The Fall of a Titan

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

It's a bright September afternoon inside the towering Miami Center on Biscayne Boulevard. From his 21st-floor office, Charles Hazlett has a clear view of Biscayne Bay's sailboat-speckled water, the massive cruise ships docked at the port, and Bayfront Park's emerald lawn.

The six-foot-four Miami native — a ringer for Steven Seagal, with long, slick black hair; a tailored suit; and a booming voice — is one of the top investment brokers in Miami. He has been managing portfolios for investors in Latin America and the Caribbean for more than 15 years, ever since graduating from Florida International University. Nine months ago, he jumped ship from Prudential Securities to an up-and-coming firm in downtown Miami, lured by up to $400,000 in bonuses, a $180,000 salary, and this plush waterfront office.

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.
Laura Pendergest-Holt is the only Stanford exec who faces criminal charges, for allegedly lying to SEC investigators.
REUTERS/Richard Carson/Newscom
Laura Pendergest-Holt is the only Stanford exec who faces criminal charges, for allegedly lying to SEC investigators.
James Davis, Allen Stanford's number two, is now cooperating with the SEC against the empire he helped build.
AP Photo/C. Todd Sherman
James Davis, Allen Stanford's number two, is now cooperating with the SEC against the empire he helped build.
Alex Dalmady, a Weston-based analyst, called Stanford International a Ponzi scheme in a Venezuelan newspaper article weeks before the SEC's charges.
C. Stiles
Alex Dalmady, a Weston-based analyst, called Stanford International a Ponzi scheme in a Venezuelan newspaper article weeks before the SEC's charges.

The firm is unlike any other place he has ever worked. The company seal, a golden eagle, adorns everything — from the doors and elevators to the toilet seats in the company jet. Employees who don't wear it on their lapel are sent home.

Then there are the weekly staff meetings, where there is more talk about offshore banking deposits than the fluctuations of the stock market. In fact, at Stanford Group Company, hardly anyone talks about Wall Street.

As Hazlett has discovered in his nine months at Stanford, these are all reflections of the firm's quirky founder, a Texas-born swashbuckler of the financial world who has created his own personal fiefdom on the tiny island of Antigua. Born of humble beginnings on the plains of central Texas, he now flies the world on private jets, lives in a palatial Miami estate with its own moat, and at times adopts a faux British accent. In Antigua, where he has been knighted, he has attained an almost godlike status. He owns a daily newspaper and the Bank of Antigua, and he sits on the board that regulates the country's banks, a board he also helped create.

At first, Hazlett was too focused on building his investments to delve into the company's methods. In his second quarter at Stanford Group Company, he sold more than $10 million in certificates of deposit to the firm's offshore bank, which made him one of the company's top producers and earned him a $100,000 BMW as a bonus.

But lately, something about his new job had been bothering him, spurred in part by a big-money client with some persistent questions. Why were the CDs performing so well? What was the explanation for the incredible returns? And where were the deposits invested? The more Hazlett pressed his managers for an explanation, the more he was stonewalled.

Today he has maneuvered his way into a meeting with the company's investment chief, and unless she tells Hazlett how the deposits are invested, his biggest client, a Curaçao native with a $5 million stake, will pull out his cash.

Hazlett walks into an office, accompanied by his supervisor. An attractive woman in torn blue jeans, open-toed shoes, and long brown hair tied up into a messy knot swivels around in a leather chair. She looks 22, like a sorority girl roused from her dorm room.

"So you're the chief investment officer?" he asks confusedly.

"Yes," she says in a thick Mississippi twang. "I'm Laura Pendergest."

Hazlett quizzes her on her credentials. She's actually 28, with a bachelor's degree in math from Ole Miss and no investment experience. A sickening pit forms in his stomach. The anxiety swells with each deflected question, confused look, and angry reply that comes from the young woman.

"I can't tell you that, Chuck. It's proprietary information," she says again and again, first trying out her pretty Southern charm and then shifting to an accusatory tone. "Why can't you control your client?"

Hazlett's brassy baritone leaps a notch. He isn't asking for "proprietary information" — all he wants is a basic breakdown. What percentage is invested in stocks, what percentage in bonds? How can these things churn out such better returns than any American deposits? He refuses to relent.

"It's not just my client, Laura," Hazlett says. "I have questions too. The returns these generate don't make sense to my client or to me. I need answers."

Instead of answering him, Pendergest begins to cry. She quietly sobs and then abruptly grabs her purse and runs through the glitzy lobby and out the door.

Hazlett, utterly baffled, stares at his manager across a long boardroom table.

Fifteen minutes later, the company's number two executive — a Mississippi native named James Davis — phones from Memphis. Hazlett picks up the phone.

"Do you believe in God?" Davis asks in a dry drawl, his voice rising with passion. "Do you fear God, Chuck?"

