The Fall of a Titan

A downtown Miami firm allegedly helped build an $8 billion Ponzi scheme. It could have been stopped.

In 1999, a DEA investigation found that members of the vicious Juárez Cartel in Mexico had deposited more than $3 million in Stanford's bank to launder drug money. Stanford quickly surrendered the cartel's money to the DEA and earned praise from the agency for his quick action. But later that year, federal regulators placed Antigua on a blacklist of nations suspected of money laundering and fraud.

That same year, the Clinton administration introduced a bill to crack down on overseas banks favored by gambling rings, drug militias, and terrorists. Two months later, according to a study by consumer advocacy group Public Citizen, Stanford hired a powerhouse lobbying group to fight the bill and began donating to both major parties. He handed out $208,000 to Republican campaign committees and $145,000 to Democrats that year. Among his biggest recipients were powerful Texas lawmakers, including House Democratic Caucus Chair Martin Frost. The bill, despite passing a House committee 31-1 with strong Treasury Department backing, was allowed to die in a Senate committee.

In 2002, as Congress took up a bill called the Financial Services Antifraud Network Act, which would have strengthened U.S. regulators, Stanford upped his lobbying. That year, according to the Center for Responsive Politics — a nonprofit group that monitors campaign money — Stanford's company gave $800,000 to the Democratic Senatorial Campaign Committee — the vice chairman of which was Florida's own Sen. Bill Nelson. The senator received more of Stanford's cash than any other member of Congress, according to one study, with $45,900 donated to his campaign. Stanford, in fact, personally hosted a fundraising event for Nelson in Florida. The anti-money-laundering bill died in a Senate committee.

R. Allen Stanford (right) faces federal charges that his bank was a "massive Ponzi scheme."
AFP PHOTO/Max Nash/Newscom
R. Allen Stanford (right) faces federal charges that his bank was a "massive Ponzi scheme."
Charles Hazlett, a top Miami investment broker, aired his fears about the company in 2003.
C. Stiles
Charles Hazlett, a top Miami investment broker, aired his fears about the company in 2003.

Nelson has given all of Stanford's donations to charity, and there's no clear link between his actions as DSCC vice chairman or senator and what appear to be Stanford's efforts to kill the bill. The Florida Democrat was a junior senator in his first term when the bill was taken up, and his staff disputes the notion he wielded enough power to influence the legislation. The same provisions later found their way into the Patriot Act, and Nelson voted for them there, says Nelson spokesman Dan McLaughlin.

"Allen Stanford never asked us for anything, nor did he ever receive anything," McLaughlin says, adding that $45,900 was not a significant sum in a campaign that garnered tens of millions in donations.

But some experts say it would be foolish to think Stanford expected nothing for his money.

"Being vice chair of the DSCC means you have a great deal of influence over who gets campaign money," says Craig Holman, government affairs lobbyist for Public Citizen. "And Stanford wouldn't pump that much money into a hole that doesn't deliver something in return."

In all, Stanford spent nearly $5 million lobbying Congress between 1999 and 2008 and dished out $2.4 million to federal candidates. He also sponsored dozens of free, "fact-finding" trips to Antigua and other Caribbean islands for politicians and their staffs on his fleet of jets. Records of the trips show that former Florida Rep. Katherine Harris took one such jaunt to Saint John's. Disgraced Texas Republican Tom DeLay flew 11 times on Stanford's jets, according to the Dallas Morning News.

In the meantime, the red flags kept popping up. In March 2003, just months after Hazlett left Stanford, another employee — a Houston-based broker named Leyla Basagoitia — made even stronger accusations in Texas. In her filings, Basagoitia said Stanford encouraged "fraudulent inducement" and that the company was "engaged in a Ponzi scheme to defraud its clients." The company, she said, forced her to invest her clients' money in its Antiguan CDs even though she believed them to be "risky in nature and unsuitable."

Like Hazlett's, Basagoitia's claims were summarily dismissed, and both brokers were left to pay hundreds of thousands of dollars in back pay and attorney's fees to Stanford. Neither ever heard from the SEC regarding their accusations. And if their voices weren't loud enough for regulators, another Miami employee took his suspicions to court in 2006 and laid out in even greater detail Sir Allen's schemes.

Lawrence De Maria, a former business journalist for the New York Times and Forbes, was hired by Stanford in 2003 to run the company's internal magazine out of the Miami office. He was fired three years later, and soon thereafter, he charged in court that the company kicked him out for asking too many questions about its investment strategy.

In the filings, De Maria said he told his immediate boss in 2004 he suspected the firm was laundering South American drug money, lying to investors, running a gigantic Ponzi scheme, and paying off Antiguan and American politicians to look the other way. The company settled De Maria's case almost immediately after his lawyers got a court order that would have forced Allen Stanford to testify.

De Maria, who now writes novels in Naples, declined through his lawyer to discuss the case because of the settlement. But his 2006 interview with a Stanford lawyer, captured in court transcripts, is remarkable.

"If you're taking money offshore, going through a bank, and then offering up those funds to give high CD rates to lure more money back into the bank — to me, it was a definite Ponzi scheme," De Maria said.

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