SEC v. STANFORD INTERNATIONAL BANK, No. 3:09-cv-0298, Northern District of Texas (June 19, 2009)

 
 
 
      
                        
    
 
  
   
   
             
     
   
     
    
   
        
        
 
 
 
 
 
 
IN THE UNITED STATES DISTRICT COURT 

FOR THE NORTHERN DISTRICT OF TEXAS 

DALLAS DIVISION 

SECURITIES AND EXCHANGE COMMISSION, §

 § 
Plaintiff,            §            SECOND AMENDED 
§ COMPLAINT 
v.            §            
§ Case No.:  3:09-cv-0298-N 
§ 
STANFORD INTERNATIONAL BANK, LTD., § 
STANFORD GROUP COMPANY, § 
STANFORD CAPITAL MANAGEMENT, LLC, § 
R. ALLEN STANFORD, JAMES M. DAVIS,            §            

LAURA PENDERGEST-HOLT, GILBERTO LOPEZ, §
 
MARK KUHRT AND LEROY KING §

 §
 
Defendants,            §            

and §
 
§ 

STANFORD FINANCIAL GROUP COMPANY and      §      

THE STANFORD FINANCIAL GROUP BLDG INC.,  § 

§ 

                                                Relief            Defendants.            §            

________________________________________________§
 
Plaintiff Securities and Exchange Commission alleges: 
SUMMARY 
1. For at least a decade, R. Allen Stanford and James M. Davis executed a massive 
Ponzi  scheme  through  entities  under  their  control,  including  Stanford  International  Bank,  Ltd.  
(“SIB”) and its affiliated Houston-based broker-dealers and investment advisers, Stanford Group 
Company  (“SGC”)  and  Stanford  Capital  Management  (“SCM”).  Stanford  and  Davis,  acting  in  
concert  with  the  other  defendants,  misappropriated  billions  of  dollars  of  investor  funds  and  
falsified SIB’s financial statements in an effort to conceal their fraudulent conduct.   
2. By year-end 2008, SIB had sold more than $7.2 billion of self-styled “certificates 
of deposits” (the “CD”) by touting: (i) the bank’s safety and security; (ii) consistent, double-digit 

 
  
 
  
    
  
returns  on  the  bank’s  investment  portfolio;  and  (iii)  high  return  rates  on  the  CD  that  greatly  
exceeded those offered by commercial banks in the United States.      
3.  Contrary  to  SIB’s  public  statements,  Stanford  and  Davis,  by  February  2009,  had  
misappropriated billions of dollars of investor money and “invested” an undetermined amount of 
investor funds in speculative, unprofitable private businesses controlled by Stanford.  
4. In an effort to conceal their fraudulent conduct and maintain the flow of investor 
money  into  SIB’s  coffers,  Stanford  and  Davis  fabricated  the  performance  of  the  bank’s  
investment  portfolio  and  lied  to  investors  about  the  nature  and  performance  of  the  portfolio.  
Gilberto  Lopez  and  Mark  Kuhrt,  accountants  for  Stanford-affiliated  companies,  fabricated  the  
financial  statements.    Using  a  pre-determined  return  on  investment  number,  typically  provided  
by  Stanford  or  Davis,  Lopez  and  Kuhrt  reverse-engineered  the  bank’s  financial  statements  to  
report  investment  income  that  the  bank  did  not  actually  earn.    Information  in  SIB’s  financial  
statements  and  annual  reports  to  investors  about  the  bank’s  investment  portfolio  bore  no  
relationship  to  the  actual  performance  of  the  bank  investments.    SIB’s  financial  statements  and  
annual  reports  to  investors  were  prepared,  drafted  and  approved  by  Stanford,  Davis,  Lopez  and  
Kuhrt.  Stanford and Davis signed these falsified financial statements. 
5.         Laura         Pendergest-Holt,         the         chief  investment  officer  of  Stanford  Financial  Group  
(“SFG”)  and  a  member  of  SIB’s  investment  committee,  facilitated  the  fraudulent  scheme  by  
misrepresenting to investors that she managed SIB’s multi-billion investment portfolio of assets 
and supervised a sizeable team of analysts to monitor the portfolio.       
6.  Leroy  King,  the  administrator  and  chief  executive  officer  of  Antigua’s  Financial  
Services  Regulatory  Commission  (the  “FSRC”),  facilitated  the  Ponzi  scheme  by  ensuring  that  
the FSRC “looked the other way” and conducted sham audits and examinations of SIB’s books 
SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 
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and records.  In exchange for bribes paid to him over a period of several years, King made sure 
that  the  FSRC  did  not  examine  SIB’s  investment  portfolio.    King  also  provided  Stanford  with  
access  to  the  FSRC’s  confidential  regulatory  files,  including  requests  by  the  Commission  for  
assistance  in  investigating  SIB  as  a  possible  Ponzi  scheme.    King  further  obstructed  the  
Commission’s  investigation  by  allowing  Stanford  to  dictate  the  substance,  and  even  content,  of  
the  FSRC’s  responses  to  the  Commission  that  relayed  false  assurances  that  there  was  no  cause  
for concern as to SIB and by withholding information requested by the Commission that would 
have revealed Stanford’s fraud. 
7. In addition to sales of the CD, SGC and SCM advisers, since 2004, have sold more 
than  $1  billion  of  a  proprietary  mutual  fund  wrap  program,  called  Stanford  Allocation  Strategy  
(“SAS”), using materially false and misleading historical performance data.  The false data enabled 
SGC/SCM to grow the SAS program from less than $10 million in 2004 to over $1.2 billion in 2009 
and generate fees for SGC/SCM (and ultimately Stanford) in excess of $25 million.  The fraudulent 
SAS  performance  results  were  also  used  to  recruit  registered  financial  advisers  with  significant  
books  of  business,  who  were  then  heavily  incentivized  to  re-allocate  their  clients’  assets  to  SIB’s  
CD program. 
8.  By  engaging  in  the  conduct  described  in  this  Complaint,  SIB,  SGC,  SCM,  
Stanford,  Davis,  Pendergest-Holt,  Lopez  and  Kuhrt  directly  or  indirectly,  singly  or  in  concert,  
engaged,  and  unless  enjoined  and  restrained,  will  again  engage  in  transactions  acts,  practices,  
and courses of business that constitute violations of Section 17(a) of the Securities Act of 1933 
(“Securities  Act”)  [15  U.S.C.  §  77q(a)],  and  Section  10(b)  of  the  Securities  Exchange  Act  of  
1934  (“Exchange  Act”)  [15  U.S.C.  §  78j(b)],  and  Exchange  Act  Rule  10b-5  [17  C.F.R.  §  
240.10b-5]  or,  in  the  alternative,  aided  and  abetted  such  violations.       Likewise,  through  his  
SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 
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actions, King aided and abetted, and unless enjoined and restrained, will continue to aid and abet 
violations  of  Section  10(b)  of  the  Exchange  Act  [15  U.S.C.  §  78j(b)],  and  Exchange  Act  Rule  
10b-5  [17  C.F.R.  §  240.10b-5].   In  addition,  through  conduct  described  herein,  Stanford,  SGC,  
and  SCM  violated  Section  206(1)  and  (2)  of  the  Investment  Advisers  Act  of  1940  (“Adviser’s  
Act”)    [15  U.S.C.  §§  80b-6(1)  and  80b-6(2)],  and  Stanford,  Davis,  Pendergest-Holt,  Lopez,  
Kuhrt, and King aided and abetted such violations.  Finally, through their actions, SIB and SGC 
violated Section 7(d) of the Investment Company Act of 1940 (“Investment Company Act”) [15 
U.S.C. § 80a-7(d)]. 
JURISDICTION AND VENUE 
9.  The  investments  offered  and  sold  by  the  Defendants  are  “securities”  under  
Section 2(1) of the Securities Act [15 U.S.C. § 77b(1)], Section 3(a)(10) of the Exchange Act [15 
U.S.C. § 78c(a)(10)], Section 2(36) of the Investment Company Act [15 U.S.C. § 80a-2(36)], and 
Section 202(18) of the Advisers Act [15 U.S.C. § 80b-2(18)]. 
10.  Plaintiff  Commission  brings  this  action  under  the  authority  conferred  upon  it  by  
Section 20(b) of the Securities Act [15 U.S.C. § 77t(b)], Section 21(d) of the Exchange Act [15 
U.S.C.  §  78u(d)],  Section  41(d)  of  the  Investment  Company  Act  [15  U.S.C.  §  80a-41(d)],  and  
Section  209(d)  of  the  Advisers  Act  [15  U.S.C.  §  80b-9(d)]  to  temporarily,  preliminarily  and  
permanently enjoin Defendants from future violations of the federal securities laws. 
11.  This  Court  has  jurisdiction  over  this  action,  and  venue  is  proper,  under  Section  
22(a)  of  the  Securities  Act  [15  U.S.C.  §  77v(a)],  Section  27  of  the  Exchange  Act  [15  U.S.C.  §  
78aa], Section 43 of the Investment Company Act [15 U.S.C. §  80a-43] and Section 214 of the 
Advisers Act [15 U.S.C. §  80b-14]. 
12.  Defendants  have,  directly  or  indirectly,  made use of the means or instruments of 
SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 
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transportation and communication, and the means or instrumentalities of interstate commerce, or 
of the mails, in connection with the transactions, acts, practices and courses of business alleged 
herein.    Certain  of  the  transactions,  acts,  practices  and  courses  of  business  occurred  in  the  
Northern District of Texas. 
DEFENDANTS 
13.  Stanford  International  Bank,  Ltd.  purports  to  be  a  private  international  bank  
domiciled  in  St.  John’s,  Antigua,  West  Indies.    SIB  claims  to  serve  50,000  clients  in  over  100  
countries,  with  assets  of  more  than  $7.2  billion.    Unlike  a  commercial  bank,  SIB  claims  that  it  
does not loan money.  SIB sells the CD to U.S. investors through SGC, its affiliated investment 
adviser. 
14.  Stanford  Group  Company, a  Houston-based  corporation,  is  registered  with  the  
Commission as a broker-dealer and investment adviser.  It has 29 offices located throughout the 
United States.   SGC’s principal business consists of sales of SIB-issued securities, marketed as 
certificates  of  deposit.    SGC  is  a  wholly  owned  subsidiary  of  Stanford  Group  Holdings,  Inc.,  
which in turn is owned by R. Allen Stanford. 
15.  Stanford  Capital  Management,  a  registered  investment  adviser,  took  over  the  
management  of  the  SAS  program  (formerly  Mutual  Fund  Partners)  from  SGC  in  early  2007.  
SCM markets the SAS program through SGC.   
16. R. Allen Stanford, a citizen of the U.S. and Antigua and Barbuda, West Indies, is 
the  chairman  of  the  board  and  sole  shareholder  of  SIB  and  the  sole  director  of  SGC’s  parent  
company.    During  the  Commission’s  investigation,  Stanford  refused  to  produce  documents  and  
information accounting for the bank’s multi-billion dollar investment portfolio.   
SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 
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17. James M. Davis, a U.S. citizen and resident of Baldwyn, Mississippi, is a director 
and the chief financial officer of SFG and SIB.  Davis maintains offices in Memphis, Tennessee, 
and  Tupelo,  Mississippi.    During  the  Commission’s  investigation,  Davis  refused  to  provide  
documents and information accounting for the bank’s multi-billion dollar investment portfolio.   
18. Laura  Pendergest-Holt,  is  the  chief  investment  officer  of  SFG  and  a  resident  of  
Baldwyn, Mississippi.  She was appointed to SIB’s investment committee on December 7, 2005. 
She  supervises  a  group  of  analysts  who  “monitor”  the  performance  of  a  small  portion  of  SIB’s  
portfolio. 
19.  Gilberto  Lopez,  a  U.S.  citizen  and  resident  of  Spring,  Texas,  worked  in  SFG’s  
Houston,  Texas,  office,  as  the  chief  accounting  officer  of  SFG  and  its  affiliate,  Stanford  
Financial  Group  Global  Management,  LLC  (“SFGGM”).      In  this  capacity,  he  provided  
accounting services to many entities under Stanford’s control, including SIB, SFG and SFGGM. 
Lopez is not a CPA. 
20.  Mark  Kuhrt,  a  U.S.  citizen  and  resident  of  Christiansted,  St.  Croix,  U.S.  Virgin  
Islands, is the global controller for SFGGM.  In this capacity, he provided accounting services to 
many  entities  under  Stanford’s  control,  including  SIB,  SFG,  and  SFGGM.    Kuhrt  reported  at  
various times to Lopez and Davis, but also directly to Stanford. Kuhrt is not a CPA.       
21. Leroy King, a citizen of the U.S. and of Antigua and Barbuda, West Indies, is the 
administrator and chief executive officer of Antigua’s FSRC.  Educated in the United States, he 
maintains residences in Antigua and in Atlanta, Georgia, where his wife lives.  King has over 20 
years  of  experience  in  the  United  States  banking  industry.    King  also  serves  on  the  board  of  
directors of a U.S. registered broker-dealer and investment adviser based in Miami, Florida. 
SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 
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RELIEF DEFENDANTS
 
