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Allen Stanford Ponzi case puts lawyers in spotlight

With federal agents threatening to put his bank out of business, Allen Stanford turned to the powerhouse Miami law firm of Greenberg Traurig.

Stanford International Bank and other banks in Antigua were suspected of laundering money and were close to being cut off from the global banking community.

Not only did the firm save his bank, it helped Stanford eliminate his competition and become a top Antiguan regulator -- just years before prosecutors say he began stealing millions in one of the largest frauds in U.S. history.

Now a decade later, with Stanford charged in the massive criminal case, the law firm is being pulled into a widening inquiry of the $7 billion Ponzi scheme that wiped out thousands of investors.

Though not under criminal investigation, Greenberg Traurig is facing a legal review of its actions on this tiny island that was the center of his banking kingdom.

The court-appointed receiver trying to recover money for victims is demanding records of the legal work provided to the disgraced banker -- including that of Greenberg. The effort is the latest by the receiver to untangle the complex deals spun by Stanford as well as the conduct of his lawyers.

The demand for the records has put a rare spotlight on Greenberg Traurig and another firm, Hunton & Williams, which now holds the records.

``I'm sure one of the things they will look at is what did Greenberg Traurig know, and when did they know it, and did they have any liability?'' said Ross Gaffney, a former FBI agent who investigated Stanford.

Greenberg Traurig's effort to help Stanford in 1998 was one in a string of instances in which the Florida law firm propelled Stanford's business interests and helped rescue him from crisis.

The Miami Herald sought interviews with five lawyers who represented Stanford while working for the law firm, but only two responded.

Those lawyers, citing confidentiality concerns, declined comment, saying they were simply giving legal support and were unaware of any illegal schemes by Stanford.

Cesar Alvarez, the firm's chief executive officer, also declined to be interviewed.

THE MONEY PIPELINE

The request for the legal files represents one of the most aggressive moves waged by the receiver to search for assets from Stanford's far-flung banking network.

While he presses for the files, The Miami Herald found that at least two of the deals -- one in Miami and the other in Antigua -- provided cover for Stanford from regulators while he reaped millions from investors.

With the help of Greenberg lawyers, Stanford created a money pipeline between Miami and Antigua in 1998 that became a cornerstone of the banking empire.

With lawyer Carlos Loumiet negotiating with Florida regulators, Stanford set up a special trust office in downtown Miami that could move millions overseas without reporting anything to the government.

The unusual arrangement -- created over the objections of Florida's chief banking lawyer -- let Stanford open the office without submitting to fraud checks or money-laundering requirements.

Over the next decade, the Miami center sold millions in Stanford's key investments -- certificates of deposit -- the checks stuffed in pouches and sent in jets to Antigua.

The Miami office became ``the locomotive that pulled the train,'' said Steven Riger, a vice president at Stanford's Miami brokerage.

While the Miami office was the generator, Antigua was the recipient.

But as the Miami office was being created, a series of scandals on the island forced Stanford to call on his lawyers to help change the island's banking system -- and keep the pipeline alive.

The U.S. Treasury was considering blacklisting all offshore institutions in Antigua -- cutting off access to U.S. currency -- because of money laundering and fraud.

With his fortune at risk, Stanford waged an expensive effort to fight back. The banker met with Prime Minister Lester Bird and agreed to personally pay for a task force to rewrite the banking laws.

The task force, which included Loumiet, met in Miami and Antigua's capital to look for ways to avert a shutdown of the banks.

Also on the panel: Greenberg lawyer Patrick O'Brien, a former Miami U.S. Customs chief who had led major drug crackdowns; and Lloyd Harrell, a former FBI agent from Texas. Another lawyer, Yolanda Suarez, had left Greenberg Traurig to become Stanford's legal counsel.

``The intention was to make the regulator independent of the government,'' said Lebrecht Hesse, an Antiguan official who helped draft the laws.

But the 1998 legislation ushered in a new regulatory agency -- with Stanford on the board -- in a move that gave Stanford sweeping protection from regulators for the next 10 years.

``Stanford effectively became the man who controlled the regulator,'' said Rodney Gallagher, a former member of the British High Commission in Barbados who investigated Stanford for money laundering.

One incident highlighted the power Stanford gained in Antigua owning the largest bank.

The new agency demanded all the island's secret offshore banking records, including those belonging to Stanford's competitors. But head regulator Althea Crick refused to turn them over.

What followed was an event that shook the island's politics and infuriated U.S. agents.

Harrell, O'Brien and others pulled up to the two-story government building that held the records and seized the filing cabinets after Crick left for the day, hauling them to another building, Harrell said.

Harrell, 70, said the takeover in February 1999 was approved by the new regulatory board, including Errol Cort, an advisor to Prime Minister Bird.

``It was of no benefit to Stanford,'' he said. ``It was not done under the cover of darkness. We needed those files on a daily basis.''

However, records show Cort was a director of Stanford Trust Company and one of Stanford's Antiguan lawyers. He did not respond to repeated interview requests. O'Brien, also a board member of the new agency, declined to be interviewed.

