Days may be numbered for US fraudsters as high-profile cases set for hearing

Sir Allen Stanford and Ezra Merkin are among those accused of dubious schemes involving their clients' billions, writes JAMES DORANin New York

US AUTHORITIES are tightening the net around some of the biggest alleged fraudsters in the country’s history whom they claim have helped dupe billions of dollars from banks, hedge funds, charities and individual investors.

A Federal grand jury is expected in the next two weeks to indict Sir Allen Stanford, the Texas billionaire accused of running a multibillion-dollar Ponzi scheme from his Antigua-based investment company.

Stanford (59), who denies any wrongdoing, was accused of running an $8 billion fraudulent scheme along with two associates, in a civil suit fled by the Securities and Exchange Commission (SEC) on February 17th.

He also denies his Stanford International Bank was a Ponzi scheme. “I will die and go to hell if it’s a Ponzi scheme,” he said in an interview with ABC news. The suit also named James Davies (60), the bank’s chief financial officer, and Laura Pendergast-Holt (35) as accomplices.

Stanford Group sold $8 billion in what the bank called “certificates of deposit” while telling clients the funds would be placed in transparent and tradable financial instruments monitored by over 20 analysts and audited by Antiguan regulators, according to the SEC complaint.

Instead, the “vast majority” of the portfolio was managed solely by Stanford and Davis, who are said to have invested much of the cash in private equity and real estate. Lawyers for Davis and Prendergast-Holt have said their clients are innocent.

Stanford, a larger-than-life character, choked back tears in the ABC television interview as he vowed to clear his name.

Meanwhile, New York attorney general Andrew Cuomo has filed charges against Ezra Merkin, a New York billionaire investor who allegedly diverted billions of his clients’ cash into the coffers of convicted fraudster Bernard Madoff. Merkin, who ran a hedge fund business called Gabriel Capital, is accused of secretly funnelling $2.4 billion of clients’ cash straight to Madoff. Like Stanford, Merkin, who used to be the chairman of General Motors Acceptance Corporation, the ailing automaker’s loan business, denies all wrongdoing.

The New York attorney general stopped short of claiming Merkin knew Madoff was running a Ponzi scheme, but suggested he misled his investors who were under the impression he would carefully and diligently invest their cash.

The indictment, filed in New York on Monday, claims Merkin made $470 million in fees doing business exclusively with Madoff – who is in jail awaiting sentencing for 11 charges of fraud.

Investors including prominent charities entrusted their funds to Merkin, who styled himself as an “investing guru” when in reality he was “but a master marketer”, Cuomo said in the complaint. Other Merkin entities included the Ariel Fund, Ascot Fund Ltd, and Gabriel, his management company.

“This lawsuit is without merit,” said Andrew Levander, Merkin’s lawyer. “Investors in all of the funds expressly authorised Mr Merkin to allocate assets to third-party managers such as Madoff, without giving them notice or obtaining their consent.”

Virtually all the assets in Merkin’s Ascot funds, Ascot Partners LP and Ascot Fund Ltd were formed in 1992 as feeder funds for Madoff, according to the complaint. Starting in 2000, Merkin also secretly handed Madoff one-third of the assets from Gabriel Capital and Ariel Fund, Cuomo alleged.

About 85 per cent of Ascot’s investors did not know until Madoff’s arrest that he had custody of virtually all of Ascot’s assets, the complaint says. Merkin received an annual management fee of 1 per cent from Ascot’s investors until 2002, and it increased to 1.5 per cent in 2003.

The Merkin and Stanford cases are but the latest in a seemingly endless stream of alleged fraud perpetrated around Wall Street.

Some of the biggest banks on Wall Street this week reached a $600 million settlement with investors who alleged the banks fraudulently inflated the price of IPO stocks during the technology boom of the late 1990s.