Ponzi artist investigated ex-State Dept. official, records show

Special to McClatchy NewspapersNovember 29, 2012 

— In 2006, Allen Stanford had yet to be identified as the mastermind of one of the largest and longest-running Ponzi schemes in U.S. history, but he faced mounting pressure.

Federal securities examiners were pushing for an investigation into his investment operation, which tens of thousands of soon-to-be victims had entrusted with nearly $7 billion. Some of the Texas financier’s own employees were threatening to tell authorities what they knew about his fraud.

Stanford was so concerned that a former senior State Department official named Jonathan Winer might expose his colossal con game that he ordered an investigation into Winer’s private life, according to Stanford’s previously secret records obtained by McClatchy.

Kroll Inc., an international corporate intelligence firm that Stanford had retained for over a decade, obliged. Tom Cash, a Miami-based a managing director of Kroll, soon informed Stanford in an email that he was looking into whether Winer’s ex-wife was a lesbian, according to the internal documents obtained by McClatchy.

Winer “is pure cockroach,” Stanford emailed back, encouraging Cash to try to unseal Winer’s divorce records. “Go after him as hard on as many fronts as possible.”

Winer, who said in an interview that Kroll’s characterization of his ex-wife was “patently absurd,” wasn’t the company’s only target.

The documents show that Kroll also investigated and passed to Stanford personal information about several of his former employees, his defrauded investors, other U.S. government officials and journalists who were questioning his bank’s financial stability. Stanford used the information to silence and discredit several of them.

Stanford is serving a 110-year jail sentence after having been found guilty in March of 13 federal fraud charges related to the scheme he ran from his offshore bank, Stanford International Bank, once located on the Caribbean island of Antigua.

The newly obtained documents shed light on some of the steps Stanford took to elude law enforcement officials for years. By the time his scheme was uncovered in 2009, nearly all of the cash that he fleeced from investors had disappeared. The records also show how Kroll stepped into ethically questionable territory as it foraged for damaging or embarrassing information that might be used to intimidate or smear Stanford’s perceived adversaries.

Kroll, which has been referred to as Wall Street’s “private eye,” says its employees had no clue they were helping to conceal the second-biggest Ponzi scheme in U.S. history.

The disclosures regarding Kroll’s work for Stanford come as a string of governmental investigations and private lawsuits surrounding those who allegedly aided Stanford’s Ponzi scheme heat up. Even though Stanford is in jail, the Justice Department and Securities Exchange Commission are still investigating the conduct of other lawyers and accounting firms who worked for Stanford, according to people close to the inquiries. A federally appointed court receiver also has been attempting to claw back money for defrauded investors, suing several law firms and accounting firms for work they did for Stanford.

SEC examiners concluded as early as 1997 that Stanford was running a massive Ponzi scheme, agency records show. But Stanford was able to stall the opening of any formal inquiry for a full decade, much like the man behind the only bigger U.S. Ponzi scheme, Bernard Madoff.

Federal law enforcement officials, private lawyers seeking to recover money for victims and even some of Stanford’s former aides say that his fraud likely would have been discovered years earlier if it hadn’t been for the collective assistance of respected law firms, accountants and Kroll.

Kroll, the law firms and accountants have said they acted in good faith, but were duped themselves.

Citing “legal reasons,” Kroll said it could not comment on “these specific events,” but added that “none of the individuals associated with the investigation six years ago are currently employees of Kroll.”

Cash, a former special agent in charge of the DEA’s Florida and Caribbean Division, left Kroll in 2009.

The firm said it “takes active steps to ensure that the company conducts its business activities in compliance with the laws of the countries in which it operates.”

Stanford considered Winer one of the most serious threats to unmask his Ponzi scheme as early as the late 1990s, during Winer’s service as deputy assistant secretary of state for law enforcement. Among Winer’s responsibilities was to combat international money laundering and encourage greater regulation of offshore banks, such as those headquartered in Antigua.

