A fascinating report by McClatchy Newspapers has alleged that R. Allen Stanford, who earlier this year was convicted of masterminding the second-largest Ponzi scheme in United States history, retained a prominent investigative firm to silence potential critics in the face of mounting skepticism over the legitimacy of his scheme. Ironically, the investigative firm, Kroll Inc., has recently emerged in the public spotlight after the New York Times reported on the company's audit finding that Afghanistan's Kabul Bank started out as a massive Ponzi scheme. However, in Stanford's case, Kroll was retained to investigate investors, employees, and even government employees that Stanford considered a threat to the continuing viability of his massive fraud.
According to the report, Stanford used the services of Kroll, which had gained the reputation as Wall Street's 'private eye', extensively since at least 1996 after the newspaper Caribbean Week published an article topenly criticizing Stanford. Tom Cash, a Miami-based Managing Director at Kroll, served as Stanford's main contact, and a trove of email communications obtained by McClatchy detail the extent to which Stanford was both aware of and concerned by those who questioned him. After the article in Caribbean Week, Stanford told Cash to "go for the jugular." Cash responded that he had three people looking into background information on the story's author, and a retraction was later published.
Stanford increasingly sought Kroll's services in the years leading up to the discovery of his elaborate fruad. In 2006, Kroll began digging for dirt on Jonathan Winer, a former State Department senior official who had once been tasked with investigating international money laundering and regulation of offshore banks as part of his job duties as deputy assistant secretary of state for law enforcement. Stanford became convinced Winer was behind a critical 2006 Bloomberg story, telling Cash that
I want an in depth profile, credit history, marriage, kids, work personal quirks.”
Following up one day later, it was apparent that Stanford felt threatened by Winer:
“Do whatever it takes to zero in… I bet you can find a way to get Winer’s divorce decree unsealed. The guy is pure cockroach and he keeps surfacing and saying all this insane BS to whoever will listen.”
By the end of the day, Cash had revealed to Stanford that their investigation had zeroed in on the rumor that Winer's wife was a lesbian. Ultimately, it is unknown as to whether any further action was taken. Stanford also sought Kroll's services in dealing with former Stanford employees who had threatened to talk to the Securities and Exchange Commission.
Kroll refused to directly comment on the issue, likely due to potential legal exposure. However, a spokesperson emphasized that Kroll considered itself duped by Stanford, and that none of the individuals from that investigation were currently employed with Kroll. Ironically, Cash's departure from Kroll came after a company client filed a lawsuit resulting from Cash's recommendation to invest with Stanford. That client, National Electronic Contractors Association, invested $2.5 million with Stanford, and later sued Kroll in 2007 for gross negligence alleging that the company failed to disclose it or Cash's relationship with Stanford.