By Steve Stecklow

Stanford Financial Group flew more than 200 overseas employees to Miami in January for a weekend meeting and yacht cruise. In a pep talk, the company's billionaire chairman, R. Allen Stanford, announced a quarterly sales contest called the Top Performers Club. Leading sellers of Stanford's certificates of deposit, he said, would compete for big bonuses, recalls an employee who was there. Attendees watched a video of a Stanford financial adviser in Switzerland who, during an earlier incarnation of the contest, received more than $400,000 in pay for three months of sales. What Mr. Stanford didn't reveal, says the employee who attended, was that his financial empire desperately needed cash from the sales to survive. Clients recently had redeemed about $500 million from the bank. Its assets were depleted and bills were piling up, federal court records indicate. Federal authorities now say much of the $8 billion Stanford Financial raised selling CDs is missing. In court papers, the Securities and Exchange Commission has described Stanford Financial as "a massive Ponzi scheme" in which new investments were used to pay off early investors.

Interviews with numerous former employees and people involved in the investigation, along with internal Stanford documents, paint a picture of a turbocharged sales machine. Stanford pushed employees hard to sell CDs with an incentive program some of them called "bank crack," while simultaneously misleading investors who pressed for details about its investments. In the end, mounting pressure from the SEC triggered a series of tense internal meetings in which one top executive broke into tears and an outside lawyer suggested prayer. A rash of alleged Ponzi schemes have surfaced during the financial crisis, including Bernard Madoff's, but Mr. Stanford's operation stands out in one respect. It had a huge and conspicuous marketing presence -- a sprawling network of offices that made his company appear both legitimate and durable.

In February, the SEC filed a civil lawsuit accusing Mr. Stanford and two other executives -- James M. Davis and Laura Pendergest-Holt -- of engineering a massive fraud. A federal judge in Dallas has placed Mr. Stanford's companies in receivership, and their operations have ceased. Ms. Pendergest-Holt also faces a separate criminal complaint alleging obstruction of justice. Reached on his cellphone, Mr. Stanford, 59 years old, declined to comment. David Finn, a lawyer for Mr. Davis, Stanford Financial's chief financial officer, said, "We are fully cooperating with the federal investigation." Through an attorney, Ms. Pendergest-Holt, Stanford Financial's chief investment officer, denied wrongdoing.

Stanford Financial looked like a solid company. It had posh offices, many adorned with green marble and mahogany, throughout the U.S., in Switzerland and in Latin American nations including Mexico, Venezuela and Peru, staffed by about 430 financial advisers. It spent $12 million last year to host the Stanford St. Jude Championship golf tournament in Memphis, Tenn., and $2 million for an endorsement contract with golfer Vijay Singh, according to people familiar with the matter. Yet there were signs that Mr. Stanford, a Texas native, wasn't a typical banker. After graduating from Baylor University, where he roomed with Mr. Davis, he unsuccessfully tried his hand at running health clubs, then shifted to real-estate investing.

He set up a bank in 1985, on the Caribbean island of Montserrat, to hold funds for his real-estate investors. Five years later, amid a British crackdown on Montserrat's offshore-banking industry, he moved his bank to Antigua, another tax haven. U.S. regulators blacklisted Antigua for lax regulation in the late 1990s, then lifted the sanctions in 2001. The 6-foot-4-inch financier became a towering figure on the island, which granted him citizenship in 1999 and knighted him in 2006. He served as chairman of the government board that oversaw its offshore financial industry, was a major lender to the government, launched an airline and a construction firm, and purchased the island's biggest newspaper. He poured considerable sums into West Indian cricket, hosting a tournament last fall that awarded the winning team $20 million. He told people his life had been changed by an encounter with a local Catholic priest with wounds in his hands and feet that Mr. Stanford believed to be the stigmata of Jesus Christ. He began carrying with him a vial of congealed fluids from the priest's foot.

The core of his financial empire was his Antiguan bank, Stanford International Bank Ltd. The bank issued the CDs, many of which were sold in Latin America. In the U.S., the CDs were sold by a brokerage unit, Stanford Group Co. The brokerage targeted well-heeled clients and recruited financial advisers from the likes of Merrill Lynch & Co. and UBS AG. Its headquarters in Houston featured a concierge, a multimedia theater for client presentations and a half floor of private offices for Mr. Stanford. Employees say he hardly ever used them. The CDs promised yields several percentage points higher than U.S. bank CDs. Stanford said that was possible because of its offshore bank's tax advantages. They were pitched to clients as conservative instruments. "Our strategy is based on an investment methodology that seeks to minimize risk, and achieve liquidity," said a 2007 disclosure statement that came with the CDs.

Michael Kogutt, 51, of Coppell, Texas, says he and several relatives met with two Stanford financial advisers in November 2007 after a German company purchased his family's promotional-products business. "We told them that we were extremely risk-averse," he recalls. He says he initially invested about $700,000 in several mutual-fund products, and about $700,000 in five-year "flex" CDs, which allowed partial withdrawals up to four times a year. Last summer, after the stock market declined, he liquidated the mutual-fund products and invested most of his life savings -- $2 million -- in the CDs. He said the Antiguan bank promised 9.87% compounded annual interest, about six percentage points higher than prevailing U.S. bank CD rates at the time.

