Archive for February 13th, 2009

Post 2 by Alex Dalmady: Confessions of a Reluctant Whistleblower Or how the Blogosphere took on Stanford

February 13, 2009

It started back in October when my long-lost friend Roberto (I’ll save his last name) called wanting me to help him with his portfolio. I said: “sure I’ll look it over”. He commented that he had a good chunk of his assets in CDs at Stanford International Bank.

I knew the Stanford name. I had heard mention of people holding CDs there. The rates were good. Assumed they could do that because as an offshore bank there was no taxes, no FDIC insurance and they could plow the money into T-bills and high-grade corporate paper and live off the spread.

But it was also mentioned in a murkier sense. People in the financial world have been questioning the deposit rates for quite a while. How could they pay those rates?

So when I went over to the bank’s web site, I was stunned. First, it looked so simple, so unsophisticated. The language used wasn’t quite right. I downloaded the financial statements and to my surprise the “business model” jumped out at me: investing in Stocks, Bonds, Hedge Funds and the like. That’s OK if you’re managing a fund, but not a bank, which is leveraging its balance sheet 15 or 20 to 1. Just a 5% drop in the portfolio, completely wipes out any equity.

“Roberto”, I said, “take your money out YESTERDAY”. He did, albeit slowly, but by December he was out. In the meantime, I found myself lured to the site over and over, my browser would wander to the SIBL and Stanford Financial site and I was googling the words “Stanford International Bank Antigua” over and over.

I saw that the SEC had been investigating since July. “How could these guys not be found out by now?” ANY trained pair of eyes looks at that audited report and says “whoa”.

Then the Madoff case blew, and it became obvious. No one was looking at stuff like this. The SEC had its head up its butt. So I dug deeper and put some numbers on a spreadsheet (took me about 30 minutes). It just got worse. Where was the portfolio? What were they invested in? 20%+ returns on their hedge funds? No way. Outperforming the S&P in stocks? No way. With 30% deposit growth (i.e. money constantly coming in)? No way.

I sat down and wrote “Duck Tales” in January. I showed it to my wife, who didn’t like it much, but was more afraid of my naming names. She didn’t want to see me gunned down by the Jamaican mob or something. A banker friend read it and said, “I agree, but if I were you, I wouldn’t publish that”.

So I sent it to Robert (Toby) Bottome, long time friend and ex-partner at Veneconomy. He said “I love it and just in time for our January issue”. “Do you want to sign it or should we just put Veneconomy Editors” “I’ll sign it”, I said.

There was the question. Why me? Putting my name out there in the firing line. It’s scary. I didn’t want a repeat of my Mercantil experience (nothing really happened) and I certainly didn’t want to get sued. However, it was probably the best. I had nothing at stake. I wasn’t a disgruntled employee, I wasn’t looking for business, I wasn’t plugging my website…heck, Toby didn’t even pay me for the article (LOL). I haven’t written for years, after my InvestAnalysis newsletter with some a little Veneconomy on the side and a brief foray online. Still, people in the financial sector in Venezuela remembered me and I had a ton of credibility with those who remembered. Toby, for his part, is an INSTITUTION in Venezuela and doesn’t take crap from anyone, not even Chávez.

Off it went. It took awhile to get the magazine out. Production problems, it seems. So it is with print. In the meantime I caught wind of blog raising some red flags about SIB also. A start-up called venepiramides, run by someone who calls himself Bernardo Madoff (LOL). It was good to see I wasn’t alone and at least had an “imaginary” friend.

But there is also a sense of confidence from something that is solid, on paper and can’t change with a click. I sent an electronic copy to family and a few friends. I was expecting some kind of reaction or outroar from Venezuela. The article was reproduced in Descifrado, a local financial “insider” weekly, and the audience grew.

All along, the feedback was the same; nobody questioned my conclusions or asked but what if? The whole thing just made too much sense.

I really don’t know how things played out in Caracas, but I know the article got around. However, the local press didn’t pick up on it. I presume that more than one “investor” made their way to Stanford’s offices to ask for their money back.

