STANFORD FRAUD CASE SHAKES MEXICAN INVESTORS

UNCLAS SECTION 01 OF 02 MEXICO 000544

SENSITIVE, SIPDIS

STATE FOR WHA/MEX, WHA/EPSC, EB/IFD/OMA, AND DRL/AWH
STATE FOR EB/ESC MCMANUS AND IZZO
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/GERI WORD
USDOC FOR ITS/TD/ENERGY DIVISION
TREASURY FOR IA (ALICE FAIBISHENKO)
DOE FOR INTERNATIONAL AFFAIRS (KDEUTSCH AND ALOCKWOOD)
NSC FOR DAN FISK
STATE PASS TO USTR (EISSENSTAT/MELLE)
STATE PASS TO FEDERAL RESERVE (CARLOS ARTETA)

E.O. 12958: N/A
TAGS: ECON EFIN ENRG EINV PGOV MX
SUBJECT: STANFORD FRAUD CASE SHAKES MEXICAN INVESTORS


1. (SBU) Summary: Mexican investors' confidence has been shaken
once again by the financial scandal surrounding billionaire Robert
Allen Stanford, this time affecting more Mexicans than the earlier
Madoff case. Stanford Financial Group's Mexican subsidiary,
Stanford Fondos S.A. de C.V., has reportedly been found to have
defrauded hundreds of Mexican investors by offering them offshore
investments illegal in Mexico. With no previous evidence of the
illegal activities conducted by Stanford Fondos Mexico, the National
Banking and Securities Commission (CNBV) has publicly stated that it
only began investigating the case as of last week. Meanwhile,
investors have joined together to protect their interests and file
charges against Stanford in Mexico and the United States. End
Summary.

CNBV'S ROLE IN THE INVESTIGATION
--------------


2. (SBU) Stanford Fondos Mexico began operating in 2005 under the
authorization and supervision of the National Banking and Securities
Commission (CNBV). Very few Mexicans - only about six of the
country's richest businessmen -- were affected by the multi-million
Madoff fraud case unveiled a few weeks ago. This time, the Stanford
fraud case seems to have hurt the investment of more Mexicans,
ranging from businessmen to well-to-do families and well-known
actors. The Embassy has even received nervous calls from
highly-placed government officials.


3. (U)As of this time, the CNBV also announced that it has not
frozen any assets belonging to the Mexican subsidiary. With no
previous evidence of the illegal activities conducted by Stanford
Fondos Mexico, the National Banking and Securities Commission (CNBV)
has publicly stated that it only began investigating the case as of
last week. On its webpage, www.cnbv.gob.mx, the CNBV has requested
interested parties to post information and/or complaints, to help
the authorities conduct the investigation.



4. (U) The CNBV announced February 17 and 19 that Stanford Fondos
Mexico's authorization to operate in Mexico was limited to financial
operations solely in Mexican investment funds. On February 23, the
CNBV announced that no Mexican bank or financial institution had
investments in Stanford International Bank or any other foreign
intermediary related to it. Some of the Mexican investors have been
able to withdraw their money from the Bank. As of January 30,
Stanford Mexico administered funds for 706.8 million pesos (USD 47
billion). On February 20 the amount was reduced to 431.3 million
pesos (USD 28.7 billion). Most of the investors who have been
unable to withdraw their funds are those who invested in Stanford
Financial Group based in Houston, Texas and through the Stanford
International Bank Ltd. based in Antigua.


5. (U) As of February 25, ten persons have approached the CNBV with
information. The CNBV also distributed a guideline to help
investors find out whether their investments are regulated under
Mexican laws or not. According to the CNBV, Mexicans who signed a
contract directly with Stanford Fondos S.A. de C.V. should not have
any problem in withdrawing their money because the securities in
which they invested were registered at the "Registro Nacional de
Valores". However, the CNBV alerts that those who signed a contract
with another subsidiary of Stanford Financial Group should verify
the recommendations made by the U.S. Securities and Exchanges
Commission.

GOM ONLY STARTED INVESTIGATING LAST WEEK
--------------


6. (SBU) In an interview this weekend, Jaime Villa, Director of
Crimes and Sanctions of the CNBV, assured the public that those
Mexicans who invested in Stanford Fondos Mexico and in Mexican funds
will not face problems. Guillermo Babatz, head of the CNBV, also
assured Mexicans that if their investments were made strictly under
Mexican laws, their money was "completely safe". However, he
expressed concern over illegal operations conducted by some of the
funds' executives or front companies operating for Stanford Fondos.
These activities involved encouraging some Mexicans to invest in

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off-shore investments, which are currently illegal in Mexico.
Investors have reportedly told the authorities, that the fund's
executives never provided them with a legal contract for the
transaction. In exchange for a personal check to the fund's
executives, they were issued an informal receipt "of a Certificate
of Deposit (CD) at a bank in Antigua". According to the CNBV, these
off-shore investments are beyond the reach of Mexican regulators.
Babatz noted that authorities will likely strengthen regulations to
offer more protection to clients of investment funds.


7. (U) Enrique Zamarripa, director of Analysis and Registration at
the National Commission for the Protection of Financial Customers
(Condusef)stated that those Mexican investors who did not sign a
contract in English and only have the receipts mentioned above, are
entitled to get their money back. It seems that a good number of
Mexicans did sign a contract with Stanford Funds in the U.S., and
they will have to file their case under U.S. law.

NO EVIDENCE OF MONEY LAUNDERING YET
--------------

8. (U) The CNBV's Babatz invited defrauded investors to approach
the CNBV with their contracts, statements, and any other document
that could help authorities pursue the investigation. He asserted
that the CNBV is in communication with the SEC with regard to
foreign investors and their funds. Babatz told the Mexican press
that they do not have any evidence so far of money laundering in
Mexico through Stanford Fondos Mexico, but that they will coordinate
and work with the U.S. to investigate the issue.

WHAT MEXICAN INVESTORS ARE DOING
--------------


9. (SBU) More than a hundred Mexicans, mainly from Mexico City and
Monterrey, have joined together and are consulting Mexican and U.S.
law firms to try to bring criminal charges against Stanford or
whoever is responsible for the fraud. Several of these Mexican
investors have admitted and confirmed that their money was indeed
invested off-shore. Most observers feel the fund's executives
violated Mexican laws by collecting Mexican money and investing it
off-shore and by not providing legal contracts as required by the
CNBV and the Bank of Mexico. According to the lawyers, these
violations are considered grave crimes or felonies. The affected
parties say they will sue for damages and injuries in U.S. courts
because they note that these laws are more severe in the U.S. than
in Mexico. However, lawyers and investors need the CNBV to account
for how much and where the money was invested off-shore.


10. (SBU) Some Mexicans, who unable to withdraw their investments
have met with Senators, who promised to sit down with the
authorities to identify legal ways to recover the money. A few, who
invested in CDs issued by Stanford International Bank in San Antonio
have filed a request to U.S federal judge David Godbey in Dallas to
bring the case to Mexico in order to try to recover the money under
Mexican laws because for them U.S. prosecutors will not watch over
foreigners' interests.

COMMENT
--------------

11. (SBU) Comment: Many wealthy Mexicans (including politicians)
have traditionally sought to invest abroad and protect their incomes
and savings from their own government's tax authorities and domestic
financial difficulties. The Madoff and Stanford frauds cases have
generated concern here that there could be more fraud cases out
there. Analysts and observers have once more called for closer and
tighter supervision from financial authorities. These scandals
certainly don't help investor confidence at a critical time. End
comment.