We still don’t know exactly what the fraud was that phony knight Allen Stanford allegedly perpertrated that prompted the raid by federal regulators this week. But he certainly has all the markings of a shady character.
John Gapper, in his Financial Times column today, explains four ways in which Stanford resembles arch-swindler Bernard L. Madoff.
1. Suspiciously regular returns. The returns at Stanford International Bank were oddly steady. “In 1995 and 1996, he achieved the remarkable – in fact, near-impossible – coup of identical 15.71 per cent returns,” Gapper writes. “During the same years, Fairfield Sentry, one of Mr Madoff’s main ‘feeder funds’, declared investment returns of 12.04 and 12.08 per cent respectively, which was shockingly volatile by comparison.”
2. A highly unusual business model. Was SIB a bank? A hedge fund? A mutual fund? Like Bernie’s biz, SIB was an odd hybrid that seems designed to confuse investors and regulators about its true nature. “Mr Madoff was in effect running a hedge fund but did not charge hedge fund fees. SIB was not really a bank, for it took in deposits but did not make loans,” Gapper says.
3. Dodgy accountants. Madoff had lots of accountants in his orbit but stayed very far away from the big accounting practices, preferring small shops that were more or less captive companies. SIB’s accounts were handled by CAS Hewlett & Co, an Antiguan accounting firm on which we can find no other information.
4. Egotastic Heads. Gapper points out something very, very obvious: both Bernard L. Madoff Investment Securities and the Stanford Financial Group bear the names of their top guys. “That matters because it signifies something else – the degree to which both were dominated by one person. When a single figure not only controls a financial institution but embodies it, investors should be wary,” Gapper writes.