It really pains me to write this as I know some of the victims, but the destruction in Baton Rouge is only now becoming known. The Baton Rouge Business Report's Editor wrote today:
What we know right now is that the human toll is very real—and it’s being felt particularly hard in Baton Rouge, the city where Stanford’s investment division was born in the 1990s when a couple of former Merrill Lynch brokers hooked up, through a relative, with a Texas billionaire to form Stanford Group.
"How much local money is invested with the company isn’t known for certain. Area financial executives estimate between $200 million and $300 million is in the CDs under investigation and that Stanford’s entire Baton Rouge book is close to $1 billion. Moreover, they believe that Lafayette area investors have as much as $250 million in those CDs. The CD investments are probably gone, the best-case scenario being clients recovering 30 cents on the dollar. Think about it: roughly half-a-billion dollars has likely disappeared in an instant.
When the list of investors goes public—and it will—you’ll see a mix of the rich and [by B.R.’s standards] famous, as well as those folks Sarah Palin likes to call Joe Six-Packs, those working-class people who trusted Stanford Group to make the most of their hard-earned retirement savings. In a one-degree-of-separation city like Baton Rouge, I’ll bet Les Miles’ salary [assuming he’s willing to give it up] that you know at least one person on the list..." J.R. Ball Editorial
Sufficeth to say, several hundred million dollars disappearing suddenly from the Baton Rouge economy is huge. It won't surprise me at all if businesses and foundations collapse. My understanding is there are also some attorneys with something to worry about, as they steered their clients to Stanford.
Over on Tigerdroppings.com, the following comments were made:
"Meauxjueaux: 'These are not good hard working people getting wiped out. They are people who play the same get-something-for-nothing, get-monster-returns-with-no-risk game that the big boys do. They are just playing with smaller decks. Joe Sixpack owns just as much blame in all this mess as everyone else. I know these people. For the last 10 years I've heard everyone gush at cocktail parties about their "killer investments" and their "awesome flips" and their condos paid for by beach renters. Very few of the people I heard these stories from were actually of sound mind and reasonable investment strategy. Most were arrogant boasters."
"Tigerdog83: It's shocking to me that more people didn't see problems with this years ago. 8.25% returns on CD's from a bank in Antigua?"
"Bilj:dad had a friend try and reel him into this. Guaranteed an 11% return....as long as you leave your money in. stayed the fuck away from that"
"Tigerbaitn08: This guy (Referring to a bank CEO who supposedly gave him this info) knows what he talking about so I believe him, BTW, he specifically said $100M out of River Ranch and $800M out of BR as a whole."
"Camp Randall:I don't believe him. No way there is that much BR money in it. There's a lot but not 800 million. Edit: Nevermind. It is possible....at least 25 FAs in BR and the books are prob 50-600 million each. Yikes."
"Tigerdog83:I don't know. There are more LA people involved in this than you would think at first. I've already heard of one case for $4M in Shreveport. Multiply that times a couple thousand people and it might not be too hard to come to that amount."
"Venicetiger: I KNOW OF TWO PEOPLE AND $3.2 MILLION."
"Mr. LSU: I understand the amount is much larger than the $800 million in BR, I'm hearing it is much closer to 1.7 billion in the BR region. Included in that number are some of the wealthiest individuals in BR who tied up their entire investments with Stanford--one individual in particular had her entire fortune tied up, another individual lost over $23 million, and I know of a third who lost everything. All those names are names who are the upper crust of BR. A couple of attorneys said that they were worried that their clients businesses were going to fold because of the massive wealth loss they took and that one person was worried that over one hundred of their employees were going to be let go very soon. Also heard that several BR law firms invested their clients' settlement funds in those CDs."
When asked how law firms were investing client's money, Mr. LSU replied "Structured Settlement proceeds". He further states:
"Hossana is going to have some real problems because Jason Green was one of the major supporters of that Church and on the Board. The CDs were not insured by the US government. One of the wealthiest individuals in that of Louisiana was a victim in this thing and I understand she has lost almost everything. Also hearing a major B.R. developer was a victim. The victims in BR will be emerging over the next few weeks as the lawsuits start hitting federal court."
"Tigerbatin08: Check that!! I reconfirmed it today as I met with the CEO and Pres of Bank in Laffy, $100M in Laffy and $800M in BR so far and those figures are sure to increase."
Friday, February 20, 2009
Stanford: The Carnage Continues
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Some local physician groups have (had) money with them. Is there no where but in a mason jar that money is safe anymore?
That is what Karl Denninger has been saying for awhile now.
The non-U.S. CD's are not insured, but Stanford's other holdings won't be involved (unless additional fraud is uncovered). Mutual funds are held through the custodians. Bonds and other investments are also OK. The freeze of everything should let up soon, so all but the CD's can return to normal, under the receiver. Therefore, everyone's ACH payments and monthly retirement checks should resume within a few days.
I know but two things.
1. Apparently more than a few put way too much of their holdings in these cds.
2. The freeze has probably impacted the financial situations of several individuals in a substantial way as they suddenly don't have capital to operate.
Keyword:substantial
From WSJ yesterday:
In 2007, Stanford Group Co. signed on as official sponsor of Louisiana State University's cheerleading squad, one of many company efforts through the years to solidify ties to this south Louisiana community. Today, there are few cheers for the firm at the center of an alleged $8 billion investment fraud.
The seizure of three of Stanford Financial Group's companies and the freezing of most clients' assets by a federal judge on Monday are threatening the financial security of some local Exxon Mobil Corp. retirees who were actively courted by the firm through the years.
The action also has local professionals trying to access their certificates of deposit from a Caribbean island few of them have visited, and it promises to shrink the flow of philanthropic dollars into local charities that have come to regard Stanford Group as a reliable donor.
