HOUSTON:

In June 2005, the Securities and Exchange Commission (SEC) made a secret plea to Antigua's top banking regulator, Leroy King: help investigate whether Stanford International Bank, based in the Caribbean money haven, was engaged in a huge fraud of its investors.

But unknown to the agency, someone else had got to him first. R. Allen Stanford, the Texas billionaire whose bank made him a powerful figure in Antigua, had already started making a series of payments to King that would eventually top $100,000 in exchange for his help in warding off the SEC

Those accusations were contained in an indictment unsealed by the Justice Department, which accused Stanford of operating a multibillion-dollar Ponzi scheme with the help of the bank's top lieutenants - as well as with the regulator who was supposed to be scrutinising Stanford's operations.

"Nothing can go more to the heart, and attack the heart of regulation and law enforcement," said Lanny A. Breuer, the assistant attorney general of the agency's criminal division, than when regulators "receive bribes, so that they don't do what they're entrusted to do".

Fake audits

The Justice Department said that while Stanford was defrauding about 30,000 investors of $7 billion, he was paying King thousands of dollars a month to conduct fake audits aimed at assuring the bank's investors, and American regulators, that its finances were sound.

King, who has been suspended from his role as the chief executive of Antigua's Financial Services Regulatory Commission, is also accused of showing Stanford the SEC's inquiries as they came in so that Stanford and his lieutenants could "dictate the substance, and even the content" of responses, which King then returned to the SEC on the Antiguan banking regulators' letterhead.

"Instead of buying the safe and sound investments he promised his clients, Stanford bought Antigua's top securities cop," Robert Khuzami, the SEC's enforcement director, said in a statement. "While Stanford quarterbacked his massive Ponzi scheme, he paid the referee to spy on the huddles and provide an insider's play-by-play of the SEC investigation."

The charges were among several that detailed how Stanford and his associates supposedly exaggerated the growth of assets in its reports, to US$8.5 billion in December 2008, from US$1.2 billion in 2001. Nearly US$5 billion of that, according to the indictment, was actually overstated stakes in properties and notes on loans to Stanford. The bank also diverted more than US$1.6 billion into undisclosed personal loans to Stanford, the indictment said, and engaged in wire and mail fraud and conspiracy to obstruct an SEC investigation.

Also named in the indictment were Laura Pendergest-Holt, the chief investment officer for the Stanford Financial Group, who was previously indicted in the case; its chief accounting officer, Gilberto Lopez; and its global controller, Mark Kuhrt. Pendergest-Holt has declared her innocence. James Davis, the chief financial officer, who is cooperating with prose-cutors, was not indicted, but his involvement in various offences was outlined in the indictment.

The action had been expected since the SEC filed complaints against Stanford and other senior executives in February, closing his operations based in Houston. But it came as a new low point for a man who clawed his way out of rural Texas to build a personal fortune of more than US$2 billion, and whose lavish spending and lifestyle in Antigua made him influential with the island's top politicians - as well as regulators like King.

If convicted on all charges, Stanford faces up to 250 years in prison.

Dick DeGuerin, Stanford's lawyer, said in a statement that his client was "confident a fair jury will find him not guilty of any criminal wrongdoing".

King, who holds both an American and an Antiguan passport, was not available for comment. But in an interview in February, just after Stanford's offices in Houston were raided by federal authorities, King said: "I am absolutely sure that my banking system is clean."

Missing funds

Breuer, the assistant attorney general, said that he believed that King was still in Antigua and that he could be extradited to the United States. He added that the Justice Department was working closely with Antiguan authorities, who, he said, were being extremely cooperative.

A federal law-enforcement official, who was not authourised to speak publicly about the case, said that investigators were unable to track billions of dollars more in missing funds because much was wasted on a variety of risky investments, as well as cricket sponsorships, jets, yachts and other accoutrements of Stanford's lifestyle. Much more could still be hidden in bank accounts. He added that it had been difficult to locate many large depositors, some of whom are believed to be Latin Americans who were hiding money to avoid paying taxes in their home countries.

Tim Johnson, the United States attorney for the Southern District of Texas, said that it was likely authorities would "be unable to restore all of the money that has been lost by the victims of these offences that have been charged".

In a telephone interview Friday, the attorney general of Antigua and Barbuda, Justin Simon, said he would consider any United States request for extradition of King, who has been on leave since March. Simon said the Antiguan government was conducting an independent investigation of the official.

"This concerns me greatly because it reflects adversely on the commission," he said, referring to the Financial Services Regulatory Commission. But, he added: "I think I am satisfied" that King "hid things" from the commission's board "and got involved in a personal relationship with Stanford".

He said it was "a distinct possibility" that King would also be prosecuted in Antigua.

SEC officials said that while foreign nationals were charged with some frequency, it was rare if not unprecedented to charge a foreign financial regulator with fraud.

Deposits

Before becoming Antigua's top bank regulator, King worked for 25 years as a banker in the United States, according to an announcement published when he was appointed to Antigua's regulatory commission. He began his career at the National Bank of Westchester in New Rochelle, New York, and retired from the industry as a vice-president for Bank of America.

The Justice Department indictment shows that from 2005 through early 2009, King made more than 20 deposits, ranging from $2,000 to $9,700, with regular frequency into accounts he held at eight different banks along the East Coast of the United States.

- Reprinted from New York Times