Stanford remains a free man despite fraud charges

NEW YORK (Reuters) - For all the accusations of wrongdoing swirling around globe-trotting financier Allen Stanford, he faces no criminal charges and remains a free man.

The Texas billionaire and well-known sports patron has been charged with defrauding investors around the world in a civil lawsuit by U.S. financial regulators, who have no powers to seek a prison term when they bring a case.

But legal experts say that, based on the alleged wrongdoing portrayed in the U.S. Securities and Exchange Commission complaint, they think criminal charges carrying possible stiff prison terms would almost surely follow in this case.

"Given these types of allegations, it would be surprising if the Department of Justice was not actively investigating with the view toward seeking an indictment," said Robert McGahan, a partner at law firm Goodwin Procter LLP in Los Angeles and a former federal prosecutor.

McGahan, who is not involved in the Stanford case, said the size of the alleged fraud and the allegations of direct misrepresentations to investors laid out by the SEC were likely attracting attention from prosecutors if they had not already been investigating the matter on their own previously.

Stanford, some of his companies, and two top executives were charged by the SEC this week with falsely marketing $8 billon in high-yield CDs as safe investments, all the while secretly placing client funds in illiquid private equity and real estate holdings.

The Texas federal court complaint says Stanford's firm reported "improbable results" for its investment portfolio and that the defendants engaged in "unscrupulous and illegal activity."

Customers across the Americas and the Caribbean have been frantically trying to get their money back from Stanford's far-flung financial empire, which includes the Stanford International Bank Ltd in the small Caribbean country of Antigua and Barbuda and his Houston-based U.S. company.

The Justice Department has not commented on the matter. FBI agents served Stanford with a formal copy of the SEC fraud complaint after tracking him down in Virginia on Thursday, but they did not arrest him or charge him with any crime.

Two federal law enforcement officials, who declined to be identified because the investigation is ongoing, told Reuters criminal charges against Stanford are not imminent.

One official said such investigations tend to be complex and can take time, involving complicated financial transactions and interviews with numerous people.

"They do not happen overnight," this person said.

The SEC has a court order to freeze Stanford's assets and confiscate his passport, and the agency plans to seek civil penalties. The SEC said on Friday that Stanford had surrendered his passport.

There is a lower burden of proof for the government in civil cases, which requires proof of the charges based on a "preponderance" of evidence. In a criminal case, the standard is higher, with proof required beyond reasonable doubt.

Legal experts said it is unusual, although not unheard of, for securities regulators to bring charges in a case before prosecutors decide whether to bring parallel criminal charges.

But they said the SEC may decide to move first when it sees a risk that client funds could disappear. By stepping in, the regulators can try to freeze assets and stop the defendant from doing business. The SEC has said Stanford and his lieutenants were engaged in a "massive, ongoing fraud."

"The fastest way to get a legal action is to use the civil system," said Linnea McCord, a professor of business law at Pepperdine University in California. "Then at a later date, when they are able to get further information, it is entirely possible for them (the government) to file a criminal action if warranted."

(Additional reporting by James Vicini in Washington; Editing by Andre Grenon)