U.S. agents condemned the seizure, saying Stanford orchestrated the event for himself.

``It was outrageous,'' said Jonathan Winer, former deputy assistant Secretary of State for International Narcotics and Law Enforcement Affairs.

Winer said he had warned members of the task force, including O'Brien and Cort, that the U.S. State Department considered Stanford to be playing a dangerous role.

``I said it was unacceptable what they were doing,'' he said. ``That was no clean-up of the laws, not when you have a private-sector person paying for it. I didn't care about the details; it was all dirty.''

In addition, Stanford -- who surrendered his banking license in Montserrat years earlier during a crackdown on money laundering -- had been the focus of recent investigations by British and FBI agents.

U.S. authorities struck back, condemning the records seizure and saying key provisions in the legislation weakened efforts to fight money laundering.

In April 1999, the U.S. Treasury fired off a rare warning to American banks, blasting Stanford's new role in the island's banking system.

``The Authority's board of directors includes representatives of the very institutions the Authority is supposed to regulate, thus raising serious concerns that those representatives are in fact in control,'' said William Baity, director of the U.S. Treasury's Financial Crimes Enforcement Network.

Baity also said the new legislation banned whistleblowers from going outside the regulatory system, a blow to law enforcement agents. British authorities followed suit with a similar warning days later.

As a compromise, Stanford stepped down from his position, and Antigua officials agreed to change the laws crafted by the task force. A year later, the island's banks were taken off the U.S. Treasury's trouble list.

But the momentum was in motion to help Stanford's bank for years to follow.

With the new regulatory agency enforcing new banking rules, most of the 56 offshore banks on the island were eliminated, swatting away much of his competition.

Harrell, the supervisor of banking, said the effort successfully ejected crooked Russian banks that were giving the offshore sector a bad name. He also credited O'Brien for drawing on law enforcement experience in investigating the problem banks.

``Nobody gives [Stanford] credit for what was trying to be done at the time,'' said Harrell. ``What we were trying to do was create an offshore sector that was a regulated sector.''

However, court records show Stanford's own bank was fabricating financial reports the same time he was taking over the regulatory agency.

Chief financial officer James Davis told prosecutors in August he and Stanford began doctoring bank reports in 1999 to show phony returns.

COVER ON THE INSIDE

With millions pouring into his Antiguan bank, Stanford switched to a new law firm, Hunton & Williams, after Loumiet joined the firm in 2001. By then, the foundation of Stanford's bank network -- including the lucrative Miami-Antigua connection -- was already laid.

Regulator Crick, who opposed the seizure of the offshore banking records, was ousted, replaced by Stanford's ally Leroy King in 2002.

King forged a close relationship with Stanford, providing cover to the banker -- and taking thousands of dollars in bribes, say U.S. prosecutors. Over the next six years, King took more than $200,000 from Stanford to run interference and make sure no one got too close to the banker's investment portfolio, the indictment states.

To complete their bond, Stanford and King struck a blood oath, cutting their fingers and pressing the flesh together in a pledge to never reveal their secret, said Davis, the Stanford financial officer.

Now indicted in the case, King refused to discuss the charges when a Miami Herald reporter went to his home in Antigua two weeks ago. A dual U.S. and Antigua citizen, King is fighting extradition to the United States.

Prosectors want to talk to King about the alleged bribes and the inner workings of Stanford's bank, which remained secret from U.S. regulators.

One of the big challenges for federal agents has been tracing the millions that flowed from the U.S. to Antigua over the years, especially from the Miami office. More than $800 million was generated in Miami through 2007 -- with estimates reaching $1 billion by the time the operation was shut down by federal agents in February.

Ralph Janvey, the court receiver, has been working with federal agents but is now pushing for more information directly from Stanford lawyers.

Loumiet and his firm have agreed to hand over records of legal work for Stanford's U.S. companies, but are fighting to keep details of Stanford's ventures in Antigua and other foreign countries confidential.

``There are legal issues regarding jurisdiction and client privilege that must be resolved before we proceed further,'' said Eleanor Kerlow, a spokeswoman for Hunton & Williams.

Judge David Godbey in Houston is expected to decide whether the firm must meet the receiver's demands.

Kristie Blumenschein, an attorney with the receiver's firm, said they are prepared to fight for the records.

Beyond searching for assets, Blumenschein said the receiver will be reviewing the actions of the lawyers dating to the 1990s. She would not elaborate, but experts said they expect Janvey to aggressively investigate any damage by lawyers in Antigua.

Thomas Tew, a Miami attorney and receiver in major fraud cases, said Janvey can also demand the lawyers be forced to testify about what they knew.

He said any conversations they had with Stanford about his ongoing crises are open to review, and not protected by attorney-client privilege.

``Those are what we call the keys to the kingdom, because so often they are the most candid conversations,'' Tew said. ``You want to understand and see what happened . . . that's why this is such a hot-button issue.''

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