22. Stanford Financial Group Company, a Florida company owned and controlled by 
Stanford,  holds  certain  assets,  including  real  estate,  on  behalf  of  Stanford  and  his  affiliated  
entities.   SFG  employees  also  provide  accounting,  legal,  marketing  and  other  services  to  many  
entities under Stanford’s control, including SIB, SGC and SFGGM. 
23.  The  Stanford  Financial  Group  Building  Inc.,  a  Texas  corporation  owned  and  
controlled  by  Stanford,  holds  certain  assets,  including  real  estate,  on  behalf  of  Stanford  and  his  
affiliated entities.   
STATEMENT OF FACTS 
Stanford International Bank 
24.  Stanford  controls  dozens  of  companies  that  operate  under  the  name  Stanford  
Financial Group.  Stanford is the sole owner of SFG, SIB, SFGGM and dozens of other affiliated 
companies. 
25. SIB, one of SFG’s affiliates, is a private, offshore bank located in Antigua. 
26.  The  primary  product  offered  by  SIB  is  a  self-styled  certificate  of  deposit.    SIB 
sold  more  than  $1  billion  of  the  CD  per  year  between  2005  and  2008,  including  sales  to  U.S.  
investors. 
27.  SIB  marketed  the  CD  to  investors  in  the  United  States  exclusively  through  SGC  
advisers  pursuant  to  a  Regulation  D  private  placement.    In  connection  with  the  private  
placement, SIB filed several Forms D with the Commission.      
28.  SIB  paid  disproportionately  large  commissions  to  SGC  as  compensation  for  the  
sale of the CD.  SGC received a 3% trailing fee from SIB on sales of the CD by SGC advisers. 
SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 
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SGC advisers received a 1% commission upon the sale of the CD, and were eligible to receive as 
much as a 1% trailing commission throughout the term of the CD.   
29.  SGC  used  this  generous  commission  structure  to  recruit  established  financial  
advisers.    The  commission  structure  also  provided  a  powerful  incentive  for  SGC  financial  
advisers to aggressively sell CDs to investors. 
30. In 2007, SIB paid SGC and its affiliates more  than  $291  million  in  management  
fees and CD commissions, up from $211 million in 2006.              
31. SIB aggregated customer deposits, and then purportedly reinvested those funds in 
a   “globally   diversified   portfolio”   of   assets.      As   of   November   28,   2008,   SIB   reported   
approximately $8.6 billion in total assets and an investment portfolio in excess of $8.4 billion.      
32.  In  selling  the  CD,  SIB  told  investors  that:  (i)  their  assets  were  safe  and  secure  
because the bank invested in a “globally diversified portfolio” of “marketable securities;” (ii) the 
bank had averaged double-digits returns on its investments for over 15 years; (iii) Stanford had 
solidified  SIB’s  capital  position  in  late  2008  by  infusing  $541  million  in  capital  into  the  bank;  
(iv)  the  bank’s  multi-billion  dollar  portfolio  was  managed  by  a  “global  network  of  portfolio  
managers” and “monitored” by a team of SFG analysts in Memphis, Tennessee; (v) the bank, in 
early 2009, was stronger than at any time in its history; and (vi) the bank did not have exposure 
to losses from investments in the Madoff fraud scheme.  These representations were false.   
SIB’s Fraudulent Sale of CDs 
Misappropriation of Investor Funds and Undisclosed Private-Equity Investments 
33.  In  selling  the  CD  to  investors,  SIB  touted,  among  other  things,  the  CD’s  safety,  
security and liquidity. 
SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 
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34.  In  its  CD  marketing  brochure,  SIB  told  investors,  under  the  heading  “Depositor  
Security,”  that  its  investment  philosophy  is  “anchored  in  time-proven  conservative  criteria,  
promoting stability in [the bank’s] certificate of deposit.”  SIB also emphasized that its “prudent 
approach and methodology translate into deposit security for our customers” and the importance 
of investing in “marketable” securities, saying that “maintaining the highest degree of liquidity” 
was a “protective factor for our depositors.” 
35.  In  its  2006  and  2007  Annual  Reports,  SIB  told  investors  that  the  bank’s  assets  
were  invested  in  a  “well-balanced  global  portfolio  of  marketable  financial  instruments,  namely  
U.S.  and  international  securities  and  fiduciary  placements.”    More  specifically,  as  seen  below,  
SIB  represented  that  its  year-end  2007  portfolio  allocation  was  58.6%  equity,  18.6%  fixed  
income, 7.2% precious metals and 15.6% alternative investments:  
36.  Consistent  with  its  Annual  Reports  and  brochures,  SIB  trained  SGC  financial  
advisers,  in  February  2008,  that  the  “liquidity/marketability  of  SIB’s  invested  assets”  was  the  
“most important factor to provide security to SIB clients.”     
37. SIB’s annual reports also represented that “SIB does not expose its clients to the 
risks associated with commercial loans . . . the Bank’s only lending is on a cash secured basis.”   
SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 
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38.  Stanford  and  Davis  approved  and/or  signed  the  Annual  Reports,  brochure  and  
training materials. 
39.   Contrary   to   SIB’s   representations   regarding   the   liquidity   and   safety   of   its   
portfolio, investors’ funds were not invested in a “well-diversified portfolio of highly marketable 
securities.”    Instead,  Stanford  misappropriated  a  significant  portion  of  the  bank’s  investment  
portfolio.  And SIB internal records reflect that more than half of the bank’s investment portfolio 
was comprised of undisclosed “Private Equity Real Estate.”   
40. By year-end 2008, Stanford had misappropriated more than $1.6 billion from SIB.   
To conceal the theft, some of the transfers of CD investor money to Stanford were documented, 
after  the  fact,  as  personal  “loans.”    Stanford’s  signature  appears  on  at  least  $720  million  in  
promissory  notes  to  SIB  that  were  recovered  from  his  personal  accountant’s  office,  including  
promissory notes dated December 31, 1999, December 31, 2000, December 31, 2001, December 
31, 2002 and December 31, 2003. Other “loans,” particularly those in more recent years, were 
tracked in internal accounting records. 
41.  These  promissory  notes  were  typically  created  after  Davis  had,  at  Stanford’s  
direction, wired out billions dollars of SIB investor funds to Stanford or his designees.  Stanford 
used  the  money  to,  among  other  things,  fund  his  “personal  playground,”  including  more  than  
$400  million  to  fund  personal  real  estate  deals  (e.g.,  The  Sticky  Wicket  Restaurant)  and  more  
than  $36  million  to  subsidize  Stanford  20/20,  an  annual  cricket  tournament  boasting  a  $20  
million purse.   
42. Lopez and Kuhrt (in addition to Stanford and Davis) were well aware of the more 
than $1.6 billion in “loans” to Stanford, tracking many of the transfers in a spreadsheet entitled 
“Shareholder  Funding,  Assumption  of  Debt  and  Notes  Payable.”    Stanford  made  few,  if  any,  
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Second Amended Complaint 
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payments required by the terms of the promissory notes.  Instead, Stanford and Davis frequently 
rolled  the  outstanding  loan  balances  and  interest  owed  by  Stanford  to  SIB  into  new,  larger  
promissory notes.   
43.  Between  February  2  and  February  8,  2009,  Stanford  and  Davis  participated  in  
meetings with a core group of senior executives in Miami, Florida for the purpose of preparing 
Pendergest-Holt and SIB’s president for sworn testimony before the Commission staff.  During 
these  meetings,  Stanford  and  Davis  admitted  that  they  had  misappropriated  investor  funds  by  
making these putative loans to Stanford. 
44. During   the   Miami   meetings,   Davis   and   Pendergest-Holt   collaborated   on   a   
presentation  that  included  a  pie  chart  detailing  the  allocation  of  assets  in  SIB’s  investment  
portfolio.    The  pie  chart  reflected,  among  other  things,  that  SIB’s  investment  portfolio  was  
primarily  comprised  of  (grossly  over-valued)  real  estate  (50.7%)  and  promissory  notes  payable  
by Stanford (29.47%). 
45.   Four   days   after   the   Miami   meetings,   Pendergest-Holt   made   a   two-hour   
presentation  to  the  Commission’s  staff  –  and  subsequently  testified  under  oath  –  regarding  the  
whereabouts  of  SIB’s  multi-billion  dollar  investment  portfolio.    During  her  presentation  and  
testimony, Pendergest-Holt denied any knowledge concerning the allocation of the vast majority 
of  the  bank’s  assets,  despite  knowing  that  more  than  80%  of  SIB’s  investment  portfolio  was  
comprised of undisclosed personal “loans” to Stanford, undisclosed private equity and real estate 
deals. 
46.  The  personal  “loans”  to  Stanford  were  inconsistent  with  representations  that  had  
been   made   to   investors.   SIB’s   annual   reports   included   a   section   entitled   “Related-Party   
Transactions” that purported to disclose all related party transactions entered into by SIB.   But 
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Second Amended Complaint 
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SIB’s  “loans”  to  Stanford  were  not  disclosed  in  that  section  of  SIB’s  annual  reports  from  2004  
through 2008, in its quarterly reports to the FSRC or anywhere else.  Stanford, Davis, Lopez and 
Kuhrt,  with  full  knowledge  of  the  “loans”  to  Stanford,  prepared,  reviewed  and  authorized  the  
filing and dissemination of these false and misleading annual reports.     
47. Contrary to the representations in the bank’s annual reports that its “only form of 
lending is done on a cash-secured basis solely to existing clients,” SIB exposed investors to the 
risks associated with more than $1.6 billion in unsecured personal “loans” to Stanford. 
Falsification of Financial Statements 
48.  Stanford’s  misappropriation  of  investors’  assets  (and  the  poor  performance  of  
SIB’s  investment  portfolio)  created  a  giant  hole  in  SIB’s  balance  sheet.    To  conceal  their  
fraudulent  conduct  and  thereby  ensure  that  investors  continued  to  purchase  CDs,  Davis  and  
Stanford, in concert with Lopez and Kuhrt, fabricated the growth, composition and performance 
of  SIB’s  investment  portfolio  to  give  the  appearance  that  the  bank’s  investments  were  highly  
profitable. 
49.  In  its  training  materials  for  the  SGC  advisers,  SIB  represented  that  it  earned  
consistent double-digit annual returns on its investment of deposits (ranging from 11.5% in 2005 
to 16.5% in 1993) for almost fifteen years: 
ST A NFORD  I NT ERNA T I ONA L   BA NK
  
Return Vs. Interes t Paid To Depositors
 
18.0% 
16.0% 
14.0% 
12.0% 
10.0% 
8.0% 
6.0% 
4.0% 
2.0% 
0.0% 
14.6% 
8.3% 
16.5% 
8.0% 
13.9% 
7.8% 
15.7% 
8.4% 
9.5% 
15.7% 
9.7% 
14.9% 
14.8% 
9.1% 
14.2% 
8.5% 
8.5% 
14.1% 
14.3% 
8.4% 
7.7% 
14.0% 
6.2% 
6.0% 
11.9% 
11.7% 
11.5% 
6.7% 
6.7% 
12.0% 
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 
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Second Amended Complaint 
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50. SIB marketed the CD using these purported returns on investment.  
51.  SIB  claimed  that  its  high  returns  on  investment  allowed  it  to  offer  significantly  
higher rates on the CD than those offered by U.S. banks.  For example, SIB offered 7.45% as of 
June 1, 2005, and 7.878% as of March 20, 2006, for a fixed rate CD based on an investment of 
$100,000.   On  November  28,  2008,  SIB  quoted  5.375%  on  a  3-year  flex  CD,  while  U.S.  bank  
CDs paid under 3.2%. 
52.  In  SIB’s  Annual  Reports,  SIB  told  investors  that  the  bank  earned  from  its  
“diversified” investments approximately $642 million in 2007 (11%), and $479 million in 2006 
(12%). 
53.  SIB’s  investment  income  included  in  its  annual  reports  was  fictional.    In  
calculating  SIB’s  investment  income,  Stanford  and  Davis  typically  provided  to  SIB’s  internal  
accountants,  including  Lopez  and  Kuhrt,  a  predetermined  return  on  investment  for  the  bank’s  
portfolio.    Using  this  predetermined  return,  SIB’s  accountants,  including  Lopez  and  Kuhrt,  
reverse-engineered   the   bank’s   financial   statements.      After   they   calculated   the   fictional   
investment  income  and  asset  growth  and  received  Stanford  and  Davis’  approval,  Kuhrt  and  
Lopez created and booked false accounting entries. 
54.  Through  their  actions,  Stanford,  Davis,  Lopez  and  Kuhrt  caused  SIB  to  report  
investment income that the bank did not actually earn and, thereby, greatly inflated the value of 
its investment portfolio.  Specifically, Stanford, Davis, Lopez and Kuhrt prepared and reviewed 
SIB’s  financial  statements,  including  the  annual  reports  that  were  provided  to  investors  and  
posted on the bank’s website. 
SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 
13 

 
  
 
 
 
    
  
55. To hide the fabrication of SIB’s double-digit annual returns on investment, Davis, 
Lopez  and  Kuhrt  developed  and  implemented  an  elaborate  and  complex  set  of  protocols  for  
handling  SIB  financial  information  in  which:  (i)  all  SIB-related  financial  and  other  information  
was  transferred  to  thumb  drives  and  then  deleted  from  servers  located  in  the  United  States;  (ii)  
back-up  files  were  kept  on  a  portable  hard  drive  referred  to  as  “the  football;”    (iii)  paper  SIB-
related files were regularly flown to Antigua via Stanford’s private jets, where they were burned; 
and  (iv)  electronic  spreadsheets  used  to  prepare  the  fraudulent  financials  were  protected  with  
passwords that were distributed via text message (to avoid detection on email servers).  
56.   Between   February   2   and   February   6,   2009,   Stanford   and   Davis   admitted,   
following  a  meeting  with  a  core  group  of  senior  executives  (including  Pendergest-Holt)  in  
Miami, Florida, that they had falsified SIB’s financial statements.  
Misrepresentation of Capital Infusions and Bogus Real Estate Transactions 
57.  As  world  financial  markets  experienced  substantial  declines  in  2008,  it  became  
apparent to Stanford and Davis that SIB could not credibly report investment profits in the 11% 
to 15% range (as it had done in previous years).  Stanford and Davis agreed that SIB would for 
the  first  time  show  a  “modest”  loss  to  avoid  raising  too  many  red  flags.    In  other  words,  they  
wanted to tell a “more believable lie.”     
58.  Stanford  and  Davis  knew  that  reporting  a  loss  would  cause  SIB  to  fall  below  
minimum  regulatory  capital  requirements.    Accordingly,  Stanford  informed  Davis  and  other  
employees  that  he,  in  an  effort  to  assure  investors  that  SIB  was  financially  sound,  would  
contribute capital to the bank in two infusions of $200 million and $541 million.  SIB touted the 
$541 million capital infusion to investors in a December 2008 report: 
Although our earnings will not meet expectations in 2008, Stanford International 
Bank  Ltd.  is  strong,  safe  and  fiscally  sound.  We  have  always  believed  that  
SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 
14 

 
 
 
      
        
    
  
  
