Posted: Tue, 24 Nov 2009 09:42 PM - 7,630 Readers
By: Austin-American Statesman
Sandra Dorrell knew she needed to save money.
Ten years ago, she was diagnosed with Caroli disease, a congenital illness that affects the liver and kidneys.
She knew she'd need a double transplant one day, and money would be important in case of expenses that her insurance didn't cover.
"I knew I had to prepare, just in case," Dorrell said. "Plus, I wanted to make sure if I did have a transplant and if something went wrong that I would have enough money to support myself, for the rest of whatever life I had left."
She invested money she made from her office furniture dealership in Houston with her longtime broker.
Then he went to work for R. Allen Stanford.
Dorrell says the broker advised her to buy certificates of deposit issued by Stanford's Antiguan bank, which were paying 8 percent interest.
Over five years, she bought $1.4 million worth. A few years ago, she sold her business and then bought a house near Lake Travis, planning to retire there.
But on Feb. 15, she noticed that interest from her CDs hadn't been wired into her checking account, as was normally the case.
Two days later, a friend called, asking if she'd seen the news. Federal authorities had filed a lawsuit accusing Stanford of running an $8 billion Ponzi scheme. The CDs were bogus, the government said.
"It has just been a roller coaster; it really has," said Dorrell, 57. "It's been just devastating emotionally."
Some investors say they feel bitterness toward the Stanford Group Co. financial advisers who sold them the certificates of deposit. They say the advisers led them unwittingly into high-risk investments while they collected generous commissions and bonuses.
While the exact total isn't known, investors in Austin and elsewhere have sued their advisers, seeking to recover some of the money they lost.
Annalisa Mendez of Austin says her family lost $400,000, much of it in her husband's IRA, on Stanford CDs.
In a state District Court lawsuit in Travis County against former Stanford Austin employees Patrick Cruickshank, Ray Deragon and Carol McCann, Mendez alleges that they failed to follow "generally accepted standards of due diligence" in evaluating the risk of the investments.
She also says the high commissions Stanford paid them to push the CDs, among other things, should have raised red flags with the advisers.
According to the U.S. Securities and Exchange Commission, advisers received a 1 percent commission for selling a CD and could have received as much as 1 percent more throughout the term of the certificate. The commissions provided "a powerful incentive to aggressively sell CDs to investors," the SEC said.
"Blinded by the high commissions they were receiving," the advisers did not fully investigate "material information" about the CDs, the lawsuit says.
If they had done so, Mendez alleges, she would not have invested in them.
The Stanford company told investors that the CDs were backed by solid investments monitored by a team of analysts and were audited by Antiguan authorities. Instead, according to the SEC, Stanford and his chief financial officer, James Davis, put investors' money into "speculative, unprofitable businesses controlled by Stanford."
In another suit, naming Deragon and Shawn Morgan, Susan Blount said she purchased a Stanford CD for $250,000 on their recommendation. Blount, a former high-tech marketing manager, is now retired, her attorney Jim George said.
The two advisers "routinely informed (Blount) that the CD was performing quite well," according to the suit.
In a court filing, the attorney for Deragon and Morgan denied Blount's claims.
This month, Ralph Janvey, the court-appointed receiver in the Stanford case, filed a court claim seeking to recover for investors more than $217 million in bonuses that employees made selling CDs for Stanford. In the filing, the receiver doesn't allege any wrongdoing by the employees, but he says the money rightfully belongs to the investors.
Janvey's claim includes Cruickshank, who made $2.9 million; Deragon, who made $1.15 million; Nigel Bowman, who made $922,000; Morgan, who made $425,000; and McCann, who made $441,000.
But attorneys for the former employees say Stanford had every appearance of legitimacy — even to his employees.
His employees came from financial firms such as Merrill Lynch and Morgan Stanley. He sponsored PGA events. Golfer Vijay Singh routinely wore clothes with Stanford logos.
Michael Stanley, a Houston attorney representing dozens of former Stanford employees including Deragon, McCann and Morgan, said if there was fraud going on, his clients knew nothing about it.
"There are not any allegations by the Department of Justice or the receiver that the employees had any knowledge about what was going on," he said. The SEC's initial complaint against Stanford states that "contrary to assurances provided to investors, at most only two people — Stanford and Davis — know the details concerning the bulk of (Stanford International Bank's) investment portfolio."
And it's unfair to say that employees should have discovered a fraud that took regulators such as the SEC years to detect, Stanley said.
Also, many invested their own money in Stanford CDs, he said, and others have lost their careers because of their affiliations with Stanford.
"Why would you leave a 20- or 30-year successful career at another brokerage firm ... and move it all to something that you knew was a house of cards?" Stanley said. "It doesn't make any sense."
Bradley Foster, a Dallas attorney representing Cruickshank and Bowman, didn't respond to a request for comment.
Financial advisers who deal in securities must be registered with the Texas State Securities Board. Stanford Group Co. terminated its employees' Texas registrations in March, when the firm all but collapsed.
But since then, many have reapplied and been granted new registrations, including former employees of Stanford's Austin office.
Securities board officials declined to say whether they have any active investigations into any Stanford brokers or financial advisers.
Stanford has denied any wrongdoing and is in jail in Houston, charged by the U.S. Department of Justice with multiple counts of fraud. Davis has pleaded guilty to fraud and conspiracy charges.
No financial advisers have been accused of committing any crimes in connection with the Stanford case.
Unless it has been proved that someone has engaged in fraud, the securities board can't revoke or deny a person's license, said Benette Zivley, the securities board's director of inspections and compliance.
"It really is a due process thing," he said.
Customer allegations of misconduct by brokers or advisers are not uncommon, Zivley said. He mentioned the dot-com stock bubble several years ago. Before the bubble burst, he said, everyone was happy with the brokers.
Then "all of a sudden, my broker was a crook and he misled me," he said.
Dorrell said nothing she saw at Stanford's Houston office gave her cause for concern.
The office had multiple levels of security, she said. She ate lunch there with her broker; the meal was prepared by a chef and served in a private dining room. She watched a video about the company and Stanford. The experience made her feel comfortable.
"They targeted people like me," she said.
Although Dorrell was able to recover some money from other Stanford investments, the CDs represented the bulk of her money, she said.
Now she will probably have to sell her Austin home and stay in Houston, near the transplant center at the Methodist Hospital.
For now, Dorrell plans to host a Thanksgiving meal at the house for family members. The dining room is spacious, and the balcony provides a view of Lake Travis.
"This is where I wanted to be," she said.
