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Speaker 1: Welcome to Odd Lots. It's Monday, February twenty nine. I'm

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Speaker 1: Tracy Allaway. Joe. I am really excited about this week's episode.

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Speaker 1: It's a great story that involves a humbled billionaire, some

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Speaker 1: brilliant research by an independent analyst, and a big, big

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Speaker 1: win for digital journalism. And I think at least two

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Speaker 1: of those things are you know, kind of close to

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Speaker 1: our hearts, right, yeah, and it involves like some huge

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Speaker 1: financial crime, right, So in addition to just being a

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Speaker 1: humbled billionaire, there's dramatic element, right, oh for sure. But

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Speaker 1: let's start with a billionaire. Back up a little bit.

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Speaker 1: It's a guy called Alan Stanford. Remember, Yeah, I think

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Speaker 1: a lot of people probably do. Uh. He was CEO

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Speaker 1: of the Stanford Financial Group of companies, which included all

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Speaker 1: sorts of things like a real estate company, investment firm,

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Speaker 1: and a bank based in Antiqua, which is this tiny

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Speaker 1: little island in the Caribbean. I remember Stanford. I remember

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Speaker 1: he was in the news a lot around the same

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Speaker 1: time as Bernie made Off. I don't remember a lot

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Speaker 1: of the details, So I'm really excited about talking about

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Speaker 1: this story. Yeah. I mean, if you were living in

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Speaker 1: the UK, any time before two thousand nine, you would

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Speaker 1: have heard of Stanford because he was this kind of eccentric,

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Speaker 1: larger than life character, this fifth generation Texan, as he

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Speaker 1: described himself, who decided to come in and support the

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Speaker 1: sport of cricket and transform it. Right. I remember this

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Speaker 1: that he became this huge backer of cricket, which seemed

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Speaker 1: really weird for a Texas billionaire, and it almost seemed

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Speaker 1: impossible to believe that he was in fact of Texan. Yeah.

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Speaker 1: I want to kind of nail the eccentricities here because

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Speaker 1: he used to helicopter into the Lord's Cricket tournament. Uh,

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Speaker 1: he was caught on camera flirting with these cricketers wives.

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Speaker 1: He really made a name for himself in sports and

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Speaker 1: political circles as well. So I could go on and on,

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Speaker 1: but why don't we just let Allen Stanford kind of

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Speaker 1: speak for himself. This is an interview from CNBC with

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Speaker 1: Stanford back in late two thoight. You managed to avoid

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Speaker 1: the subprime debacle almost entirely, didn't you. We avoided the

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Speaker 1: subprime debacle. How did you do that? What what made you?

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Speaker 1: And I'm sure you had the opportunity to to race

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Speaker 1: some of that risk. What told you it was not

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Speaker 1: a wise move? Well, it's very simple because we never

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Speaker 1: understood what the risk was. You know, securitized debt's been

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Speaker 1: around for over three decades now, and when you start

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Speaker 1: packaging something with a lot of assets are all mixed

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Speaker 1: up and you can't get your arms around what the

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Speaker 1: real asset is. Therefore, what the risk is. We decided

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Speaker 1: that decided that whatever perceived profits or might be, uh,

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Speaker 1: we decided not to take that risk because we didn't

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Speaker 1: know what the risk really was and to perceived profits

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Speaker 1: really became irrelevant. Kind of makes you wonder whether or

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Speaker 1: not at the banks or what they were thinking. I

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Speaker 1: think we're going to see a lot of problems surfaced

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Speaker 1: in the first QUARTERBLL nine before we let you go.

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Speaker 1: Is it fun being a billionaire? Well, yes, yes, yes,

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Speaker 1: I have to say it is fun being a billionaire.

