WASHINGTON - FOR years, there were red flags - so many they could have massed into a crimson blanket.
As with the Bernard Madoff case, the scandal surrounding billionaire R. Allen Stanford now seems clear and obvious in hindsight. Yet Stanford managed to run his alleged scheme while the Securities and Exchange Commission and other regulators stood by, well after he arose on their radar screens.
From his tiny accounting firm's office near a North London fish-and-chips shop to certificates of deposit promising outsized returns sold by a bank in Antigua, ample warning signs over the years suggested Stanford's business wasn't what it seemed.
# A finding by regulators in June 2007 that Stanford's company lacked enough capital to function properly as a securities brokerage firm. The company paid US$20,000 to settle charges by the National Association of Securities Dealers without admitting or denying them.
# Stanford's businesses were inspected and investigated several times, starting in 2006 by the SEC and in 2004 by the NASD, the brokerage industry's self-policing group, now called the Financial Industry Regulatory Authority, or FINRA. NASD's scrutiny resulted in several disciplinary actions: the regulator fined his brokerage company four times, with penalties totalling US$70,000 (S$107,000), for violations that included misleading investors in sales materials about the risks of the CDs.
# A 2006 lawsuit by a former employee alleging that Stanford's company ran a pyramid scheme. Two other ex-employees asserted in a suit in January 2008 that Stanford's Antigua bank, Stanford International Bank Ltd, sold CDs based on inflated returns and had destroyed documents.
# A board of directors that included Stanford's father, his college roommate and a family friend who remained on the board years after suffering a debilitating stroke.
# The Antigua-based accounting firm that audited the offshore bank was tiny and little known.
# A 1999 Treasury Department advisory that warned US banks to scrutinise transactions involving Antigua. It said a new regulator in Antigua was essentially a captive of offshore banks it was meant to supervise. (The advisory was lifted in 2001.)
Last week, the SEC accused Stanford in a civil lawsuit of a 'massive' fraud. It said he peddled sham promises and funneled investors' money into real estate and other assets not easily turned into cash. FBI agents in Houston are running a parallel investigation.
Stanford, who was served legal papers by FBI agents last week, hasn't been charged with any crime.
Coming after the Madoff scandal, the case of another politically connected financier accused of a global fraud has deepened doubts about the SEC's oversight of such cases. -- AP