"We are definitely going to feel their loss," says Ron Ross, interim executive director at the Baton Rouge Symphony Orchestra. "For years, Stanford has been a significant source of sponsorship dollars, and that's a significant loss for a small nonprofit like the symphony."
Mr. Ross and his staff have tried unsuccessfully to contact Stanford in recent days because the firm still owes $30,000 that it pledged to sponsor a black-tie gala last month before a concert with jazz trumpeter Chris Botti. The symphony is concerned that, if Stanford doesn't pay, it will have to ask donors to dig deeper into their pockets to cover the cost or explore other options.
An attempt to get comment from Jason Green, president of Stanford's Private Client Group in Baton Rouge, was unsuccessful. A woman answering a phone call to his home said, "You know we can't talk about that." Stanford's Baton Rouge office wasn't open earlier this week; a woman answering the door said, "We are not allowed to talk."
On Friday, bank regulators in Antigua and Barbuda seized control of Stanford Financial Group's offshore banking operations. The twin-island nation's Financial Services Regulatory Commission said the move affects Stanford International Bank and Stanford Trust Co., and it appointed two receivers to manage these two units of Texas businessman R. Allen Stanford's financial empire.
Separately, the Eastern Caribbean Central Bank said five commercial banks in the Eastern Caribbean, together with the Antiguan government, are establishing a new entity that by Monday will take over operations of the local Bank of Antigua, also controlled by Mr. Stanford; its statement didn't say what will happen to the depositors' money.
Also Friday, the court-appointed receiver for Stanford Financial Group issued a statement telling Stanford customers that they won't be allowed to access their accounts or transfer their funds "for the foreseeable future," until the receiver can verify that there aren't legal claims against the funds. The receiver halted the sales of all certificates of deposit by Stanford companies, as well as sales of the Stanford Allocation Strategy mutual fund.
In an unusual statement, the receiver urged politicians who received contributions from Stanford Financial executives to return the money, a move that will likely spotlight Mr. Stanford's Beltway connections. Mr. Stanford, his company and its employees have contributed at least $2 million since 2000 to candidates, including key lawmakers.
One recipient, Sen. Bill Nelson (D., Fla.) said he had planned to donate an amount equal to $45,900 in campaign contributions associated with Stanford to a charity that provides clothing to poor people but is "seeking guidance on whether it can be returned to the Stanford company's court-appointed receiver."
A Stanford spokesman didn't respond to a request for comment; previously he has declined to comment.
The U.S. Securities and Exchange Commission on Tuesday filed civil charges in connection with the alleged fraud against the financier, and federal prosecutors are investigating if he was operating a Ponzi scheme, according to people familiar with the matter.
Stanford Group arrived in Baton Rouge in 1996, according to local press reports at the time, when the company opened its first satellite brokerage office outside Houston. By 2007, the firm had selected Baton Rouge as the hub for its national wealth-management operations. Its Stanford Trust and Stanford Group offices house about 25 employees and stretch across 10,000 square feet atop City Plaza, an eight-story building overlooking downtown and the Mississippi River.
Through the years, Stanford built a name among local investors who often viewed the firm as "upper tier," says 64-year-old retiree Barbara Demarest, who along with her husband, Fred, 66, had "a couple million, all of our money except about two months of living expenses, wrapped up in Stanford." Half of the couple's money is in Antiguan CDs; the other half is in cash and stocks held in Stanford's brokerage arm.
Like some of Stanford's Baton Rouge clients, Mr. Demarest is a retiree of Exxon. The energy giant operates along the Mississippi River one of the world's largest petrochemical plants, and its army of engineers, technicians and executives were attractive to Stanford's local advisers.
While many investment firms regularly ply Exxon workers with free lunch and dinner investment seminars, "the Stanford name just spreads by word-of-mouth [among workers] because so many are invested" with the firm, Mr. Demarest says. Mr. Demarest says he and his wife have been trying constantly in recent days to reach anyone at Stanford but haven't heard back.
An Exxon Mobil spokesman in Baton Rouge said "it's inappropriate to comment" on its workers and their personal investments.
Stanford also marketed to Baton Rouge's doctors and lawyers, some of whom say they steered colleagues to the usually high returns Stanford seemed to deliver on every monthly statement.
Dr. Stephen Wilson, 69, an orthopedic surgeon, has about $600,000 with Stanford, a third of it in an Antiguan CD. His Stanford broker moved him to the offshore account about four years ago, and though "that raised red flags," Dr. Wilson says, "it never entered my mind that Stanford might be crooked. I got the account statements every month, and you could see the interest -- 8% or 10% -- show up. I should have opened my eyes and thought, how can a bank make this kind of money when no one else can?"
Dr. Wilson says he got a tearful call on Friday from the Stanford broker, whom he has known for decades. The broker apologized and said he recently "knew the firm was in trouble, but he didn't know it was this bad," according to Dr. Wilson. The broker couldn't be reached for comment.
The city's nonprofit community also is feeling the fallout. As in many cities where it has offices, Stanford blanketed the local philanthropic scene with donations of time and money, though usually tied to events for which Stanford would get tickets that it could use to woo or reward clients, according to philanthropic executives.
The Community Fund for the Arts was one of Stanford Group's local beneficiaries. It got about $40,000 annually from the firm, or roughly 8% of the fund's annual $500,000 fund-raising effort, according to the Arts Council of Greater Baton Rouge. One likely loss: the Stanford Financial Excellence in the Arts awards. The pair of awards, for $25,000 and $10,000, respectively, was given out annually to local arts organizations that demonstrate exemplary abilities in fiscal management and financial oversight.
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