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Speaker 1: But haware hardware. Uh, that was great. I love the

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Speaker 1: idea that he said it was great to be a billionaire,

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Speaker 1: because so many people will say otherwise though they'll say

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Speaker 1: something humble, or they'll say something about how it lets

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Speaker 1: them do good for the world or philanthropy, and he

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Speaker 1: just straight up talked about how great it was to

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Speaker 1: be rich. That's right, sir, Allen's down flags there or anything. No, Uh, indeed,

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Speaker 1: And I loved also that he said he thought there

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Speaker 1: were going to be a lot of problems for banks

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Speaker 1: in early two thousand nine, because, as it turned out,

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Speaker 1: that was the time when his own bank, Stanford International,

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Speaker 1: came under a lot of scrutiny. Well, at least she

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Speaker 1: was right about banks in general. Okay, that's one way

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Speaker 1: of putting it, all right, But think back to the

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Speaker 1: headlines in two thousand nine. Suddenly Alan Stanford is accused

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Speaker 1: of a seven billion dollar Ponzi scheme and this widespread,

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Speaker 1: on growing fraud. So how did he defend himself when

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Speaker 1: we first started hearing about these allegations. All right, we

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Speaker 1: have another clip. Let's fast forward to two thousand This

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Speaker 1: was not a Ponzi scheme. Never in my life have

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Speaker 1: I ever set out to defraud a person. Never. Never

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Speaker 1: have we done anything that I'm not proud of. Never

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Speaker 1: have we done anything, to the best of my knowledge,

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Speaker 1: that was illegal or wrong. And if there are things

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Speaker 1: that were done that outside of of my direct control, uh,

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Speaker 1: you know, I don't know what to say. Uh. He

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Speaker 1: found it a bit different there than his clip from

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Speaker 1: the end of two. Yeah, the tone is slightly different, right,

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Speaker 1: all right, So when we started I mentioned that, in

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Speaker 1: addition to to the Humboldt billionaire, part of the story

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Speaker 1: was independent analysis and digital journalism. Uh. That's because the

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Speaker 1: investigation around Alan Stanford and his eventual conviction for fraud

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Speaker 1: was sparked by one research note, a single research note

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Speaker 1: that was written by this guy down in Florida and

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Speaker 1: subsequently picked up by financial blogs around the world. Right,

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Speaker 1: remember when made Off collapsed, it turned out that there

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Speaker 1: had been a whistleblower who had written a note about him,

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Speaker 1: but no one picked it up. It was not public,

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Speaker 1: no one saw it, it it was ignored. This was different

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Speaker 1: because someone actually did write a public note and say, hey,

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Speaker 1: there's something going on here. Yes, he did, and his

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Speaker 1: name is Alex del Maudi. We're going to have him

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Speaker 1: on the show today to talk about the research note

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Speaker 1: and how it came to be and what happened afterwards.

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Speaker 1: And I'm really excited about talking about this now because

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Speaker 1: you know, it's not a coincidence that made Off and

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Speaker 1: Stanford were both discovered during the collapse pups of two

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Speaker 1: thousand and eight. Two thousand nine, because it's only when

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Speaker 1: the tide is receding people are losing money, that these

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Speaker 1: frauds can no longer go on. And so we're in

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Speaker 1: another period of volatility. And I'm not saying we're going

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Speaker 1: to see another made Off, but the business models that

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Speaker 1: thrived during the boom years and the shady companies, many

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Speaker 1: of them are likely to be exposed in a market downturn. Yeah,

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Speaker 1: I think that's exactly right. There's that famous Warren Buffett

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Speaker 1: quote about the tide going out, right, we get to

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Speaker 1: see everyone who's been swimming naked, guys like made Off

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Speaker 1: and Stanford. It turns out we're definitely in the nude.

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Speaker 1: And of course you're fond of a gall braves idea

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Speaker 1: of the bezel and what and what what we learned

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Speaker 1: about that during a downturn? All right, let's bring on

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Speaker 1: Alex del MONTI. Welcome to the show the Hi, how

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Speaker 1: you doing good? Thanks? Thanks for joining us. It's my pleasure.

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Speaker 1: All right, So tell us what you were doing back

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Speaker 1: in sort of early two thousand nine. Who are you

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Speaker 1: and what was keeping you busy back then? Okay, well,

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Speaker 1: actually the story starts a little bit earlier in two

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Speaker 1: thousand and eight when I was just UM doing my saying,

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Speaker 1: which is UM an investment advisor. So I was looking

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Speaker 1: at the chaos in the markets, and a friend called

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Speaker 1: me and asked me to do some due diligence on

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Speaker 1: UM Stanford and National Bank, where he had a substantial

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Speaker 1: part of the message. So why did that? And then

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Speaker 1: going over the numbers and the notes was financial statements.