The Duck enters the Blogosphere

While the “The Duck” took flight in Caracas, it really exploded once it hit the blogs. Miguel Octavio’s “Devil Excrement” took up the story on Monday the 9th as did Caracas Gringo. Miguel, of course, is a financial veteran, (ex-kooky scientist, like me) so he understood the gist and the details of the article all too well. He came up with some more evidence of trouble in a company named Elandia, where SIBL had to give up control in exchange for not having been able to fund a $28 million dollar loan commitment.

Miguel’s blog entry was quickly picked up by Inca Kola News, a really fine Latin American blog with a sarcastic twist to it. What I liked about the way Miguel and Inca’s takes was that they said: “Here’s this, look at Alex’s report and look at Stanford’s information…decide”

Both blogs get plenty of hits…here from Inca Kola:

“2) So far today this humble blog has had several visits from major newswires, three visits from the US Federal Reserve and one from the SEC, all using combos of “Alex Dalmady”, “Stanford”, “Madoff” etc as keyword entries*. Not to mention all those people from some island called Antigua and plenty from a company called “Stanford Eagle” in Houston. Hi guys, having a nice day?”

The first mainstream reporter to call was from Businessweek. He apparently was working on a Stanford article already, but more from the angle of the “bank excesses” to show how the bank was rewarding its advisors. Bloomberg was next. Also had been working on a story and had other sources.

The next day a couple of more mainstream US blogs picked up the story and things began to get interesting. Felix Salmon at portfolio.com did his homework, read the article and saw it pretty much the same way I (and everyone else) did. That put the mainstream media on alert as well as the arb traders in EMAG, who briefly crushed the stock (it incredibly bounced back).

What I enjoyed the most was a hilarious blog called “I’m Bernie Madoff”. It ran a spoof with Andy Madoff writing to his dad about the deposit they had in Antigua. They linked my article. “Andy” calls me a “another nutcase like that guy Markopolos”. The next day Sir Allen wrote back to Bernie that I was “more ornery than an porcupine in heat”. I’m still ROFL. Although humorous…the blog was dead-on with facts about SIBL.

That took us to Wednesday. The EMAG deal was supposed to close during the day, but before the open EMAG informed that HSSO was telling them that SIBL wouldn’t fund the deal. How can a bank with an $8 billion portfolio NOT find $62 million –twice! You call up your broker and tell them…send it. You don’t have sell a share (or bond). Eight billion worth of securities is a fine collateral. But we sort of expected that to happen. Previously, I even lurked at the EMAG yahoo message board and posted some links to the elandia deal to see if people would “get it” and not lose more money. It was useless; I was insulted off the place.

Clusterstock at businessinsider.com came out with a summary of Felix’s assessment and an unequivocal “Whistleblower Alleges $8 billion fraud at Sir Allen’s Offshore Bank”. Businessweek’s take was a bit lame asking if “Stanford Financial’s Offer was Too Good to be True?” without naming our report, me, Veneconomy or anything else. Our little write-up was only good enough to validate their previous report. I was disappointed (I used to read BW). They did offer me some props later, though. The calls were coming in now. Bloomberg, Reuters, Forbes. I was talking to everybody. Some of the reporters understood what I was talking about. Others might have been a bit out of place.

Bloomberg broke the story early Thursday. Well-documented, they even had another analyst back me up (or me backing the other analyst up either way, it’s good). It was obvious that the story was “in the works”. The Financial Times story on Alphaville was excellent also. The reporter had called me late Wednesday and you could tell she knew her stuff. As the “Caribbean” reporter she knew the political connections of the bank. I sent her my spreadsheet. Why not? It’s about as simple as can be. Like I tried to tell everyone, this isn’t rocket science…it’s COMMON SENSE. Apparently she was shuttled off to Antigua to follow up.

