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Stanford accused of $8 billion fraud
BY A STAFF WRITER (Week of February 19, 2009)

While only a couple of residents of the barrier island appear to have been among the victims of Bernie Madoff, a number of beachside residents are following closely the allegations of “massive ongoing fraud” brought by the Securities and Exchange Commission against the Houston-based Stanford Financial Group, which opened an office last year on Beachland Boulevard.

The Stanford Group has been under investigation by the SEC, the U.S. Financial Industry Regulatory Authority, and the Florida Office of Financial Regulation, and on Tuesday, about 40 law enforcement officers raided the Stanford Group’s Houston headquarters.

The SEC accused CEO R. Allen Stanford of misrepresenting the safety and liquidity of certificates of deposit issued by it’s the Stanford Group’s Antigua-based affiliate, Stanford International Bank Ltd. These CDs, which were aggressively marketed through Sanford Group offices, paid consistent, far-above-average returns.

The returns on these CDs were between 10.3 percent and 15.1 percent every year from 1995 until last year, according to documents on the bank’s website.

In a complaint filed in federal court in Dallas, the S.E.C. said it could not account for the $8 billion in assets that were housed in the Antigua bank on behalf of the Stanford Group’s 30,000 clients.

“As we allege in our complaint, Stanford and the close circle of family and friends with whom he runs his businesses perpetrated a massive fraud based on false promises and fabricated historical return data to prey on investors,” said Linda Chatman Thomsen, director of the SEC’s division of enforcement, in a statement.

For the past week, the financial news wires have been abuzz with questions over how Stanford could offer such high returns on CDs by investing in stocks, real estate, hedge funds, and precious metals, many of which have lost considerable value in recent months.

Financial advisers in the Stanford Group’s offices around the country were encouraged to steer clients’ money into these offshore CDs, according to the press reports, paying them a 1 percent bonus commission and offering prizes including trips and cash for the best producers.

Investigators from FINRA visited six Stanford Group offices last month, downloaded information from computer hard drives and looked through files, according to the press reports. In addition to its relatively small Vero Beach office, the Stanford Group has large Florida offices in Miami and Boca Raton, as well as a small office in Longboat Key.

Our efforts to determine whether a number of Vero beachside residents have been sold high-yield Stanford CDs have produced little information.

On Monday, Melissa Weaver, a senior vice president in the Vero Beach office, told us that inquiries would have to be directed to managing directors Russell O’Brien or John Orcutt.

But on Tuesday, the person answering the phone in the Beachland office would not connect us to either O’Brien or Orcutt, and instead directed us to company spokesman Brian Bertsch, who is based in New York.

Bertsch would not say whether any of the Antigua bank’s high-yield CDs had been sold to clients in Vero Beach. "The identity of our clients is confidential," he said.

In an ominous new development in this story, the Wall Street Journal reported on Tuesday that depositors from as far away as Colombia have begun arriving in Antigua seeking to withdraw their money from the Stanford International Bank.

The paper said depositors and attorneys told its reporter they had been informed that redemption of CDs could take several days.

The chief financial officer at Stanford International Bank, James M. Davis, declined comment when asked by the Journal on Monday afternoon whether investors were having difficulty obtaining redemptions.

Bloomberg News, meanwhile, reported on Tuesday that the bank has placed a 60-day moratorium on early redemptions of its certificates of deposit.

R. Allen Stanford, head of the Stanford Financial Group and the bank who a week ago pledged to “fight with every breath to continue to uphold our good name,” has made no public statements since.

Bertsch on Monday declined to discuss the whereabouts of the Texas billionaire, who lives in St. Croix in the U.S. Virgin Islands, or say whether he would respond to depositors' concerns about their investments.

Stanford had told employees in a conference call a week ago that there would be a temporary moratorium of two months on early redemptions for CDs, the Wall Street Journal said. If you are a Stanford client and would like to share any information you have been given about redeeming Stanford CDs with us on a totally confidential basis, please email or call 559-4187.