According to a press release dated February 20, 2009, a class action has been commenced on behalf of purchasers of Stanford International Bank Ltd. (“SIB”) certificates of deposit (“CDs”) or shares in SIB’s Stanford Allocation Strategy proprietary mutual fund wrap program (“SAS”).
Specifically, the complaint charges SIB, its affiliated investment advisors and certain of its officers and directors with violations of the Securities Exchange Act of 1934. SIB is a private international bank domiciled in St. John’s, Antigua, West Indies.
The complaint alleges that during the Class Period, SIB and its affiliated investment advisors, Stanford Group Company (“SGC”) and Stanford Capital
Management, LLC (“SCM”), fraudulently peddled CDs that promised rates of return far above those available from other banks. Defendants claimed that these superior returns were possible because SIB invested its deposits rather than loaning them. To ensure that depositors could redeem their CDs, defendants assured them that SIB’s investments were liquid and diversified. In fact, nearly 80% of SIB’s investments were concentrated in just two high-risk, illiquid categories: private equity and real estate. Now that the real estate and private equity markets are in free fall, many of those who purchased SIB’s CDs have recently been informed that they cannot redeem them.
The complaint also alleges that defendants misled investors in SIB’s SAS program. Specifically, defendants picked a handful of mutual funds that had performed extremely well in 1999-2004 and claimed the returns of those high-performing funds as the historical returns of the SAS program. Defendants also inflated the claimed returns of the SAS program in 2006 and 2007. Investors, misled by defendants’ claims of historic returns, have fared very poorly in the SAS program.
In addition, according to the complaint, when investors became concerned that SIB might have invested in Bernard Madoff’s $50 billion Ponzi scheme, SIB sent them each a letter unequivocally stating that “Stanford International Bank did not have any exposure to the Madoff Fund.” Just two days before this letter was sent, an SIB analyst informed all three of the individual defendants, including R. Allen Stanford (“Stanford”), that SIB had invested in Meridian, a New York-based hedge fund that used Tremont Partners as its asset manager. Tremont, in turn, had invested a portion of Meridian’s – and SIB’s – money with Madoff.
On February 16, 2009, the SEC filed a complaint against SIB, SGC, and SCM, as well as against defendants Stanford, James M. Davis and Laura Pendergest-Holt, accusing them of participating in a “massive, ongoing fraud.” According to press reports, the FBI has also begun an investigation. Since then, there has been a “run” on SIB, with investors flying to Antigua from all over the world to try to recover their money. In the meantime, authorities were forced to conduct a manhunt for defendant Stanford before he was finally tracked down in Virginia.
On March 9, 2009, the defendants filed a motion to abate. On March 10, 2009, Judge Keith P. Ellison granted the motion to abate. According to the Order, the commencement and continuation of this case is abated until Plaintiffs are granted leave to proceed in this Court by the Honorable David Godbey of the Northern District of Texas.
On September 1, 2009, the plaintiff filed a notice of dismissal. According to the notice, pursuant to Rule 41(a)(1) of the Federal Rules of Civil Procedure, hereby voluntarily dismisses this action without prejudice. On September 17, 2009, the Order of Dismissal was signed by Judge Keith P. Ellison.
The case is continuing in a related action filed in the Southern District of Texas, titled James O. Kyle, et al. v. Stanford International Bank, Ltd., et al., case number 09-CV-00525. On November 10, 2009, this case was included in MDL Docket No. 2099, In Re: Stanford Entities Securities Litigation, in the Northern District of Texas. On November 13, 2009, the case was transferred to the U.S. District Court for the Northern District of Texas.