Wednesday, 18 February 2009

Stanford Agrees to Delist from Colombian Stock Exchange. 'Strict Monitoring´ of Acitivities Seek to Reinstill Investor Confidence

Allen Stanford used to fly his Washington contacts to the Caribbean,
pay for their expenses, while lying to his own bank's customers about
the destination of their money and investment returns.
The problem here is more unwanted government-imposed regulation
will come after this. Self-regulatory efforts would do more
than government meddling on private businesses.

The Colombian unit of Stanford International Bank Ltd., comprised of a brokerage and a representation office for private-banking and asset management, agreed to de-list from the local stock exchange, meaning its activities will be restricted to complete pending market transactions and meet client redemptions. The decision is clearly aimed at averting intervention by financial authorities.The Financial Regulatory Agency, known as Superfinanciera, is ''strictly monitoring´´ Stanford Colombia's activities to protect deposits and instill confidence in the system, according to a note posted today on its Web site (click here for the link to the note.) The unit was forced to increase its capital by $3 million, -- I use the word ''forced´´ because these capitalisations aren't necessarily voluntary. I guess the Colombians freaked out when they realised that Stanford's brokerage was the fourth-largest player in the Bolsa de Valores de Colombia by traded volume last year. They wanted to act pre-emptively, something they failed to do in the pyramids scandal.

The company, called
Stanford Bolsa y Banca SA, also issued a statement on its Web site (click here for the link.) A U.S. official was named to help Colombian private banking clients recover their money, according to the note.

It is not the style of this blog to demonise a company that is under investigation for any alleged wrongdoing. In my 10-year career covering politics, markets and the economy, I saw many times how the media has the power to destroy an institution or the reputation of a person. Brazil is a good example of the reputation risk that investors face when the media attacks. Besides that,
this would be the very moment to kick off a witch-hunting of financial institutions -- the tracking record of regulatory oversight in the U.S. is on the bin. The authorities are on the search for scapegoats. You have to give the accused the benefit of the doubt ... always, it is a responsible policy as a journalist. Yet, the evidence against Standford's business model found is conclusive -- despite being it evidence recollected by the same regulators who failed to foresee the sub-prime mess and prevent it from becoming what it finally became. Stanford seems to be another example of the excess greed that governed our markets for the past six years. Hopefully, for the good of the markets, more scandals will be unveiled, more bankers will go to jail, and more greedy investors who don't do their investing homework properly will keep losing money.

It will take a little of your time, dear reader (don't laugh at me, Toby Muse) to understand the nitty gritty of this mess.
The Stanford Group, owned by a Texas financier called Allen Stanford, were sued by the SEC over the sale of $8 billion of bank certificates, on suspicions the securities were used by bank management to run a massive fraud that included making false statements about returns. My understanding of the situation is that Stanford Group would offer across Latin America those certificates through its network of banks in the Caribbean, Panama, Colombia, Peru, Venezuela and some other nation (all these nations have weak regulatory surveillance -- don't forget the Colombian pyramids scheme, of which its growth and posterior demise the Uribe administration is fully responsible.) The bank issued false statements to customers, the SEC alleges, by saying their money would only be placed in liquid financial instruments.The SEC said the portfolio was instead managed directly by the firm's owner, Allen S., and the destination of the money was ... uff ... real estate investment trusts (REITs), private equity ventures and other illiquid investments.

The decision by the Colombians, which follows yesterday's accusation of fraud against Stanford by the U.S. 's SEC, follows a similar one from Panamanian regulators, who seized the bank's operations in the Central American nation. Colombia laws oblige transnational banks to have their own pool of capital set aside for the local operations, making it independent from their parent companies to avert bankruptcies triggered by global market swings or scandals elsewhere. Click here to go to
IncaKolaNews, the blog of my dear friend Otto Rock, who has been scouring for new data and information on this case.

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