Will an Autopsy of Allen Stanford find a heart?

Autopsies of the rich and infamous.  Forensic accountants will play a prominent role in documenting the case against Allen Stanford in court.

Stanford was the Chairman of the Board of the privately held, wholly owned, Stanford Financial Group of Companies.  On February 17, 2009, Stanford was charged by the U.S. Securities and Exchange Commission (SEC) with fraud and multiple violations of U.S. securities laws for an alleged “massive ongoing fraud” involving $8 billion in certificates of deposits.  The SEC described the alleged fraud as a “massive Ponzi scheme”.  The FBI raided three of Stanford’s offices and he was arrested on June 18, 2009.

Stanford and his co-defendants are charged with defrauding investors who purchased around $7 billion in certificates of deposit administered by Stanford International Bank. The company allegedly misappropriated most of those assets, including more than $1.6 billion for personal loans to Stanford himself, according to the government indictment.

The biggest challenge for forensic accounts will be gathering the records to document the fraud. There are millions of computer files and electronic documents that must be forensically preserved and duplicated.  The prosecution has said that it had established a searchable computer database with 4.1 million records and that it expects to add at least another 1.5 million documents.

Such a lovely place for an ugly fraud.

Insurance policies, depreciation schedules, tax returns and loan applications will be used to identify missing assets. Gathering these records is especially challenging in an international case like Stanford’s.  The company’s headquarters is in Antigua, and investors lived in more than 100 countries and did business in branch offices located in the U.S. and overseas.

The funds moved from country to country.  It will be quite a challenge to follow the money trail.  Many records are missing and/or have been destroyed.  Forensic accountants will need to reconstruct the financial and accounting transactions. Once the money and asset story has been reconstructed, forensic accountants need to tell that story.

Allen is in a metaphorical but very serious sticky wicket.

The tactic of “following the money” has a long pedigree in law enforcement as a tool to convict criminals.  Al Capone was finally convicted of income tax evasion as a result of an intense forensic examination.  Forensic accountants will work with government investigators to very specifically identify Stanford’s behavior patterns.  His lifestyle, his selling allies, and his asset acquisitions will be investigated in detail to identify anomalies. The forensic accountants will examine what not only what is in Stanford’s financial records that shouldn’t be there, but will also look for what is not there that should be.

Once a huge fraud has been discovered, like this case and the $65 billion the Madoff case, then the costs grow exponentially because of the tremendous expense of the lawyers and forensic accountants.  Allen Stanford’s defense attorneys have said it may take a year to prepare his defence.  However, it is a necessity that the wrongdoing of fraudsters and other criminals be fully uncovered.