 
  
depositor  safety  was  our  number  one  priority.  To  further  support  the  Bank’s  
growth and provide a strong cushion for any further market volatility, the Bank’s 
Board of Directors made a decision to increase the Bank's capital by $541 million 
on  November  28,  2008.  This  contribution  brings  total  shareholder  equity  to  
$1,020,029,802  with  a  capital  to  assets  ratio  of  11.87%  and  a  capital  to  deposits  
ratio of 13.48%. 
59.   Stanford,   Davis   and   Pendergest-Holt   approved   the   December   2008   
Monthly Report. 
60.  The  purported  capital  infusions  by  Stanford  were  backdated,  fictitious  and  
engineered to give the appearance that SIB had achieved “desired” levels of capital.    
61.  Stanford,  Davis,  Lopez  and  Kuhrt  considered  two  alternatives  for  disguising  the  
fictitious   capital   contributions.      First,   Kuhrt   and   his   subordinates   proposed   a   massive   
restructuring project in which Stanford would contribute personal holdings, including most of his 
real estate and global banking interests, to SIB as “capital.”  When one of Kuhrt’s subordinates 
complained that the task could not be completed on the required timeline, and that the value of 
the companies to be contributed to SIB would have to be impaired first because “none of them 
had ever turned a profit,” Stanford, Davis, Kuhrt and Lopez turned to another strategy.    
62.  In  December  2008,  well  after  Stanford  had  purportedly  infused  the  $200  million  
and  $541  million  in  additional  capital  into  SIB,  Stanford,  Davis,  Lopez  and  Kuhrt  concocted  
another  scheme.    Stanford,  Davis,  Lopez  and  Kuhrt  approved  and  implemented  a  scheme  
whereby  they  “papered”  a  series  of  fraudulent  round-trip  real  estate  transactions  utilizing  
undeveloped  Antiguan  real  estate  acquired  by  SIB  in  2008  for  approximately  $63.5  million  (or  
roughly $40,000 per acre). 
63.  To  give  the  appearance  that  the  above-referenced  capital  infusions  actually  
occurred,  Stanford,  Davis,  Kuhrt  and  Lopez  falsified accounting records to give the appearance 
that: 
SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 
15 

  
 
 
  
 
  
 
 
 
 
 
 
  
 
•	 SIB sold the Antiguan real estate to several newly-created Stanford-controlled entities 
at the original cost of $63.5 million (although there is no evidence that Stanford paid 
SIB the $63.5 million); 
•	 the  Stanford-controlled  entities,  at  Stanford  and  Davis’s  instruction,  immediately  
wrote-up  the  value  of  the  real  estate  to  approximately  $3.2  billion  dollars  (or  $2  
million per acre), thereby exponentially increasing the value of the entities’ stock; 
•	 in  an  effort  to  satisfy  a  portion  of  Stanford’s  personal  debt  to  SIB,  Stanford  
contributed to SIB $1.7 billion of the fraudulently-inflated stock (using the inflated $2 
million per acre valuation); 
•	 Stanford then contributed to SIB additional stock in the real estate holding companies 
valued at $200 million and $541 million (again using the inflated $2 million per acre 
valuation) to fund the backdated capital contributions.   
64. These transactions did not infuse real capital into SIB.  In fact, the entire process 
was  fabricated  after  the  reported  capital  contributions  allegedly  occurred.    Moreover,  the  
purported transactions do not validate the capital infusion claims because the inflation in value of 
the  real  estate  from  $40,000  to  $2  million  per  acre  was  not  justifiable  under  applicable  U.S.  or  
international accounting principles.  SIB did not secure an appraisal and had no other reasonable 
support  for  such  a  drastic  increase  in  value.     And  the  transactions  among  Stanford-controlled  
entities  were  not  the  kind  of  arm’s-length  transactions  required  to  justify  a  5000%  increase  in  
value.   Nevertheless, on a mere promise from Stanford that the land would appraise for over $3 
billion, Stanford, Davis, Kuhrt and Lopez used $63.5 million of real estate to plug a multi-billion 
dollar hole in SIB’s balance sheet and wipe-out a portion of Stanford’s billions in debt owed to 
SIB. 
SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 
16 

 
 
 
  
  
65. Stanford, Davis, Kuhrt and Lopez, by virtue of their participation in the purported 
real estate transactions, knew that: (i) Stanford did not make a $541 million capital infusion into 
SIB;  and  (ii)  the  value  of  the  real  estate  used  to  support  the  purported  cash  infusion  was  
approximately $63.5 million, not $3.2 billion.     
66.  Following  Stanford,  Davis,  Lopez  and  Kuhrt’s  creation  of  the  fraudulent  capital  
infusions, the largest segment of the bank’s investment portfolio would have been $3.2 billion in 
over-valued  real  estate.    Yet,  SIB  did  not  disclose  the  transactions  in  its  December  2008  
newsletter,  which  touted  Stanford’s  purported  capital  infusion.  Moreover,  Stanford’s  real  estate  
investments  were  wholly  inconsistent  with  SIB’s  representations  to  investors  regarding  SIB’s  
investment portfolio (i.e., marketable securities and no real estate).   
Misrepresentations Regarding Management of SIB’s Investment Portfolio 
67.  Prior  to  making  investment  decisions,  prospective  investors  routinely  asked  how  
SIB safeguarded and monitored its assets.  Investors frequently inquired whether Stanford could 
“run off with the money.”   
68. In response to this question, at least during 2006 and much of 2007, Pendergest-
Holt trained SIB’s senior investment officer (“SIO”) to tell investors that the bank’s multi-billion 
dollar portfolio was managed by a “global network of portfolio managers” and “monitored” by a 
team  of  SFG  analysts  in  Memphis,  Tennessee.    In  communicating  with  investors,  the  SIO  
followed  Pendergest-Holt’s  instructions,  telling  investors  that  SIB’s  entire  investment  portfolio  
was  managed  by  a  global  network  of  money  managers  and  monitored  by  a  team  of  20-plus  
analysts. 
69. Neither Pendergest-Holt nor the SIO disclosed to investors that SIB segregated its 
investment  portfolio  into  three  tiers:  (i)  cash  and  cash  equivalents  (“Tier  1”);  (ii)  investments  
SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 
17 

    
 
    
 
 
with “outside portfolio managers (25+)” that were monitored by the SFG analysts (“Tier 2”); and 
(iii) undisclosed assets managed by Stanford and Davis (“Tier 3”).  As of December 2008, Tier 1 
represented  approximately  9%  ($800  million)  of  SIB’s  portfolio.  Tier  2,  prior  to  the  bank’s  
decision to liquidate $250 million of investments in late 2008, represented approximately 10% of 
the portfolio. And Tier 3 represented approximately 80% of SIB’s investment portfolio.  
70. Neither Pendergest-Holt nor the SIO disclosed that the bank’s Tier 3 assets were 
managed  and/or  monitored  exclusively  by  Stanford  and  Davis.    Likewise,  they  did  not  disclose  
that  Stanford  and  Davis  surrounded  themselves  with  a  close-knit  circle  of  family,  friends  and  
confidants, thereby eliminating any independent oversight of SIB’s assets. 
71.  Neither  Pendergest-Holt  nor  the  SIO  disclosed  to  investors  that  the  “global  
network”  of  money  managers  and  the  team  of  analysts  did  not  manage  any  of  SIB’s  Tier  3  
investments  and,  in  reality,  only  monitored  approximately  10%  of  SIB’s  portfolio.    In  fact,  
Pendergest-Holt trained the SIO “not to divulge too much” about the oversight of SIB’s portfolio 
because that information “wouldn’t leave an investor with a lot of confidence.”  Likewise, Davis 
instructed  the  SIO  to  “steer”  potential  CD  investors  away  from  information  about  SIB’s  
portfolio. 
Misrepresentation That SIB Was “Stronger” Than Ever Before 
72.  On  January  10,  2009,  Stanford,  Davis  and  Pendergest-Holt  spoke  to  SGC’s  Top  
Performer’s Club (a collection of high performing Stanford financial advisers) in Miami, Florida.   
73.  During  the  meeting,  Davis  stated  that  SIB  was  “stronger”  than  at  any  time  in  its  
history.    Stanford,  Davis  and  Pendergest-Holt  represented  that  SIB  was  secure  and  built  on  a  
strong foundation, and that its financial condition was shored up by Stanford’s capital infusions. 
SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 
18 

 
 
74.  But  Davis  failed  to  disclose  that  he  had  been  informed  only  days  earlier  by  the  
head  of  SIB’s  treasury  that,  despite  SIB’s  best  efforts  to  liquidate  Tier  2  assets,  SIB’s  cash  
position  had  fallen  from  the  June  30,  2008  reported  balance  of  $779  million  to  less  than  $28  
million.   
75. Stanford and Davis failed to disclose to the SGC sales force that: (i) Stanford had 
misappropriated  more  than  $1.6  billion  of  investor  funds;  (ii)  SIB’s  annual  reports,  financial  
statements and quarterly reports to the FSRC were false; (iii) hundreds of millions of dollars of 
SIB  investors’  funds  had  been  invested  in  a  manner  inconsistent  with  the  bank’s  offering  
documents (i.e., private equity and real estate); and (iv) the purported 2008 capital infusions by 
Stanford were a fiction. 
76.  During  her  speech,  Pendergest-Holt,  after  being  introduced  as  SFG’s  chief  
investment officer and a “member of the investment committee of the bank,” answered questions 
about SIB’s investment portfolio.  In so doing, she failed to disclose to attendees that she and her 
team   of   analysts   did   not   manage   SIB’s   entire   investment   portfolio   and   only   monitored   
approximately 10% of the bank’s investments.  She also failed to disclose that SIB had invested 
investors’ funds in a manner inconsistent with the bank’s offering documents (i.e., private equity 
and real estate). 
77.  Stanford,  Davis  and  Pendergest-Holt  also  failed  to  disclose  that  on  or  about  
December 12, 2008, Pershing, LLC, SGC’s clearing broker-dealer, informed SGC that it would 
no longer process wire transfers from SGC to SIB for the purchase of the CD, citing suspicions 
about  SIB’s  investment  returns  and  its  inability  to  get  from  the  bank  “a  reasonable  level  of  
transparency” into its investment portfolio.   
SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 
19 

 
 
 
 
 
78.   Stanford,   Davis   and   Pendergest   knew   that   SGC   advisers   would   use   the   
information provided to them during the Top Performer’s Club meeting to sell CDs. 
Exposure to Losses From Madoff-related Investments 
79. In the December 2008 Monthly Report, SIB told CD investors that the bank “had 
no direct or indirect exposure to any of [Bernard] Madoff’s investments.”   
80. Contrary to this statement, Stanford, Davis and Pendergest-Holt knew, prior to the 
release of the Monthly Report, that SIB had exposure to losses from investments with Madoff.   
81.  On  December  12,  2008,  and  again  on  December  18,  2008,  Pendergest-Holt  
received  e-mails  from  Meridian  Capital  Partners,  a  hedge  fund  with  which  SIB  had  invested,  
detailing SIB’s exposure to Madoff-related losses.    
82. On December 15, 2008, an SFG-affiliated employee notified Pendergest-Holt and 
Davis that SIB had exposure to Madoff-related losses in two additional funds through which SIB 
had  invested.    That  same  day,  Davis,  Pendergest-Holt  and  others  consulted  with  Stanford  
regarding the bank’s exposure to Madoff-related losses. 
83. Stanford, Davis and Pendergest-Holt never corrected this misrepresentation in the 
December 2008 monthly report.   
Leroy King’s Role in the Fraudulent Scheme 
84. Leroy King was the administrator and chief executive officer of the FSRC, which 
is  charged  with  the  regulation  and  supervision  of  all  offshore  banks  licensed  in  Antigua,  
including SIB. 
85.  From  at  least  February  2005,  and  continuing    over  a  multi-year  period,  Stanford  
paid  to  King  thousands  of  dollars  in  bribes,  using  money  transferred  from  SIB  to  a  Stanford-
SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 
20 

 
 
 
  
  
  
controlled account at the Bank of Antigua, an onshore Antiguan  bank  owned  and  controlled  by  
Stanford.   King caused certain of these bribes to be deposited into U.S. bank accounts. 
86.  In  addition  to  the  cash  payments,  Stanford  gave  to  King  and  his  wife  significant  
non-cash  benefits,  including:  (i)  use  of  Stanford’s  fleet  of  private  jets  to  travel  throughout  the  
United  States  and  the  Caribbean;  (ii)  use  of  an  SIB  corporate  car;  and  (iii)  2004  Super  Bowl  
tickets  for  King  and  a  companion.    Stanford  subsequently hired King’s Super Bowl companion 
as a human resources project manager in Houston. 
87. In exchange for the bribes, King facilitated SIB’s fraud by obstructing the SEC’s 
investigation into SIB and abdicating the FSRC’s oversight responsibilities.     
88.  On  June  21,  2005,  King,  in  response  to  an  inquiry  from  the  SEC,  represented  to  
the SEC staff that the FSRC had examined SIB and based on its examinations had concluded that 
“any  further  investigation  of  ‘possible’  fraudulent  activities  of  [SIB]  was  unwarranted.”    King  
continued  by  saying  that  “it  is  the  opinion  of  the  FSRC  that  [SIB]  has  conducted  its  banking  
business to date in a manner the FSRC considers to be fully compliant.”  King had no basis for 
these  representations.    In  exchange  for  the  bribes  from  Stanford,  King  promised  that  the  FSRC  
would  not  audit  SIB’s  investment  portfolio.    In  fact,  on  at  least  one  occasion  in  or  about  May  
2003, King removed from an examination of an SIB affiliate an inquisitive FSRC employee that 
“got too close to the fire.” 
89.  King  also  provided  Stanford  access  to  the  FSRC’s  confidential  regulatory  files,  
including  written  requests  by  the  Commission’s  staff  for  information  regarding  SIB.    For 
example,  on  September  25,  2006,  the  Commission’s  staff  faxed  a  letter  to  King  requesting  the  
FSRC’s  assistance  with  its  investigation  of  SIB.    That  same  day,  Stanford,  Davis,  and  SFG’s  
SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 
21 

 
  
    
   
  
  
  
 
general  counsel  discussed  the  Commission  letter  and  outlined  for  King  precisely  how  they  
wanted him to respond to the Commission staff’s request.    
90.  On  October  10,  2006,  King  did  as  Stanford  instructed,  sending  a  letter  to  the  
Commission’s  staff  that  tracked  the  response  dictated  by  Stanford,  Davis  and  SFG’s  general  
counsel.   King’s  letter  falsely  stated:  “We  wish  to  assure  the  SEC  that  the  FSRC’s  most  recent  
onsite examination conducted just five months ago confirmed [SIB’s] compliance with all areas 
of depositor safety and solvency, as well as all other applicable laws and regulations.  The FSRC 
has  further  confirmed  through  its  continuous  visits  and  supervision  of  [SIB]  that  there  are  no  
other  issues  or  matters  of  concern  with  [SIB.]”    In  fact,  King  knew  there  was  no  basis  for  this  
assurance. 
91.  At  or  around  the  same  time  King  was  responding  to  the  above-referenced  
inquires,  Stanford  and  King,  in  concert  with  others,  withheld  information  from  the  SEC,  citing  
reliance on inapplicable bank secrecy laws in Antigua.    
92.  During  the  same  time  period  that  King  was  accepting  bribes  from  Stanford,  the  
FSRC’s   website   assured   potential   investors   that   the   regulator   conducted   annual   on-site   
examinations of all Antiguan offshore banks (like SIB) to determine their solvency, to review the 
quality of their investments and to verify the accuracy of their returns.  The FSRC’s website also 
told  investors  that  it  performed  “continuous  off-site  supervision  in  the  form  of  an  analysis  of  
quarterly   returns   and   annual   audited   financial   statements,   with   follow-up   on   prescribed   
corrective actions.”  King knew that these representations were false with regard to the FSRC’s 
“oversight” of SIB. 
93.  King,  by  virtue  of  the  FSRC’s  review  of  SIB’s  market  materials  and  annual  
reports,  was  also  aware  that  SIB  touted  that  the  bank  was  subject  to  the  FSRC’s  audits,  
SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 
22 

