
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•
Manager Profiles A personal investment proposal for
•Pioneer Global High Yield A (Gient Name).'GHYX (Date)
Case 3:09-cv-00298-N Document 12-18 Filed 02/17/2009 Page 3 of 10
STANFORD GROUP COJv1PANY
APP0169
prepared by (Advisor Name)phone (555.5555555)email (advisor@;tanfordgroup.com)
.. Risk &Risk-Adjusted Return
Manager Profiles A personal investment proposal for
•
Pioneer Global High Yield A (Oient Name)?GHYX (Date)
•
•--~--------
Case 3:09-cv-00298-N Document 12-18 Filed 02/17/2009 Page 4 of 10
Manager Profiles A personal investment proposal for
•
vanguard Inflation-Protected Sees (Oient Name)VIPSX (Date)
Seeks long-tenn retums that exceedinflation by investing In high-quality
•.
inflation-indexed bonds with an averagematurity of 7 to 20 years. Thesesecurities. issued by the U.S. TreasUlYand govemment agencies as well asdomestic corporations. automaticallyadjust their principal and interestpayments over time in response tochanges In inflation.
ST.'\.,'\IFORD GROUP COMPANY
prepared by (Advisor Name)phone (5555555555)email (advisor@;tanfordgroup.com)
APP0170
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APP0171
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111 Performance
e----·--~------_I STANFORD GROUP COMPANY
•
Manager Profiles A personal investment proposal for
•
vanguard Inflation-Protected Sees (Oient Name)VIPSX (Date)
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APP0172
prepared by (Advisor Name)phone (555.5555555)email (advisorwtanfordgroupcom)
• Risk &Risk-Adjusted Return
e-----.----------_ISTANFORD GROUP COMPANY
Manager Profiles A personal investment proposal for
•
vanguard Inflation-Protected Sees (aient Name)·VIPSX (Date)
•
Case 3:09-cv-00298-N Document 12-18 Filed 02/17/2009 Page 7 of 10
APP0173
prepared by (AdVisor Name)phone (555.555.5555)email (advisor@;tanfordgroup.com)
STAt'JFORD GROUP COlvlPANY
Richard Pzena has been the leadmanager for nearly a decade afterleaving Sanford Bemslein. Twelveinvestment professionals round outthe analyst and management team.
Manager Profiles A personal investment proposal for
•..ohn Hancock Classic Value A (Qient Name)
, )ZFVX (Date)
e----r----------
•
Case 3:09-cv-00298-N Document 12-18 Filed 02/17/2009 Page 8 of 10
Manager Profiles A personal investment proposal for~tohn Hancock Classic Value A (Oient Name)~)ZFVX (Date)
1i Performance
•
STA.1\JFORD GROUP COlvfPANY
prepared by (Advisor Name)phone (555.555.5555)email (advisor(@tanfordgroup.com)
APP0174
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APP0175
prepared by (Advisor Name)phone (555.5555555)email (advisor@.;tanfordgroup.com)
1IiRisk&Risk-Adjusted Return
e-,--r----------_ISTANFORD GROUP COlv1PANY
Manager Profiles A personal investment proposal for
•
John Hancock Classic Value A (Oient Name)?ZFVX (Date)
•
Case 3:09-cv-00298-N Document 12-18 Filed 02/17/2009 Page 10 of 10
prepared by (Advisor Name)phone (555555.5555)email (advisor@:;tanfordgroup.com)
A personal investment proposal for(alent Name)(Date)
The CALAMOS Growth Fund targetssecurities of companies that offerabove-average potential for earningsgrowth. In seeking to meet itsobjective, the Fund· utilizes highlydisciplined institutional managementstrategies that emphasize in-depthproprietary analysis of the securitiesand their issuing companies, anddiversification across companies ofvarious sizes and sectors of themarket
APP0176
STA.l\IFORD GROUP COMPANY
Manager Profiles
•..Calamos Growth ACVGRX
•
.---,--~--------
Case 3:09-cv-00298-N Document 12-19 Filed 02/17/2009 Page 1 of 10
STANFORD GROUP CO)vlPANY
APP0177
prepared by (Advisor Narne)phone (555.555.5555)email (advisor@;tanfordgroup.com)
A personal investment proposal for(Oient Name)(Date)
.. Performance
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Manager Profiles
eCalamos Growth ACVGRX
e-----.- _
Case 3:09-cv-00298-N Document 12-19 Filed 02/17/2009 Page 2 of 10
STANFORD GROUP COlviP/\NY
APP0178
prepared by (Advisor Name)phone (555.555.5555)email ([email protected])
A personal investment proposal for(aient Name)(Date)
• Risk &Risk-Adjusted Return
Manager Profiles
•.Calamos Growth A'::;VGRX
•
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Case 3:09-cv-00298-N Document 12-19 Filed 02/17/2009 Page 3 of 10
APP0179
prepared by (Advisor Name)phone (555.5555555)email ([email protected])
A personal investment proposal for(Oient Name)(Date)
Scott C. satterwhite, CFA, is a ManagingDirector of Artisan Partners UmitedPartnership. He has ClHTlanaged ArtisanMid cap Value Fund since November 2001and as managed Artisan Small cap ValueFund lIld Artisan Partners' smalH:ap valuestrategy since Inception. Prior to joiningArtisan Partners In 1997, Mr. Satterwhitewas Senior VIce President and Portiollo
e Manager at W~hovia Corporation. From1993 to 1997, Mr. Satlerv.ilile was PortiolloManager of the BllbTlore Special ValuesFund, In addition to being a Personal TrustPortfolio Manager and Manager of theGeorgia Personal Trust Portfolio Group. Mr.Satterwhite earned his SA degree from theUniversity of the South and. MBA fromTulane University.
