With the announcement on June 17 of a proposed federal agency tasked with a role in consumer protection as part of the revamping of the financial system; a new chair (from FINRA) appointed by President Obama to head the SEC; and a new Congress proposing to end mandatory FINRA arbitration (HR 1020, S 931)—the right to choose court over FINRA may be restored to investors.

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Ted Eppenstein, interviewed by Kristin McNamara, Dow Jones Newswire (February 19, 2009)

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Indeed, as described in the SEC civil complaint, investors and others appear to have been taken twice over by Allen Stanford’s and his confederates’ “web” of related companies, Stanford International Bank, Ltd, Stanford Group Company and Stanford Capital Management:

“Contrary to [the bank’s] representations, SIB’s investment portfolio was not invested in liquid financial instruments or allocated in the manner described in its promotional material and public reports. Instead, a substantial portion of the bank’s portfolio was placed in illiquid investments, such as real estate and private equity. Further, the vast majority [of] SIB’s multi-billion dollar investment portfolio was not monitored by a team of analysts, but rather by two people-Allen Stanford and James Davis. And contrary to SIB’s representations, the Antiguan regulator responsible for oversight of the bank’s portfolio, the Financial Services Regulatory Commission, does not audit SIB’s portfolio or verify the assets SIB claims in its financial statements. Perhaps most alarming is that SIB has exposure to losses from the Madoff fraud scheme despite the bank’s public assurances to the contrary.” (SEC Complaint at 3-4)

We can now visualize how complicated things can get for investors when a scheme as seemingly vast as Madoff collides with that of Stanford:

 ”In a December 2008 Monthly Report, the bank told investors that their money was safe because SIB ‘had no direct or indirect exposure to any of [Bernard] Madoff’s investments.’ But, contrary to this statement, at least $400,000 in Tier 2 was invested in Meridian, a New York-based hedge fund that used Tremont Partners as its asset manager. Tremont invested approximately 6-8% of the SIB assets they indirectly managed with Madoff’s investment firm.”  (SEC Complaint at 14)

The disastrous consequences for unsuspecting investors has only been magnified by the lack of transparency, oversight and truth seemingly present in both schemes.

Contact Ted Eppenstein at 212-679-6000 or teppenstein@eppenstein.com to discuss your situation.

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“Theodore G. Eppenstein, a New York securities arbitration attorney, says he’s been consulting with investors who have incurred losses through Madoff. His firm will examine hedge funds and advisors ‘that fed client money blindly into Madoff without doing adequate due diligence,’ he says. (more…)

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