Sir R. Allen Stanford, Stanford Financial Group, probably waving, not thumbing his nose at Emageon.
Photo courtesy of http://online.wsj.comThree Wall Street Journal articles have appeared in the past two days, outlining a probe into the Stanford Financial Group, which owns the bank that reneged on financing HSS's purchase of Emageon.
The story from Friday, February 13, notes that Stanford is being examined by the SEC, the Financial Industry Regulatory Authority (FINRA), and the Florida Office of Financial Regulation.
The focus of the probe isn't clear. Mr. Stanford's firm offers many financial services, chief among them wealth-management services, and markets certificates of deposit through his offshore bank, Stanford International Bank Ltd., in Antigua. The CDs offer unusually high and consistent returns. Mr. Stanford controls both the bank and the financial group that markets the CDs the bank issues.By Valentine's Day, yesterday, WSJ reported that the FBI had entered the probe. It seems that Stanford Financial Group had recently been telling its depositors that they couldn't redeem their CD's for two months. Sir Allen emailed his customers, telling them that he had been "infusing cash" into the Antigua-based Stanford International Bank, Ltd. How did Stanford reach the FBI's radar? It seems that like our old pal Bernie Madoff, some of Stanford's returns are too good to be true given the investments he claims to have made:
Now here is where it gets interesting. A second WSJ article from February 14, 2009, tells us:
Stanford Financial Group previously has been in the sights of various regulatory and law-enforcement agencies, according to the people familiar with the matter. Those people say the agencies now are focusing on certificates of deposit, which are marketed by the financial group's wealth-management arm and sold by Mr. Stanford's Antiguan bank. The CDs offer unusually high returns; for example, as of Nov. 28, a one-year, $100,000 CD paid 4.5%.
"The first thing that grabs your eye is the business model," says Alex Dalmady, an analyst who unveiled concerns about Stanford International Bank in the magazine VenEconomy Monthly but isn't involved in the investigation. "Taking deposits and playing the stock market -- this is way too risky. "
Stanford's Web site says that the bank has invested in a diversified portfolio including stocks, while banks generally make money by lending. A memo on Stanford's Web site says that the bank has never made a structured loan or a commercial loan. . .
"We want our depositors to know that SIBL had no direct or indirect exposure to any of Madoff's investments...Also, SIBL has never made a structured loan or a commercial loan. All loans are cash secured and to SIBL clients only at a maximum 80% loan to 100% cash collateral ratio."
It was understood that Stanford was funding Health Systems Solutions' bid for Emageon. But the true relationship appears to be a little deeper:
An offshore bank at the center of two U.S. federal investigations recently curtailed financing commitments to two small American companies, regulatory filings show.
Stanford International Bank Ltd. of Antigua recently failed to provide some $16 million in funding to a small Florida telecommunications firm, while a small Alabama health-care firm said it was unable to complete a roughly $62 million merger after funding fell through. Stanford International had previously planned to provide funding to complete the deal, according to the health-care firm.
Stanford also owns a majority of the shares of Health Systems Solutions Inc. of New York City, which is traded on the OTC Bulletin Board. In October the firm agreed to acquire Emageon Inc. of Birmingham, Ala, but the deal was terminated Friday with Emageon attributing the development to Health Systems' inability to obtain funding on or before the closing deadline of Feb. 11. Executives of Emageon couldn't be reached for comment and Health Systems executives didn't respond to requests for comment.Hmmmm. Interesting. As an aside, Stanford had a similar relationship, and a similar deal-retraction with Elandia International, a communications firm:
Since Emageon got their $9 Million payoff for the deal's collapse (I assume the check cleared), they came out of this "merger" better than they might have had it actually gone through. I have just two words of advice, though: due diligence..... Someone should have had a deeper look into the inner workings of HSS and Stanford. But I guess it's rather rare for people about to get married to look deeply into anything but the eyes of their beloved.
The Florida firm losing $16 million in financing from Stanford International is called Elandia International Inc. of Coral Gables, which trades over-the-counter on the so-called pink sheets. Elandia says it controls a collection of small telecommunications firms in Latin America and the South Pacific. Regulatory filings show that the Elandia's chief financial officer is James M. Davis, who is also chief financial officer of both Stanford International Bank and Stanford Financial Group.
Efforts to contact Elandia executives by phone and e-mail were unsuccessful.
In a new SEC filing, Elandia also said Stanford International Bank had also agreed to convert an outstanding $12 million loan it had made to Elandia into shares of Elandia equity. Such debt-equity swaps often take place when borrowers lack the cash to pay loans back.