The Stanford Financial Scandal

I’ve got several thoughts on the Stanford Financial story.

First, I think some of the press is a bit misleading in its coverage of the Stanford Financial scandal today.

The Journal, the Times, and the Washington Post call it an “$8 Billion Fraud” in their headlines, and the Journal calls it that in its story, as well (the Times and Post do not). The Financial Times and Bloomberg don’t put a number on the fraud, making clear it’s an “alleged fraud” involving “selling about $8 billion in certificates.”

Sure, it’s not technically wrong. Stanford is alleged to have sold $8 billion worth of certificates of deposit by misleading investors. But the “$8 billion fraud” phrase implies that all or most of the money has disappeared, which as far as I can tell isn’t the case. (UPDATE: Felix Salmon makes a great case for why most of it has likely disappeared.)

The Stanford case is just bizarre. How could a firm not raise suspicions much earlier than it did when it was promising returns on CDs that doubled the average? And it was run in part out of Antigua.

The SEC has been caught snoozing again and is scrambling to look tough. Check out this Reuters video of agents raiding Stanford. Talk about made for TV. You can practically hear a producer standing off camera, yelling “aaaand ACTION!”

Why hasn’t the SEC released any numbers on how much money has actually been lost? I’m sure it doesn’t have a firm figure, some guidance would be great. From the press accounts it appears that the money was invested in illiquid assets like real estate, so there’s at least some money there, unlike Bernie Madoff.

The NYT appears to be the only paper to have interviewed Jonathan Winer, whom I ran across in Factiva in a long Houston Chronicle story from 2000 about how Stanford was drawing scrutiny for its involvement in trying to water down Antigua’s banking laws. Winer’s group said this, according to the Chron:

Later, State Department officials were more explicit in their accusations: “Individuals suspected of involvement in money laundering and other illicit economic activities used their considerable financial influence to weaken Antigua’s anti-money laundering legislation,” the department noted in a report issued earlier this year.

The changes “undermined the ability of law enforcement to investigate and prosecute financial crimes,” the report said.

Good for the Times for doubling back with this guy.

The scandals are coming fast and furious these days. These are the kind that suck the confidence out of the entire financial system, which doesn’t have much to spare these days.

There are many more to come—bet on it.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.