James C. Kieffer, CFA, Is a ManagingDirector of Artisan Partners UrnltedPartnership. He has co-managed ArtisanMid Cap Value Fund since November 2001and has been Portfolio C<>-Manager ofArtisan Small Cap Value Fund since JUly2000. Mr. KIeffer was an analyst workingwith Mr. SatlefWhite on Artisan Partners'small-cap value strategy, including theSmall Cap Value Fund, from that Fund'sInception through June 2000. Prior to joiningArtisan Partners, Mr. KIeffer was aResearch Analyst from 1996 to 1997 at theInvestment firm McColl Partners. Mr. Kiefferbegan his investment career at W~hoviaCorporation, working with Mr. Satterwhitefrom 1989 to 1996, initially as a PersonalTrust Portfolio manager and later as aGeneral Equities and Small-cap ValueResearch Analyst In the institutionalportfolio group. Mr. Kieffer holds a BAdegree In Economics from EmoryUniversity.
Manager Proflles A personal investment proposal for
•
Touchstone Emerging Growth A (aient Name). fEGAX (Date)
•
Case 3:09-cv-00298-N Document 12-19 Filed 02/17/2009 Page 9 of 10
Manager Profiles~arsico Growth~GRIX
The Marsico Growth Fund ismanaged by Thomas F. Marsico,Officer of Marsico CapitalManagement, LLC. Tom Marsico hasover 20 years of experience as asecurities analyst and portfoliomanager. He managed the Janus·Twenly Fund for neariy 10 years, and
•
managed ·the Janus Growth and,Income Fund from its inception in
. 1991 until August 1997.
A personal investment proposal for(Oient Name)(Date)
STANFORD GROUP COMPANY
prepared by (Advisor Name)phone (555555.5555)email (advisor@;tanfordgroup.com)
APP0185
Case 3:09-cv-00298-N Document 12-19 Filed 02/17/2009 Page 10 of 10
STl\l'lFORD GROUP COlviPANY
APP0186
prepared by (AdvIsor- Name)phone (555.5555555)email (advisor@;tanfordgroup.com)
A personal investment proposal for(aient Name)(Date)
• Performance
Manager Profiles~.arsico Growth~\1GRIX
•
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Case 3:09-cv-00298-N Document 12-20 Filed 02/17/2009 Page 1 of 10
Manager Profiles
•MarSicO GrowthMGRIX
• Risk &Risk-Adjusted Return
•
A personal investment proposal for(Oient Name)(Date)
STANFORD GROUP COlvipANY
prepared by (AdvIsor Name)phone (555.5555555)email (advisor(ftstanfordgroup.com)
APP0187
Case 3:09-cv-00298-N Document 12-20 Filed 02/17/2009 Page 2 of 10
Manager Profiles
•
Keeley Small Cap Value. KSCVX
Keeley Asset Management Corp.("KAMCO") is a registered investmentadviser established in 1982 by JohnL. Keeley, Jr. KAMCO offersinvestment management services toinstitutions, high net-worthindividuals, hedge funds, andcorporate retirement accounts. Its
•
Corporate Restructuring Strategy,first employed in January 1990, is thebasis from which the Fund focuseson the purchase of stocks undergoingcorporate change.
