Stanford arrest: Massive fraud alleged

by Josh Meyer

The Justice Department is confirming that Texas billionaire Allen Stanford has been arrested and indicted on criminal charges stemming from his alleged operation of a massive investment fraud operation that bilked potentially thousands of Americans.

A Justice Department official, speaking on condition of anonymity because he was not authorized to discuss the case, said the charges will be announced at a noontime EDT news conference by Lanny A. Breuer, assistant Attorney General for the Criminal Division, and top FBI, Securities and Exchange Commission and Internal Revenue Service officials. At that time, federal authorities will unseal the indictments that led to Stanford's arrest Thursday in Virginia, the Justice Department official said.

The flamboyant Stanford was named by Forbes magazine as the 205th richest American in 2008. But SEC regulators have accused him of enriching himself by perpetrating an $8-billion investment fraud, casting himself as an offshore investment guru to the transatlantic jet set.

In February, the SEC charged Stanford and two other principals of his investment and banking empire in a complaint alleging massive fraud. Soon after, a federal judge froze the assets of Stanford and three of his financial services companies and appointed a receiver to marshal what funds could be located.

The SEC called Stanford's promises of high-interest returns on his bank's certificates "improbable and unsubstantiated,'' and said that he achieved double-digit returns on its investments over the last 15 years by running a Ponzi scheme, or pyramid scheme in which new investors' money is used to pay profits to existing clients.

Stanford has denied wrongdoing, saying in a tearful televised interview recently that he would never get involved in a scheme to bilk his investors. "I would die and go to Hell if it's a Ponzi scheme," Stanford told ABC News.

The criminal charges are expected to make some of the same allegations as the SEC accusations.

Also charged by the SEC were James Davis, Stanford International Bank Ltd.'s chief financial officer, and Laura Pendergest-Holt, Stanford Financial Group's chief investment officer. The SEC said the trio had engaged in "a fraud of shocking magnitude that has spread its tentacles throughout the world."

Stanford and Davis, former Baylor University roommates, refused to cooperate with investigators, the SEC complaint said.

It wasn't immediately clear who else, if anyone, was indicted on federal criminal charges, which are believed to have come from a federal grand jury operating out of the Justice Department's Southern District of Texas, which includes Houston, home base to some of Stanford's financial empire. Tim Johnson, the U.S. Attorney for that district, was expected to be on hand at Justice Department headquarters for today's announcement.

Much of Stanford's financial services group is based abroad, primarily on the Caribbean island of Antigua, where the financier sponsored a cricket team and series of matches of the popular sport.

Before his arrest, Stanford was in other legal trouble as well. The IRS says he and his wife owe back taxes, penalties and interest of at least $226.5 million, and thousands of creditors are seeking Stanford's remaining assets as a way of reimbursing them for alleged losses.

And in February, regulators in Antigua and adjacent Barbuda also took control of Stanford's financial institutions there.

Some legal experts have said that it will be hard for U.S. authorities to go after some of Stanford's assets abroad, especially without the assistance of those countries, especially those that lack robust formal treaties that require them to cooperate with U.S. efforts to shut down crooked offshore entities.

Dick DeGuerin, Stanford's attorney in Houston, told the Associated Press that his client surrendered to FBI agents who were ``hiding out in black SUVs outside the residence where he was staying in Virginia."

"He walked out and asked if they had a warrant," DeGuerin said. He said Stanford told the agents to arrest him if they had a warrant and said that if they didn't, he would go back to Houston Friday to turn himself in.

Stanford is to appear today in federal court in Richmond, Va., AP quoted law enforcement officials as saying.