 
 
 
 
 
 
regulatory  inspections,  and  licensing  requirements.    He  knew  that  these  representations  were  
false.  Moreover, SIB, SGC and SFG employees regularly told investors that their CDs were safe 
because  of  the  FSRC’s  audits,  misrepresentations  that  would  have  been  publicly  debunked  but  
for King’s misconduct.      
SGC and SCM’s Fraudulent Mutual Fund Sales 
94.   From   2004   through   2009,   SGC   and   SCM   induced   clients,   including   non-
accredited, retail investors, to invest in SAS, a proprietary mutual fund wrap program, by touting 
a fraudulent track record of “historical performance.”   
95.  SGC/SCM  highlighted  the  purported  SAS  track  record  in  thousands  of  client  
presentation  books  (“pitch  books”).   For  example,  the  following  chart  from  a  2006  pitch  book  
presented  clients  with  the  false  impression  that  SAS  accounts,  from  2000  through  2005,  
outperformed the S&P 500 by an average of approximately 13 percentage points:   
96.  SGC/SCM  used  these  performance  results  to  grow  the  SAS  program  to  over  $1  
billion in 2008. 
97.  SGC/SCM  also  used  the  SAS  track  record  to  recruit  financial  advisers  with  
significant books of business away from competitors.  After arriving at Stanford, the newly-hired 
financial advisers were incentivized to put their clients’ assets in the CD.  
SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 
23 

 
   
   
  
98. Other  than  the  fees  paid  by  SIB  to  SGC/SCM  for  CD  sales,  SAS  was  the  most  
significant   source   of   revenue   for   SGC/SCM.      In   2007   and   2008,   SGC/SCM   received   
approximately $25 million in fees from the marketing of SAS.   
99.  The  SAS  performance  results  used  in  the  2005  through  2009  pitch  books  were  
fictional  and/or  inflated.    SGC/SCM  misrepresented  that  SAS  performance  results,  for  1999  
through  2004,  reflected  “historical  performance”  when,  in  fact,  those  results  were  fictional,  or  
“back-tested,” numbers that did not reflect the results of actual trading.   
100.  SGC/SCM,  with  the  benefit  of  hindsight,  picked  mutual  funds  that  performed  
extremely well from 1999 through 2004, and presented the performance of those top-performing 
funds to potential clients as if they were actual returns earned by the SAS program.   
101. SGC/SCM also used “actual” model SAS performance results for 2005 and 2006 
that were inflated by as much as 4 percentage points.   
102. SGC/SCM told investors that SAS had positive returns for periods in which actual 
SAS  clients  lost  substantial  amounts.    In  2000,  actual  SAS  client  returns  ranged  from  negative  
7.5%  to  positive  1.1%.    In  2001,  actual  SAS  client  returns  ranged  from  negative  10.7%  to  
negative 2.1%.  And, in 2002, actual SAS client returns ranged from negative 26.6% to negative 
8.7%. 
103. SGC/SCM’s management knew that the advertised SAS performance results were 
misleading  and  inflated.    And  they  also  knew  that  the  pre-2005  track  record  was  purely  
hypothetical. 
104.  As  early  as  November  2006,  SGC/SCM  investment  advisers  began  to  question  
why  their  clients  were  not  receiving  the  returns  advertised  in  the  pitch  books.    In  response  to  
SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 
24 

 
 
 
 
 
 
these  questions,  SGC/SCM  hired  an  outside  performance  reporting  expert  to  review  the  SAS  
performance results.   
105. In late 2006 and early 2007, the expert informed SGC/SCM that its performance 
results  for  the  twelve  months  ended  September  30,  2006  were  inflated  by  as  much  as  3.4  
percentage  points.    Moreover,  the  expert  informed  SGC/SCM  managers  that  the  inflated  
performance  results  included  unexplained  “bad  math”  that  consistently  inflated  the  purported  
SAS  performance  results  over  actual  client  performance.    Finally,  in  March  2008,  the  expert  
informed SGC/SCM managers that the SAS performance results for 2005 were also inflated by 
as much as 3.25 percentage points.      
106.  Despite  its  knowledge  of  the  inflated  SAS  returns,  SGC/SCM  management  
continued  using  the  pre-2005  track  record  and  never  asked  the  performance  expert  to  audit  the  
pre-2005  performance.    In  fact,  in  2008  pitch  books,  SGC/SCM  presented  the  back-tested  pre-
2005 performance data under the heading “Historical Performance” and “Manager Performance” 
alongside the audited 2005 through 2008 figures.  SGC/SCM’s outside consultant testified that it 
was “misleading” to present audited performance figures alongside back-tested figures.      
107.   Finally,   as   indicated   the   chart   below,   SGC/SCM   blended   the   back-tested   
performance with audited composite performance to create annualized 5 and 7 year performance 
figures that bore no relation to actual SAS client performance:   
SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 
25 

 
 
 
  
 
 
 
 
 
 
 
 
 
  
108. As evidence by its use of fictional and/or inflated performance results in the pitch 
books, SGC/SCM knowingly misled investors in connection with the sale of SAS.     
CAUSES OF ACTION 
FIRST CLAIM
 
AS TO 

SIB, SGC, SCM, STANFORD, DAVIS, PENDERGEST-HOLT, LOPEZ AND KUHRT 

Violations of Section 10(b) of the Exchange Act and Rule 10b-5
 
109. Plaintiff Commission repeats and realleges paragraphs 1 through 108 above.   
110. SIB, SGC, SCM, Stanford, Davis, Pendergest-Holt, Lopez and Kuhrt, directly or 
indirectly, singly or in concert with others, in connection with the purchase and sale of securities, 
by use of the means and instrumentalities of interstate commerce and by use of the mails have: 
(i) employed devices, schemes and artifices to defraud;  (ii) made untrue statements of material 
facts and omitted to state material facts necessary in order to make the statements made, in light 
of  the  circumstances  under  which  they  were  made,  not  misleading;  and  (iii)  engaged  in  acts,  
practices  and  courses  of  business  which  operate  as  a  fraud  and  deceit  upon  purchasers,  
prospective purchasers and other persons. 
SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 
26 

 
 
  
  
 
 
 
 
   
111. As a part of and in furtherance of their scheme, SIB, SGC, SCM, Stanford, Davis, 
Pendergest-Holt,  Lopez  and  Kuhrt,  directly  and  indirectly,  prepared,  disseminated  or  used  
contracts,  written  offering  documents,  financial  statements,  promotional  materials,  investor  and  
other correspondence, and oral presentations, which contained untrue statements of material facts 
and  misrepresentations  of  material  facts,  and  which  omitted  to  state  material  facts  necessary  in  
order  to  make  the  statements  made,  in  light  of  the  circumstances  under  which  they  were  made,  
not misleading. 
112.  SIB,  SGC,  SCM,  Stanford,  Davis,  Pendergest-Holt,  Lopez  and  Kuhrt  made  the  
referenced misrepresentations and omissions knowingly or with severe and gross recklessness. 
113. For these reasons, SIB, SGC, SCM, Stanford, Davis, Pendergest-Holt, Lopez and 
Kuhrt have violated and, unless enjoined, will continue to violate Section 10(b) of the Exchange 
Act [15 U.S.C. § 78j(b)] and Exchange Act Rule 10b-5 [17 C.F.R. § 240.10b-5]. 
SECOND CLAIM 

AS TO STANFORD, DAVIS, PENDERGEST-HOLT, LOPEZ, KUHRT AND KING 

Aiding and Abetting Violations of Exchange Act Section 10(b) and Rule 10b-5 

114. Plaintiff Commission repeats and realleges paragraphs 1 through 108 above.   
115.  If  Stanford,  Davis,  Pendergest-Holt,  Lopez  and  Kuhrt  did  not  violate  Exchange  
Act  Section  10(b)  and  Rule  10b-5,  in  the  alternative,  each  in  the  manner  set  forth  above,  
knowingly  or  with  severe  recklessness  provided  substantial  assistance  in  connection  with  the  
violations  of  Exchange  Act  Section  10(b)  [15  U.S.C.  §  78j(b)]  and  Rule  10b-5  [17  C.F.R.  §  
240.10b-5]  alleged  herein.   Likewise,  King,  in  the  manner  set  forth  above,  knowingly  or  with  
severe   recklessness,   provided   substantial   assistance   in   connection   with   the   violations   of   
Exchange  Act  Section  10(b)  [15  U.S.C.  §  78j(b)]  and  Rule  10b-5  [17  C.F.R.  §  240.10b-5]  
alleged herein. 
SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 
27 

 
  
 
 
  
  
  
 
    
116. For these reasons, Stanford, Davis, Pendergest-Holt, Lopez, Kuhrt and King aided 
and abetted and, unless enjoined, will continue to aid and abet violations of Section 10(b) of the 
Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. § 240.10b-5]. 
THIRD CLAIM 

AS TO 

SIB, SGC, SCM, STANFORD, DAVIS, PENDERGEST-HOLT, LOPEZ AND KUHRT 

Violations of Section 17(a) of the Securities Act
 
117. Plaintiff Commission repeats and realleges paragraphs 1 through 108 above.  
118. SIB, SGC, SCM, Stanford, Davis, Pendergest-Holt, Lopez and Kuhrt, directly or 
indirectly, singly or in concert with others, in the offer and sale of securities, by use of the means 
and  instruments  of  transportation  and  communication  in  interstate  commerce  and  by  use  of  the  
mails,  have:  (i)  employed  devices,  schemes  or  artifices  to  defraud;  (ii)  obtained  money  or  
property  by  means  of  untrue  statements  of  material  fact  or  omissions  to  state  material  facts  
necessary in order to make the statements made, in light of the circumstances under which they 
were  made,  not  misleading;  and  (iii)  engaged  in  transactions,  practices  or  courses  of  business  
which operate or would operate as a fraud or deceit. 
119.  As  part  of  and  in  furtherance  of  this  scheme,  SIB,  SGC,  SCM,  Stanford,  Davis,  
Pendergest-Holt,  Lopez  and  Kuhrt,  directly  and  indirectly,  prepared,  disseminated  or  used  
contracts, written offering documents, promotional materials, investor and other correspondence, 
and oral presentations, which contained untrue statements of material fact and which omitted to 
state material facts necessary in order to make the statements made, in light of the circumstances 
under which they were made, not misleading. 
120.  SIB,  SGC,  SCM,  Stanford,  Davis,  Pendergest-Holt,  Lopez  and  Kuhrt  made  the  
referenced  misrepresentations  and  omissions  knowingly  or  grossly  recklessly  disregarding  the  
truth. 
SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 
28 

 
 
 
 
  
  
  
 
 
 
 
 
121. For these reasons, SIB, SGC, SCM, Stanford, Davis, Pendergest-Holt, Lopez and 
Kuhrt have violated, and unless enjoined, will continue to violate Section 17(a) of the Securities 
Act [15 U.S.C. § 77q(a)]. 
FOURTH CLAIM
 
AS TO STANFORD, SGC, AND STANFORD CAPITAL 

Violations of Sections 206(1) and 206(2) of the Advisers Act

            122.            Plaintiff Commission repeats and realleges paragraphs 1 through 108 above. 
123. Stanford,  SGC  and  SCM,  directly  or  indirectly,  singly  or  in  concert  with  others,  
knowingly  or  recklessly,  through  the  use  of  the  mails  or  any  means  or  instrumentality  of  
interstate commerce, while acting as investment advisers within the meaning of Section 202(11) 
of the Advisers Act [15 U.S.C. § 80b-2(11)]: (i) have employed, are employing, or are about to 
employ  devices,  schemes,  and  artifices  to  defraud  any  client  or  prospective  client;  or  (ii)  have  
engaged,  are  engaging,  or  are  about  to  engage  in  acts,  practices,  or  courses  of  business  which  
operates as a fraud or deceit upon any client or prospective client. 
124.  For  these  reasons,  Stanford,  SGC  and  SCM  have  violated,  and  unless  enjoined,  
will continue to violate Sections 206(1) and 206(2) of the Advisers Act [15 U.S.C. §§ 80b-6(1) 
and 80b-6(2)]. 
FIFTH CLAIM
 
AS TO STANFORD, DAVIS, PENDERGEST-HOLT, LOPEZ, KUHRT AND KING 

Aiding and Abetting Violations of Sections 206(1) and 206(2) of the Advisers Act
 
125. Plaintiff Commission repeats and realleges paragraphs 1 through 108 above.  
126.  Based  on  the  conduct  alleged  herein,  Stanford,  Davis,  Pendergest-Holt,  Lopez,  
Kuhrt, and King, in the manner set forth above, knowingly or with severe recklessness provided 
substantial  assistance  in  connection  with  the  violations  of  Advisers  Act  Sections  206(1)  and  
206(2) [15 U.S.C. §§ 80b-6(1) and 80b-6(2)] alleged herein.    
SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 
29 

 
 
 
 
  
  
  
127.  For  these  reasons,  Stanford,  Davis,  Pendergest-Holt,  Lopez,  Kuhrt,  and  King  
aided  and  abetted  and,  unless  enjoined,  will  continue  to  aid  and  abet  violations  of  Sections  
206(1) and 206(2) of the Advisers Act [15 U.S.C. §§ 80b-6(1) and 80b-6(2)].   
SIXTH CLAIM
 
