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MIAMI/BOSTON (Reuters) - Scrutiny of Texas billionaire Allen Stanford's investment bank expanded on Friday into the Caribbean, where regulators planned to quiz officials about his offshore banking unit.
The Wall Street Journal separately reported that the FBI had joined the investigation, showing intensifying scrutiny over the case that has, along with Bernard Madoff's suspected $50 billion fraud, put regulators and investors on high alert.
At the same time, details emerged of where the Stanford International Bank, part of Stanford Group Co's $50 billion financial empire, invested some of its money.
Regulators on the island of Antigua were due to meet with the bank's executives this afternoon at the request of U.S. regulators.
"It's not a Friday afternoon cocktail any more," Leroy King, head of Antigua's Financial Services Regulatory Commission, told Reuters, adding "It's taking off the gloves."
The U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority are examining sales of certificates of deposit by Stanford, and the steady, above-average returns those investments have been paying, a person familiar with the matter said earlier this week. State regulators in Florida and Texas are also looking into the matter.
The Journal, citing sources, reported that the Houston office of the Federal Bureau of Investigation was probing the financial group. The FBI did not return calls for comment.
The flamboyant, 58-year-old Stanford, whose empire includes a broker which reportedly counts pro-golfer Vijay Singh among its clients, is the single biggest investor in Antigua and has used his financial muscle to rehabilitate West Indian cricket.
He has seldom strayed from controversy, tangling with leaders of Antigua and ruffling the world of cricket with a $1 million-per-player tournament that was widely ridiculed in the British media last year.
Only a short time ago, Stanford passed a local review in Antigua without problems, and a formal probe has not been opened because no customers had complained and no credible evidence had emerged to warrant one, King said.
For more than a decade, Stanford has attracted wealthy clients from Texas, Florida, Latin America and the Caribbean with promises of steady annual investment returns of between 10 and 15 percent, people familiar with its offers said.
On its website, Stanford is listing a $100,000 certificate of deposit that paid a 4.5 percent annual yield in its financial highlights for last year. That is higher than most CDs of that duration offered by big U.S. banks in the past 12 months.
Russ Dallen, who used to head the Venezuela business of Oppenheimer & Co. in Caracas, remembers clients moving money from his company to Stanford, wooed by promises for "14 percent on savings, guaranteed."
"We were just gobsmacked because guaranteeing those kinds of returns is just not possible," said Dallen.
Some investors became cautious and pulled out because they did not understand where these returns were being generated, said an accountant and investment adviser who worked with them.
According to U.S. regulatory filings, Stanford owns more than 10 percent stakes in three firms trading below $2 per share on the Bulletin Board or Pink Sheets: eLandia International Inc, a Coral Gables, Florida technology company; Forefront Holdings Inc, a Brentwood, Tennessee provider of golf supplies; and Health Systems Solutions Inc, a New York technology and services company.
"These were not exactly blue chip companies," said Bob Parrish, an accountant in Longboat Key, Florida, whose clients pulled roughly $500,000 out of Stanford last year.
The high rates for certificates of deposit, long considered safe short-term investments, seem to have caught the attention of U.S. regulators who began probing the company in mid-2008.
In January, regulators were back visiting six Stanford offices, including in Houston, people familiar with the probe said. The Texas Attorney General's office and the Florida Office of Financial Regulations are also investigating, officials said.
After being publicly slammed for ignoring warnings about Madoff for a decade, regulators are working extra hard to follow up on all types of leads, people familiar with their work said.
The SEC was alerted to Stanford last year when two former company employees, Charles Rawl and Mark Tidwell, told regulators that they suspected Stanford was engaged in illegal practices related to selling the CDs and other securities.
"Although Rawl and Tidwell repeatedly asked Stanford management to change Stanford's business practices, Stanford refused to cease its illegal activity, and Rawl and Tidwell were forced to resign rather than expose themselves to criminal and civil liability," the men said in a lawsuit filed in Texas last year. Rawl, Tidwell and their lawyer could not be reached for comment on Friday.
Allen Stanford blamed regulators' probes on "former disgruntled employees" who questioned "our work and our processes," according to an internal email obtained by Reuters. He said the company has cooperated fully with the probes.
Stanford Group spokesman Brian Bertsch reiterated that the company is fully compliant with all U.S. regulations and that it is rigorously managed. He declined to answer further questions.
In December, it hired a top executive from Wachovia as its new head of institutional sales in Boston. It also hired teams from U.S. Trust and other big name companies in the past.
Still, some rivals have expressed concerns about the company for years. "There are issues there that need to be addressed," said one wealth adviser who asked not be named because he still has dealings with the company.
Additional reporting by Ritsuko Ando, Jon Stempel and Martha Graybow in New York, Rachelle Younglai in Washington, D.C., Anna Driver in Houston and Brian Ellsworth in Caracas; Editing by Jan Dahinten