A personal investment proposal for(Qient Name)(Date)
STANFORD GROUP COMPANY
prepared by (Advisor Name)phone (555.555.5555)email (advisor@;tanfordgroup.com)
APP0188
Case 3:09-cv-00298-N Document 12-20 Filed 02/17/2009 Page 3 of 10
APP0189
prepared by (Advisor Name)phone (555.5555555)email (advisor@;;tanfordgroup.com)
A personal investment proposal for(Oient Name)(Date)
... Performance
e------------_ISTANFORD GROUP COMPANY
•
Manager Profiles
•Keeley Small Cap Value
\ KSCVX
Case 3:09-cv-00298-N Document 12-20 Filed 02/17/2009 Page 4 of 10
STANFORD GROUP COlvlPANY
APP0190
prepared by (Advisor Name)phone (555.555.5555)email (advisor~.. tanfordgroup.com)
A personal investment proposal for(Oient Name)(Date)
Manager Profiles
\.;~~mall Cap Value
"Risk&Risk-Adjusted Return
'.---.------,------
Case 3:09-cv-00298-N Document 12-20 Filed 02/17/2009 Page 5 of 10
Manager Profiles A personal investment proposal for
•
American Funds EuroPacific Or F (Oient Name).A£GFX (Date)
This fund keeps things simple. It buysthe biggest and best foreigncompanies and holds on to them. Atmore than $45 billion in assets, thisoffering boasts many experiencedmanagers. most of whom have beenwith the company for more than adecade. Each manager runs his or
•
her portion of assets independently ofthe others. A portion of the portlolio
. (less than 25% of assets) is run bythe finn's analyst staff.
STANFORD GROUP Cm-1pANY
prepared by (Advisor Name)phone (555.555.5555)email ([email protected])
APP0191
Case 3:09-cv-00298-N Document 12-20 Filed 02/17/2009 Page 6 of 10
APP0192
prepared by (AdVisor Name)phone (555.5555555)email (advisong13tanfordgroup.com)
• Performance
e
Manager Profiles A personal investment proposal for~.American Funds EuroPaciftc Or F (Oient Name)"'LEOFX (Date)
Case 3:09-cv-00298-N Document 12-20 Filed 02/17/2009 Page 7 of 10
Manager Profiles A personal investment proposal for
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American Funds EuroPacific Gr F (Oient Name)!\EGFX (Date)
• Risk &Risk·Adjusted Return
•
STAt'JFORD GROUP COMPANY
prepared by (Advisor Name)phone (5555555555)email (advisor@;tanfordgroupcom)
APP0193
Case 3:09-cv-00298-N Document 12-20 Filed 02/17/2009 Page 8 of 10
Manager Profiles
•
Permanent PortfolioPRPFX
The Fund was incorporated under thelaws of Maryland on December 14,1981, under the name 'PermanentPortfolio FUnd, Inc." and changed itsname to 'Permanent Portfolio Famnyof Funds, Inc." on August 10, 1988.The Fund was originally organizedwith a single Portfolio which
•
commenced operations as aninvestment company on October 15,1982. That Portfolio continues, withthe same investment policy, and isnow called the Fund's 'PermanentPortfolio." The Fund's Treasury BillPortfolio commenced operations onMay 26,1987, the Fund's AggressiveGrowth Portfolio commencedoperations on January 2, 1990 andthe Fund's Versatile Bond Portfoliocommenced operations onSeptember 27, 1991. The Fund mayoffer additional Portfolios from time totime.
A personal investment proposal for(alent Name)(Date)
STANFORD GROUP COMP.ANY
prepared by (Advisor Name)phone (555555.5555)email (advisor~tanfordgroup.com)
APP0194
Case 3:09-cv-00298-N Document 12-20 Filed 02/17/2009 Page 9 of 10
Manager Profiles
•
Permanent PortfolioPRPFX
.. Performance
•
A personal investment proposal for(Qient Name)(Date)
STANFORD GROUP COMPANY
prepared by (Advisor Name)phone (555.555.5555)email ([email protected])
APP0195
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Manager Profiles
ePennanent PortfolioPRPFX
* Risk &Risk-Adjusted Return
e
A personal investment proposal for(Oient Name)(Date)
STANFORD GROUP COMPANY
prepared by (Advisor Name)phone (5555555555)email (advisor@;tanfordgroup.com)
APP0196
Case 3:09-cv-00298-N Document 12-21 Filed 02/17/2009 Page 1 of 10
APP0197
prepared by (Advisor Name)phone (5555555555)email (advisor@;tanfordgroup.com)
Mr. Robert W. Gadsden is theportfolio manager of the Alpine RealtyIncome & Growth Fund and servesas Senior Real Estate Analyst forAlpine. Prior to joining Alpine in1999, Mr. Gadsden was a VicePresident of the Prudential RealtyGroup. During the final years of his
•
tenure at Prudential, he heldresponsibility for negotiating andstructuring approximately $1 Billion ofreal estate securities transactionswith public and private real estatecompanies. Prior to that he servedas Head Underwriter of the RealEstate Equity Group and in variouspositions within the real estate debtand asset management functions.Before joining Prudential in 1990, hewas an Associate in the real estateadviso!y group of The Leggat McCallCompanies in Boston.MassachUsetts.
