Episode 17: How One Analyst Uncovered a $7 Billion Fraud

Tracy Alloway (0:06)

Welcome to Odd Lots, it's Monday, February 29th. I'm Tracy Alloway.

Joe Weisenthal (0:10)

And I'm Joe Weisenthal.

Tracy Alloway (0:11)

So Joe, I am really excited about this week's episode. It's a great story that involves a humbled billionaire, some brilliant research by an independent analyst, and a big, big win for digital journalism.

And I think at least two of those things are, you know, kind of close to our hearts, right?

Joe Weisenthal (0:29)

Yeah, and it involves like some huge financial crime, right? So in addition to just being a humble billionaire, there's a dramatic element, right?

Tracy Alloway (0:37)

Oh, for sure. But let's start with the billionaire.

Joe Weisenthal (0:41)

Okay, we'll back up a little bit.

Tracy Alloway (0:42)

It's a guy called Alan Stanford.

Joe Weisenthal (0:45)

I remember him.

Tracy Alloway (0:45)

Yeah, I think a lot of people probably do. He was CEO of the Stanford Financial Group of Companies, which included all sorts of things, like a real estate company, investment firm, and a bank based in Antiqua, which is this tiny little island in the Caribbean.

Joe Weisenthal (1:04)

I remember Stanford. I remember he was in the news a lot around the same time as Bernie Madoff.

I don't remember a lot of the details, so I'm really excited to talk about this story.

Tracy Alloway (1:14)

Yeah, I mean, if you were living in the UK any time before 2009, you would have heard of Stanford because he was this kind of eccentric, larger than life character, this fifth generation Texan, as he described himself, who decided to come in and support the sport of cricket and transform it.

Joe Weisenthal (1:34)

Right, I remember this, that he became this huge backer of cricket, which seemed really weird for a Texas billionaire, and it almost seemed impossible to believe that he was in fact a Texan.

Tracy Alloway (1:44)

Yeah, I want to kind of nail the eccentricities here because he used to helicopter into the Lord's Cricket Tournament. He was caught on camera flirting with these cricketers' wives. He really made a name for himself in sports and political circles as well.

So, I could go on and on, but why don't we just let Alan Stanford kind of speak for himself? This is an interview from CNBC with Stanford back in late 2008

SPEAKER_3 (2:13)

You managed to avoid the subprime debacle almost entirely, didn't you?

R. Allen Stanford (2:17)

100% we avoided the subprime debacle.

SPEAKER_3 (2:20)

How did you do that?

What made you, and I'm sure you had the opportunity to embrace some of that risk? What told you it was not a wise move?

R. Allen Stanford (2:27)

Well, it was very simple because we never understood what the risk was. Securitized debt has been around for over three decades now.

And when you start packaging something with a lot of assets that are all mixed up and you can't get your arms around what the real asset is, therefore what the risk is, we decided that whatever perceived profits there might be, we decided not to take that risk because we didn't know what the risk really was, and the perceived profits really became irrelevant.

SPEAKER_3 (2:54)

Kind of makes you wonder whether or not the banks, what they were thinking.

R. Allen Stanford (2:57)

I think we're going to see a lot of problems surface during the first quarter of 2009

SPEAKER_3 (3:01)

Before we let you go, is it fun being a billionaire?

R. Allen Stanford (3:04)

Well, yes. Yes, I have to say it is fun being a billionaire, but it's hard work.

Joe Weisenthal (3:14)

That was great. I love the idea that he said it was great to be a billionaire because so many people will say otherwise, or they'll say something humble, or they'll say something about how it lets them do good for the world or philanthropy, and he just straight up talked about how great it was to be rich.

Tracy Alloway (3:31)

That's right. Sir Alan Stanford...

Joe Weisenthal (3:33)

No red flags there or anything.

Tracy Alloway (3:35)

No, indeed. And I loved also that he said he thought there were going to be a lot of problems for banks in early 2009 because as it turned out, that was the time when his own bank, Stanford International, came under a lot of scrutiny.

Joe Weisenthal (3:52)

Well, at least he was right about banks in general.

Tracy Alloway (3:54)

Okay, that's one way of putting it. All right, but think back to the headlines in 2009 Suddenly, Alan Stanford is accused of a $7 billion Ponzi scheme and this widespread, on-growing fraud.

Joe Weisenthal (4:08)