During a week so miserable that not even Southwest Airlines could help you get away, about the only good news you got if you were a Stanford Group executive or adviser is that the federal government ordered you to keep your yap shut.
Being told by the feds that they not only have the right, but the mandate, to remain silent is saving them a lot—I mean a lot—of embarrassing phone calls.
“Uh, excuse me Mr. [insert name], how is everything today? By the way, remember that $4.2 million you reinvested in our CDs last December? Well, uh, it’s all gone.”
What exactly went down at Stanford Group, which earlier this week was charged with a “fraud of shocking magnitude” over the sale of its high-yield certificates of deposit, is something the Securities and Exchange Commission and other federal and legal authorities will spend the coming weeks and months sorting out. Then there will be the lawsuits—lots of them.
What we know right now is that the human toll is very real—and it’s being felt particularly hard in Baton Rouge, the city where Stanford’s investment division was born in the 1990s when a couple of former Merrill Lynch brokers hooked up, through a relative, with a Texas billionaire to form Stanford Group.
How much local money is invested with the company isn’t known for certain. Area financial executives estimate between $200 million and $300 million is in the CDs under investigation and that Stanford’s entire Baton Rouge book is close to $1 billion. Moreover, they believe that Lafayette area investors have as much as $250 million in those CDs. The CD investments are probably gone, the best-case scenario being clients recovering 30 cents on the dollar. Think about it: roughly half-a-billion dollars has likely disappeared in an instant.
When the list of investors goes public—and it will—you’ll see a mix of the rich and [by B.R.’s standards] famous, as well as those folks Sarah Palin likes to call Joe Six-Packs, those working-class people who trusted Stanford Group to make the most of their hard-earned retirement savings. In a one-degree-of-separation city like Baton Rouge, I’ll bet Les Miles’ salary [assuming he’s willing to give it up] that you know at least one person on the list.
Perhaps you’ll know the ExxonMobil retiree, who, liking what he heard during a seminar pitch, trusted a Stanford broker to protect his $750,000 retirement savings. The adviser, according to a source, put $500,000 in CDs and $250,000 in mutual funds. Well, the half-mil is probably gone forever and the free-falling stock market has reduced his mutual fund holdings to $110,000. One federal raid later and a family’s $750,000 is reduced to $110,000—and falling.
I could give a damn about the fraud known as Sir Robert Allen Stanford, his gold-plated helicopter and multi-million dollar cricket tournaments. That Exxon retiree and the scores of others like him are the face of this scandal.
So is the successful businessman who’s recently been selling off assets and putting much of the proceeds in those CDs.
So, too, are the philanthropist and the people he wants to help who just saw a $1.2 million foundation wiped from the books.
Then there are the musicians, actors, artists and dancers whose talent we all enjoy, in part, because of Stanford Group’s generous contributions to the arts.
There’s the hundreds of other wealth advisers in this town, reputations already sullied by the wrath of national financial scandals, having to work that much harder to earn a client’s trust.
These people are just a small sampling of the human price Baton Rouge is paying over the Stanford scandal.
I get it’s difficult right now to have much sympathy for the local Stanford executives and advisers who were so richly rewarded for their role, however big or small, in perpetuating what the SEC claims is a “massive fraud.” Still, how would you like to trade places with them right now?
Our office is in the same building as Stanford’s Baton Rouge operations and I happened to be standing outside just before lunchtime on Feb. 17 when Grady Layfield, whose mother once worked at Business Report, and other Stanford employees were told to go home. Each of them trudged from the building, their faces ashen with a look of devastating shock. Their investment careers are likely over—forever.
Sure, I wanted to scream, “How could you not have known?” Yet, at that moment, the only feeling was empathy.
The list of victims is long and will only grow longer. The only winners, as is usually the case, will be the lawyers.