Stanford had no answer to this. Some spokesperson was saying stuff like “it’s only one analyst” or “our clients trust us”. Sure, but how about “Show me the money!” Nothing. Reporters had found me. Stanford had not. Better by me, frankly. Their best strategy is to obviously ignore the “obvious”. If they make too much noise, people will actually look…and that’s not good for Stanford.

I also received a somewhat disheartening call from David Marchant who runs offshorealert.com. He’s gone deep into Stanford for years and gave me the explanation of how Stanford lost his banking license in Montserrat. It’s obvious this guy has a lot of inside stuff. Why aren’t regulators talking to him and guys like him? But he also told me he had spent over $500,000 just to defend himself against crooked offshore bankers. Ouch. It must be hard to know all that stuff and not be able to say it.

As I write this the story gains traction. A reporter just called from the WSJ. I gave her every thing I had, including my dinky little spreadsheet. She has some Venezuelan roots and apparently knows Miguel and Toby, so there is a ton of credibility right there. Reuters called. They’re calling my home phone now…that’s a bit scary.

As this hits the mainstream media, it’s the in the hands of the lawyers. They can decide what goes and they don’t want to step on any toes. Have they been emboldened by the Madoff blowup or do they still want to go with the “official version” and let Stanford skirt the issues? We’ll see.

You have to wonder how deep the rabbit hole actually goes. I don’t know. There’s Stanford Financial Group and then there’s Stanford International Bank. I only know about the latter. How it relates to the former…not sure. Then there’s politics and philanthropy and cricket. This could go anywhere.

The guy from Reuters asked me if I was going to publish anything further. I don’t want to. I really think that inquisitive reporters and analysts from around the world can put two and two together and take it from here. I think I’ve done my part. But this little journal can help. I can get things off my chest and maybe gain some sympathy for the “little guy”.

I have an idea about how this SHOULD end. In my dreams, Stanford gives up and Jon Stewart invites me to the “Daily Show” (which my kids love) and then I can get back to my work. I have a ton of emails to answer and reports to write.  In my nightmares, I get dragged into court or the FBI shows up at MY door (understand the paranoia…I’m from Venezuela).

My friend just sent me Sir Allen’s letter to the bank’s clients. They are now retorting on Bloomberg.They appear ready to fight this. Money and plenty of influence against some good ol’ common sense. Not an even fight, I’d say and I wouldn’t expect these guys to fight clean.

But Stanford still hasn’t “shown the money” and that has to be the issue. How do you hide an $8 billion portfolio? How can you have an $8 billion portfolio and not enough liquidity for pre-determined deals/needs? Why can’t anyone answer this easy question?

I wonder what the SEC and the like are doing. It’s really hard for me to grasp that they have been at Stanford since July and haven’t come across those financial reports. Maybe they were building a case and just waiting for the right time to pounce. Hope so.

Great. Got that off my chest. Rant.

Post I From the Devil:The Stanford International Bank Story: The duck spreads its wings…abroad

February 13, 2009

On Monday I was chatting via email with Duck-Tale extraordinaire, whistle blower, Caracas and Florida-based analyst and it turns out regular visitor Alex Dalmady and was telling him how surprised I was at the little impact in Venezuela of his piece in the monthly Veneconomy on Stanford International Bank, despite the fact that it was reprinted practically in its entirety by Descifrado.

He noted that we all have a friend, relative or acquaintance who has or had an account in it and thus this may be limiting the spreading of the news. And while we were watching inside Venezuela, the whole thing exploded outside. That night I finally wrote my piece on it, not because I was delaying it, but simply because I finally had the time to write it!

And then the whole thing exploded, not here, but abroad. What I had probably not understood is that while the victims of SIB may be located mostly in Latin America and the Caribbean, the wounds and noise of Madoff have set off a race to find new Ponzi/Pyramids/Madoffs wherever they may be. Funny, when Venepiramides first appeared I thought the topic was somewhat narrow, maybe its owners now regret not doing it Enlish rather than in Spanish. They were on the right track and have kept up their great job, but the Venezuelan blogosphere has yet to catch on to the subject.

