The state Capitol was packed in October for testimonies of four victims and two former brokers involved in the Stanford Financial Group fraud scheme. The hearing was organized by the Secretary of State, and a report has since been released with recommendations on further fraud prevention.
Mississippians had a total of about $391 million invested with three Stanford offices in Jackson, Columbus and Tupelo, with about $33 million of that money invested in CDs, according to a February report from the Secretary of State’s Office.
The U.S. Securities and Exchange Commission charged Texas billionaire R. Allen Stanford and some of his top executives in February with running a $7-billion Ponzi scheme. Stanford has pleaded not guilty and is jailed Texas.
Stanford’s group deceived more than 20,000 investors by promising inflated returns on CDs at Stanford International Bank on the Caribbean island of Antigua.
The hearing was moderated by a panel comprising Trey Grayson, president of the National Association of Secretaries of State (NASS), Mississippi Secretary of State Delbert Hosemann and Nevada Secretary of State Ross Miller.
On Dec. 17, Grayson, Miller and Hosemann released their report containing recommendations for future fraud prevention that they hope to introduce at the 2010 NASS conference for the organization’s adoption.
“Members of the (NASS) are calling for stronger, more effective securities and investment regulation at the state level, as well as better coordination with federal regulators,” Grayson said in a statement.
The report calls for the Financial Industry Regulatory Authority (FINRA) to clarify and expand its jurisdiction to enable it to be more effective in detecting fraud and protecting investors. FINRA is fundamentally hampered by its lack of jurisdiction over investment advisory activities, and the agency need to prioritize fraud detection, update its technology and use third-party independent auditors, the report says.
Brookhaven resident Travis Bedsole, 63, testified at the hearing that he retired at age 60 and invested all of his and his wife’s retirement money with Stanford. In 2008, the Bedsoles took their broker’s advice and moved $385,000 into two CDs, which their broker assured them were all regulated by the federal government. Now all that is gone. Other stocks and bonds are frozen in the receivership.
Troy and Melanie Lillie of Maurice, La., attended the event. “We got robbed the day we retired,” Melanie Lillie said in a post-hearing interview.
Her husband worked for Exxon Mobil in Baton Rouge for 29 years before retiring and instantly investing his retirement funds with Stanford. They lost $902,000, she said, while their broker made more than $1 million selling fraudulent certificates of deposit.
Both officials and victims of the Stanford Financial scheme who testified focused on the failures of federal financial regulatory agencies and begged for state assistance in the retrieval of funds for destitute Americans. Participants implored the state to fight for Securities Investor Protection Corporation (SIPC) funds for victims in the worst circumstances. SIPC, created by Congress in 1970, guarantees up to $500,000 per investor in the event of a firm’s failure.
The SIPC is seeking out technicalities to hold funds that rightfully belong to Stanford victims, said Dr. John Wade, who testified on behalf of the Louisiana Stanford Victims Coalition, an organization representing 28,000 victims in 36 states.
Wade said Stanford targeted middle-income American’s retirement accounts, first encouraging them to invest in diverse stock portfolios and then advising them to transfer their funds to certificates of deposit at the offshore Stanford International Bank. Investors thought their funds were protected by SIPC and the Financial Industry Regulatory Authority (FINRA), Wade said.
The denial of coverage letter from SIPC is weak, said Hosemann, who was optimistic that victims might be able to retrieve some of their frozen funds if “public outrage” was great enough.
Smith was skeptical that adding state regulation would help to cure the problem. She recommended more education for investors so they can recognize what is in their best interest.
Sen. Thad Cochran (R-Miss.) and Sen. Roger Wicker (R-Miss.) have joined in introducing a Senate resolution aimed at preventing the government of Antigua and Barbuda from receiving financial aid if it continues to hinder efforts to recover billions lost in the Stanford Financial Group fraud scandal.
Despite the country’s continued refusal to cooperate in the Stanford investigation, the government of Antigua and Barbuda is currently seeking loans from the IMF and World Bank. The resolution expresses the sense of the Senate that the Secretary of the Treasury should direct the U.S. representatives to the IMF and World Bank to use their position to block these loans. Both the IMF and World Bank receive significant funding from the U.S. government.
Allen Stanford is known to have had close ties with the government of Antigua and Barbuda, and is alleged to have loaned that government at least $85 million, which presumably came from Stanford investor funds.
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