1. In light of the recent guilty verdicts handed down in the trial of R. Allen Stanford case, it is
worth revisiting the facts and circumstances that brought us to this point to see what lessons can
be learned.
While Mr. Stanford was not a hedge fund manager, his case represents yet another example of
how common sense due diligence can prevent investors from losing money. From an operational
due diligence perspective there were likely many yellow flags that would have led to red flags
that potential investors in the Standford funds and financial products could have detected.
But it does little to take an “I told you so” attitude to due diligence without prescribing some
forward looking advice as well. Said another way, perhaps it is more fruitful to focus on how to
prevent the next Standford rather than simply chastise those that have been swindled.
Below is a list of just some of the risks surrounding the Stanford organization and the due
diligence steps investors could have taken to detect them:
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The Risk
Questionable auditor
The Facts
Stanford reportedly utilized a tiny Antigua-based auditor (C.A.S. Hewlitt) with an even smaller
office in North London, that was in no way appropriate for the size of his organization. It was
also alleged that after the firm’s CEO, Charlesworth Hewlett, died no one took over the auditing
responsibilities and all of his hard drives were deleted.
What Investors Could Have Done To Detect Them
During the operational due diligence process investors should conduct an evaluation of all
service providers, including the auditors, to determine if they are of appropriate size and
sophistication for the organization under review.
© 2011 Corgentum Consulting, LLC

2. _________________________________________________________
The Risk
Lack of transparency
The Facts
It was reported that Stanford’s own employees didn’t know and weren’t given information about
where his portfolio was supposedly invested.
What Investors Could Have Done to Detect Them
Investors should inquire not only as to what type of information they will receive from the fund
but what transparency a fund manager provides internally as well.
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The Risk
Reputational risks
The Facts
potential reputational risk existed concerning Stanford’s ostentatious lifestyle and close ties with
Antiguan officials that raised many concerns related to bribery of local officials (something he
was eventually acquitted on). Stanford also had public verbal feuds with Baldwin Spencer, the
prime minister of Antigua and Barbuda.
What Investors Could Have Done to Detect Them
Investors could perhaps have been aware of such risks through reference checks and speaking
with other investors
© 2011 Corgentum Consulting, LLC

3. _________________________________________________________
The Risk
Outside business activities
The Facts
Stanford had a myriad of other business involvements including newspapers, sports teams and
restaurants at which he would often entertain his large banking clients
What Investors Could Have Done to Detect Them
Investors should inquire directly with a manager first concerning outside business involvements.
Additionally, media and other public records searches may have yielded indications of
involvement with other businesses. When a fund manager has extensive activities outside of the
organization it may produce a distraction from the business of fund management.
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The Risk
Employment of relatives and employee romantic relationships
The Facts
There were reports that Stanford’s organization employed many individuals who were closely
related, either by blood or marriage.
What Investors Could Have Done to Detect Them
Investors could have asked if any relatives are employed at the firm. They could also have
looked at organization charts to see if any employees had the same last names. Additionally,
James Davis (Stanford’s former finance chief who cooperated with the U.S. government and
testified against Stanford) testified that Mr. Davis also admitted that he was having an affair with
another Stanford employee Chief Investment Officer Laura Pendergest-Holt.The employment of
related individuals, particularly those who report to each other, can present a serious conflict of
interest and one which investor should vet during the operational due diligence process.
© 2011 Corgentum Consulting, LLC

4. _________________________________________________________
The Risk
Ongoing litigation
The Facts
Standford was involving in litigation with Stanford University. The university sued him claiming
trademark infringement based in part on a fabricated historical connection Stanford claimed to
have had with the founder of the university.
What Investors Could Have Done to Detect Them
Investors can work with third-party due diligence and background investigation firm’s to detect
historical and on-going litigation.
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The Risk
Stanford’s questionable background
The Facts
Before forming his fraudulent Stanford Financial, Stanford had previous experience running a
failed gym before finding success in real estate speculation
What Investors Could Have Done to Detect Them
A background investigation or other similar review of Mr. Stanford’s background could have
brought his previous experience to light.
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The Risk
Stanford Financial Group’s elaborate offices
The Facts
Stanford reportedly had extremely lavish offices. When too much money is spent on elaborate
offices, investors should ask questions. Perhaps the money could be better spent on improving
the organization or hiring or retaining top notch employees.
What Investors Could have Done to Detect Them
Investors performing an on-site due diligence visit could evaluate whether an office is perhaps
too extravagant for a particular fund manager.
© 2011 Corgentum Consulting, LLC

5. _________________________________________________________
The Risk
Stanford’s volatile personality
The Facts
Sohil Merchant (Stanford’s head of information technology) testified that he had to repeatedly
fly in new laptops for Stanford to replace the ones that he had smashed or dropped into water.
What Investors Could Have Done to Detect Them
Investors may not have known these intimate details of Mr. Stanford’s life but through on-site
due diligence interviews there may have been either direct cues from Mr. Stanford himself or
other indications of a volatile personality.
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The Risk
Questionable performance claims
The Facts
It was reported that Stanford presented hypothetical investment results as his actual perform in
client sale presentations. Additionally, Stanford also reportedly made statements that his CDs
were safer than US government backed accounts.
What Investors Could have Done to Detect Them
Investors could have dug deeper into historical investment performance to determine if it was
audited or was even indeed accurate. Furthermore, anytime a fund mentions statements concerns
capital security or guarantees investors should raise concerns.
© 2011 Corgentum Consulting, LLC

6. _________________________________________________________
The Risk
Rumors of regulatory inquiries
The Facts
After the Stanford scheme was unveiled, it was revealed that regulatory authorities including the
Securities and Exchange Commission and FINRA had been conducting investigations of
Stanford’s activities. It was also reported that the FBI had been conducting an investigation into
Stanford since 2008 regarding allegations that he was laundering money from Mexican drug
cartels.
What Investors Could have Done to Detect Them
Investors with a finger on the pulse of industry developments and perhaps even relationships
with sources at regulators can sometimes be aware of rumors of such inquiries. Investors who do
not have such networks themselves can perhaps leverage off of the services of a third-party due
diligence specialist consultants who may have such networks.
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The Risk
Historical tax liens
The Facts
It was reported that public records show Stanford had a history of tax problems including, federal
tax liens in excess of $200 million before the fraud was even revealed.
What Investors Could Have Done to Prevent Them
Firstly, investors could have inquired directly with Stanford to see if there was a history of any
such. Additionally, a due diligence review of public records may have yielded indications of the
liens.
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In this case, one antidote to prevent future fraudsters like Stanford is clear: due diligence and lots
of it!
For more information: Email: info@corgentum.com Tel: 201.360.2430
© 2011 Corgentum Consulting, LLC