Money and manners: Stanford

Reporting last Thursday (19-February) on what promises to be a theft along the lines of fifty billion U.S. dollars, Justin Rood and Brian Ross of ABC News report:

Offshore banking experts say that the fraud charges this week against accused financial scammer R. Allen Stanford have been a long time coming.

Authorities claim billionaire investor R. Allen Stanford may rival Madoff.

“There’s no surprise at all,” said Washington lawyer and IRS consultant Jack Blum. “This man has been on law enforcement’s radar screen for the better part of 10 years.”

But the SEC didn’t move forward until this week …

Perhaps there was a rationale for the U.S. Securities and Exchange Commission not acting until last week, but a lot of investors lost their shirts (some, as Bina notes, deservedly ), and more would have been hurt had it not been for the real heroes in all this — Alex Dalmady and Otto Rock, of “Inca Kola News”.

It wasn’t the Securities and Exchange Commission, it wasn’t the United States Senate, it wasn’t the Treasury, the Attorney General or the mainstream media that discovered the fraud… it was a wonky Venezuelan financial blogger, double-checked by the pseudonymous Peruvian mining stock analyst (who tells everyone who asks about investments, “do your own due diligence, dude”) to realize the enormity of the disaster.

And disaster it was … had Alex and “Otto” not written what they did, more money would have been lost. Sure, I can understand Bina’s schaudenfreud at the thought of rich Venezuelan tax evaders screwing themselves, but – as Otto noted – “I’m already hearing stories about people with their life savings with Stanford that may have lost everything.” And, like it or not, those people who lost everything were usually employers. A lot of people who had nothing to do with Stanford, with avoid Venezuelan tax authorities, or anything else, are also screwed.

I would prefer to chalk it up to boorish provincialism, but the failure of most media outlets and officials in the United States (with the exception of Mick Weinstein of Yahoo Finance ) isn’t all that surprising. The U.S. ignores what happens outside its borders anyway. Even Weinstein only credited “bloggers”, leaving the impression that the Texas based scandal was uncovered by out-of-work U.S. journalists, not by Latin Americans.

Although some of the financial press has mentioned the extreme fallout in Venezuela (sort of hoping, it seems, that it will reflect badly on Hugo Chavez ), the only mention of Latin Americans in this whole mess seems to be in connection with allegations that Stanford was laundering money for some of the Mexican narcotics cartels (which wouldn’t surprise me in the least – I expect Citibank, and Bank of America, and HSBC and most investment houses have at least some “dirty” money floating around).

And, there was only the barest mention of Mexican investors for one good reason. Although, as Bloomberg’s Laurel Brubaker Calkins reported yesterday 

Two Mexican investors asked a U.S. judge for permission to sue R. Allen Stanford and his companies in Mexico after federal regulators accused the Texas financier of orchestrating an $8 billion fraud.

David Quintos and Diana Dimitiova told U.S. District Judge David Godbey in Dallas that they want to try to recover investment losses under Mexican securities laws. Mexico’s laws provide broader investor protections than U.S. laws, including the rights to sue for legal fees and “moral damages,” lawyer Randy Pulman said in a motion filed yesterday.

“It is hard to see how counsel for the government of the U.S. can simultaneously represent the interests of U.S. citizens and foreign nationals in this case,” Pulman wrote on behalf of the Mexican investors.

Please note the bold-face. Investors like Quintos and Dimitova invested in U.S. or Antiguan securities, which – if they were sold in Mexico – was in violation of the country’s securities laws . As it is, Guillermo Babatz, President of the Comisión Nacional Bancaria y de Valores (the Mexican Securities oversight agency), said the Commission has opened an investigation into whether or not Stanford offered these investments in Mexico, and whether they were sold through the Mexican subsidiary.

Forty percent of Mexican investors have demanded their money from Stanford Fondos. In theory, the Mexican bank should have the assets to meet its obligations.. But the fear among those investors, and among Mexicans like Quintos and Dimitova, is that their funds (even among saavy investors who were not misled into investing in U.S. or Antiguan securities) may have already been transferred (illegally, of course) to the other countries, both notoriously lax when it comes to oversight and regulatory discipline. And, of course, as Alex and Otto can tell you (though both are too modest and “buen educado” to bring it up), the investors rightly suspect Latin Americans are just not taken seriously in the world of finance. Or the law.