The Fall of a Titan

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

In Florida, 174 Stanford employees have lost their jobs. Tens of thousands who used Stanford Group in the States — including dozens of familiar names, such as Yankees star Johnny Damon — have had their accounts frozen until the case is resolved. The 30,000 investors worldwide who sank money into Stanford International Bank CDs, meanwhile, have lost life savings, retirement funds, and charitable endowments — probably forever.

"It's sad and upsetting to realize how little you can do. It kind of hit me in the face," says Pieter Dahler, a Colorado dentist who invested his life savings and the $750,000 endowment for a charity he founded that provided free dental and health care to poor families throughout Latin America. "I worry every day about these families who depended on us."

Antigua has been thrown into chaos. Stanford was the island's second-largest employer, and hundreds have gone unemployed for the past few weeks. Panicked residents have made a run on the island's banks and government financial centers since the charges were filed.

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.

Three weeks after the company was charged with massive fraud, and Laura Pendergest-Holt was hit with felony criminal charges for allegedly lying to regulators, police found Allen Stanford hiding in one of his girlfriends' homes in rural Virginia. He had tried to pay a private pilot to fly him to Antigua, but his credit cards had already been frozen. He surrendered his passport and remains free today.

On April 6, he tearfully told ABC News he expected to be indicted by a federal grand jury within two weeks and called allegations that he was running a Ponzi scheme "baloney."

His lawyer, well-known Houston attorney Dick DeGuerin, offered a less emotional defense.

"From what I've been able to figure out, this is not a Ponzi scheme, it is not toxic assets, and it is not toxic loans," DeGuerin told Reuters. "There were hard assets for all the investments. And then the SEC came in like gangbusters and has just incinerated the companies and caused a panic."

But Stanford might find his legal options narrowing. James Davis has hired Dallas criminal defense attorney David Finn, who says his client accepts full responsibility for his actions and is actively cooperating with the government. "There is a basic rule in fraud cases: Follow the money," Finn says. "I think when the investigators and the prosecutors follow the money, it will lead them directly to Sir Allen."

Government inquiries have begun into how the SEC and other regulators could miss such a gargantuan fraud for so long. A new anti-money-laundering bill to stiffen regulations on offshore banks has been introduced into the Senate — cosponsored by Sen. Bill Nelson. And state attorneys general across the nation announced last month an initiative to crack down on financial fraud on a state level.

But some experts say all of those measures won't prevent the next Madoff or Stanford from preying on Americans again.

One problem, says Phillip Phan, a business professor at Johns Hopkins University who has studied large-scale frauds, is that regulators are usually lawyers and accountants trained to look for problems only in companies' balance sheets. If SEC agents had been more attuned to the most basic problems at Stanford — the things that so quickly tipped off Alex Dalmady, such as a board of directors with 85-year-old Mexia cattle ranchers at the top — the firm might never have built such a large scheme.

"We really should look at regulation more like intelligence gathering," Phan says. "We should be trying to spot all warning signs out there, in the same way the CIA employs linguists and sociologists and all the specialties. There's so much information out there beyond the balance sheets."

Charles Hazlett never returned to big-time investment brokering after he lost his case against Stanford and ponied up more than $200,000. "I got my ass kicked by the arbitration court," he says, standing inside the neat living room of his condo at the Grand near downtown Miami. "They basically ended my career."

Still, he knows that many others caught in Stanford's web have had it worse — the investors, as well as the employees who stuck with the company until the end (and who might face prosecution for their role in selling Stanford CDs). Hazlett is now senior vice president of CP Capital Group in Brickell and is developing a beachfront community in Nicaragua.

He runs his hand over his slick black hair and shakes his head.

"Why didn't the SEC look into this any earlier? They just refused to pull back the veil," he says. "Now it's all so obvious."

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