Manager Profiles A personal investment proposal for
•
AlPine Realty income & Growth Y (Oient Name)\lOYX (Date)
Case 3:09-cv-00298-N Document 12-21 Filed 02/17/2009 Page 2 of 10
Manager Profiles A personal investment proposal for
•
AlPine Realty Income & GrOWdl Y (Oient Name)UGYX (Date)
.. Perlormance
•
STANFORD GROUP Cm.1PANY
prepared by (Advisor Name)phone (555.555.5555)email (advisor@;tanfordgroup.com)
APP0198
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STANFORD GROUP COMP.-'\NY
APP0199
prepared by (Advisor Name)phone (555555.5555)email (advisor@;tanfordgroupcorn)
lIiRisk &Risk-Adjusted Return
Manager Profiles A personal investment proposal for
•
AlPine Realty Income & Growth Y (Oient Name).\lOYX (Date)
•
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Case 3:09-cv-00298-N Document 12-21 Filed 02/17/2009 Page 4 of 10
Manager Profiles A personal investment proposal for
•
Ivy Global Natural Resources A (Oient Name)IGNAX (Date)
Fred Stunn, CFA is Senior VicePresident at Mackenzie FinancialCorporation. Mr. Stunn has over 20years of industJy experience and hasmanaged Ivy Global NaturalResources Fund since its inception inJanuary of 1997. Mr; Stunn earned adegree in commerce and finance
•
. from the University of Toronto and isaCFA charter holder.
STANFORD GROUP COMPANY
prepared by (Advisor Name)phone (555.555.5555)email ([email protected])
APP0200
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APP0201
prepared by (Advisor Name)phone (555.555.5555)email (advisor@;;tanfordgroup.com)
.. Performance
Manager Profiles A personal investment proposal for
•
IVY Global Natural Resources A (Oient Name)IGNAX (Date)
Case 3:09-cv-00298-N Document 12-21 Filed 02/17/2009 Page 8 of 10
GLOSSARY (CONTINUED) A personai investment proposal for(Chent I'bene)e --, (Date)
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APP0204
Case 3:09-cv-00298-N Document 12-21 Filed 02/17/2009 Page 9 of 10
APP0205
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GLOSSARY (CONTINUED)
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Case 3:09-cv-00298-N Document 12-21 Filed 02/17/2009 Page 10 of 10
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APP0206
Case 3:09-cv-00298-N Document 12-22 Filed 02/17/2009 Page 1 of 7
•----------
APP0207
A personal investment proposal for(Chen:(Date)
STANFORD C1R()UP COMPANY
DISCLOSURES
•
Case 3:09-cv-00298-N Document 12-22 Filed 02/17/2009 Page 2 of 7
SLo\NFORD INTERNATIONAL
.BAJ.~L1n
•
A personal investment proposal for(CI!ent Ndrnei(Date)
prepared by (Advisor Name)phone [~"J55~)':iIJ[)[/.')
email (adiiisor(jgsL3nr(:iid,eaii:lec
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Case 3:09-cv-00298-N Document 12-22 Filed 02/17/2009 Page 3 of 7
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•
STANIDRD lNTERNlmONAL
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Case 3:09-cv-00298-N Document 12-22 Filed 02/17/2009 Page 4 of 7
STANroRD INTERNATIONAL
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•
A personal investment proposal for'(Gent(Dar;,,'
APP0210
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APP 0211
prepared by (Advisor Name)phone (555.555.5555)email ([email protected])
A personal investment proposal for(Client fb:ne)(Date)
The nformation provided herein wi" be used to determineyour investment goals and risk tolerance with regard toyour overaB investment pcrttolio. You understand thdany ~-westrnent allocation recommendations mtlde byStanford Group or an,' of its financiDl consultants will bebased on s:uch overall soals and may not necesslllr~y beref.ected in the investments oi assets held in any oneaccount, from time to time. Additionally. you understmdthat any recomrnendations made are intended for Yl'uruse for arriving at a reasonable, fully explained investmentdecision and not as a coi'npbticn of lhe only possiUeinvestment vehicle and modes.
