My column in the FT this week is on Sir Allen Stanford:
There are various similarities between Bernard Madoff and Sir Allen Stanford, the “flamboyant Texan billionaire” – never a reassuring combination – accused by the US Securities and Exchange Commission of an $8bn fraud at his Antigua bank.
One is that Sir Allen, who denies wrong-doing but refused to co-operate with a Securities and Exchange Commission inquiry, made oddly steady investment returns at Stanford International Bank. In 1995 and 1996, he achieved the remarkable – in fact, near-impossible – coup of identical 15.71 per cent returns.
During the same years, Fairfield Sentry, one of Mr Madoff’s main “feeder funds”, declared investment returns of 12.04 and 12.08 per cent respectively, which was shockingly volatile by comparison.
A second is that SIB, like Mr Madoff’s advisory business, was a strange hybrid. Mr Madoff was in effect running a hedge fund but did not charge hedge fund fees. SIB was not really a bank, for it took in deposits but did not make loans.
A third is that both were audited by tiny firms, rather than big accounting practices. Mr Madoff’s auditor was Friehling & Horowitz, a three-person outfit, while SIB’s accounts were handled by CAS Hewlett & Co, an Antiguan accounting firm.
The fourth similarity strikes me, however, as just as significant: both Bernard L. Madoff Investment Securities and the Stanford Financial Group, SIB’s parent, bear the names of their proprietors.
That matters because it signifies something else – the degree to which both were dominated by one person. When a single figure not only controls a financial institution but embodies it, investors should be wary.
You can read the rest here and comment below.