God? Hazlett thinks. Where the hell am I?

It took Hazlett another four months to leave the company and level an accusation in arbitration court of fraudulent practices, but from that moment forward, he knew for a fact that he was down the rabbit hole and that something was very rotten at the Stanford Group.

Pendergest (now married and known as Pendergest-Holt), Davis, and their boss — Texas billionaire R. Allen Stanford — now face federal charges that they swindled investors out of $8 billion in a massive Ponzi scheme run out of Miami, Houston, and the Caribbean, taking money for supposed certificates of deposit and then simply paying off old customers with the new cash. The question remains why it took regulators six more years to catch on, especially when Hazlett's cries were far from isolated to South Florida.

The fallout in Miami, Latin America, and the Caribbean has been devastating. Almost 200 Stanford employees in Florida have lost jobs, thousands of investors in the region have had accounts frozen, and 30,000 worldwide have lost a total of $8 billion in life savings to the giant house of cards. And each allegation has dealt another body blow to America's already teetering confidence in government safeguards and the economy.

Even more than Bernie Madoff's tale, Allen Stanford's rise and fall is the story of the past decade in America, where greed mixed with cynical politics birthed a perfect storm for accused hucksters such as Stanford to bring the global economy to its knees. And as Stanford's story shows, the warning signs were there. They were simply ignored.


When the elevator doors open to the posh Stanford offices in Miami, the wealth and vision once synonymous with the fallen firm are glaringly obvious.

Well-worn, brass-studded leather couches rest on rich Oriental rugs, conjuring images of an old-money British banker in his study. Leather-bound volumes and yellowed globes line polished mahogany bookshelves next to huge impressionist oil paintings.

For a time, these three floors seemed like the center of a new investment empire, built by a man who did everything in his power to change his origins.

Robert Allen Stanford, in fact, was born in 1950 in Mexia, an oil boomtown on the endless plains of central Texas about 85 miles south of Dallas.

He lived in Mexia (pronounced muh-HAY-uh) until the fourth grade, when his parents separated and he moved with his mother to Fort Worth. But those who remember him from that young age say that even then, he was famous for trying to make a buck.

"He was always known as an entrepreneur," says Bob Wright, editor of the Mexia Daily News and a family acquaintance. "He liked to make money, and he always seemed to have a few things going."

Childhood friend Jo Bennett recalled to the Houston Chronicle that as a boy, Stanford tried to sell her his bike for a profit when he got a new one as a gift. In high school, Stanford played football, and at Baylor University, he taught scuba lessons to make extra money. His roommate at Baylor, then a strict Baptist school, was James Davis, who became a lifelong friend.

Stanford graduated from Baylor in 1974 with a business administration degree (Davis graduated the next year with an accounting and finance diploma) and joined his father in Mexia to help run the family insurance business. But Stanford had bigger plans.

"I couldn't stay in a small town and be content," Stanford told Forbes magazine last fall.

By the early 1980s, Stanford had persuaded his father to sell the insurance business and join him in Houston as a real estate speculator. Houston's market had crashed after the oil bubble burst, and the Stanfords began buying up distressed properties at bargain prices — run-down apartment complexes and strip malls, and later larger swaths of land.

By the mid-'80s, Allen Stanford had set his sights beyond real estate. In December 1985, with a few million in start-up cash from his father, he established an offshore bank called Guardian International Bank in Montserrat, a small British territory in the Leeward Islands.

The bank earned licenses to manage international banking accounts and in five years grew to about $14 million in holdings. But by 1990, Stanford faced an IRS lawsuit accusing him of owing the government $420,000 in unpaid taxes — and at the same time, the British government successfully pressured the territory to toughen regulations on its banks. In 1991, Stanford withdrew his license in Montserrat and began looking for another Caribbean home.

He found it later that year in the tiny island nation of Antigua and Barbuda, a country of about 85,000 in the middle of the Lesser Antilles. Stanford relocated to Antigua and split his company into the two central pieces that still exist today. The first, called Stanford International Bank, was housed in a hillside estate in the capital city of Saint John's. The other arm, called Stanford Group Company, was based in downtown Houston. He made James Davis, his college roommate, director and chief financial officer of both companies. Stanford, though, was the sole shareholder.

Stanford International Bank operated outside of direct U.S. scrutiny. The bank's certificates of deposit — which are similar to savings accounts, except they are held for a preset period of time with a fixed interest — consistently returned more than most American deposits, with funds in the mid-'90s routinely bringing 15 percent interest.

Meanwhile, Stanford's Houston-based firm, Stanford Group Company, was a traditional SEC-regulated broker. They managed portfolios, traded stock and, quite prominently, sold CDs in Stanford's Antiguan bank to American investors.

