Wednesday, February 18, 2009

The Ponzi Report: Stanford Edition

Our crack investigators at the SEC have unveiled another mind-boggling ponzi scheme, somehow this time without the aide of a full confession from the perpetrator.  The US regulator accused Stanford International Bank, based in Antigua of an $8 billion fraud.  According to the Financial Times report, the SEC believes that Stanford falsely claimed that customers' deposits were safe and that the bank re-invested client funds primarily in "liquid" financial instruments.  It also said that the bank had falsely claimed no "direct or indirect" exposure to the Madoff ponzi scheme.  You've got to love a ponzi scheme that invests in other ponzi schemes and then denies involvement.

Naturally, the SEC was tipped off to the potential fraud by an analyst note that was critical of Stanford's claims to deliver consistent market beating returns on its $8 billion portfolio of depositors' assets.  When you have a market like this one, where every asset class is taken to the woodshed, claims of consistent market-beating returns are considered a red flag.  Any fund with a plus sign in the returns column better look out.  The SEC is on to you. 

News of Stanford's demise is sure to cause even more skepticism among investors of the safety of their financial assets.  Because if you can't put your money in a supposedly super-safe CD, where can you put it?  Perhaps this will cause a flight to quality back into money-losing hedge funds?  After all, if your fund manager was down 40% last year then he was no dumber than the average investor, and at least you know he's not using liquid paper to alter your confirms.  Then again, the mattress strategy is looking more and more appealing by the minute.  Little wonder that gold has rallied sharply in the past few weeks.   


Joshua said...

sec official: there's this billionaire in texas with offshore accounts who is clearly a scumbag funneling billions and might be involved in drugs. should we go arrest him and make sure he doesn't get away?
other sec official: nah, let's just publicly tip him off that we're investigating and i'm sure he'll stay put

K10 said...

Thanks for inspiring today's post. If your illustrious banking job ever becomes a bore, please send your resume to mock the market.