Stanford Ponzi showcases investor warning signs

February 18, 11:17 AMSF Financial Fraud ExaminerPaul Springer

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Formerly respected banker R. Allen Stanford's purported involvement in an $8 billion Ponzie scheme has been carefully delineated by the Securities and Exchange Commission.

Stanford offered certificate of deposit (CD) investors preposterously high rates of return, and buyers took the bait like perch after night crawlers.

Securities law attorney Thomas Gorman reviewed the SEC complaint and extracted this list of red flags for investors:

• Claimed returns year after year which exceed those of other similar investments;

 

• A unique investment strategy;

 

• “Safe” investments because investor money is primarily in “liquid” investments;

 

• Virtually nobody knew the details of the operation — here only two people — making the operation a kind of “black box;” and

 

• No real oversight — the long standing auditor is retained based on a “relationship of trust with the defendants.”

The last item refers to Stanford's claim that the investments were audited by accountants in Antigua. That's like saying bank deposits are being audited in Nigeria. Like so many other Ponzi claims, it just doesn't make sense.

But all too often investors would rather chomp on a juicy lie than choke on a bone-dry truth.