Former investors in Stanford Financial Group have filed suit against BDO USA and BDO International, claiming the auditing firm knowingly participated in imprisoned Texas financier Allen Stanford’s multibillion-dollar Ponzi scheme.
Stanford, a former gym owner from Mexia, Texas, built a financial services empire that at its height boasted 30,000 customers in 130 countries managing billions of dollars in investment funds. Stanford Financial had its headquarters in Dallas, but it also created an offshore bank on the island of Antigua that sold over $7 billion in certificates of deposit through a web of Stanford-connected companies around the world starting in the mid-1980s.
The scheme ultimately collapsed in the wake of the financial crisis in late 2008 and early 2009, and the SEC filed a complaint against Stanford Group Company, the Antigua-based Stanford International Bank Limited, and various other entities controlled by Stanford (see Stanford Indicted in $7 Billion Ponzi Scheme).
The class-action lawsuit, filed Thursday in a Dallas federal court, claimed that BDO audited SGC, the Texas-based broker/dealer and investment advisor that recommended and sold SIBL’s fictitious CDs to investors. In addition, BDO audited the annual financial statements of Stanford Group Holdings, and provided other critical services to SIBL.
“Despite the pervasive fraud that infected Stanford Financial Group’s operations, BDO repeatedly issued unqualified audit opinions on its Stanford clients’ annual financial statements,” said the complaint.
A BDO spokesman forwarded the firm’s response to the Stanford litigation with a statement claiming the firm never acted as auditor for one of the Stanford banks.
“BDO was never the auditor of Stanford International Bank—the entity where this fraud took place,” said the statement. “That very important fact and the timing of this complaint—years after the Stanford fraud came to light and after many other investor complaints were filed—reflects a transparent understanding that these allegations lack merit.”
The lawsuit also accused BDO of playing a significant role in weakening Antigua’s banking laws as a member of the “Stanford Task Force,” a group that Stanford funded and organized in order to rewrite Antigua’s banking laws and seize control of its banking regulators. The task force ultimately succeeded in weakening Antigua’s regulatory regime and effectively eliminated SIBL’s Antiguan competitors.
Stanford was arrested in June 2009 and imprisoned, but he has not yet faced trial as his trial date has been postponed due to poor health and injuries sustained in a prison fight. He has gone back and forth between the prison system and area hospitals since his arrest.
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