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Speaker 1: I it pretty much became clear to me that they

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Speaker 1: couldn't be true, that what they were reporting just was

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Speaker 1: a lie. There was no way that they could be

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Speaker 1: reporting the kind of performance they were reporting because it

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Speaker 1: was to the bank and instead of giving out loans,

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Speaker 1: it was playing the stock market, financial markets, and the

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Speaker 1: supposedly making very consistent and high returns every single year,

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Speaker 1: something that if you're an investment of vising, you know

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Speaker 1: it's very, very very hard to do. So you looked

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Speaker 1: at this bank, your friend brought you this bank. He

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Speaker 1: had put his money into a CD essentially that offered

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Speaker 1: this eye popping return. No, not even that eye popping.

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Speaker 1: I think he was at the time he was maybe

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Speaker 1: five percent maybe on on the c ds. Which do

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Speaker 1: you go back to them that that's maybe a couple

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Speaker 1: of points over what you would get on a yeah,

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Speaker 1: I guess, I guess. Now in five seems like an

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Speaker 1: eye popping return, but wasn't that big. So tell us

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Speaker 1: what you saw. You're looking at Stanford's numbers as a

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Speaker 1: favor to your friend. Essentially, what were the big warning

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Speaker 1: signs that you picked out? Well, the biggest warning sign

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Speaker 1: was the business model itself, which was they state, we

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Speaker 1: do not uh, we don't. We don't give loans. We

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Speaker 1: invest in stocks, bonds, hedge funds, and you know, sold

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Speaker 1: or whatever. So let's just saying they have an investment portfolio,

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Speaker 1: which is fine if you have you know, a low cost,

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Speaker 1: very low cost of funds. You know, you can't as

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Speaker 1: a bank, you can't invest in the UH in something

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Speaker 1: as volatile as as markets like these, and at the

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Speaker 1: same time expect to be able to return stable amounts

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Speaker 1: to your depositors. It's it was just an impossible business

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Speaker 1: model because you can't expect to make the kind of

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Speaker 1: returns that they needed to make to pay their expenses

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Speaker 1: and their depositors every year forever calculating that it came

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Speaker 1: out to like what they had to make great keep

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Speaker 1: it and they were claimed given in two thousand eight,

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Speaker 1: they aim to have made a profit even in a

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Speaker 1: year in which literally nobody who was long stocks and

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Speaker 1: long private equity or long gold was making anything. Right,

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Speaker 1: they were claiming to. At that point we had half

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Speaker 1: year results and they were still claiming to make money.

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Speaker 1: And I went back over the results and things. If

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Speaker 1: they were claiming they were making thirteen four every year,

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Speaker 1: So no, it's just not possible. So I just wanted

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Speaker 1: before we move on, I just wanted to sort of

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Speaker 1: get the summary ride for listeners. So, like a typical bank,

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Speaker 1: you put in a deposit, if it was a CD,

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Speaker 1: you'd get some tiny return, and the bank would then

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Speaker 1: generate a profit via a typical loan portfolio. On the

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Speaker 1: flip side, you have investment institutions that will invest your

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Speaker 1: money in risky things like stocks and private equity, but

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Speaker 1: those don't ever or typically pay a high fixed return,

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Speaker 1: so the investor could lose money. In this case, it

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Speaker 1: was this combination of both the promise, security and safety

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Speaker 1: of a bank with the returns of an investment company.

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Speaker 1: And that's what you found implausible exactly. You said it

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Speaker 1: a lot better than I could have, So um, the

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Speaker 1: investor of money supposedly not is not at risk, and

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Speaker 1: and so the whole risk has been transferred to to

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Speaker 1: the bank exexuty and it's leveraged pretty much hy one.

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Speaker 1: And the other thing is the cost of funds is

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Speaker 1: ridiculously high because not so much because the CDs rates

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Speaker 1: were that high, is because they didn't have any other

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Speaker 1: sort of deposit. There was no you know, UM demand

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Speaker 1: accounts or demand deposits, checking accounts or anything any of that.

