What's up guys and welcome back to wall street millennial today we're going to talk about one of the biggest financial frauds ever perpetrated on u.s soil named after the italian con man. Charles ponzi, a ponzi scheme, is a financial fraud scheme that lures investors into depositing money with the perpetrator, usually under the promise of abnormally high returns. Unsuspecting investors, who are many times in some way, particularly vulnerable to the fraud, are usually not knowledgeable enough about the financial industry to recognize when a promised rate of return is unrealistic. When the scheme reaches critical mass, it eventually implodes and everyone realizes that the money is gone, that's exactly what happened in the case of american fraudster alan stanford.

In the case of allen, investors lost 6 billion over the course of multiple decades. In this video, we'll take a look at just how bad this fraudster was exactly what he did to swindle billions of dollars out of unsuspecting investors and what you can do to make sure you can detect someone trying to pitch a ponzi scheme to you. This video is supported by our channel members, channel members, get to vote on our video topics and get access to them. One day in advance, alan stanford was born and raised in mexia texas.

His family was from texas going back five generations as a high schooler allen was interested in both finance and weightlifting. He attended baylor university in waco, texas, studying finance and then went on to start a business. The industry he chose to go into was weightlifting and he opened up a public gym focused on bodybuilding. However, allen soon found out that he did not have what it takes to make a business succeed.

The gym, quickly shut down after a judge, ordered allen to pay tens of thousands of dollars of unpaid rent to the gym's landlord. However, that was only his beginning in the world of business for the next several years. Allen actually realized some significant business success with a totally different industry to bodybuilding. He and his father took advantage of depressed housing and real estate prices in the 80s following the texas oil bubble bursting in the early 80s texas oil producers did dramatically well as oil prices spiked partially due to the 1979 iranian revolution.

In the 1970s energy crisis, oil prices more than doubled in the span of just a few years around that time, adjusting for inflation they reached prices. That would never be seen again for 30 years, texan oil producers massively increased production in response to the opportunity and made a fortune for a few years. However, the price of oil fell almost as quickly as it had gone up throughout the eighties dropping by almost two thirds of its value to below ten dollars a barrel. Pretty soon the same.

People who were betting on a decade of prosperity in texas found themselves with their revenues dwindling their debts mounting in the back rent piling up over leveraged businesses, struggled to keep the lights on and real estate prices tanked. As a result. For some it was hopes and dreams down the drain, but for people like alan stanford, it was an opportunity to profit from their hardship with his father. Allen began buying up real estate that had tanked in value as a result of potential tenants no longer being in business by using leverage.

He was able to massively benefit when the texas economy inevitably did recover later that decade. In fact, alan and his father did so well that his father was able to retire just a few years later in 1993.. By that time they had built up their real estate operation to a business employing hundreds of people with his newfound success and freedom from parental influences. Allen had the means to go wild.

The first thing that he did was move to the caribbean, but in his free time, between the beaches of montserrat and antigua, he decided to start his own bank using funds from his previous businesses. He founded guardian international bank in montserrat, taking advantage of the offshore banking industry. The bank initially did fairly well, although he was forced to move it to antigua in the 1980s by british crackdown on the industry. After doing this, the bank was renamed stanford air national bank.

The stanford financial group now had a full-scale consumer bank to lure in customers from the late 80s. Throughout the 2000s stanford international bank operated as one might expect from a bank. They took deposits, made loans and offered various fixed-rate investing and savings vehicles to the consumer. Depositors among these offerings were their cds or certificates of deposit.

These are investment vehicles similar to both bonds and a savings account. They typically have shorter durations than bonds, usually in the range of a few months or years. However, they also usually pay a marginally higher interest rate than a savings account they're, usually seen as an investment vehicle that is almost, but not quite as safe as a treasury bond, but higher, yielding and less liquid than a savings account allen. Stanford, cds, however, claim to be safer than treasuries and, at the same time boasted a significantly higher than market return.

The returns offered were so high that they could not be reasonably expected from a traditional cd. In fact, stanford claimed that his cds averaged double-digit returns over 15 years, that's better than the average stock market return, except with the safety supposedly of government bonds and shorter durations. Sure enough. Several of the major u.s regulators were soon investigating the dubious cds from stanford the securities and exchange commission, the fbi, the florida office of financial regulation and finra were all reportedly investigating the company on the grounds of unreasonably high advertised investment returns in february 2009.

The fbi raided stanford's offices, hardware from the offices were seats, including computers and files. Shortly after that, the sec issued a statement on the charges being brought to stanford, saying that alan stanford had orchestrated an enormous fraud through his 8 billion cd program. The sec successfully convinced us district judge, reid, o'connor, to put a restraining order on stanford and freeze his assets. The sec then charged stanford and a few close friends and family members with perpetrating a massive fraud that promised infeasible future returns using made-up historical performance data.