lIi Client Information
lIi Notice
--=---------,.------=--==============.. Assets, Income &Taxes
CoNRDENlW_lNVESTMENT
• POllCY QUE..illONNAIRE
lIi Client Type
Case 3:09-cv-00298-N Document 12-22 Filed 02/17/2009 Page 6 of 7
APP0212
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Fle'ible AssetManagem,'nt
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o Above 10%
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o 8% to 10%
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Stanford ASSt)[
Managwnent (Sr'\M- Fixed income)
o
02
Portf-nlio ;\dv~sor$
(MOfj(~Y M~lnagers)o
I will sell quickly any time an investment loses value
If my investment loses value over a 3-6 month period, I am likely to sell
If my investment loses value over a 7-12 month period. I am likely to sell
I usually watch my investments for at least ayear before making changes
Realizing that long-term investing maximizes potential returns, i will stay invested, even if poor market conditions result in sizeable losses in a given year
Mullwl Fund Partm~rs
(Mutual Funds)
80%
60%
40%
20%
0%
-20%
-40%
-60%01
ooooo
What is your typical response to market fluctuations?
The following chart shows best and worst one-year returns. Please indicate your risk tolerance. For example; a 3 indicates you arewilling to risk losing as much as 25% of your portfolio for an opportunity to gain as much as 45%.
• Average Return • Best Possible Return IiII Worst Possible Return
What is the beginning asset balance to invested in this strategy?
This is equal to what percentage of the client's total assets?
How would you best characterize your goals for these investments?
o Capital Preservation - principal protection with income as a secoildary consideration
o Income - income with capital appreciation as a secondary goal
o Balanced - capital appreciation and income
o Growth - capital appreciation with mcom0 as a secondary goal
o Aggressive Growth - capital appreciation only
How much above inflation do you expect this account.to earn?
0 403(b} 0 Roliover IRA 0 Multial Funds Direct 0 GD
0 457 0 Roth IRA 0 Anouities 0 Savings
0 Ke.ogh 0 Education IRA. 0 Persooal1rust
0 SlP IRA 0 Corporate
0 Sirnplf) IRf.
Are there any tax considerations relating to the management of this portfolio? 0 Yes 0 No
o
If yes, please explain briefly: {If applicable to this portfolio, you may specify 1hat the fixed income allocation be invested in ~·lree lni..1'Iicipai bond funds:
Please select one of the following account descriptions:
Please select the Investment Advisory Group program to be used in this proposal.
STANFORD GROUP COMPANY
A personal investment proposal for(Client Name)(Date)
Do you have specific instructions regarding your portfolio?
Are there any asset allocation constraints or restrictions for your portfolio? 0 Yes
If yes. please explain:
If yes. please explain:
Frequency:
Amount:
Starting:
Do you expect to make contributions to your account?
o Under 2 years
THE INFORMATION PROVIDED IN THIS DOCUMENT IS COMPLETE AND ACCURATE TO THE BEST OF MY KNOWLEDGE. (I UNDERSTANDTHAT MY SIGNATURE DN THIS QUESTIONNAIRE DOES NOT OBLIGATE ME TO ENTER INTO ARELATIONSHIP WITH THE STANFORDGROUP AND THAT ALL INFORMATION PROVIDED WILL BE HELD IN THE STRICTEST OF CONFIDENCE).
APP0213
FlOoncjal Advisor
Indicate if any of the follOWing investment instruments that should be excluded from the allocation strategy?
Do you expect to make contributions to your account?
How long do you anticipate investing these funds with your current account objectives?
Frequency:
knount:
Which of the following best describes how you feel about downside portfolio volatility?
o Iwould rather have no return as long as principal is protected
o I woJd ratrler have minimal returns than risk lOSing money
o I would !ike to achieve higher returns w'th some downturns in my portfolio
o Priority is to aChieve higher returns and will accept significant downturns in value
STANFORD GROUP COMPANY
A personal investment proposal for(Client Name)(Date)