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Speaker 1: It was it was basically all CDs. So if all

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Speaker 1: your funding is is accruing interest, it just makes your

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Speaker 1: your costs not much higher. So that was basically the

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Speaker 1: whole thing. The business model itself was impossible and there

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Speaker 1: for the numbers themselves couldn't be true. There were some

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Speaker 1: other red flags though as well. Right, you have this

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Speaker 1: bank based in Antiqua, which isn't necessarily well known UM

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Speaker 1: capital of governance. It's not Switzerland. Right. You also had

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Speaker 1: the fact that Stamford was using this totally unknown auditor

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Speaker 1: which seemed to be run by a single guy. Like

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Speaker 1: I said, it was the small auditing firm. He had

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Speaker 1: been auditing forever. They had never changed auditors. That was

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Speaker 1: another red flag. And then you had. There was a

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Speaker 1: number of things, just just the language of the of

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Speaker 1: the statements was not typical of what you will find

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Speaker 1: in an audited statement. It made subjective um qualifications, like,

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Speaker 1: for example, just as an example, it said that the

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Speaker 1: bank had a balanced portfolio. That's something that no auditor

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Speaker 1: will ever find off. The numbers didn't make it. The

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Speaker 1: language wasn't right. So I just told my my friend,

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Speaker 1: you know what, get out as soon as you can.

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Speaker 1: When did you actually make the decision to synthesize all

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Speaker 1: of these points into a public analysis? Yeah, now this

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Speaker 1: is something I haven't I told a lot of people before. Afterwards.

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Speaker 1: What happened is in December um of two thousand eight,

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Speaker 1: the made Off scandals came out. I'm sitting there and

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Speaker 1: I'm we're looking at I'm looking at the TV and

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Speaker 1: and and my friend again he calls me and it

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Speaker 1: turns out that not only was invested in Stanford, he

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Speaker 1: had invested in made Off. So that was quite unfortunately

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Speaker 1: not a large amount because he kind of lost that

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Speaker 1: just totally just just put me off the rails. And

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Speaker 1: I told him, you know what, I'm going to write

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Speaker 1: something about about Stanford. We're gonna we're gonna blow that open.

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Speaker 1: And so he had already gotten his money out. He said, well,

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Speaker 1: go ahead, you know, nail him. So this decision of

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Speaker 1: yours to go public with your findings, you wrote a note.

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Speaker 1: It was called duck tails, the reference being if it

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Speaker 1: walks like a duck and quacks like a duck, it

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Speaker 1: is a duck. If it looks acts like a ponzi,

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Speaker 1: it is a Ponzi. There's an important parallel with made Off,

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Speaker 1: which is that there was a whistleblower, Harry Marcopolis, who

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Speaker 1: had tried to warn the world about made Off a

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Speaker 1: long time earlier, but he never really went public with

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Speaker 1: his findings. Wasn't something that journalists could have picked up on.

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Speaker 1: Regulators ignored him. So when you decided to go public,

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Speaker 1: people actually discovered it. You did it in a way

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Speaker 1: that allowed people to actually find and promote your work.

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Speaker 1: So tell us about exactly where you published the material

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Speaker 1: and then how you got the attention for it. Yeah.

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Speaker 1: Initially I was going to publish it in a in

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Speaker 1: a Venezuelan newspaper, but the end they turned me down,

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Speaker 1: So I went to uh Venezuela economic review newspaper. Alex

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Speaker 1: I was going to ask were you scared publishing this

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Speaker 1: because you know, let me set the scene. We're talking

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Speaker 1: about this larger than life character. He's kind of famous

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Speaker 1: for giving lots of money to sporting events. He has

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Speaker 1: a knighthood from Antiqua. He's donated millions of dollars to

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Speaker 1: US politicians. You must have been a little nervous, right,

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Speaker 1: I was terrified. I thought I was gonna be sued,

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Speaker 1: and I thought, my my, especially the editor, and I

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Speaker 1: were going to be get our pants suit off. On

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Speaker 1: the other hand, I figured, well, it's pretty much certain

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Speaker 1: that this is this a fraud, So if they come

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Speaker 1: out and sue, you know, that was just make the

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Speaker 1: whole thing much more public. So even though there was

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Speaker 1: the obvious fear of calling this large organization and rich

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Speaker 1: guy a fraud star, because you were just so rock

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Speaker 1: solid in your analysis, you ultimately determined you just had

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Speaker 1: nothing to red it was. I was per cent sure

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Speaker 1: because for their numbers to be correct, he had to

