FBI arrest stops play for would-be king of cricket

SIR Allen Stanford, the flamboyant Texan who set himself up as the sugar daddy of cricket, was sifting through the ruins of his financial empire today after US financial authorities accused him of an $8 billion fraud. He was arrested by FBI agents in a raid on the Houston headquarters of his company which claimed to control assets of more than $50 billion across the world.

But investigators believe Stanford International has less than $150 million under management and investments made by tens of thousands of depositors may be lost. He was charged with fraud in a Dallas court yesterday and was reported to be helping officials unravel the complex network of companies and transactions that made up his much-vaunted banking group.

It was a spectacular fall for the man whose goldleaf-trimmed helicopter landed at Lord's last summer in a brash display of wealth. He disembarked with aides bearing a see-through coffer filled with $20million in bank notes. The cash was borne across the hallowed turf to show the game's custodians that Sir Allen meant business when he talked about a new, big-money future for cricket.

The gesture instantly identified him as a man who likes to make a statement and the impression was reinforced when his inaugural Twenty20 match was played in the Caribbean. A grinning Sir Allen was photographed in the stands cavorting with players' wives, one of whom bounced on his lap.

Sir Allen (more about the knighthood later) seemed to revel in the attention. Now, his impressive PR machine, which was running on overdrive, has gone mute. The 58-year-old who boasted that his business had a proud 70-year history finds himself grouped with Bernie Madoff, the New York financier whose investment business turned out to be a $50 billion Ponzi scam, where depositors are paid returns based on money provided by new victims.

Perhaps the most shocking element of the Stanford scandal is that it comes as no surprise at all to some people. One is Alex Dalmady, a Florida-based financial analyst, who many believe is Sir Allen's nemesis. Dalmady says he was asked by an old friend, last October, to look at the Stanford operation, including the investment bank. The friend had deposits in the bank and was becoming concerned. Dalmady wrote in a blog last week: "I went over to the bank's website. I was stunned. First, it looked so simple, so unsophisticated. The language used wasn't quite right."

Dalmady found Sir Allen's bank was paying 4.5 per cent return on certificates of deposit (CDs) while other banks were paying half this amount. He commented: "How could they pay those rates?" He produced a spreadsheet, called his friend who had invested with Stanford and gave him this advice: "Get your money out yesterday!"

When the Bernard Madoff $50billion scam broke, it was revealed that suspicions were first aroused because Madoff was offering far better returns than the industry average. As the Madoff investigation was launched, attention was concentrated on a number of institutions paying yields far above the perceived market rates. Stanford was one of them. The Securities Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) launched a deep scrutiny of Sir Allen's company's books last summer.

Even as the investigators went in, Sir Allen described their actions as "routine" and went on with his plans for big-money cricket. He was, after all, one of America's great success stories. His grandfather, Lodis, founded a real estate business in Texas in the middle of the 1930s slump and managed to prosper. Sir Allen built on the family wealth with shrewd property deals, especially in the Caribbean.

This was to become the hub of his operation, with his Stanford International Bank based in St John's, Antigua. In 1999 the bank had $624million in deposits. Before his arrest, Sir Allen claimed the bank had deposits in excess of $8billion. He was estimated to be worth more than $2billion, according to Forbes magazine, and on Antigua he was treated like a revered native son.

He has invested heavily in the island's infrastructure and given generously to charities, including those providing much-needed healthcare and education. He boasted that he had been knighted by the Earl of Wessex but after discreet intervention from Buckingham Palace a reference to this was removed from his website. In fact, he was knighted by the Antiguan government, whose members he assiduously courted. The Earl of Wessex was present at the ceremony.

The Caribbean is where Sir Allen first encountered cricket. He is not a great fan and found even one-day matches tedious but he saw a vast potential in short, three-hour games played by world superstars. This was the vision he took to Lord's, and the England and Wales Cricket Board (ECB) liked what it saw.