About six years after moving his offshore bank to Antigua, state records show, Allen Stanford brought his company to South Florida and made Miami the de facto heart of his new empire — midway between his Houston investment headquarters and the Antigua bank, and close to the wealthy Latin Americans to whom he catered.

He opened his first office in 1997 at the Miami Center, a luxe 34-story office tower on Biscayne Boulevard. In the exclusive complex, Stanford joined white-shoe law firms such as Hughes Hubbard & Reed and the local branches of financial heavy hitters Smith Barney and Citibank.

By the end of the decade, his formula — pushing CDs in his offshore bank to U.S. and Latin American investors through his Houston- and Miami-based brokerages — was making the Texan a mint. And as Stanford grew richer in his island fiefdom, his eccentricities flowered like a tropical orchid.

He soon obtained Antiguan citizenship, persuaded the former British colony to bestow an honorary knighthood upon him, and then demanded he be addressed everywhere as "Sir Allen." He became an avid cricket fan and brought the sport to Antigua by sponsoring a lavish international tournament with an unheard-of $20 million prize for the winning team. It was during this time that the six-foot-four Texan began talking with a slight British accent. He told reporters — falsely, it turned out — he could trace his lineage back to the founder of Stanford University. According to a Forbes profile, rumor abounded that he toted around a vial of blood in his briefcase that he claimed came from a priest with stigmata, or Christ-like wounds. Stanford denied carrying such a vial but said he met a priest with stigmata in the early '90s and felt a "life-changing surge."

In October 2003, he found a suitable home to mirror this new image, paying $10.5 million for a massive, 57-bedroom mansion on the Coral Gables waterfront built by the Wackenhut family. He rechristened the estate — which was outfitted with turrets, grottos, a pub, and a throne-like toilet — Tyecliffe Castle.

Though he'd been married since 1974 to a Texas dental hygienist named Susan, Stanford began keeping mistresses around the Caribbean and Florida. According to court documents, he fathered six children with four women and paid around $200,000 a month in child support. One mistress, Louise Sage, lived in the Gables manor with two of Stanford's children.

In the late '90s and '00s, the Stanford Group became a prominent player in South Florida sports and charities, sponsoring the VIP lobby at the American Airlines Arena, the Sony Ericsson Open in Key Biscayne, and the International Polo Club in Palm Beach. Stanford also gave heartily to local nonprofits, including the Kiwanis Club of Little Havana and the Festival of the Arts in Boca Raton.

By 2007, just 16 years after opening as a small bank on a tiny island, Stanford's enterprises seemed to have amassed a spectacular amount of wealth. The bank in Antigua counted 30,000 customers in 131 countries with more than $8 billion in investments. The Houston-based brokerage managed 35,000 accounts worth more than $50 billion. In addition to the downtown Miami location, the company operated South Florida offices in Boca Raton, Bonita Springs, Fort Lauderdale, Vero Beach, and Longboat Key and employed more than 500. Forbes estimated Allen Stanford's personal worth at $2 billion, and he purchased an airline, a newspaper, and a number of restaurants in Antigua.

Court filings spell out the Miami lifestyle that came with all the wealth: $75,000 Christmas gifts for his children by Louise Sage, regularly chartered $100,000 yachts, a $100 million fleet of personal jets, $25,000 monthly payments on his mansion.

In his more public dealings, Stanford's thin veneer of supposed old-money aristocracy always seemed moments away from cracking. During a now-infamous exchange on live television in late 2008, a sycophantic CNBC reporter asked him: "So, is it fun being a billionaire?"

Sir Allen shifted uncomfortably in his seat, chuckled awkwardly, and cleared his throat. "Hmm, uh, yes," he said, eyes darting. "Yes, I'd have to say it is fun."


In January 2003, one year after he started as an investment broker at Stanford Group Company, Charles Hazlett packed a cardboard box inside his apartment-size office on the 21st floor of the Miami Center. He had just quit, after yet again demanding a meeting with top officials to talk about how the CDs performed so well.

Hazlett's customer in Curaçao had pulled out his $5 million investment one month earlier, but Hazlett stuck around longer, hoping his bizarre run-in with Laura Pendergest-Holt and the frightening, religion-tinged dressing-down from James Davis somehow had been an aberration.

Now he believed the worst. He had no proof of what exactly Sir Allen was up to in his Caribbean hideout, but Hazlett wanted no part of it. He called his lawyer.

"I want to take these guys to court," Hazlett said.

A few weeks later, the broker and his former company met in a Boca Raton arbitration court run by what is now called the Financial Industry Regulatory Authority, an industry group sanctioned by the SEC. Hazlett spelled out his experience: Brokers were heavily pressured to sell offshore CDs and were stonewalled when they tried to find out where the CDs were being invested.

Repeated calls to the SEC's press office seeking comment for this story were not returned.

