When Not Even Gold Bullion is Enough Protection
In what some in the press are calling a Mini-Madoff event (in reference to the New York-based “trader” who defrauded customers out of $50 billion dollars) one couldn't buy gold bullion coins in sufficient quantity to have totaled the $8 billion Allen Stanford of Stanford Coins and Bullion (as part of the larger Stanford Financial Group) is said to have defrauded his customers.
Like Madoff, this Ponzi scheme relied upon investors not asking for all the money up front. However, in this case, it was gold coin investments that were being pedaled through telemarketing phone calls, late night infomercials and right-wing political talk radio shows to people of modest means. The particular scheme which brought him down involved paper investments – ironically, the very sort that gold should be a hedge against.
Investors who purchase gold coins on a regular basis are well aware of this type of operation and had wisely stayed away, but smaller investors were snared by the tens of thousands. But, the size of this operation and the apparent impunity with which Allen Stanford operated was shocking, even to scandal-weary North Americans. His activities included political donations to prominent Texas Republicans, including former Speaker of the House, Tom Delay, and former Secretary of Defense, Colin Powell.
What is even more amazing about this gold coin investing scheme is that it went on for so very long before anyone noticed – as long as 13 years according to Securities and Exchange Commission (SEC) documents.. Stanford was very good at keeping just enough gold coins, bars and other bullion products around to portray the illusion of wealth. Even weeks after the investigation, the advertisements and Internet sites are still up and taking credit card numbers.
Not only did he have enough wealth to spend money without worrying about the price to buy, gold bullion coins to toss about on very long trips to Antigua and the Bahamas, but he even became the first US citizen knighted by any Carri bean nation for his gifts of major infrastructure projects to the island of Antigua. He was also famous for sponsoring cricket clubs, even founding and funding a pan-Caribbean cricket competition that involved the British national team and a $20 million prize.
Stanford himself is gone, having fled the country and going into hiding with untold millions. The IRS has several hundreds of millions of dollars in liens on properties that are no longer worth anything like their original value and no luxury buyers from just two years of fraudulent returns. It is also likely that in addition to all these problems, he was even helping Mexican drug lords launder money through as many as three US cities and banks as far away as Montserrat.
An interesting twist in this story is that there were 100 gold bricks that were already en route to be displayed the Gagosian modern art museum as part of a conceptual piece. When the SEC raided he Stanford offices, and seized all the property, the transit company was alerted and turned in the promotional gold bars.
The Dallas company had actually sold the bricks to the curator of the museum for a cool $3 million dollars just days before the raid, but shipment of all Standford assets were suspended by a court order. The museum has since brought suit to have the bricks released to the museum in Los Angeles, California, or not. The bricks could be used to pay something to the 50,000 investors that thought they could safely buy gold bullion coins through Stanford's company.
Danny Burns
March 26, 2009