Last November an England team and a West Indies side played the first Twenty20 match at the stadium Sir Allen built on Antigua. The prize was $20million, with $1million for every player in the winning team. England were routed by 10 wickets, crushed by a squad of Caribbean players dubbed Stanford's Superstars.

"We cherished the opportunity he gave us," one of the players, Sylvester Joseph, said of Sir Allen. "He is one of the best things that ever happened to West Indies cricket."

For brilliant young players, many of whom had bowled and batted their way out of poverty, Stanford was a demigod. Joseph's team-mates suddenly found themselves with a future they could hardly have dreamed of and they quickly embraced it, buying $30,000 Rolex watches, 4x4 cars and new houses. Some set up businesses. One founded a sports shop.

Sir Allen's reputation as a Caribbean hero was secure but clouds were beginning to gather. He was dismayed by the negative reaction to his cricket initiative. His slightly abandoned encounter with England players' wives (he is separated from his own, with whom he has six children) was misunderstood, he claimed.

As the blazer-and-tie brigade scorned his ideas, he scaled back a grand plan to invest $100million in the sport over five years. At the time of his arrest he had an £11.4million deal with the ECB, although that is now on hold.

Many senior figures in cricket deplored the ECB's dealings with Sir Allen, whom they believed to be an opportunist. The ECB is now likely to reap that whirlwind. One of the questions the board will be asked is why, with suspicions in the United States running high, it didn't do more due diligence before entering into a deal?

After the Madoff affair, any institution offering suspiciously high returns was worthy of harsh scrutiny, the ECB's critics might argue. It may be a difficult point to counter. Stanford's Certificates of Deposit, which required a minimum investment of £50,000, were offering 4.5 per cent on a one-year deposit. Most American banks offer half that. Last year, Stanford sold five-year CDs at a 7.03 per cent yield. The average available elsewhere was less than four per cent.

The shade of Madoff was also invoked when it emerged that Stanford's auditing firm was a tiny accounting company on Antigua. Madoff, it may be remembered, used an unknown, three-man operation to audit his own $50billion empire. Stanford's auditor is CAS Hewlett, whose principal, Charles Hewlett, a man in his late seventies, recently died. The business passed to his daughter, who lives in Enfield, north London. It appears the company that audited Sir Allen's $8 billion banking operation is now headquartered in a small flat off the North Circular.

In December, the bank reported a $110million loss and Sir Allen and his board, which includes his father James, a distinguished Texan mayor and local government adviser, responded by saying they had made a $541million cash injection. But was that money ever paid in? This is one of the matters the SEC investigators are now trying to clear up.

While Sir Allen was brushing aside anxieties over the intervention of the regulatory authorities last summer, another difficulty was unfolding in Texas. Two of his former employees, Charles Rawl and Mark Tidwell, told regulators they suspected Stanford was engaged in illegal practices related to selling CDs and other securities. The two men filed a lawsuit claiming they were forced to resign because of the company's actions, which, they alleged, included marketing CDs on over-optimistic terms.

"Although Rawl and Tidwell repeatedly asked the Stanford management to change Stanford's business practices, Stanford refused to cease its illegal activity," court papers state.

Sir Allen blamed Rawl and Tidwell for bringing in the regulators and described them as "former disgruntled employees". The case is still going through the courts. The facts were widely available but if the ECB members knew of them they appeared to have taken little notice. Indeed, Sir Allen had done a convincing job of persuading everyone that all was well. Even last week he was emailing staff to say nothing untoward was happening. "We will fight with every breath to continue to uphold our good name," he said.

Just hours before the FBI raided his Houston office, Sir Allen's spokesman, Brian Bertsch, told the Evening Standard that Stanford was complying with all the necessary regulatory obligations. "The SEC and FINRA have both stated to us that their visits are part of a routine examination," he said. "We have provided all the information they have requested."

What now for Sir Allen, the showman supreme? Surely a man who can dream up a stunt such as flying a crate of $50 bills into the spiritual home of cricket has a plan? If he has, he is keeping it to himself. Mr Bertsch expressed his regrets but Sir Allen would not be doing any interviews for the time being.