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Sir Allen’s FCPA Mystery

The Texas billionaire with a Caribbean knighthood and a passion for cricket was charged by U.S. prosecutors on Friday with running a “massive ponzi scheme” through his bank in Antigua. Allen Stanford, 59, faces 21 charges that could send him to prison for 250 years, including mail and wire fraud, money laundering, and conspiracy to mislead the Securities and Exchange Commission.

Included in the federal criminal indictment unsealed Friday and the SEC’s amended civil complaint are allegations that Stanford paid $100,000 in bribes* to Leroy King, the former head of Antigua’s banking watchdog, the Financial Services Regulatory Commission. In return, prosecutors say, King, 63, staged phony audits of Stanford’s bank, lied to the SEC about how the bank was being run, and leaked confidential information to Stanford about the SEC’s investigation. In other words, Stanford knowingly made corrupt payments to a foreign official to obtain or retain business or gain an unfair advantage.

Wait a minute. That sounds exactly like a violation of the Foreign Corrupt Practices Act. So why wasn’t Stanford charged under the FCPA? The Justice Department isn’t saying. But a few reasons come to mind.

#1. The prosecution’s case works better without an FCPA count. Stanford isn’t the only one charged. Indicted with him are Laura Pendergest-Holt, Gilberto Lopez and Mark Kuhrt, all officers in his bank. And there’s Leroy King himself, Stanford’s alleged mole in Antigua’s banking regulator.

They’re all charged with one count of conspiracy to commit mail, wire and securities fraud; seven counts of wire fraud; ten counts of mail fraud; and one count of conspiracy to commit money laundering. The indictment also charges Stanford, Pendergest-Holt, and King with conspiracy to obstruct an SEC proceeding.

(Facing the same charges through a separate indictment is another company officer, James Davis. And an employee, Bruce Perraud, is separately accused of destroying records related to a federal investigation.)

It makes sense for the government to put Stanford, Pendergest-Holt and King on trial together. They’re all part of the same alleged plot to mislead the SEC and derail its investigation. But if Stanford had been charged with violating the FCPA, King could probably demand a separate trial. He can’t be charged under the FCPA for taking bribes, and would likely argue he doesn’t belong in a trial that includes an FCPA count against someone else.

The government says King’s role in the alleged conspiracy was crucial.** So splitting him from the others would leave an empty chair at the defense table and a big hole in the prosecution’s case against Stanford. Having him in the courtroom will complete the picture and help the jury get it.

#2. Leroy King is an American. According to the SEC’s complaint, he’s a citizen of the United States as well as Antigua and Barbuda, West Indies. Can an American citizen be a “foreign official” under the FCPA? If not, then there’s no FCPA violation.

The law itself doesn’t exclude the possibility of an American being a “foreign official.” In fact, there’s nothing there about nationality.***

Still, if Stanford were charged under the FCPA because of his alleged payments to King, it would be the first time, we think, where the “foreign official” in an enforcement action is an American with dual citizenship. Do Stanford’s prosecutors want to be first to tackle an oddity like that? We doubt it. Foreign means foreign, Stanford might argue, and it doesn’t mean American. The dictionary supports that argument, and in the FCPA’s legislative history, it’s unlikely anyone was talking about Americans as “foreign officials.”

Bottom line: The DOJ wants to put Stanford and the others behind bars, not press for a funky new FCPA precedent that could result in years of appeals all the way to the Supreme Court.

#3. Prosecutors don’t need the FCPA in this case. With Stanford already facing up to 25o years in prison, would another 5 years on an FCPA count really matter? So why risk sending the co-conspirators into separate trials and injecting the American foreign official controversy into an otherwise clean prosecution? Besides, the government doesn’t need the FCPA count to introduce evidence about the alleged bribery. Arrangements between Stanford and King are at the heart of the case already so relevance won’t be an issue.

King, by the way, is apparently in Antigua. U.S authorities plan to extradite him.

View the DOJ’s June 19, 2009 release here.

Download the June 18, 2009 indictment in US v. Robert Allen Stanford aka Sir Allen Stanford et al here.

View the SEC’s Litigation Release No. 21092 / June 19, 2009 in SEC v. Stanford International Bank, Ltd., et al., Civil Action No. 3:09-cv-0298 (N.D. Texas, February 17, 2009) here.

Download the SEC’s Second Amended Complaint in SEC v. Stanford International Bank, Ltd., et al. here.

View the Houston Chronicle’s excellent full coverage of Stanford from Mary Flood, Tom Fowler and Jennifer Dlouhy here.

View our post Sir Allen And The FCPA.


* The SEC complaint says, “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 [Stanford International Bank] 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.”

** The SEC said, “[Leroy King] facilitated the Ponzi scheme by ensuring that the FSRC [Financial Services Regulatory Commission] conducted sham audits and examinations of SIB’s [Stanford International Bank’s] books 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 on him, including the SEC’s requests for information from FSRC in its investigation. King went so far as to allow Stanford to essentially dictate the FSRC’s responses to the SEC on those information requests. King made false assurances that there was no cause for concern about Stanford International Bank. He collaborated with Stanford to withhold significant information being requested by the SEC.”

*** The FCPA says, The term “foreign official” means any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization.

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