AS TO SIB AND SGC 

Violations of Section 7(d) of the Investment Company Act
 
128. Plaintiff Commission repeats and realleges paragraphs1 through 108 above.   
129. SIB, an investment company not organized or otherwise created under the laws of 
the United States or of a State, directly or indirectly, singly or in concert with others, made use of 
the mails or any means or instrumentality of interstate commerce, directly or indirectly, to offer 
for sale, sell, or deliver after sale, in connection with  a  public  offering,  securities of which SIB 
was  the  issuer,  without  obtaining  an  order  from  the  Commission  permitting  it  to  register  as  an  
investment  company  organized  or  otherwise  created  under  the  laws  of  a  foreign  country  and  to  
make  a  public  offering  of  its  securities  by  use  of  the  mails  and  means  or  instrumentalities  of  
interstate commerce. 
130.   SGC,   directly   or   indirectly,   singly   or  in  concert  with  others,   acted   as   an   
underwriter for SIB, an investment company not organized or otherwise  created  under  the  laws  
of the United States or of a State that made use of the mails or any means or instrumentality of 
interstate  commerce,  directly  or  indirectly,  to  offer  for  sale,  sell,  or  deliver  after  sale,  in  
connection  with  a  public  offering,  securities  of  which  SIB  was  the  issuer,  without  obtaining  an  
order  from  the  Commission  permitting  it  to  register  as  an  investment  company  organized  or  
otherwise  created  under  the  laws  of  a  foreign  country  and  to  make  a  public  offering  of  its  
securities by use of the mails and means or instrumentalities of interstate commerce. 
SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 
30 

 
 
 
 
 
 
 
 
 
  
 
 
131. For these reasons, SIB and SGC have violated, and unless enjoined, will continue 
to violate Section 7(d) of the Investment Company Act [15 U.S.C. § 80a-7(d)]. 
SEVENTH CLAIM 

AS TO RELIEF DEFENDANTS
 
132. Plaintiff Commission repeats and realleges paragraphs1 through 108 above.   
133. Relief Defendants each were recipients, without consideration, of proceeds of the 
fraudulent and illegal CD sales alleged herein. Each of these Relief Defendants profited from the 
fraud by obtaining illegal proceeds under circumstances in which it is not just, equitable, or 
conscionable for them to retain the illegal proceeds. Consequently, each of them has been named 
as a Relief Defendant. 
134. Relief Defendants should disgorge their ill-gotten gains and any other property or 
assets purchased with such gains. 
RELIEF REQUESTED 
Plaintiff Commission respectfully requests that the Court: 
I. 
Temporarily, preliminarily and permanently enjoin: (i) SIB, SGC, SCM, Stanford, Davis, 
Pendergest-Holt,  Lopez,  Kuhrt,  and  King  from  violating,  or  aiding  and  abetting  violations  of,  
Section  10(b)  and  Rule  10b-5  of  the  Exchange  Act;  (ii)  SIB,  SGC,  SCM,  Stanford,  Davis,  
Pendergest-Holt, Lopez and Kuhrt from violating Section 17(a) of the Securities Act; (iii) SGC, 
SCM,  Stanford,  Davis,  Pendergest-Holt,  Lopez,  Kuhrt  and  King  from  violating,  or  aiding  and  
abetting  violations  of,  Sections  206(1)  and  206(2)  of  the  Advisers  Act;  and  (iv)  SIB  and  SCG  
from violating Section 7(d) of the Investment Company Act. 
SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 
31 

 
 
  
 
 
 
 
 
 
 
      
 
            
            
   
            
                                    
            
  
            
 
II.
 
Order  Defendants  and  Relief  Defendants  to  disgorge  an  amount  equal  to  the  funds  and  
benefits  they  obtained  illegally  as  a  result  of  the  violations  alleged  herein,  plus  prejudgment  
interest on that amount. 
III.
            Order            civil            penalties            against  Defendants  pursuant  to  Section  20(d)  of  the  Securities  Act  
[15 U.S.C. § 77t(d)], Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)], Section 41(e) of 
the  Investment  Company  Act  [15  U.S.C.  §  80a-41(e)],  and  Section  209(e)  of  the  Advisers  Act  
[15 U.S.C. §  80b-9(e)] for their securities law violations. 
IV. 
Order such further relief as this Court may deem just and proper. 
Dated June 19, 2009 Respectfully submitted,  
s/ David B. Reece 
                                                                        STEPHEN            J.            KOROTASH            
                                                                        Oklahoma            Bar            No.            5102            
J.            KEVIN            EDMUNDSON            
                                                                        Texas            Bar            No.            24044020            
                                                                        DAVID            B.            REECE            
                                                                        Texas            Bar            No.            24002810            
      MICHAEL D. KING
                                                                        Texas            Bar            No.            24032634            
                                                                        D.            THOMAS            KELTNER
                                                                        Texas            Bar            No.            24007474            
      JASON ROSE
                                                                        Texas            Bar            No.            24007946            
U.S. Securities and Exchange Commission 
Burnett Plaza, Suite 1900 
801 Cherry Street, Unit #18 
Fort Worth, TX  76102-6882 
(817) 978-6476 (dbr) 
(817) 978-4927 (fax) 
SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 
32 

IN THE UNITED STATES DISTRICT COURT 

FOR THE NORTHERN DISTRICT OF TEXAS 


DALLAS DIVISION 


SECURITIES AND EXCHANGE COMMISSION,  §

 § 

Plaintiff, § SECOND AMENDED 
§ COMPLAINT 

v.  § 
§ Case No.: 3:09-cv-0298-N 
§ 

STANFORD INTERNATIONAL BANK, LTD., § 
STANFORD GROUP COMPANY, § 
STANFORD CAPITAL MANAGEMENT, LLC, § 
R. ALLEN STANFORD, JAMES M. DAVIS,  § 

LAURA PENDERGEST-HOLT, GILBERTO LOPEZ, §
 
MARK KUHRT AND LEROY KING §


 §
 
Defendants, § 


and  §
 
§ 


STANFORD FINANCIAL GROUP COMPANY and § 

THE STANFORD FINANCIAL GROUP BLDG INC.,  § 


§ 

    Relief Defendants. § 

________________________________________________§
 

Plaintiff Securities and Exchange Commission alleges: 

SUMMARY 

1. For at least a decade, R. Allen Stanford and James M. Davis executed a massive 

Ponzi scheme through entities under their control, including Stanford International Bank, Ltd. 

(“SIB”) and its affiliated Houston-based broker-dealers and investment advisers, Stanford Group 

Company (“SGC”) and Stanford Capital Management (“SCM”). Stanford and Davis, acting in 

concert with the other defendants, misappropriated billions of dollars of investor funds and 

falsified SIB’s financial statements in an effort to conceal their fraudulent conduct.   

2. By year-end 2008, SIB had sold more than $7.2 billion of self-styled “certificates 

of deposits” (the “CD”) by touting: (i) the bank’s safety and security; (ii) consistent, double-digit 



 

 

 

 

  

 

returns on the bank’s investment portfolio; and (iii) high return rates on the CD that greatly 

exceeded those offered by commercial banks in the United States.      

3. Contrary to SIB’s public statements, Stanford and Davis, by February 2009, had 

misappropriated billions of dollars of investor money and “invested” an undetermined amount of 

investor funds in speculative, unprofitable private businesses controlled by Stanford.  

4. In an effort to conceal their fraudulent conduct and maintain the flow of investor 

money into SIB’s coffers, Stanford and Davis fabricated the performance of the bank’s 

investment portfolio and lied to investors about the nature and performance of the portfolio. 

Gilberto Lopez and Mark Kuhrt, accountants for Stanford-affiliated companies, fabricated the 

financial statements.  Using a pre-determined return on investment number, typically provided 

by Stanford or Davis, Lopez and Kuhrt reverse-engineered the bank’s financial statements to 

report investment income that the bank did not actually earn.  Information in SIB’s financial 

statements and annual reports to investors about the bank’s investment portfolio bore no 

relationship to the actual performance of the bank investments.  SIB’s financial statements and 

annual reports to investors were prepared, drafted and approved by Stanford, Davis, Lopez and 

Kuhrt. Stanford and Davis signed these falsified financial statements. 

5. Laura Pendergest-Holt, the chief investment officer of Stanford Financial Group 

(“SFG”) and a member of SIB’s investment committee, facilitated the fraudulent scheme by 

misrepresenting to investors that she managed SIB’s multi-billion investment portfolio of assets 

and supervised a sizeable team of analysts to monitor the portfolio.       

6. Leroy King, the administrator and chief executive officer of Antigua’s Financial 

Services Regulatory Commission (the “FSRC”), facilitated the Ponzi scheme by ensuring that 

the FSRC “looked the other way” and conducted sham audits and examinations of SIB’s books 

SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 

2 



  

 

 

 

  

 

 

 

  

 

 

and records.  In exchange for bribes paid to him over a period of several years, King made sure 

that the FSRC did not examine SIB’s investment portfolio.  King also provided Stanford with 

access to the FSRC’s confidential regulatory files, including requests by the Commission for 

assistance in investigating SIB as a possible Ponzi scheme.  King further obstructed the 

Commission’s investigation by allowing Stanford to dictate the substance, and even content, of 

the FSRC’s responses to the Commission that relayed false assurances that there was no cause 

for concern as to SIB and by withholding information requested by the Commission that would 

have revealed Stanford’s fraud. 

7. In addition to sales of the CD, SGC and SCM advisers, since 2004, have sold more 

than $1 billion of a proprietary mutual fund wrap program, called Stanford Allocation Strategy 

(“SAS”), using materially false and misleading historical performance data.  The false data enabled 

SGC/SCM to grow the SAS program from less than $10 million in 2004 to over $1.2 billion in 2009 

and generate fees for SGC/SCM (and ultimately Stanford) in excess of $25 million.  The fraudulent 

SAS performance results were also used to recruit registered financial advisers with significant 

books of business, who were then heavily incentivized to re-allocate their clients’ assets to SIB’s 

CD program. 

8. By engaging in the conduct described in this Complaint, SIB, SGC, SCM, 

Stanford, Davis, Pendergest-Holt, Lopez and Kuhrt directly or indirectly, singly or in concert, 

engaged, and unless enjoined and restrained, will again engage in transactions acts, practices, 

and courses of business that constitute violations of Section 17(a) of the Securities Act of 1933 

(“Securities Act”) [15 U.S.C. § 77q(a)], and Section 10(b) of the Securities Exchange Act of 

1934 (“Exchange Act”) [15 U.S.C. § 78j(b)], and Exchange Act Rule 10b-5 [17 C.F.R. § 

240.10b-5] or, in the alternative, aided and abetted such violations.  Likewise, through his 

SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 

3 



 

 

 

 

 

 

actions, King aided and abetted, and unless enjoined and restrained, will continue to aid and abet 

violations of Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)], and Exchange Act Rule 

10b-5 [17 C.F.R. § 240.10b-5]. In addition, through conduct described herein, Stanford, SGC, 

and SCM violated Section 206(1) and (2) of the Investment Advisers Act of 1940 (“Adviser’s 

Act”) [15 U.S.C. §§ 80b-6(1) and 80b-6(2)], and Stanford, Davis, Pendergest-Holt, Lopez, 

Kuhrt, and King aided and abetted such violations.  Finally, through their actions, SIB and SGC 

violated Section 7(d) of the Investment Company Act of 1940 (“Investment Company Act”) [15 

U.S.C. § 80a-7(d)]. 

JURISDICTION AND VENUE 

9. The investments offered and sold by the Defendants are “securities” under 

Section 2(1) of the Securities Act [15 U.S.C. § 77b(1)], Section 3(a)(10) of the Exchange Act [15 

U.S.C. § 78c(a)(10)], Section 2(36) of the Investment Company Act [15 U.S.C. § 80a-2(36)], and 

Section 202(18) of the Advisers Act [15 U.S.C. § 80b-2(18)]. 

10. Plaintiff Commission brings this action under the authority conferred upon it by 

Section 20(b) of the Securities Act [15 U.S.C. § 77t(b)], Section 21(d) of the Exchange Act [15 

U.S.C. § 78u(d)], Section 41(d) of the Investment Company Act [15 U.S.C. § 80a-41(d)], and 

Section 209(d) of the Advisers Act [15 U.S.C. § 80b-9(d)] to temporarily, preliminarily and 

permanently enjoin Defendants from future violations of the federal securities laws. 

11. This Court has jurisdiction over this action, and venue is proper, under Section 

22(a) of the Securities Act [15 U.S.C. § 77v(a)], Section 27 of the Exchange Act [15 U.S.C. § 

78aa], Section 43 of the Investment Company Act [15 U.S.C. §  80a-43] and Section 214 of the 

Advisers Act [15 U.S.C. § 80b-14]. 

12. Defendants have, directly or indirectly, made use of the means or instruments of 

SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 

4 



 

 

 

 

 

 

 

 

 

transportation and communication, and the means or instrumentalities of interstate commerce, or 

of the mails, in connection with the transactions, acts, practices and courses of business alleged 

herein. Certain of the transactions, acts, practices and courses of business occurred in the 

Northern District of Texas. 

DEFENDANTS 

13. Stanford International Bank, Ltd. purports to be a private international bank 

domiciled in St. John’s, Antigua, West Indies.  SIB claims to serve 50,000 clients in over 100 

countries, with assets of more than $7.2 billion.  Unlike a commercial bank, SIB claims that it 

does not loan money.  SIB sells the CD to U.S. investors through SGC, its affiliated investment 

adviser. 

14. Stanford Group Company, a Houston-based corporation, is registered with the 

Commission as a broker-dealer and investment adviser.  It has 29 offices located throughout the 

United States. SGC’s principal business consists of sales of SIB-issued securities, marketed as 

certificates of deposit. SGC is a wholly owned subsidiary of Stanford Group Holdings, Inc., 

which in turn is owned by R. Allen Stanford. 

15. Stanford Capital Management, a registered investment adviser, took over the 

management of the SAS program (formerly Mutual Fund Partners) from SGC in early 2007. 

SCM markets the SAS program through SGC.   

16. R. Allen Stanford, a citizen of the U.S. and Antigua and Barbuda, West Indies, is 

the chairman of the board and sole shareholder of SIB and the sole director of SGC’s parent 

company.  During the Commission’s investigation, Stanford refused to produce documents and 

information accounting for the bank’s multi-billion dollar investment portfolio.   

SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 

5 



 

 

 

 

 

 

  

 

 

 

17. James M. Davis, a U.S. citizen and resident of Baldwyn, Mississippi, is a director 

and the chief financial officer of SFG and SIB.  Davis maintains offices in Memphis, Tennessee, 

and Tupelo, Mississippi. During the Commission’s investigation, Davis refused to provide 

documents and information accounting for the bank’s multi-billion dollar investment portfolio.   

18. Laura Pendergest-Holt, is the chief investment officer of SFG and a resident of 

Baldwyn, Mississippi.  She was appointed to SIB’s investment committee on December 7, 2005. 

