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Greed-to-Grief, No. 22

Greed-to-Grief, No. 22

If you're going to cheat and lie, go big

George Pillari
October 09, 2025

Before everybody had accounts at Robinhood or eTrade, most did their banking at, well, banks. Banks were usually regionally focused and took on deposits from residents of the community and made loans to local businesses. As long as the interest received on the loans was more than the interest the bank paid on the deposits, the bank made money.

Another service banks have offered for a long time is a Certificate-of-Deposit, or CD. With a CD, the bank paid the investor a fixed interest rate, as long as the investor agreed not to withdraw the money for a fixed period of time. A six-month CD might pay a 5% annual interest rate, while a 12-month CD might pay a 6% rate to compensate the investor for the longer holding period.

CDs vary in length from one month to many years

CDs were and still are popular investments because CDs from US banks are guaranteed by the Federal Deposit Insurance Corporation, or the full faith and credit of the US government for amounts up to $250,000.

“CD shopping” is the practice of searching around the country for banks that pay the best rates for the desired term. Almost out of nowhere, Stanford Financial, founded by Allen Stanford, became a leader in attracting investment into its CDs.

Originally, CDs were the bastion of the small investor since the insurance cap was $250,000. But in a world where everybody is chasing higher returns on their money, many ignored the cap and invested millions in CDs, including the CDs offered by Stanford Financial, which were outside of the US and had no FDIC guaranty.

After opening and then closing a bodybuilding gym in Texas, Allen Stanford became an insurance salesperson and, through a partnership with his father, made some money in the Houston real estate market, and used those funds to launch his financial empire.

Allen Stanford, Ponzi Scheme Master

Stanford created a network of related companies, including entities based in the Caribbean and other parts of the world. In a short time, Allen Stanford was an international business executive attending big-name sporting events around the world while carefully projecting the image of a successful billionaire philanthropist.

The cornerstone of Stanford Financial’s appeal was offering exceptionally attractive returns. Stanford Financial worked through a network of financial advisers to sell CDs by promising interest rates well above market, as well as paying healthy commissions to the advisers whenever they sold a Stanford Financial product.

These above-market returns were the primary lure, appealing to retirees and families seeking better yields than traditional US banks offered.

In reality, Stanford Financial was a Ponzi scheme that went on for over 20 years before it came crashing down in 2009 with losses estimated at more than $8 billion. (The Stanford scandal was uncovered only months after the $18-billion Madoff Ponzi was disclosed.)

The problem Stanford had was that the financial crisis of 2008 was a driver of fear and uncertainty among all investors. In difficult times, people want to have their money at hand, not locked up in a six-month or three-year CD.

Since new deposits could not keep pace with the demands for withdrawals, Stanford Financial was quickly insolvent and put into receivership, which is a type of bankruptcy process for financial institutions.

The financial crisis of 2008 drove people to want their money available, not tied up in a long-term CD.

Rather than storing his investors’ deposits in safe and conservative investments, Allen Stanford spent billions on himself. According to evidence at his criminal trial, Stanford spent as much as $2 billion of investor money on his jet-set lifestyle and failed business ventures.

Stanford's personal businesses ran at a net loss each year totaling hundreds of millions of dollars, all funded by diverting billions in depositor funds that were supposed to be invested in safe, liquid assets.

Some of his personal expenses included six private jets, an 18,000 square foot Miami home with 57 rooms, a tower and a moat that he tore down after a year, a 112-foot yacht that he paid $12 million to have lengthened by six feet, $300 million for two startup airlines in the Caribbean, $350 million to his venture capital business, and more than $50 million building a cricket stadium and promoting cricket matches. Impressive.

Allen Stanford was sentenced to 110 years in prison and somehow, it doesn’t feel like enough.

Key Takeaways

Yield shopping is something all investors do. The smart ones understand that with higher yield comes higher risk.
To sustain a Ponzi for 20 years and $8 billion is amazing. Stanford is one of the top fraudsters we have profiled. How did investors not see it coming? It goes to my favorite saying when people are making money, “something was broken, but nobody dared fix it.”
Stanford had many accomplishes. Several officers in his companies were also sentenced to prison terms. Like people inside of most Ponzi schemes, they were trapped and if they jumped ship, would have had to blow the whistle on the money-making machine that was feeding them as well.

Things I think about

A large percentage of US paper money contains trace amounts of cocaine.

Greed-to-Grief, No. 22

If you're going to cheat and lie, go big

Key Takeaways

Things I think about

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