By locating his bank there, Stanford was able to evade regulation and oversight from U.S. authorities, while Antiguan banking regulators allegedly took bribes and other favors to turn a blind eye to his activities.

Over several years, Winer joined federal regulators and members of Congress, including then-Democratic Sen. Barack Obama of Illinois, in calling for legislation that eventually limited U.S. operations of countries that permit bank secrecy, perhaps indirectly leading to the exposure of Stanford’s fraud.

What provoked Stanford to ask Kroll to investigate Winer for a second time was a May 2006 article about Stanford by Bloomberg news service. Bloomberg reported that Stanford had falsely claimed, in donating $2.5 million to restore the home of Stanford University founder Leland Stanford, that he was a relative of the late Leland Stanford. In a statement to Bloomberg, university officials denied any such “genealogical relationship between Allen and Leland Stanford.”

The story quoted Winer by name, leading Stanford to believe that Winer was behind it, according to correspondence obtained by McClatchy.

But what upset Stanford the most was something not contained in the story, but in questions that Bloomberg reporters posed to him. They suggested that the returns Stanford’s bank promised investors were implausibly high or that Stanford was even running a Ponzi scheme, according to the correspondence between the reporters and Stanford aides.

Worried that someone might raise those questions in print, Stanford emailed Cash about Winer on June 8, 2006: “Tom, I want an in depth profile, credit history, marriage, kids, work personal quirks.”

“We are presently doing just that,” Cash emailed back.

Stanford followed up the next day: “Do whatever it takes to zero in… I bet you can find a way to get Winer’s divorce decree unsealed. The guy is pure cockroach and he keeps surfacing and saying all this insane BS to whoever will listen.”

Cash emailed back that he was “exploring contacting the judge” about the divorce records or filing a freedom of information lawsuit.

Before the day was over, Cash triumphantly emailed: “Our info is wife by whom he had two children divorced him and ran off with another woman. Wife also was a lesbian.”

Winer, now a senior director of the international consulting company APCO, said in an interview that the allegations regarding him and his wife were “laughable” and that there was nothing derogatory in his divorce records. “As to my ex-wife, one or both of us would have known if she was ever a lesbian. The most accurate information in the emails is my wife and I have two children. The actual number is three. Other than that, everything was wrong.”

Records indicate that Cash ultimately discovered no derogatory information regarding Winer’s divorce or his wife.

FBI agents seized copies of the emails between Stanford and Cash during a raid on the U.S. brokerage offices of Stanford’s bank. McClatchy recently obtained copies of the emails and other records.

During the same period in which it targeted Winer, Kroll also tried its tactics on two former Stanford employees who sued him and threatened to talk to the Securities and Exchange Commission, the emails showed.

“I think we might be able to assist in this investigation which could get very significant unless we can discredit the accusers,” Cash wrote Stanford.

Earlier, after the newspaper Caribbean Week published an article critical of Stanford in 1996, Stanford directed Cash to “go for … the jugular” in investigating the story’s author.

Cash assured Stanford that Kroll had “three people working full time in developing information in the United States.” The newspaper soon published a retraction of the article.

An expatriate Antiguan, McChesney Emanuel, also was a thorn in Stanford’s side, the emails indicate.

Emanuel was the principal of the St. Pius V Parish Elementary School, a private Catholic school in New York City, where he sometimes held meetings with other dissidents to protest the Antiguan regime and Stanford’s outsized influence over it.

In 2004, Kroll had undercover agents infiltrate their meetings and then sent Stanford detailed reports.

Cash’s departure from Kroll came after it was discovered that he’d recommended that a company client, the National Electrical Contractors Association, invest with Stanford. Relying on Cash’s report giving Stanford’s bank a clean bill of health, the association bought $2.5 million of Stanford’s worthless certificates of deposits, the group said in a 2007 lawsuit accusing Kroll of “gross negligence.”

The suit alleged that Kroll “never disclosed” Cash’s or Kroll’s relationship to Stanford “before submitting a falsely positive report.”

The parties later settled the suit for terms that have not been disclosed.

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