A Financial Investigation Touches the NBA

February, 12, 2009
2/12/09
5:39
PM ET

It's a funny time, right now, isn't it? A lot of financial things that never made it into the papers are making it into print now. I mean, some time ago, we would have had no way of knowing that singer John Denver, baseball legend Sandy Koufax, and actor John Malkovich all invested with the same firm. But now it's all over the newspaper that all three were among the big names who had entrusted their money to Bernard Madoff.

Now some NBA names are entering the public eye for their connections to a different financial firm. There's no evidence of wrongdoing, but Matthew Goldstein of Business Week tells the story of Allen Stanford, whose firm is under investigation.

Stanford's firm sponsors the Miami Heat, and Stanford himself was a key contributor to Eduardo Najera's charity.

Financier R. Allen Stanford makes investors an enticing offer: He sells supposedly super-safe certificates of deposit with interest rates more than twice the market average. His firm says it generates the impressive returns by investing the CD money largely in corporate stocks, real estate, hedge funds, and precious metals.

But skeptical federal and state regulators are now taking a hard look at Stanford's operation-especially those CDs, whose underlying investments seem questionable. Over the past 12 months, the stock market and hedge funds have lost huge amounts of value even as Houston-based Stanford Financial Group continued to pay out above-average returns and claimed to have boosted the assets it oversees by 30%, to more than $50 billion.

BusinessWeek has learned that the Securities & Exchange Commission, the Florida Office of Financial Regulation, and the Financial Industry Regulatory Authority, a major private-sector oversight body, are all investigating Stanford Financial. The probes focus on the high-yield CDs and the investment strategy behind them. According to people close to the investigations, the three agencies are also looking at how Stanford Financial could afford to give employees large bonuses, luxury cars, and expensive vacations. Selling CDs typically is a low-margin business.

The story is worth a read. There are lots of good specifics -- ex-employees who question the firm's returns, an accounting firm no one has heard of, a private jet with the firm's logo in gold on the toilet seat, and a really odd story about the firm's founder being photographed with a cricket player's wife on his lap.

There is also a case, made forcefully by a firm spokesman, that there is nothing suspicious going on.

Stanford Financial is wrapped up in all kinds of sports stuff (look at the firm's press releases -- there's as much cricket, tennis, golf, and soccer as there is, you know, business), including being a major sponsor of the Miami Heat. From a February 2007 Stanford Financial press release:

The 2006 NBA Champion Miami HEAT announced today that they have entered into an agreement with Stanford Financial Group, a global financial services company, for a multi-year naming rights sponsorship. As part of the agreement, Stanford owns the naming rights to the exclusive Gate 4 V.I.P. entrance of the AmericanAirlines Arena through which players, celebrities, professional athletes and dignitaries are greeted. Additionally, the sponsorship includes a hospitality package and courtside rotational signage. The exclusive entrance was renovated and redesigned to include flat-screen plasma TVs and concierge services for its high-level clients.

"Guests entering the AmericanAirlines Arena by way of the Stanford Financial entrance will be struck by the elegance of the surroundings, the intimacy of the ambience and the level of personalized assistance," said Eric Woolworth, HEAT President of Business Operations. "The entire experience is indicative of the culture we've crafted at the HEAT Group of superior service-one clearly shared by our partner, Stanford Financial."

Stanford will also be the co-presenting sponsor of the Miami HEAT Family Festival, the team's largest annual fundraiser. The 2006-07 season marks the 10th year of the Family Festival, an interactive, carnival-like celebration in which HEAT players, coaches, celebrities and hundreds of families enjoy a day of family and fun.

PR Newswire also has this tale, from 2004:

Stanford Financial Group's (SFG) CEO, R. Allen Stanford, announced that he is donating $100,000 and joining Dallas Mavericks' star Eduardo Najera in launching the Eduardo Najera Foundation for Latino Achievement, which will provide college scholarships for outstanding Latino students facing barriers to their educations.

Mr. Stanford's gift, the first to the Foundation, was presented at a halftime ceremony during yesterday's game between the Mavericks and the Cleveland Cavaliers.

"Eduardo Najera's inspirational effort to overcome language barriers to obtain a college education and star in the NBA epitomizes the central role of education in Latino achievement," said R. Allen Stanford. "I am especially committed to the development of the region and its most precious resource -- its young people. I am proud to be part of his efforts. This foundation is an effort to give back by helping a new generation of outstanding Latino students achieve their own educational and career aspirations."

Eduardo added, "I deeply appreciate Mr. Stanford's generosity. I had a dream and the establishment of the Foundation helped make it a reality. If we make a difference in just one child's life, it will have been a success."

UPDATE: More on the investigation into Stanford.

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