To lure in potential investors, in addition to the two good to be true, cd offerings sanford also operated an investment advisory, firm, called stanford group company, which was also a complete fraud designed to funnel money into the cd program. The stanford group company offered a mutual fund trading strategy marketed towards investment advisors. It started out at inception with less than 10 million dollars in accounts, but stanford used fake historical returns to acquire 1.2 billion dollars in sales, generating tens of millions of dollars in fees for stanford, while also steering investment advisors to stanford's cd program. So what was actually going on behind the scenes in the multi-billion dollar cd program that stanford was running the sec unveiled.

A gigantic ponzi scheme backing those double-digit returns on the cds that stanford offered all the companies that stanford was affiliated with or owned. Had the core objective of increasing sales of those cds, whether the cds were sold by stanford international bank directly to banking, consumers by stanford capital management, advisors to investors or stanford group company to other investment advisors, the proceeds ended up funding a lavish lifestyle for alan stanford. He was constantly on vacation in the caribbean or funding professional cricket tournaments. Meanwhile, as the cd maturities approached, he would have his companies fabricate historical returns.

In order to lure in more unsuspecting investors, he would constantly have to sell more and more cds in order to gather the funds to pay back his previous investors plus interest, plus a little on top for his own personal use. Soon, his operation was pushing 10 billion dollars and it became harder and harder to find new investors without promising returns. That were simply too good to be true. Later in 2009, it became clear that the authorities were on the hunt for alan stanford.

However, as a man of stanford's resources, he held dual citizenship in antigua and frequently flew there on private jets. He tried to flee the u.s when he heard that there was a warrant out for his arrest. However, in a stroke of bad luck on his part, he only had a credit card on him which the private jet company would not accept the fbi soon caught up with him in fredericksburg virginia. He was then forced to surrender his passport preventing any further attempts to escape.

He was incarcerated in several jails and prisons, including the joe corley detention facility. That prison facility was home to some very rough inmates who took stanford a financial fraudster in a suit and tie as an easy target. On september 26, 2009 sanford was brutally beaten by fellow inmates so badly that he had to be hospitalized. Two and a half years later, sanford was sentenced to 110 years in prison.

Essentially a life sentence. He was ordered to pay 12.6 billion dollars in illegal profits, interests and fines. Much of that money was long gone and defrauded investors ended up being largely wiped out. Stanford appealed the conviction in 2015 in a 300-page brief, but the appeal was quickly rejected by the 5th u.s circuit court of appeals in new orleans.

Further investigations revealed that, in support of the ponzi scheme, alan stanford also engaged in bribery and extortion in the political arena. In order to protect his scheme, the u.s embassy in the bahamas reported that stanford's businesses were highly engaged in bribery, money laundering and political manipulation. The reports were never confirmed since the hard evidence of the ponzi scheme was so much more severe, but it was said that the us ambassador to the bahamas throughout the mid-2000s was very careful to avoid being seen in public with stanford before his fall from greats. Alan stanford was infatuated with fame fortune and glory in 2006.

He was appointed knight commander of the order of the nation of antigua and barbuda by the government for his financial contributions to the nation. His knighthood earned him the title of sir allen, which he routinely introduced himself as, however, in late 2009, the national honors committee of antigua and barbuda unanimously voted to rescind alan stanford's knighthood. In addition to his knighthood, alan stanford also claimed to be connected to the prestigious stanford university through his great great great grandfather, in a typical pattern of trying to use money to buy his goals. He funded the restoration of stanford university's, founder leland stanford.

However, the university has repeatedly denied any such genealogical connection. So what can we learn from this ponzi scam of epic proportions? First, multi-billion dollar scams are still as real as they ever were, and billions of dollars can still be lost just because society and the financial system has advanced leaps and bounds in the past hundred years, doesn't mean that perpetrating frauds is any harder. Second, it is important to have some understanding of what rate of return is reasonable to expect from any investment. Stanford claimed double-digit returns on an investment proposition supposedly safer than treasuries.

A perceptive investor should not fall for that, especially in this day and age. It sometimes seems, like everyone is trying to pitch an investment strategy, whether it be through cryptocurrency, liquidity, pools, market making operations or cross-exchange arbitrages, and even if an investment is not a scam at the outset, the capital can always be stolen by hackers if the manager is Incompetent, if you choose to trust your life savings with an investment manager of any kind, you would better make sure that you have faith in the integrity and competency of the manager. Otherwise you could end up a victim of another one of these billionaire financial fraudsters. Alright guys that wraps it up for this video, if you like the content, make sure to smash that like button and subscribe for future videos also make sure to check out our second channel wsm research, where we post dd on high growth stocks.

As always. Thank you guys so much for watching wall street millennial signing out.