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Speaker 1: be the outlier of the outliers. You published this note

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Speaker 1: and it gets picked up by initially I think all

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Speaker 1: these sort of financial bloggers, right yes, and the Financial

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Speaker 1: Times picked it up picked it up pretty early too,

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Speaker 1: and that was that was a big things. Mostly it

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Speaker 1: was the bloggers who picked it up and put it

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Speaker 1: in the cyber domains, you know, because I had published

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Speaker 1: on paper initially, so once it got into the internet,

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Speaker 1: they would seeing that happened. Although there was lots of

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Speaker 1: people looking at him at Standford the same way I

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Speaker 1: had been looking at Matthew Goldstein from Business Week was

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Speaker 1: had been preparing an article. He was one of the

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Speaker 1: first to call me, and the folks at Bloomberg were

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Speaker 1: also onto the stories, and and once once it started

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Speaker 1: going through getting into the more mainstream blogs and and

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Speaker 1: and articles, then it just is it is bloaded. My

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Speaker 1: My article went out at the end of January, and

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Speaker 1: two weeks later the offense were raiding the Houston offices

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Speaker 1: and shutting them down. So, Alex, when I listened to

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Speaker 1: the story, the overwriting question I have on my mind

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Speaker 1: is how did regulators miss this guy? You know, you

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Speaker 1: took a look at the financial numbers and with certainty

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Speaker 1: said this was a ponzi. How come no one else

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Speaker 1: get the same? Well, the thumb is with regulators is

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Speaker 1: that high probability isn't any good is improved for them

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Speaker 1: because they are more than than accountant or financial and

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Speaker 1: us their lawyers. So what they need is a smoking gun.

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Speaker 1: They want somebody, an insider, to tell them that's palsy.

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Speaker 1: They want a customer to complain that it's a posy.

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Speaker 1: You know, they want something more than high probability of

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Speaker 1: of its not being as it's told. You can't really

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Speaker 1: act on it's probable. I understand. I understand their position,

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Speaker 1: not totally, I mean, but to a point. Because your

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Speaker 1: your regulators, they're they're bound by certain there's certain things

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Speaker 1: that that the company has to produce. They have to

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Speaker 1: produce uh financial statements after this that. But and if

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Speaker 1: you check those all off the list, well they're good.

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Speaker 1: So Alex, what are you doing nowadays? I'm doing the

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Speaker 1: same thing I've always been doing. I'm I'm I'm an

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Speaker 1: investment advisor. I'm a financial analyst. People ask what to

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Speaker 1: do with their money, and I'll give my ideas, and

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Speaker 1: do you keep an eye out for the next like

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Speaker 1: do you know for the next one? Like do you

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Speaker 1: sort of probe? And I don't. But somehow some of

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Speaker 1: these things actually seemed to find me. No. I was

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Speaker 1: a couple of years back, I actually found um but

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Speaker 1: there was a case called Final Forest. Oh yeah, yeah,

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Speaker 1: I found myself on the other side of that, had

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Speaker 1: some some clients invested had bonds of this company. And unfortunately,

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Speaker 1: of course, since I had been in in the whistleblower shoes,

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Speaker 1: you know, I got out quickly. Joe and I were

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Speaker 1: talking earlier about the idea that when the easy money

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Speaker 1: kind of dry, it is up, and when bowl markets

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Speaker 1: come to an end, a lot of these ponds e's emerge.

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Speaker 1: We've seen a lot of market volatility recently. Do you

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Speaker 1: think we're in a sort of same time period now?

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Speaker 1: Could we see some of these things come out of

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Speaker 1: the woodwork? Oh? Very possibly. But but then again I

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Speaker 1: think regulators are have tightened up a bit too also,

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Speaker 1: so so the easy ponzis were also discovered back in

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Speaker 1: two thousand and eight and two thousand nine and two

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Speaker 1: thousand ten. You see the activity in that sense. I

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Speaker 1: think it's bogged down a bit hopefully as uh. But

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Speaker 1: there's a lot of things that that that were and

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Speaker 1: could continue to be um problematic. I mean, you hedge

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Speaker 1: funds are just not transparent enough and and and they're

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Speaker 1: prone to being fraudulent, and you know, and then you

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Speaker 1: have all these if you went off the market products,

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Speaker 1: you know, the unlisted and unregulated reads and things like that,

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Speaker 1: but you're never sure. So do you have real quick

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Speaker 1: one or two rules that everybody should abide by if

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Speaker 1: they want to avoid getting scammed? I'd say, you know,

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Speaker 1: the best thing is to try to find find to understand,

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Speaker 1: um the motivations and the and and the why somebody

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Speaker 1: is selling this to you. You know, if it's so good,

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Speaker 1: you know, why, why isn't this person? Why is it?