She supervises a group of analysts who “monitor” the performance of a small portion of SIB’s 

portfolio. 

19. Gilberto Lopez, a U.S. citizen and resident of Spring, Texas, worked in SFG’s 

Houston, Texas, office, as the chief accounting officer of SFG and its affiliate, Stanford 

Financial Group Global Management, LLC (“SFGGM”).  In this capacity, he provided 

accounting services to many entities under Stanford’s control, including SIB, SFG and SFGGM. 

Lopez is not a CPA. 

20. Mark Kuhrt, a U.S. citizen and resident of Christiansted, St. Croix, U.S. Virgin 

Islands, is the global controller for SFGGM. In this capacity, he provided accounting services to 

many entities under Stanford’s control, including SIB, SFG, and SFGGM.  Kuhrt reported at 

various times to Lopez and Davis, but also directly to Stanford. Kuhrt is not a CPA.       

21. Leroy King, a citizen of the U.S. and of Antigua and Barbuda, West Indies, is the 

administrator and chief executive officer of Antigua’s FSRC.  Educated in the United States, he 

maintains residences in Antigua and in Atlanta, Georgia, where his wife lives.  King has over 20 

years of experience in the United States banking industry.  King also serves on the board of 

directors of a U.S. registered broker-dealer and investment adviser based in Miami, Florida. 

SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 

6 



 

 

 

 

 

 

 

 

 

 

 

RELIEF DEFENDANTS
 

22. Stanford Financial Group Company, a Florida company owned and controlled by 

Stanford, holds certain assets, including real estate, on behalf of Stanford and his affiliated 

entities. SFG employees also provide accounting, legal, marketing and other services to many 

entities under Stanford’s control, including SIB, SGC and SFGGM. 

23. The Stanford Financial Group Building Inc., a Texas corporation owned and 

controlled by Stanford, holds certain assets, including real estate, on behalf of Stanford and his 

affiliated entities.   

STATEMENT OF FACTS 

Stanford International Bank 

24. Stanford controls dozens of companies that operate under the name Stanford 

Financial Group. Stanford is the sole owner of SFG, SIB, SFGGM and dozens of other affiliated 

companies. 

25. SIB, one of SFG’s affiliates, is a private, offshore bank located in Antigua. 

26. The primary product offered by SIB is a self-styled certificate of deposit.  SIB 

sold more than $1 billion of the CD per year between 2005 and 2008, including sales to U.S. 

investors. 

27. SIB marketed the CD to investors in the United States exclusively through SGC 

advisers pursuant to a Regulation D private placement.  In connection with the private 

placement, SIB filed several Forms D with the Commission.      

28. SIB paid disproportionately large commissions to SGC as compensation for the 

sale of the CD.  SGC received a 3% trailing fee from SIB on sales of the CD by SGC advisers. 

SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 

7 



 

 

 

 

 

 
 

 

SGC advisers received a 1% commission upon the sale of the CD, and were eligible to receive as 

much as a 1% trailing commission throughout the term of the CD.   

29. SGC used this generous commission structure to recruit established financial 

advisers. The commission structure also provided a powerful incentive for SGC financial 

advisers to aggressively sell CDs to investors. 

30. In 2007, SIB paid SGC and its affiliates more than $291 million in management 

fees and CD commissions, up from $211 million in 2006.              

31. SIB aggregated customer deposits, and then purportedly reinvested those funds in 

a “globally diversified portfolio” of assets.  As of November 28, 2008, SIB reported 

approximately $8.6 billion in total assets and an investment portfolio in excess of $8.4 billion.      

32. In selling the CD, SIB told investors that: (i) their assets were safe and secure 

because the bank invested in a “globally diversified portfolio” of “marketable securities;” (ii) the 

bank had averaged double-digits returns on its investments for over 15 years; (iii) Stanford had 

solidified SIB’s capital position in late 2008 by infusing $541 million in capital into the bank; 

(iv) the bank’s multi-billion dollar portfolio was managed by a “global network of portfolio 

managers” and “monitored” by a team of SFG analysts in Memphis, Tennessee; (v) the bank, in 

early 2009, was stronger than at any time in its history; and (vi) the bank did not have exposure 

to losses from investments in the Madoff fraud scheme.  These representations were false.   

SIB’s Fraudulent Sale of CDs 

Misappropriation of Investor Funds and Undisclosed Private-Equity Investments 

33. In selling the CD to investors, SIB touted, among other things, the CD’s safety, 

security and liquidity. 

SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 

8 



 

 

 

34. In its CD marketing brochure, SIB told investors, under the heading “Depositor 

Security,” that its investment philosophy is “anchored in time-proven conservative criteria, 

promoting stability in [the bank’s] certificate of deposit.”  SIB also emphasized that its “prudent 

approach and methodology translate into deposit security for our customers” and the importance 

of investing in “marketable” securities, saying that “maintaining the highest degree of liquidity” 

was a “protective factor for our depositors.” 

35. In its 2006 and 2007 Annual Reports, SIB told investors that the bank’s assets 

were invested in a “well-balanced global portfolio of marketable financial instruments, namely 

U.S. and international securities and fiduciary placements.”  More specifically, as seen below, 

SIB represented that its year-end 2007 portfolio allocation was 58.6% equity, 18.6% fixed 

income, 7.2% precious metals and 15.6% alternative investments:  

36. Consistent with its Annual Reports and brochures, SIB trained SGC financial 

advisers, in February 2008, that the “liquidity/marketability of SIB’s invested assets” was the 

“most important factor to provide security to SIB clients.”     

37. SIB’s annual reports also represented that “SIB does not expose its clients to the 

risks associated with commercial loans . . . the Bank’s only lending is on a cash secured basis.”   

SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 

9 



 

 

 

 

   

   

 

 

38. Stanford and Davis approved and/or signed the Annual Reports, brochure and 

training materials. 

39. Contrary to SIB’s representations regarding the liquidity and safety of its 

portfolio, investors’ funds were not invested in a “well-diversified portfolio of highly marketable 

securities.” Instead, Stanford misappropriated a significant portion of the bank’s investment 

portfolio. And SIB internal records reflect that more than half of the bank’s investment portfolio 

was comprised of undisclosed “Private Equity Real Estate.”   

40. By year-end 2008, Stanford had misappropriated more than $1.6 billion from SIB.   

To conceal the theft, some of the transfers of CD investor money to Stanford were documented, 

after the fact, as personal “loans.”  Stanford’s signature appears on at least $720 million in 

promissory notes to SIB that were recovered from his personal accountant’s office, including 

promissory notes dated December 31, 1999, December 31, 2000, December 31, 2001, December 

31, 2002 and December 31, 2003. Other “loans,” particularly those in more recent years, were 

tracked in internal accounting records. 

41. These promissory notes were typically created after Davis had, at Stanford’s 

direction, wired out billions dollars of SIB investor funds to Stanford or his designees.  Stanford 

used the money to, among other things, fund his “personal playground,” including more than 

$400 million to fund personal real estate deals (e.g., The Sticky Wicket Restaurant) and more 

than $36 million to subsidize Stanford 20/20, an annual cricket tournament boasting a $20 

million purse.   

42. Lopez and Kuhrt (in addition to Stanford and Davis) were well aware of the more 

than $1.6 billion in “loans” to Stanford, tracking many of the transfers in a spreadsheet entitled 

“Shareholder Funding, Assumption of Debt and Notes Payable.”  Stanford made few, if any, 

SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 

10 



 

 

 

 

 

 

 

payments required by the terms of the promissory notes.  Instead, Stanford and Davis frequently 

rolled the outstanding loan balances and interest owed by Stanford to SIB into new, larger 

promissory notes.   

43. Between February 2 and February 8, 2009, Stanford and Davis participated in 

meetings with a core group of senior executives in Miami, Florida for the purpose of preparing 

Pendergest-Holt and SIB’s president for sworn testimony before the Commission staff.  During 

these meetings, Stanford and Davis admitted that they had misappropriated investor funds by 

making these putative loans to Stanford. 

44. During the Miami meetings, Davis and Pendergest-Holt collaborated on a 

presentation that included a pie chart detailing the allocation of assets in SIB’s investment 

portfolio. The pie chart reflected, among other things, that SIB’s investment portfolio was 

primarily comprised of (grossly over-valued) real estate (50.7%) and promissory notes payable 

by Stanford (29.47%). 

45. Four days after the Miami meetings, Pendergest-Holt made a two-hour 

presentation to the Commission’s staff – and subsequently testified under oath – regarding the 

whereabouts of SIB’s multi-billion dollar investment portfolio.  During her presentation and 

testimony, Pendergest-Holt denied any knowledge concerning the allocation of the vast majority 

of the bank’s assets, despite knowing that more than 80% of SIB’s investment portfolio was 

comprised of undisclosed personal “loans” to Stanford, undisclosed private equity and real estate 

deals. 

46. The personal “loans” to Stanford were inconsistent with representations that had 

been made to investors. SIB’s annual reports included a section entitled “Related-Party 

Transactions” that purported to disclose all related party transactions entered into by SIB.  But 

SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 

11 



 

 

 

  

 

 

 

 

 

 
 

SIB’s “loans” to Stanford were not disclosed in that section of SIB’s annual reports from 2004 

through 2008, in its quarterly reports to the FSRC or anywhere else.  Stanford, Davis, Lopez and 

Kuhrt, with full knowledge of the “loans” to Stanford, prepared, reviewed and authorized the 

filing and dissemination of these false and misleading annual reports.     

47. Contrary to the representations in the bank’s annual reports that its “only form of 

lending is done on a cash-secured basis solely to existing clients,” SIB exposed investors to the 

risks associated with more than $1.6 billion in unsecured personal “loans” to Stanford. 

Falsification of Financial Statements 

48. Stanford’s misappropriation of investors’ assets (and the poor performance of 

SIB’s investment portfolio) created a giant hole in SIB’s balance sheet.  To conceal their 

fraudulent conduct and thereby ensure that investors continued to purchase CDs, Davis and 

Stanford, in concert with Lopez and Kuhrt, fabricated the growth, composition and performance 

of SIB’s investment portfolio to give the appearance that the bank’s investments were highly 

profitable. 

49. In its training materials for the SGC advisers, SIB represented that it earned 

consistent double-digit annual returns on its investment of deposits (ranging from 11.5% in 2005 

to 16.5% in 1993) for almost fifteen years: 
STANFORD INTERNATIONAL BANK
 

Return Vs. Interest Paid To Depositors
 
18.0% 

16.0% 

14.0% 

12.0% 

10.0% 

8.0% 

6.0% 

4.0% 

2.0% 

0.0% 

14.6% 

8.3% 

16.5% 

8.0% 

13.9% 

7.8% 

15.7% 

8.4% 
9.5% 

15.7% 

9.7% 

14.9% 14.8% 

9.1% 

14.2% 

8.5% 8.5% 

14.1% 14.3% 

8.4% 
7.7% 

14.0% 

6.2% 6.0% 

11.9% 
11.7% 11.5% 

6.7% 
6.7% 

12.0% 

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 

SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 

12 



 

 

 

 

50. SIB marketed the CD using these purported returns on investment.  

51. SIB claimed that its high returns on investment allowed it to offer significantly 

higher rates on the CD than those offered by U.S. banks.  For example, SIB offered 7.45% as of 

June 1, 2005, and 7.878% as of March 20, 2006, for a fixed rate CD based on an investment of 

$100,000. On November 28, 2008, SIB quoted 5.375% on a 3-year flex CD, while U.S. bank 

CDs paid under 3.2%. 

52. In SIB’s Annual Reports, SIB told investors that the bank earned from its 

“diversified” investments approximately $642 million in 2007 (11%), and $479 million in 2006 

(12%). 

53. SIB’s investment income included in its annual reports was fictional.  In 

calculating SIB’s investment income, Stanford and Davis typically provided to SIB’s internal 

accountants, including Lopez and Kuhrt, a predetermined return on investment for the bank’s 

portfolio. Using this predetermined return, SIB’s accountants, including Lopez and Kuhrt, 

reverse-engineered the bank’s financial statements.  After they calculated the fictional 

investment income and asset growth and received Stanford and Davis’ approval, Kuhrt and 

Lopez created and booked false accounting entries. 

54. Through their actions, Stanford, Davis, Lopez and Kuhrt caused SIB to report 

investment income that the bank did not actually earn and, thereby, greatly inflated the value of 

its investment portfolio.  Specifically, Stanford, Davis, Lopez and Kuhrt prepared and reviewed 

SIB’s financial statements, including the annual reports that were provided to investors and 

posted on the bank’s website. 

SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 

13 



 

 

 

 

 
  

 

55. To hide the fabrication of SIB’s double-digit annual returns on investment, Davis, 

Lopez and Kuhrt developed and implemented an elaborate and complex set of protocols for 

handling SIB financial information in which: (i) all SIB-related financial and other information 

was transferred to thumb drives and then deleted from servers located in the United States; (ii) 

back-up files were kept on a portable hard drive referred to as “the football;”  (iii) paper SIB-

related files were regularly flown to Antigua via Stanford’s private jets, where they were burned; 

and (iv) electronic spreadsheets used to prepare the fraudulent financials were protected with 

passwords that were distributed via text message (to avoid detection on email servers).  

56. Between February 2 and February 6, 2009, Stanford and Davis admitted, 

following a meeting with a core group of senior executives (including Pendergest-Holt) in 

Miami, Florida, that they had falsified SIB’s financial statements.  

Misrepresentation of Capital Infusions and Bogus Real Estate Transactions 

57. As world financial markets experienced substantial declines in 2008, it became 

apparent to Stanford and Davis that SIB could not credibly report investment profits in the 11% 

to 15% range (as it had done in previous years).  Stanford and Davis agreed that SIB would for 

the first time show a “modest” loss to avoid raising too many red flags.  In other words, they 

wanted to tell a “more believable lie.”     

58. Stanford and Davis knew that reporting a loss would cause SIB to fall below 

minimum regulatory capital requirements.  Accordingly, Stanford informed Davis and other 

employees that he, in an effort to assure investors that SIB was financially sound, would 

contribute capital to the bank in two infusions of $200 million and $541 million.  SIB touted the 

$541 million capital infusion to investors in a December 2008 report: 

Although our earnings will not meet expectations in 2008, Stanford International 
Bank Ltd. is strong, safe and fiscally sound. We have always believed that 

SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 

14 



 

 

 

   

    

  

 

 

 

 

depositor safety was our number one priority. To further support the Bank’s 
growth and provide a strong cushion for any further market volatility, the Bank’s 
Board of Directors made a decision to increase the Bank's capital by $541 million 
on November 28, 2008. This contribution brings total shareholder equity to 
$1,020,029,802 with a capital to assets ratio of 11.87% and a capital to deposits 
ratio of 13.48%. 

