Stanford Financial: How to buy a reputation
How the allegedly fraudulent firm showered cash in order to gain respectability and influence.
NEW YORK (Fortune) -- The life of Sir Allen Stanford, the cricket and polo-loving financier who is being investigated for a potential Ponzi scheme, is a case study in how to buy respectability and influence.
In his adopted island nation, Antigua and Barbuda, where he was knighted and where his offshore bank is located and employs many, Stanford established his method of building up confidence and exceptional influence. By spending on local sporting events and charities, he cozied up with island politicians who let him run his fast-growing bank there in relative peace.
Stanford's cash curried favor in the U.S. too. From Memphis to Houston to Miami, money flowed from the financier and Stanford Financial Group to political campaigns, golf tournaments and art museums. His apparent goals? Less regulation of offshore banks; a quickly built philanthropic reputation in cities where the company had business; and thousands of trusting investors in $8 billion worth of what authorities say are fraudulent certificates of deposit.
While most corporations pursue a public relations strategy for similar ends -- building trust, influencing regulation and raising money from investors -- what makes Stanford notorious is the length it was pursued for an allegedly fraudulent operation. (The Securities and Exchange Commission has filed a civil suit in the case, but only a chief investment officer, not Stanford, has been arrested on a criminal charge. Stanford has not responded to the SEC complaint, and all requests for comment from the company were referred to the SEC).
"It can backfire, but it is standard operating procedure for money to buy influence and potentially skew policy," says Sheila Krumholz, executive director of the Center for Responsive Politics (CRP), a watchdog group. "This guy is part of a very elite set of Americans that can afford to do this."
Political contributions were a key part of Stanford's strategic giving strategy. Since 1999, Stanford and his companies gave more than $2.4 million in contributions to federal candidates, parties and leadership political action committees, according to CRP. The company also reported that it has spent $4.8 million on lobbying efforts (hiring its own lobbyists and paying an outside firm) since 1999.
CRP says that, according to the filings, Stanford hired lobbyists to lobby, incredibly, on the Financial Services Antifraud Network Act in 2002, which is also the year that Stanford's political contributions peaked. The bill would have created a computer network linking the databases of state and federal banking, securities and insurance regulators to curb financial fraud; the legislation died in the Senate. And, according to the blog Talking Points Memo, Stanford paid an outside lobbying firm to lobby on "issues related to banking" in 2007, the same year that the Stop Tax Haven Abuse Act, which would have closed tax loopholes and required businesses to disclose more information on their offshore operations, also failed to pass.
Politicians distanced themselves from Stanford immediately after the SEC investigation was announced in February. Florida Democrat Bill Nelson, a member of the Senate Committee on Finance and the top recipient of Stanford-tied cash, said the approximately $45,000 he took will be going to charity.
"Bill has told [his campaign] he wants every thin dime associated with Stanford returned to a charity or used in some way that could help folks who were deceived by this guy," said Dan McLaughlin, a spokesman, in a statement to Fortune, echoing a move by Senator John McCain, Representative Charles Rangel and others.
Philanthropy was another way Stanford and his company built trust and gained influence. Stanford's companies gave heavily to non-profits in the cities where they had the most business, especially Houston and Memphis. The financial group's website trumpets its dozens of charitable commitments, including millions of dollars given to the St. Jude Children's Research Hospital (Memphis), the Museum of Fine Arts (Houston), the Kiwanis Club of Little Havana Foundation (Miami), and the Pan American Development Foundation (Washington, D.C.).
"Everything they gave to they did with the intention of getting their name on something," says Robert Fockler, president of the Community Foundation of Greater Memphis. "The amount of money they were throwing around was huge. I mean it was millions of dollars when nobody really knew who they were...people were certainly happy to have the funds but it did make you scratch your head a little."
The effects of the SEC investigation are already being felt by dozens of charities that accepted money from Stanford. No organizations said they were crippled, but the Houston Arts Alliance just put its Stanford Financial Excellence in the Arts awards on hold; Playhouse on the Square in Memphis isn't sure if a promised $175,000 will come in; and the National Civil Rights Museum, also in Memphis, isn't sure if it can expect any more funds, even through James Davis, Stanford's CFO, is on the board. And many others have one less source to turn to.
"If you kicked the tires, it looked pretty good, but there was always suspicion," says Henry Brenner, who worked in the Memphis financial services industry for 38 years and says he watched Stanford Financial court influence in town through philanthropy and sports. "Their game plan throughout the country was to go into each city...and help 'em with the nonprofits. Once you do that you look like you're part of the community--looks like you been there for years."
Sports sponsorships also helped Stanford build his brand among wealthy potential investors. The financial group put their name and logo on sports teams and stadiums in the markets that mattered to their business, focusing on the sports favored by the wealthy: golf, polo, tennis and sailing.
Stanford sponsored golfer Vijay Singh as well as two tournaments, LPGA Tour's Stanford International Pro-Am in Houston and the Stanford St. Jude Championship in Memphis. There are also advertising signs in National Basketball Association arenas in Houston and Miami; Stanford is a host sponsor of the 2009 Sony Ericsson Open in Key Biscayne, Fla., a major tennis tournament; and there's even "Stanford Field" at the International Polo Club in Palm Beach, Fla. Representatives from most of the venues say they are following the SEC investigation to see if the sponsorship contracts will change. So far, most are still in place.
The business goals of such sponsorships were public. Suzanne Hamm, a Memphis-based marketing executive with the financial group, put it this way in September 2006: "We don't want to be one of many names," she told Memphis Business Journal for a story about sports sponsorships. "We look for things we can leverage to potential and existing clients." Hamm didn't respond to Fortune's requests for comment. Besides the alleged fraud, Stanford's not-so-subtle links between marketing and giving irks some.
"Companies that cater to the ultra-high net worth tend to make donations to the kinds of organizations and causes that their clients are most involved in," says Melissa Berman, president and CEO of Rockefeller Philanthropy Advisors, a consultancy to donors. But what's worrisome she notes, is when that funding is coming from a dubious source.