My post was noted by Inca Kola News (hey! I don’t hate Chavez, I just don’t want him as President!). Soon after a post appeared in portfolio.com written by Feliz Salmon, which was clearly noticed as Seeking Alpha picked it up and then Business Week and the ball started to roll (and then gave Alex and Veneconomy credit).

But in some sense, it did, because Alex Dalmady had a very specific prediction or smoking gun to watch in his Duck Tales article: SIB was supposed to provide financing to Health System Solutions to acquire Emageon by Feb. 11th. and it just failed to do so, suggesting that SIB was indeed having liquidity problems if it was unable to come up with the funds and incurr in a US$ 9 million loss. And SIB failed to do so, pushing Emageon shares down as much as 56% that day. I had earlier found a similar failure for SBI to deliver financing to Elandia, which cost SBI control over the company. That makes two separate smoking guns that liquidity is just not well a the US$ 8.5 billion institution.

By now, the duck is spreading its wings far and wide. Bloomberg broke the story concentrating on the sale of SIB’s CD’s in the US, clearly a no-no. Caracas Gringo interviewed Dalmady, the Financial Times jumped on the story loving the cricket angle, a New York Times blog got into the story and by now the  Associated Press is also into it. (Only Forbes and the WSJ are missing now…)

But still, what the hell is going on at the Duck?

So far, responses to the criticism have been surprising to say the least. “It is just one analysts opinion” simply does not fly well. And then tonight we get a letter (see comments, its veracity ahs been confirmed) from none other than Sir Allen to its employees, which to me raises more questions than answers:

” Although we have not been the beneficiary of any taxpayer money, hard as we try, we are not immune from that crisis”

Funny, all the accusations by Dalmady are based on the Antigua based Stanford International Bank, why should that entity get anything?

“You have heard that regulators from different agencies have visited our offices in recent weeks, as they have been doing to many financial operations around the country.”

Visits all over the country have a different purpose than looking into the sale of CD’s issued by Antigua-based Stanford International Bank to US citizens.

“SIB remains a strong institution, and even without the benefit of billions in US taxpayer’s dollars we are taking a number of decisive steps to reinforce our financial strength. We will take the necessary actions to protect our depositors. I have already added two capital infusions into the bank and we are considering a number of other steps as needed.”

Once again, why should SIB even aspire to receive US taxpayers dollars?

And then, if as reported in the December 17th. letter in its website, things were peachy and the bank had not incurred in any losses, why did SIB had to inject US$ half a billion in capital and “is considering a number of other steps are needed”?

There were very simple questions which were not answered in this letter, like: Where are the assets that generated the wonderful results SBI claims in a year when equities were down 4-0-50% across the world and the bank claimed to have started the year with a 50%-plus allocation to Equities? Why did the bank fail to provide financing to Emageon and Elandia? Are withdrawals being promptly met? Or even why did Sir Allen really withdraw his funding from the 20/20 cricket challenge in December?

But in the end, the strangest aspect of the whole story is that there is total silence in Venezuela. Nothing in the news in the country that gave SIB its initial push, with as much as US$ 3 billion in deposits from Venezuelans. Stanford even purchased a local bank “Stanford Bank” to give some semblance of legality to the sale of SIB products, which is a gray area in my country. Stanford’s reach is so wide, that I am sure that many of the new Boli-bourgeois, have accounts there, after all, it was probably the bank with local presence with the lowest compliance requirements in the market and the most aggressive sales force.

As I said, everyone in Venezuela either knows or is related to someone with money at SIB. In fact, I have been warning people I knew about this for years. And I must say, while some listened to me partially, not a single one of them withdrew all of its savings from SIB. Not one.

Finally, I find it somewhat hilarious that when I wrote about this on Monday, the Duck Tales or El Pato write ups were nowhere on the web, so I decided to post them  at my usual location (www.filesavr.com) where I load up documents that I can’t find on the web. Everyone seems to be unloading it from there…You truly never know where your blog will take things…

But as you can see from the next post, Alex Dalmady is quite amazed…

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