Investors in one or many of R. Allen Stanford’s companies may wish they had conducted better due diligence before handing over their money. Stanford and a financial regulator from Antigua are accused in connection with an alleged $7 billion fraud.

While liability is a matter for courts to decide -- not us -- we can say that robust due diligence into Stanford’s web of companies as well as Stanford himself would have produced several pieces of information that might have prompted further investigation before the client committed funds.

There is no reliance on 20/20 hindsight here. The following steps would have produced the results we outline, because basic public records research is the way we approach all due diligence assignments. We comb legal, regulatory, real estate, and other records that deal not only with the specific company in question, but with companies related to the one an investor is looking at. We pay particular attention to information gained from former colleagues or employees.

Among the things we would have found about Stanford:

• Allen Stanford and his wife had an extensive litigation history in U.S. Tax Court. As far back as 1990, they were assessed a deficiency of $497,000, according to a 1997 Tax Court case. Currently, the IRS has filed a notice of Federal Tax Lien against the Stanfords in Miami Dade County, Florida for $104 million.
• If the sole owner of a bank we are investigating has a pattern of getting into tax trouble, we think this is a reportable fact.
• An April 2007 FINRA report on the Stanford Group Company said the firm had been found to be operating a securities business while failing to maintain its required minimum net capital. FINRA saw fit to list an extensive group of companies owned by Allen Stanford, including Stanford Group (Antigua) Ltd.
• A former employee of Stanford’s, Lawrence de Maria, alleged in an April 2006 complaint in Florida state court that Stanford was operating a Ponzi scheme.

• As in the case of Bernard Madoff, SIB’s auditors were not from among the “Big Four” international accounting firms. The report described the auditors, C.A.S. Hewlett & Co., as “independent.” We would always suggest an investigation into anything unusual regarding audit practices, whether it is a change from one Big Four auditor to another, or reliance on an audit firm that appears to be smaller than what banks of a size comparable to SIB would be expected to use.