59. Stanford, Davis and Pendergest-Holt approved the December 2008 

Monthly Report. 

60. The purported capital infusions by Stanford were backdated, fictitious and 

engineered to give the appearance that SIB had achieved “desired” levels of capital.    

61. Stanford, Davis, Lopez and Kuhrt considered two alternatives for disguising the 

fictitious capital contributions.  First, Kuhrt and his subordinates proposed a massive 

restructuring project in which Stanford would contribute personal holdings, including most of his 

real estate and global banking interests, to SIB as “capital.”  When one of Kuhrt’s subordinates 

complained that the task could not be completed on the required timeline, and that the value of 

the companies to be contributed to SIB would have to be impaired first because “none of them 

had ever turned a profit,” Stanford, Davis, Kuhrt and Lopez turned to another strategy.    

62. In December 2008, well after Stanford had purportedly infused the $200 million 

and $541 million in additional capital into SIB, Stanford, Davis, Lopez and Kuhrt concocted 

another scheme.  Stanford, Davis, Lopez and Kuhrt approved and implemented a scheme 

whereby they “papered” a series of fraudulent round-trip real estate transactions utilizing 

undeveloped Antiguan real estate acquired by SIB in 2008 for approximately $63.5 million (or 

roughly $40,000 per acre). 

63. To give the appearance that the above-referenced capital infusions actually 

occurred, Stanford, Davis, Kuhrt and Lopez falsified accounting records to give the appearance 

that: 

SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 

15 



 

 

 

  

 

 

 

 

 

 

 

 

 

 

•	 SIB sold the Antiguan real estate to several newly-created Stanford-controlled entities 

at the original cost of $63.5 million (although there is no evidence that Stanford paid 

SIB the $63.5 million); 

•	 the Stanford-controlled entities, at Stanford and Davis’s instruction, immediately 

wrote-up the value of the real estate to approximately $3.2 billion dollars (or $2 

million per acre), thereby exponentially increasing the value of the entities’ stock; 

•	 in an effort to satisfy a portion of Stanford’s personal debt to SIB, Stanford 

contributed to SIB $1.7 billion of the fraudulently-inflated stock (using the inflated $2 

million per acre valuation); 

•	 Stanford then contributed to SIB additional stock in the real estate holding companies 

valued at $200 million and $541 million (again using the inflated $2 million per acre 

valuation) to fund the backdated capital contributions.   

64. These transactions did not infuse real capital into SIB.  In fact, the entire process 

was fabricated after the reported capital contributions allegedly occurred.  Moreover, the 

purported transactions do not validate the capital infusion claims because the inflation in value of 

the real estate from $40,000 to $2 million per acre was not justifiable under applicable U.S. or 

international accounting principles.  SIB did not secure an appraisal and had no other reasonable 

support for such a drastic increase in value.  And the transactions among Stanford-controlled 

entities were not the kind of arm’s-length transactions required to justify a 5000% increase in 

value. Nevertheless, on a mere promise from Stanford that the land would appraise for over $3 

billion, Stanford, Davis, Kuhrt and Lopez used $63.5 million of real estate to plug a multi-billion 

dollar hole in SIB’s balance sheet and wipe-out a portion of Stanford’s billions in debt owed to 

SIB. 

SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 

16 



 

 

 

 

 

65. Stanford, Davis, Kuhrt and Lopez, by virtue of their participation in the purported 

real estate transactions, knew that: (i) Stanford did not make a $541 million capital infusion into 

SIB; and (ii) the value of the real estate used to support the purported cash infusion was 

approximately $63.5 million, not $3.2 billion.     

66. Following Stanford, Davis, Lopez and Kuhrt’s creation of the fraudulent capital 

infusions, the largest segment of the bank’s investment portfolio would have been $3.2 billion in 

over-valued real estate. Yet, SIB did not disclose the transactions in its December 2008 

newsletter, which touted Stanford’s purported capital infusion. Moreover, Stanford’s real estate 

investments were wholly inconsistent with SIB’s representations to investors regarding SIB’s 

investment portfolio (i.e., marketable securities and no real estate).   

Misrepresentations Regarding Management of SIB’s Investment Portfolio 

67. Prior to making investment decisions, prospective investors routinely asked how 

SIB safeguarded and monitored its assets.  Investors frequently inquired whether Stanford could 

“run off with the money.”   

68. In response to this question, at least during 2006 and much of 2007, Pendergest-

Holt trained SIB’s senior investment officer (“SIO”) to tell investors that the bank’s multi-billion 

dollar portfolio was managed by a “global network of portfolio managers” and “monitored” by a 

team of SFG analysts in Memphis, Tennessee.  In communicating with investors, the SIO 

followed Pendergest-Holt’s instructions, telling investors that SIB’s entire investment portfolio 

was managed by a global network of money managers and monitored by a team of 20-plus 

analysts. 

69. Neither Pendergest-Holt nor the SIO disclosed to investors that SIB segregated its 

investment portfolio into three tiers: (i) cash and cash equivalents (“Tier 1”); (ii) investments 

SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 

17 



  

 

  

 

 

with “outside portfolio managers (25+)” that were monitored by the SFG analysts (“Tier 2”); and 

(iii) undisclosed assets managed by Stanford and Davis (“Tier 3”).  As of December 2008, Tier 1 

represented approximately 9% ($800 million) of SIB’s portfolio. Tier 2, prior to the bank’s 

decision to liquidate $250 million of investments in late 2008, represented approximately 10% of 

the portfolio. And Tier 3 represented approximately 80% of SIB’s investment portfolio.  

70. Neither Pendergest-Holt nor the SIO disclosed that the bank’s Tier 3 assets were 

managed and/or monitored exclusively by Stanford and Davis.  Likewise, they did not disclose 

that Stanford and Davis surrounded themselves with a close-knit circle of family, friends and 

confidants, thereby eliminating any independent oversight of SIB’s assets. 

71. Neither Pendergest-Holt nor the SIO disclosed to investors that the “global 

network” of money managers and the team of analysts did not manage any of SIB’s Tier 3 

investments and, in reality, only monitored approximately 10% of SIB’s portfolio.  In fact, 

Pendergest-Holt trained the SIO “not to divulge too much” about the oversight of SIB’s portfolio 

because that information “wouldn’t leave an investor with a lot of confidence.”  Likewise, Davis 

instructed the SIO to “steer” potential CD investors away from information about SIB’s 

portfolio. 

Misrepresentation That SIB Was “Stronger” Than Ever Before 

72. On January 10, 2009, Stanford, Davis and Pendergest-Holt spoke to SGC’s Top 

Performer’s Club (a collection of high performing Stanford financial advisers) in Miami, Florida.   

73. During the meeting, Davis stated that SIB was “stronger” than at any time in its 

history. Stanford, Davis and Pendergest-Holt represented that SIB was secure and built on a 

strong foundation, and that its financial condition was shored up by Stanford’s capital infusions. 

SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 

18 



 

 

74. But Davis failed to disclose that he had been informed only days earlier by the 

head of SIB’s treasury that, despite SIB’s best efforts to liquidate Tier 2 assets, SIB’s cash 

position had fallen from the June 30, 2008 reported balance of $779 million to less than $28 

million.   

75. Stanford and Davis failed to disclose to the SGC sales force that: (i) Stanford had 

misappropriated more than $1.6 billion of investor funds; (ii) SIB’s annual reports, financial 

statements and quarterly reports to the FSRC were false; (iii) hundreds of millions of dollars of 

SIB investors’ funds had been invested in a manner inconsistent with the bank’s offering 

documents (i.e., private equity and real estate); and (iv) the purported 2008 capital infusions by 

Stanford were a fiction. 

76. During her speech, Pendergest-Holt, after being introduced as SFG’s chief 

investment officer and a “member of the investment committee of the bank,” answered questions 

about SIB’s investment portfolio.  In so doing, she failed to disclose to attendees that she and her 

team of analysts did not manage SIB’s entire investment portfolio and only monitored 

approximately 10% of the bank’s investments.  She also failed to disclose that SIB had invested 

investors’ funds in a manner inconsistent with the bank’s offering documents (i.e., private equity 

and real estate). 

77. Stanford, Davis and Pendergest-Holt also failed to disclose that on or about 

December 12, 2008, Pershing, LLC, SGC’s clearing broker-dealer, informed SGC that it would 

no longer process wire transfers from SGC to SIB for the purchase of the CD, citing suspicions 

about SIB’s investment returns and its inability to get from the bank “a reasonable level of 

transparency” into its investment portfolio.   

SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 

19 



 

 
 

 

 

78. Stanford, Davis and Pendergest knew that SGC advisers would use the 

information provided to them during the Top Performer’s Club meeting to sell CDs. 

Exposure to Losses From Madoff-related Investments 

79. In the December 2008 Monthly Report, SIB told CD investors that the bank “had 

no direct or indirect exposure to any of [Bernard] Madoff’s investments.”   

80. Contrary to this statement, Stanford, Davis and Pendergest-Holt knew, prior to the 

release of the Monthly Report, that SIB had exposure to losses from investments with Madoff.   

81. On December 12, 2008, and again on December 18, 2008, Pendergest-Holt 

received e-mails from Meridian Capital Partners, a hedge fund with which SIB had invested, 

detailing SIB’s exposure to Madoff-related losses.    

82. On December 15, 2008, an SFG-affiliated employee notified Pendergest-Holt and 

Davis that SIB had exposure to Madoff-related losses in two additional funds through which SIB 

had invested. That same day, Davis, Pendergest-Holt and others consulted with Stanford 

regarding the bank’s exposure to Madoff-related losses. 

83. Stanford, Davis and Pendergest-Holt never corrected this misrepresentation in the 

December 2008 monthly report.   

Leroy King’s Role in the Fraudulent Scheme 

84. Leroy King was the administrator and chief executive officer of the FSRC, which 

is charged with the regulation and supervision of all offshore banks licensed in Antigua, 

including SIB. 

85. From at least February 2005, and continuing  over a multi-year period, Stanford 

paid to King thousands of dollars in bribes, using money transferred from SIB to a Stanford-

SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 

20controlled account at the Bank of Antigua, an onshore Antiguan bank owned and controlled by 

Stanford. King caused certain of these bribes to be deposited into U.S. bank accounts. 

86. In addition to the cash payments, Stanford gave to King and his wife significant 

non-cash benefits, including: (i) use of Stanford’s fleet of private jets to travel throughout the 

United States and the Caribbean; (ii) use of an SIB corporate car; and (iii) 2004 Super Bowl 

tickets for King and a companion.  Stanford subsequently hired King’s Super Bowl companion 

as a human resources project manager in Houston. 

87. In exchange for the bribes, King facilitated SIB’s fraud by obstructing the SEC’s 

investigation into SIB and abdicating the FSRC’s oversight responsibilities.     

88. On June 21, 2005, King, in response to an inquiry from the SEC, represented to 

the SEC staff that the FSRC had examined SIB and based on its examinations had concluded that 

“any further investigation of ‘possible’ fraudulent activities of [SIB] was unwarranted.”  King 

continued by saying that “it is the opinion of the FSRC that [SIB] has conducted its banking 

business to date in a manner the FSRC considers to be fully compliant.”  King had no basis for 

these representations.  In exchange for the bribes from Stanford, King promised that the FSRC 

would not audit SIB’s investment portfolio.  In fact, on at least one occasion in or about May 

2003, King removed from an examination of an SIB affiliate an inquisitive FSRC employee that 

“got too close to the fire.” 

89. King also provided Stanford access to the FSRC’s confidential regulatory files, 

including written requests by the Commission’s staff for information regarding SIB.  For 

example, on September 25, 2006, the Commission’s staff faxed a letter to King requesting the 

FSRC’s assistance with its investigation of SIB.  That same day, Stanford, Davis, and SFG’s 

SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 

21 



 

 

  

  

 

 

 

 

general counsel discussed the Commission letter and outlined for King precisely how they 

wanted him to respond to the Commission staff’s request.    

90. On October 10, 2006, King did as Stanford instructed, sending a letter to the 

Commission’s staff that tracked the response dictated by Stanford, Davis and SFG’s general 

counsel. King’s letter falsely stated: “We wish to assure the SEC that the FSRC’s most recent 

onsite examination conducted just five months ago confirmed [SIB’s] compliance with all areas 

of depositor safety and solvency, as well as all other applicable laws and regulations.  The FSRC 

has further confirmed through its continuous visits and supervision of [SIB] that there are no 

other issues or matters of concern with [SIB.]”  In fact, King knew there was no basis for this 

assurance. 

91. At or around the same time King was responding to the above-referenced 

inquires, Stanford and King, in concert with others, withheld information from the SEC, citing 

reliance on inapplicable bank secrecy laws in Antigua.    

92. During the same time period that King was accepting bribes from Stanford, the 

FSRC’s website assured potential investors that the regulator conducted annual on-site 

examinations of all Antiguan offshore banks (like SIB) to determine their solvency, to review the 

quality of their investments and to verify the accuracy of their returns.  The FSRC’s website also 

told investors that it performed “continuous off-site supervision in the form of an analysis of 

quarterly returns and annual audited financial statements, with follow-up on prescribed 

corrective actions.”  King knew that these representations were false with regard to the FSRC’s 

“oversight” of SIB. 

93. King, by virtue of the FSRC’s review of SIB’s market materials and annual 

reports, was also aware that SIB touted that the bank was subject to the FSRC’s audits, 

SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 

22 



 

 

 

 

 
 

regulatory inspections, and licensing requirements.  He knew that these representations were 

false. Moreover, SIB, SGC and SFG employees regularly told investors that their CDs were safe 

because of the FSRC’s audits, misrepresentations that would have been publicly debunked but 

for King’s misconduct.      

SGC and SCM’s Fraudulent Mutual Fund Sales 

94. From 2004 through 2009, SGC and SCM induced clients, including non-

accredited, retail investors, to invest in SAS, a proprietary mutual fund wrap program, by touting 

a fraudulent track record of “historical performance.”   

95. SGC/SCM highlighted the purported SAS track record in thousands of client 

presentation books (“pitch books”). For example, the following chart from a 2006 pitch book 

presented clients with the false impression that SAS accounts, from 2000 through 2005, 

outperformed the S&P 500 by an average of approximately 13 percentage points:   

96. SGC/SCM used these performance results to grow the SAS program to over $1 

billion in 2008. 

