Certificates of Deposit Fraud

May 22nd, 2010 | by Allison Thompson |

One of the biggest fraudsters to hit the news in conjunction with fake certificates of deposits is thought to be Bernard (Bernie) Madoff, but the paparazzi and journalists may be slightly mistaken. Allen Stanford, also accused of fraudulent certificates of deposit behavior and conducting his own $8 billion Ponzi scheme, may have fallen in the shadow of Madoff. You may, at first, scoff at Stanfords $8 billion Ponzi scheme since Madoffs was about a $60 billion crime. In this case, its not about the dollar amount of the scam but the fact that Stanford was had been brought to the attention of the Securities and Exchange Commission (SEC) long before he was charged.

The SEC Investigation
The SEC conducted an internal investigation of its handling of the reports made the agency by those defrauded by Stanford and other complainants along the way. The SEC released the report of its findings the same day that it charged Goldman Sachs with its own (alleged) fraudulent certificates of deposit behavior, which again allowed Stanford to fall in the shadows of a bigger scandal. The report, however, did reveal that Stanford originally landed on the radar screen of the SEC in 1997. Twice after this, complaints were made to the SEC saying that Stanford (under his business Stanford Group Co.) was running a Ponzi scheme. Even with all of this information, Stanford was not charge until 2006âalmost ten years later.

Fraud in Broad Daylight
Some say that Stanford was able to get away with his fraudulent behavior because he wasnt really trying to hide it but was rather doing it in the face of the SEC. More importantly, though, is that the Stanford case affects more than the clients that were scammed by Madoff or Stanford. The scariest part to most is that Stanford was running a scam primarily using certificates of deposit, which are supposed to be one of the safest and most conservative investments that exist. Apparently, Stanfords special stash of CDs carried higher interest rates than the average CDs. While Madoff had a term for his investment strategy, “split strike conversion method,” Stanford was selling fraudulent investments on an investment that even some of the most unsophisticated of investors are pretty familiar with and trust. Since CDs are one of the easiest investments to understand and are guaranteed by the U.S. Government, it makes Stanfords scam seem like a scary horror movie and Madoffs look more like a romantic comedy. It goes to show that what is supposed to be one of the safest investments in the U.S. can be used against you if you allow it.

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