Turk File

Turk File - September 2009

by Leslie Turk

Stanford whistleblower testifies in BR

When Stanford financial adviser Leyla Wydler of Houston could not get answers from her bosses about the safety of the so-called CDs issued by the company’s unregulated Stanford International Bank, she refused to sell CDs to her clients. “Whenever I asked if the bank had insurance to protect customer deposits, I was told SIB was covered by Lloyds of London,” Wydler told members of the Senate Banking Committee at an Aug. 17 field hearing in Baton Rouge. “With a little research, I learned that the policies provided by Lloyds were for directors’ and officers’ liability insurance, and for excess FDIC insurance to protect Stanford’s own accounts at other deposit institutions, but not to protect clients’ deposits.”
Wydler made the decision to forgo the high commissions and praise the company showered on its advisers who sold the CDs in return for doing what her clients trusted her to do: look out for their best financial interests. For that, she was terminated. “The financial advisers who sold CDs were praised and compensated for doing so, and those who did not sell the CDs were fired,” Wydler said. 
But Wydler did not go quietly. At least she tried to not go quietly. Wydler could not get securities regulators, including FINRA and the SEC, to listen to her allegations and suspicions that the company was running a Ponzi scheme. Only since the SEC shut the various Stanford entities down in February has she been able to get her story out to unfortunate investors, many of whom lost their life savings. Those investors would not be in the position they are in today had someone, anyone, paid attention to her six years ago.
Though it’s long overdue, Wydler got the respect she deserved in Baton Rouge when some 400 Stanford investors gave her a standing ovation as she testified in connection with what the SEC has characterized as an $8 billion “fraud of shocking magnitude that has spread its tentacles throughout the world.” In Louisiana alone, primarily Baton Rouge and Lafayette, the losses are estimated to be $1 billion.
The field hearing of the Senate Banking Committee was called by U.S. Sen. David Vitter. Financial regulators, a law professor and victims of the alleged fraud, including Troy Lillie of Maurice, also testified. He said his adviser assured him that putting all of his lump sum IRA retirement payout and cash savings into SIB CDs was the safest and best investment. “We were told Stanford Trust had insurance policies that would cover our IRA investments. We were told that Stanford Group also had a bank in Antigua, and we were told it offered a very safe, solid and liquid CD investment because the bank did not expose itself to high risk investments or make loans subjecting it to losses and market volatility other banks face.” As late as November 2008, Lillie said his adviser’s office told him the bank was rock solid, the safest place to have his money.
Wydler told a much different story. Below are excerpted quotes of the compelling testimony she delivered in Baton Rouge:
• Financial advisers were praised for selling CDs and neglected for selling other investments, which I found was deceptive and inappropriate. We were constantly bombarded with e-mails to bring more deposits to the bank. Teams from different offices around the U.S. were formed to compete with one another in selling the CDs, and the winners were praised and incentivized. The Houston office team was called the Texas Tequila Twisters, and our objective was to raise $2 million dollars of deposits per year, per financial adviser.
• Every time a financial adviser opened a sizable CD, management would send e-mails of praise to everyone. If that adviser opened an equally sizable account at Bear Stearns, management was indifferent. Whenever an adviser reached 1 million dollars in deposits at SIB, a free trip to Antigua was granted.
• In 2001, the downturn of the U.S. securities markets motivated Stanford to sell the offshore CDs to U.S. accredited investors, exempt through regulation D. At that time, a new wave of pressure was applied to all financial advisers to solicit U.S. prospects by promoting meetings and events sponsored by Stanford.
• After that, it was all about selling CDs, either to foreign or U.S. investors. It seemed to me that other investments like equities, bonds, mutual funds or annuities, were intended to allow for the bringing of clients to Stanford Group, with the purpose of later reallocating their assets into the CDs.
• As a securities representative, I was always trained to diversify my clients’ portfolio and to review it for suitability. Investing most of the portfolio in a single offshore investment did not fulfill those requirements.
• Although the SIB deposits were touted as safe fixed income investments, the proceeds were subsequently invested in high risk volatile markets, like the stock market, the options market, the futures market, real estate market, and the currency markets. This was not congruent with a prudent investment policy. Management’s response to this issue was that the bank’s portfolio was managed like a hedge fund, which immediately suggested to me high risk.
• There was no reputable accounting firm auditing the financial statements of SIB. On several occasions I requested a portfolio appraisal of SIB’s assets that would give proof to the real value of its holdings. I was told that it was confidential information. This was an inconsistent practice with other financial institutions that provide their investors with detailed portfolio appraisals verified by an external auditor.
• The always high returns consistently indicated in the annual reports did not conform to the reality of the markets, and therefore made them suspicious. 
• On Nov. 1, 2002, I was called into Mr. [Jay] Comeaux’s office and told my employment was being terminated.
• To make matters worse, SGC filed a claim with the NASD to return the unforgiving portion of the promissory note, confiscated my personal Bear Stearns account, took possession of my clients and distributed them among other financial advisers. 
• SGC’s claim and my counter claim were resolved in front of an NASD arbitration panel. SGC wanted me to reimburse the unforgiven portion of the signing bonus. I claimed wrongful termination and under the whistleblower act [and] requested the NASD to investigate my allegations.
• The arbitrators were indifferent about my allegations and the award was given in favor of Stanford. ... No due diligence was done on their part to prove my allegations were unfounded. Had they done so, they would have requested at least portfolio appraisals verified by a reputable third party to prove me wrong