Is R. Allen Stanford a real-life Tony Soprano?

The failed financier, in jail and accused of bilking investors out of billions in a Ponzi scheme, may have led a "blood oath" ceremony meant to secure the loyalty of Antigua's top financial regulator, Leroy King. That's according to James Davis, Stanford's former finance chief, whose plea-agreement confession was released to the public this week.

Imagination doesn't kill profits; people do
Davis is cooperating with federal authorities as part of a plea deal and has already confessed to committing mail fraud; conspiring to commit mail, wire, and securities fraud; and conspiring to obstruct a Securities and Exchange Commission investigation. He faces up to 30 years in prison, The Associated Press reports.

Davis's story is a fascinating and chilling tale of greed and manufactured profits, and strikingly similar to some of the actions of convicted felon Bernard Madoff.

For instance, Davis says that Stanford promised investors that his overseas certificates of deposit -- located in, you guessed it, Antigua -- would pay a much higher rate of return than their U.S. counterparts. To make good on those promises, Davis alleges, Stanford insisted that executives cook the books to show a profit every year.

But the longer the scheme went on, the grander the fiscal stunts became, Davis alleges. For example, in mid-2008, Davis says that he, Stanford, and others agreed to inflate the value of a $65 million real estate deal to $3.2 billion.

Wave wand -- or in this case, pen -- and (poof!), you're $3 billion richer on paper. Scared yet?

Never, ever trust a guarantee
You should be. The truth is that no investment vehicle ever produces a 100% guaranteed return. Risk is always a factor. Don't believe me? Rewind with me to September 2008. For decades, we'd been told that money market funds were like cash -- a riskless investment that we still call a "cash equivalent" on balance sheets.

But not last September. Then, a systemwide financial collapse that ended Lehman Brothers and forced the first of several bailouts of AIG (NYSE:AIG) also torpedoed one of the country's largest money-market funds, reducing its net asset value to $0.97 on the dollar. A seemingly riskless investment was suddenly very risky, and Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC), and dozens of other banks were left scrambling.

That's not all; 2008 was also the worst year for dividends since 1955. Before last year, many investors thought of their dividend income as pretty much a sure thing. Yet nearly 300 of the roughly 7,000 divided-paying public companies tracked by Standard & Poor's either reduced or suspended payments in last year's fourth quarter alone. Just look at these notable companies to see how much some dividends were cut:


Change in Total Dividends Paid
in 2008 vs. 2007

Current Dividend Yield

Citigroup (NYSE:C)



Freeport-McMoRan Copper & Gold (NYSE:FCX)



Honda Motor (NYSE:HMC)






Source: Yahoo! Finance. *Freeport-McMoRan announced dividend cut in 2008, but it didn't take effect until 2009.

The message? You don't have to buy from the next Bernie Madoff to lose your shirt on a (ahem) guaranteed returner.

Ensure risks are compensated
Can't-miss investments are like unicorns. They're legendary, ephemeral, basked in a light glow, and an utter fantasy. So don't chase them. Seek instead to ensure that your expected returns for investing exceed the known risks.

And that goes for every investment, whether you're buying options or money market funds. Try to understand what your required rate of return should be. As Bill Mann puts it in this well-constructed piece from 2004:

What we've seen throughout 2004, particularly at the end, was a repeat of 1999 -- a great many investors have seen their portfolios go up simply by making incredibly risky decisions. They forget, if they ever knew it in the first place, that risk factors don't matter until they matter, and then that's all that matters. [Emphasis added.]

Precisely. Don't believe anyone who pitches you guaranteed returns. Know the risk factors, assess the potential returns, and then decide. That's Foolish Investing 101.

Get your clicks with related Foolishness:

Fool contributor Tim Beyers is a member of the market-beating Rule Breakers stock-picking team. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. The Fool's disclosure policy is always working for you, even on nights and weekends.