SEC: Stanford ‘inflated’ fund wrap results

In addition to allegedly promoting fraudulent certificates of deposit, the Securities and Exchange Commission today charged that Houston-based business man Allen Stanford and his financial companies also falsely promoted the Stanford Allocation Strategy fund mutual fund wrap program. In 2000, Stanford Capital Management LLC claimed an 18.04% return, when the actual returns of the program’s investors ranged from 1.1% on the upside to a loss of 7.5%. In 2001, investors in the program, at best, lost 2.1%, but the firm claimed a positive 4.32% return. In 2002, the wrap clients suffered losses of between 8.7% and 26.6% but the firm showed a loss of only 3.33%, according to the SEC's complaint. The firm inflated the program’s returns by as much as 4% in 2005 and 2006, according to the SEC. It wasn’t immediately clear whether the complaint meant 4 percentage points. Furthermore, Stanford Capital Management misleadingly presented hypothetical performance for the wrap program from 1999 through 2004 as “historical performance,” the SEC said, and showed these figures side by side with the claimed actual results. As early as November 2006, advisers at Stanford began to question the performance numbers, the complaint said. An expert hired by Stanford Capital confirmed that performance had been inflated, but Stanford management continued to use faulty numbers, the SEC said. The complaint said the firm gave thousands of presentations about the wrap program to investors, and used the program to recruit brokers. The $1.2 billion program had less than $10 million in 2004, the SEC complaint said. The SEC claimed the fund wrap program was the second most significant source of revenue for the firm, next to its CD business. Brian Bertsch, a Stanford spokesman, did not immediately return a call. The SEC's Fort Worth, Texas, office, which is handling the case, did not immediately return a call.