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Speaker 1: Why are they selling what are they offering it to meet?

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Speaker 1: Why am I suspect that they're offering this this huge

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Speaker 1: opportunity to me? So that's that's one thing I would

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Speaker 1: look out for. And the other thing is if you can,

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Speaker 1: if you really know somebody who is who can look

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Speaker 1: at it for you and it doesn't have a vested

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Speaker 1: interest in it, it's good to get them to look

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Speaker 1: at it. Just like my friend did you know he

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Speaker 1: he called me out of the blue after someone for

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Speaker 1: I don't I haven't seen him for years, and and

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Speaker 1: and that turned out really well for him, and it

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Speaker 1: turned out well for me too. I mean, it was

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Speaker 1: an interesting part of my life, I guess interesting indeed, Alex,

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Speaker 1: thank you so much for your time. Thank you. That

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Speaker 1: was great. There's so many good things about that story.

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Speaker 1: And I think for both of us, a story like

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Speaker 1: this has a special place in our hearts for multiple reasons. One,

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Speaker 1: both of us were very active in digital media during

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Speaker 1: the crisis. We both covered this story. Uh it's a

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Speaker 1: little guy versus a big guys story. It's just it

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Speaker 1: has everything. Yeah, And I feel like I should mention

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Speaker 1: that Alex is actually ending a book on this very topic,

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Speaker 1: so it should be out this year. It's going to

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Speaker 1: be called If It Walks Like a Duck. And if

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Speaker 1: you want to hear more about this kind of crazy tail,

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Speaker 1: you should definitely pick it up. One thing that I

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Speaker 1: just want to go back to, and you hit on

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Speaker 1: this because it is kind of the craziest thing. It's

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Speaker 1: just the guts that it takes to publish something like this,

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Speaker 1: even if you're totally sure this is a big financial institution,

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Speaker 1: this is a billionaire. And there was no equivocating in

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Speaker 1: his original essay on it. It wasn't like I have

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Speaker 1: concerns and said this is a fraud. And I just

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Speaker 1: find that to be extraordinarily brave to do even with

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Speaker 1: all the evidence on your side. I think that's absolutely right,

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Speaker 1: and if anything, it really demonstrates the importance of independent

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Speaker 1: financial analysis. And also and that the reason, you know,

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Speaker 1: his explanation for why regulators aren't equipped to catch these things,

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Speaker 1: they're not really so much looking at the financial stuff,

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Speaker 1: they're more wanting tips and stuff like that is also

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Speaker 1: another fascinating angle. And I actually, yeah, he gave me

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Speaker 1: a little more sympathy for the people who missed these frauds.

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Speaker 1: Do you think so? I'm a little bit. I'm kind

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Speaker 1: of more angry about it because here I see this

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Speaker 1: little guy who certain just by looking at numbers and

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Speaker 1: coming up with his own thought process, and then you

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Speaker 1: have regulators whose job is to do the same thing,

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Speaker 1: and they won't act without a certainty. Yeah, no, that's true.

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Speaker 1: I guess I'm just thinking in terms of filtering out.

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Speaker 1: You know, you look at you try to you see

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Speaker 1: these financial institutions, and I could see how you end

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Speaker 1: up just checking off the box like they filed this,

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Speaker 1: They had this auditor do this and say okay um,

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Speaker 1: And so look at how regulators might go about trying

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Speaker 1: to find these frauds. It sounds like there's structural things

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Speaker 1: that might need to be changed with that. All right,

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Speaker 1: we're gonna leave it there for this week. I'm Tracy Alloway.

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Speaker 1: You can follow me on Twitter at Tracy Alloy. And

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Speaker 1: I'm Joe Wisenthal. You can follow me on Twitter at

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Speaker 1: the Stalwarts. Thanks for listening. Two a