"I thought, At least I put my story out there and someone on the regulatory side is going to realize these are bad guys," Hazlett recalls today. "Because I know I'm not the only one that had this experience."

Hazlett lost his case and never again heard from the SEC, even though he was right — he wasn't the only Stanford employee complaining to regulators.

In fact, even as Stanford's business holdings and personal wealth grew exponentially, his brushes with legal and regulatory authorities were frequent, and the warning signs that something was amiss were many.

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.

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.

"And I could never get an answer," De Maria continued, explaining that James Davis told him the firm got great returns by using better computer programs and analysts than anyone else in the business.

"[He said] they had a paradigm. They just knew how to play the market better than anybody else," De Maria added. "And I didn't buy that for a second."

The regulatory board that heard Hazlett's and Basagoitia's testimony is sanctioned directly by the SEC, and De Maria publicly made his claims in Miami-Dade Circuit Court. Yet the wing of the government charged with rooting out bank and investment fraud did not respond to the concerns piling up around Sir Allen's operations.

The SEC did open an investigation into Stanford's company in 2006 but dropped the inquiry at the request of another agency that hasn't yet been named, according to several sources. Rep. Dennis Kucinich, among others in Congress, has demanded an explanation from the regulators about why the case was dropped. In 2007, regulators found the company was violating rules about how much capital it needed to keep on hand, so they levied a fine that amounted to a pittance — $20,000. That same year, the company paid another minuscule fine — $10,000 — for "misleading" information about its CDs.

The last, and perhaps most incredible, public warning that Stanford Group was in trouble came only three months ago from a low-key Venezuelan investment analyst named Alex Dalmady.

A thin, 48-year-old Caracas native, Dalmady grew up doing balance sheets for his dad, who worked for the accounting firm Price Waterhouse. He spent most of his adult life in the Venezuelan capital, where he analyzed the small national stock exchange in a subscription newsletter he published.

Six years ago, he moved with his family to Weston after getting American residency. Last fall, a friend in Venezuela phoned him after the Madoff scandal and the global banking crisis began, asking him to take a look at his investments.

"Five minutes after I looked at Stanford... I said, 'This just doesn't smell right,'" Dalmady told New Times in late February. "I said, 'Get your money out. Now.'"

"It wasn't just the balance sheets; there's one fishy thing after another," he said. "I looked up their board of directors, and I see it's Stanford, his dad, and some other old guy in Mexia. I looked up his address, and it was on this cattle ranch in the middle of nowhere."

Dalmady never talked to a single person at Stanford and based his research solely on public filings and the company's website. Yet after just a few weeks of reading up on the company, he was so certain Stanford was a fraud that this past December, he called a Caracas business paper and asked if they would publish a story laying out his suspicions. The editor agreed. In January, Dalmady's bylined piece ran in two Venezuelan newspapers and on their websites.

"I expected some kind of outrage," Dalmady says. "Instead, they send us this beautiful collection of PR bullshit. And then it's absolute silence, which was the final confirmation for me. Stanford was running a Ponzi."


Executives in Italian suits and lawyers with accordion files slump in their cushy leather chairs as golden Miami sunlight streams through the boardroom's windows. The walls are crashing down around them.

It's Wednesday, February 4, and Laura Pendergest-Holt is running a PowerPoint presentation at the Stanford Group. James Davis stands next to her. She flips on a pie chart showing the breakdown of the largest tier of the $8 billion invested in the company's Antigua bank — the funds controlled directly by Sir Allen. More than $3 billion, she says, is tied directly into real estate, much of it in Antigua. She pauses.

"Another $1.6 billion have been loaned to a shareholder," she says. "Sir Allen."

There is shocked silence in the room. "Stanford International Bank is insolvent," one executive says in disbelief, swearing he will never testify before the SEC.

The SEC has asked for top executives to testify in five days, and Pendergest-Holt already has agreed to talk. The group meets again the next day in the same room, this time with Allen Stanford himself in attendance. Two of the executives say they plan to tell the SEC everything they learned in the previous day's meeting.

Stanford grows livid.

"The assets are there!" he screams, pounding the table. "The assets are there!"

Less than two weeks later, thanks in part to the testimony of two executives in that Miami meeting, the SEC formally charges Pendergest-Holt, Davis, and Stanford with orchestrating an $8 billion "massive Ponzi scheme."

According to the 25-page complaint, Stanford's company claimed its investments lost only 1.3 percent in 2008 — a year when the S&P 500 dropped 39 percent. Stanford and Davis kept 90 percent of the company's supposed $8 billion in investments in a "black box" shielded from outside scrutiny. In essence, the regulators charge, Stanford never invested any of that money except in a few land deals and pet projects. The rest he used for himself and to pay interest on the older investments.

In the weeks since the SEC brought charges against Allen Stanford and his associates, the fallout has been monumental.

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.

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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