Florida banking agency helped Stanford set up unregulated office to sell his CDs

RAS indicted July 5, 2009

Florida regulators - over objections by the state's top banking lawyer - gave sweeping powers to banker Allen Stanford, accused of swindling investors of $7 billion.

Years before his banking empire was shut down in a massive fraud case, Allen Stanford swept into Florida with a bold plan: entice Latin Americans to pour millions into his ventures - in secrecy.

From a bayfront office in Miami in 1998, he planned to sell investments to customers and send their money to Antigua.

But to pull it off, he needed unprecedented help from an unlikely ally: The state of Florida would have to grant him the right to move vast amounts of money offshore - without reporting a penny to regulators; And he got it.

Over objections by the state's chief banking lawyer - including concerns that Stanford was laundering money - regulators granted sweeping powers never given to a private company.
Indicted financier R. Allen Stanford, accused of leading a $7 billion investment fraud scheme.
The new company was also allowed to sell hundreds of millions in bank notes without allowing regulators to check for fraud.

Over the next decade, the Miami office was among Stanford's busiest in the sale of controversial investments now at the heart of the federal government's sweeping fraud case against Stanford and his lieutenants.

"There was no lawful way that office should have been opened," said Richard Donelan, the state's chief banking counsel who opposed the deal.

Donelan said he argued that the Stanford plan violated state law, and that there were concerns about money laundering in the Caribbean and "whether Stanford's bank was in conformance with the law."

Represented by a powerful Florida law firm, Stanford got approval to create the first company of its kind: a foreign trust office that could bypass regulators, according to records obtained by The Miami Herald.

The Florida banking director who signed the agreement, Art Simon, now admits he made a mistake.

"Upon reflection, would I have liked to have done it differently? Would I have liked to stop them from doing what they currently did? Yes, of course."

The state's decision allowed Stanford to expand his banking network by offering his prize investments - certificates of deposit - without reporting the purchases, according to state and court records.

In the first six years, the office - known as Stanford Fiduciary Investor Services - took in $600 million from customers, state records show. At least 2,100 customer accounts were set up at the Miami office in the first six years, state records show.
Art Simon, the Florida banking director who signed the agreement.
Unlike other Stanford companies around the country, the Miami office was exempt from reporting the amounts of money sent overseas - bypassing anti-laundering laws. In fact, employees shredded records of the trust agreements and CD purchases once the original documents were sent to Antigua, state records show.


Officials for the Florida Office of Financial Regulation are now reviewing the decision made a decade ago, but they refuse to comment.

"All I can tell you is that there was no one that specifically regulated the office," said Linda Charity, director of the state's Division of Financial Institutions.

Simon, the Florida banking director who approved the agreement, says he should have banned the office from handling money.

"It raised serious questions in my mind after the fact as to whether we should have had tighter provisions," said Simon, a former state representative who helped draft much of Florida's modern banking legislation.

The office was only supposed to provide information for people interested in the offshore trust's services - not offer CDs and accept money, he said.

But in clear language, the agreement reached between Stanford and state regulators allows money to flow to and from the center.

Several lawyers who reviewed the documents for The Herald said much of the responsibility rests with Simon. "In this case, he was responsible for having an effective system of enforcement," said Jeffrey Sonn, a Fort Lauderdale securities attorney. "The state didn't do the kind of reviews it needed to do."


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