97. SGC/SCM also used the SAS track record to recruit financial advisers with 

significant books of business away from competitors.  After arriving at Stanford, the newly-hired 

financial advisers were incentivized to put their clients’ assets in the CD.  

SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 

23 



 

  

 

 

98. Other than the fees paid by SIB to SGC/SCM for CD sales, SAS was the most 

significant source of revenue for SGC/SCM.  In 2007 and 2008, SGC/SCM received 

approximately $25 million in fees from the marketing of SAS.   

99. The SAS performance results used in the 2005 through 2009 pitch books were 

fictional and/or inflated. SGC/SCM misrepresented that SAS performance results, for 1999 

through 2004, reflected “historical performance” when, in fact, those results were fictional, or 

“back-tested,” numbers that did not reflect the results of actual trading.   

100. SGC/SCM, with the benefit of hindsight, picked mutual funds that performed 

extremely well from 1999 through 2004, and presented the performance of those top-performing 

funds to potential clients as if they were actual returns earned by the SAS program.   

101. SGC/SCM also used “actual” model SAS performance results for 2005 and 2006 

that were inflated by as much as 4 percentage points.   

102. SGC/SCM told investors that SAS had positive returns for periods in which actual 

SAS clients lost substantial amounts.  In 2000, actual SAS client returns ranged from negative 

7.5% to positive 1.1%.  In 2001, actual SAS client returns ranged from negative 10.7% to 

negative 2.1%. And, in 2002, actual SAS client returns ranged from negative 26.6% to negative 

8.7%. 

103. SGC/SCM’s management knew that the advertised SAS performance results were 

misleading and inflated.  And they also knew that the pre-2005 track record was purely 

hypothetical. 

104. As early as November 2006, SGC/SCM investment advisers began to question 

why their clients were not receiving the returns advertised in the pitch books.  In response to 

SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 

24 



 

 

 

 

 

 

these questions, SGC/SCM hired an outside performance reporting expert to review the SAS 

performance results.   

105. In late 2006 and early 2007, the expert informed SGC/SCM that its performance 

results for the twelve months ended September 30, 2006 were inflated by as much as 3.4 

percentage points. Moreover, the expert informed SGC/SCM managers that the inflated 

performance results included unexplained “bad math” that consistently inflated the purported 

SAS performance results over actual client performance.  Finally, in March 2008, the expert 

informed SGC/SCM managers that the SAS performance results for 2005 were also inflated by 

as much as 3.25 percentage points.      

106. Despite its knowledge of the inflated SAS returns, SGC/SCM management 

continued using the pre-2005 track record and never asked the performance expert to audit the 

pre-2005 performance.  In fact, in 2008 pitch books, SGC/SCM presented the back-tested pre-

2005 performance data under the heading “Historical Performance” and “Manager Performance” 

alongside the audited 2005 through 2008 figures. SGC/SCM’s outside consultant testified that it 

was “misleading” to present audited performance figures alongside back-tested figures.      

107. Finally, as indicated the chart below, SGC/SCM blended the back-tested 

performance with audited composite performance to create annualized 5 and 7 year performance 

figures that bore no relation to actual SAS client performance:   

SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 

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108. As evidence by its use of fictional and/or inflated performance results in the pitch 

books, SGC/SCM knowingly misled investors in connection with the sale of SAS.     

CAUSES OF ACTION 

FIRST CLAIM
 
AS TO 


SIB, SGC, SCM, STANFORD, DAVIS, PENDERGEST-HOLT, LOPEZ AND KUHRT 

Violations of Section 10(b) of the Exchange Act and Rule 10b-5
 

109. Plaintiff Commission repeats and realleges paragraphs 1 through 108 above.   

110. SIB, SGC, SCM, Stanford, Davis, Pendergest-Holt, Lopez and Kuhrt, directly or 

indirectly, singly or in concert with others, in connection with the purchase and sale of securities, 

by use of the means and instrumentalities of interstate commerce and by use of the mails have: 

(i) employed devices, schemes and artifices to defraud;  (ii) made untrue statements of material 

facts and omitted to state material facts necessary in order to make the statements made, in light 

of the circumstances under which they were made, not misleading; and (iii) engaged in acts, 

practices and courses of business which operate as a fraud and deceit upon purchasers, 

prospective purchasers and other persons. 

SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 

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111. As a part of and in furtherance of their scheme, SIB, SGC, SCM, Stanford, Davis, 

Pendergest-Holt, Lopez and Kuhrt, directly and indirectly, prepared, disseminated or used 

contracts, written offering documents, financial statements, promotional materials, investor and 

other correspondence, and oral presentations, which contained untrue statements of material facts 

and misrepresentations of material facts, and which omitted to state material facts necessary in 

order to make the statements made, in light of the circumstances under which they were made, 

not misleading. 

112. SIB, SGC, SCM, Stanford, Davis, Pendergest-Holt, Lopez and Kuhrt made the 

referenced misrepresentations and omissions knowingly or with severe and gross recklessness. 

113. For these reasons, SIB, SGC, SCM, Stanford, Davis, Pendergest-Holt, Lopez and 

Kuhrt have violated and, unless enjoined, will continue to violate Section 10(b) of the Exchange 

Act [15 U.S.C. § 78j(b)] and Exchange Act Rule 10b-5 [17 C.F.R. § 240.10b-5]. 

SECOND CLAIM 

AS TO STANFORD, DAVIS, PENDERGEST-HOLT, LOPEZ, KUHRT AND KING 


Aiding and Abetting Violations of Exchange Act Section 10(b) and Rule 10b-5 


114. Plaintiff Commission repeats and realleges paragraphs 1 through 108 above.   

115. If Stanford, Davis, Pendergest-Holt, Lopez and Kuhrt did not violate Exchange 

Act Section 10(b) and Rule 10b-5, in the alternative, each in the manner set forth above, 

knowingly or with severe recklessness provided substantial assistance in connection with the 

violations of Exchange Act Section 10(b) [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. § 

240.10b-5] alleged herein. Likewise, King, in the manner set forth above, knowingly or with 

severe recklessness, provided substantial assistance in connection with the violations of 

Exchange Act Section 10(b) [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. § 240.10b-5] 

alleged herein. 

SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 

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116. For these reasons, Stanford, Davis, Pendergest-Holt, Lopez, Kuhrt and King aided 

and abetted and, unless enjoined, will continue to aid and abet violations of Section 10(b) of the 

Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. § 240.10b-5]. 

THIRD CLAIM 

AS TO 


SIB, SGC, SCM, STANFORD, DAVIS, PENDERGEST-HOLT, LOPEZ AND KUHRT 

Violations of Section 17(a) of the Securities Act
 

117. Plaintiff Commission repeats and realleges paragraphs 1 through 108 above.  

118. SIB, SGC, SCM, Stanford, Davis, Pendergest-Holt, Lopez and Kuhrt, directly or 

indirectly, singly or in concert with others, in the offer and sale of securities, by use of the means 

and instruments of transportation and communication in interstate commerce and by use of the 

mails, have: (i) employed devices, schemes or artifices to defraud; (ii) obtained money or 

property by means of untrue statements of material fact or omissions to state material facts 

necessary in order to make the statements made, in light of the circumstances under which they 

were made, not misleading; and (iii) engaged in transactions, practices or courses of business 

which operate or would operate as a fraud or deceit. 

119. As part of and in furtherance of this scheme, SIB, SGC, SCM, Stanford, Davis, 

Pendergest-Holt, Lopez and Kuhrt, directly and indirectly, prepared, disseminated or used 

contracts, written offering documents, promotional materials, investor and other correspondence, 

and oral presentations, which contained untrue statements of material fact and which omitted to 

state material facts necessary in order to make the statements made, in light of the circumstances 

under which they were made, not misleading. 

120. SIB, SGC, SCM, Stanford, Davis, Pendergest-Holt, Lopez and Kuhrt made the 

referenced misrepresentations and omissions knowingly or grossly recklessly disregarding the 

truth. 

SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 

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121. For these reasons, SIB, SGC, SCM, Stanford, Davis, Pendergest-Holt, Lopez and 

Kuhrt have violated, and unless enjoined, will continue to violate Section 17(a) of the Securities 

Act [15 U.S.C. § 77q(a)]. 

FOURTH CLAIM
 
AS TO STANFORD, SGC, AND STANFORD CAPITAL 


Violations of Sections 206(1) and 206(2) of the Advisers Act


 122. Plaintiff Commission repeats and realleges paragraphs 1 through 108 above. 

123. Stanford, SGC and SCM, directly or indirectly, singly or in concert with others, 

knowingly or recklessly, through the use of the mails or any means or instrumentality of 

interstate commerce, while acting as investment advisers within the meaning of Section 202(11) 

of the Advisers Act [15 U.S.C. § 80b-2(11)]: (i) have employed, are employing, or are about to 

employ devices, schemes, and artifices to defraud any client or prospective client; or (ii) have 

engaged, are engaging, or are about to engage in acts, practices, or courses of business which 

operates as a fraud or deceit upon any client or prospective client. 

124. For these reasons, Stanford, SGC and SCM have violated, and unless enjoined, 

will continue to violate Sections 206(1) and 206(2) of the Advisers Act [15 U.S.C. §§ 80b-6(1) 

and 80b-6(2)]. 

FIFTH CLAIM
 
AS TO STANFORD, DAVIS, PENDERGEST-HOLT, LOPEZ, KUHRT AND KING 


Aiding and Abetting Violations of Sections 206(1) and 206(2) of the Advisers Act
 

125. Plaintiff Commission repeats and realleges paragraphs 1 through 108 above.  

126. Based on the conduct alleged herein, Stanford, Davis, Pendergest-Holt, Lopez, 

Kuhrt, and King, in the manner set forth above, knowingly or with severe recklessness provided 

substantial assistance in connection with the violations of Advisers Act Sections 206(1) and 

206(2) [15 U.S.C. §§ 80b-6(1) and 80b-6(2)] alleged herein.    

SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 

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127. For these reasons, Stanford, Davis, Pendergest-Holt, Lopez, Kuhrt, and King 

aided and abetted and, unless enjoined, will continue to aid and abet violations of Sections 

206(1) and 206(2) of the Advisers Act [15 U.S.C. §§ 80b-6(1) and 80b-6(2)].   

SIXTH CLAIM
 
AS TO SIB AND SGC 


Violations of Section 7(d) of the Investment Company Act
 

128. Plaintiff Commission repeats and realleges paragraphs1 through 108 above.   

129. SIB, an investment company not organized or otherwise created under the laws of 

the United States or of a State, directly or indirectly, singly or in concert with others, made use of 

the mails or any means or instrumentality of interstate commerce, directly or indirectly, to offer 

for sale, sell, or deliver after sale, in connection with a public offering, securities of which SIB 

was the issuer, without obtaining an order from the Commission permitting it to register as an 

investment company organized or otherwise created under the laws of a foreign country and to 

make a public offering of its securities by use of the mails and means or instrumentalities of 

interstate commerce. 

130. SGC, directly or indirectly, singly or in concert with others, acted as an 

underwriter for SIB, an investment company not organized or otherwise created under the laws 

of the United States or of a State that made use of the mails or any means or instrumentality of 

interstate commerce, directly or indirectly, to offer for sale, sell, or deliver after sale, in 

connection with a public offering, securities of which SIB was the issuer, without obtaining an 

order from the Commission permitting it to register as an investment company organized or 

otherwise created under the laws of a foreign country and to make a public offering of its 

securities by use of the mails and means or instrumentalities of interstate commerce. 

SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 

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131. For these reasons, SIB and SGC have violated, and unless enjoined, will continue 

to violate Section 7(d) of the Investment Company Act [15 U.S.C. § 80a-7(d)]. 

SEVENTH CLAIM 

AS TO RELIEF DEFENDANTS
 

132. Plaintiff Commission repeats and realleges paragraphs1 through 108 above.   

133. Relief Defendants each were recipients, without consideration, of proceeds of the 

fraudulent and illegal CD sales alleged herein. Each of these Relief Defendants profited from the 

fraud by obtaining illegal proceeds under circumstances in which it is not just, equitable, or 

conscionable for them to retain the illegal proceeds. Consequently, each of them has been named 

as a Relief Defendant. 

134. Relief Defendants should disgorge their ill-gotten gains and any other property or 

assets purchased with such gains. 

RELIEF REQUESTED 

Plaintiff Commission respectfully requests that the Court: 

I. 

Temporarily, preliminarily and permanently enjoin: (i) SIB, SGC, SCM, Stanford, Davis, 

Pendergest-Holt, Lopez, Kuhrt, and King from violating, or aiding and abetting violations of, 

Section 10(b) and Rule 10b-5 of the Exchange Act; (ii) SIB, SGC, SCM, Stanford, Davis, 

Pendergest-Holt, Lopez and Kuhrt from violating Section 17(a) of the Securities Act; (iii) SGC, 

SCM, Stanford, Davis, Pendergest-Holt, Lopez, Kuhrt and King from violating, or aiding and 

abetting violations of, Sections 206(1) and 206(2) of the Advisers Act; and (iv) SIB and SCG 

from violating Section 7(d) of the Investment Company Act. 

SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 

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II.
 

Order Defendants and Relief Defendants to disgorge an amount equal to the funds and 

benefits they obtained illegally as a result of the violations alleged herein, plus prejudgment 

interest on that amount. 

III.

 Order civil penalties against Defendants pursuant to Section 20(d) of the Securities Act 

[15 U.S.C. § 77t(d)], Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)], Section 41(e) of 

the Investment Company Act [15 U.S.C. § 80a-41(e)], and Section 209(e) of the Advisers Act 

[15 U.S.C. § 80b-9(e)] for their securities law violations. 

IV. 

Order such further relief as this Court may deem just and proper. 

Dated June 19, 2009 Respectfully submitted,  

s/ David B. Reece 
      STEPHEN J. KOROTASH 
      Oklahoma Bar No. 5102 

J. KEVIN EDMUNDSON 
      Texas Bar No. 24044020 
      DAVID B. REECE 
      Texas Bar No. 24002810 
      MICHAEL  D.  KING
      Texas Bar No. 24032634 
      D. THOMAS KELTNER
      Texas Bar No. 24007474 
      JASON  ROSE
      Texas Bar No. 24007946 

U.S. Securities and Exchange Commission 
Burnett Plaza, Suite 1900 
801 Cherry Street, Unit #18 
Fort Worth, TX  76102-6882 
(817) 978-6476 (dbr) 
(817) 978-4927 (fax) 

SEC v. Stanford International Bank, Ltd., et al. 
Second Amended Complaint 

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