VZCZCXRO2653
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #0544/01 0562251
ZNR UUUUU ZZH
P 252251Z FEB 09
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 5306
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RHMFIUU/HQ USNORTHCOM
RHMFISS/CDR USSOUTHCOM MIAMI FL
RHEHAAA/NSC WASHINGTON DC

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 
 
MEXICO 00000544  002 OF 002 
 
 
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.