Stanford financial advisers had incentive to push the CDs, which earned them higher commissions than other products -- a straight fee of 1%, plus a chance to earn an additional 1% a year over the term of the CD if they sold at least $2 million worth in a quarter. Some Stanford employees referred internally to the CD compensation program as "bank crack," says former Stanford financial adviser Charles Rawl, "because it seemed to be addicting."

Advisers around the world belonged to CD sales teams with names like the "Superstars," "The Deal Hunters" and "Money Machine," according to internal emails reviewed by The Wall Street Journal. Spreadsheets and tables reported the latest sales, broken down by team, offices and individuals. Managers pushed advisers hard. "Unfortunately, the fourth quarter has gotten off to a REALLY SLOW start," stated a Nov. 3, 2005, email from Jason Green, then a managing director in the Baton Rouge, La., office. "We only have about $1.7MM of production for October, well short of our $21MM monthly goal! However, I'm counting on a really strong November and December!!!!" The email added, "Of course, as always, don't try to force it, if it's not the right thing for your clients/prospective clients." Mr. Green declined to comment.

Advisers sometimes accompanied wealthy potential CD buyers on all-expenses-paid, three-day trips to Antigua so they could meet bank officials. If the potential sales reached $5 million, they flew by private jet, says D. Mark Tidwell, who worked from 2004 to 2007 as a financial adviser and sales manager in Stanford Group's Houston office. Mr. Tidwell says when one of his corporate clients once asked what the bank invested in, Juan Rodriguez-Tolentino, the bank's president, deflected the question, replying: "You don't ask what Bank of America is investing in." Mr. Rodriguez-Tolentino declined to comment.

The second most lucrative product for Stanford's U.S. operations was a mutual-fund product called Stanford Allocation Strategy, or SAS. It was made up of third-party funds purchased from companies like Putnam Investments and Vanguard Group Inc. In 2007 and 2008, Stanford's brokerage arm sold about $1.2 billion of the products, according to the SEC. Charts shown to clients claimed the SAS funds beat the S&P 500 index year after year. One 2006 chart showed that over a five-year period, the SAS Growth fund posted a 13.82% annualized return, versus 6.19% for the S&P 500. In its lawsuit, the SEC calls the SAS performance results from 1999 to 2004 "fictional and/or inflated."

Steve Riordan, a Boston-based performance-measurement reporting consultant, says Stanford Group hired him in November 2006 to review the figures after some clients complained that they hadn't received the robust returns reported in the tables."Nobody could tell me with certainty how these numbers were being calculated," Mr. Riordan recalls. "I didn't know how they were getting their returns. I just knew that they were wrong." He says he helped Stanford provide accurate returns, which were lower than suggested, for SAS funds from 2005 onward. He couldn't correct the prior performance tables, he says, because Stanford told him it didn't have underlying data. Mr. Riordan says he also tried to calculate the returns on the CDs. But Stanford's Antiguan bank, he says, refused to provide any information, citing client confidentiality.

Stanford Financial also exaggerated how much money it oversaw, according to several former employees. This year, the company's Web site claimed it had "over $50 billion in assets under management or advisement." But several former employees say that number was inflated by including the total value of portfolios for which Stanford played only a minor role, such as providing brokerage services.For example, Stanford Group occasionally sold government securities to the Dallas Fort Worth International Airport Board, but it didn't manage the board's investments or provide it with advice, says a person familiar with the matter. "The airport manages its own money completely in house," says David Magana, a board spokesman. Nevertheless, Stanford counted the board's entire $1 billion investment portfolio in its money-management total, says Charles Satterfield, who worked in Stanford Group's fixed-income unit. "My understanding was they were doing that," says Benjamin Finkelstein, Stanford Group's former senior managing director of public funds. "I was concerned about that, and I expressed those concerns, and I was told that they were not being used for that purpose."

Over the years, Mr. Stanford's operations attracted considerable attention from U.S. regulators and investigators. He is involved in a long-running dispute with the Internal Revenue Service over back taxes. The agency says he and his wife currently owe $226.6 million, including penalties and interest. In 2007, the Financial Industry Regulatory Authority, Wall Street's self-policing body, fined Stanford Group for, among other things, using sales material that contained "misleading, unfair and unbalanced information" about the CDs. By June 2008, Mr. Stanford's companies were being investigated by the Federal Bureau of Investigation, the SEC, the IRS and the U.S. Postal Inspection Service for possible fraudulent CD sales, federal court records show. The U.S. brokerage unit grew rapidly, to more than 20 offices last year from a half-dozen in 2004. The costly operation, it now appears, was being kept afloat by revenue from CD sales. Deposits in Mr. Stanford's Antiguan bank jumped to $8 billion last year, from $3 billion in 2004, internal Stanford documents indicate. The U.S. brokerage unit lost tens of millions of dollars over that period, according to the SEC. Over that time, the bank and Mr. Stanford transferred hundreds of millions of dollars to the unit, the SEC says.

As recently as December, in a report to clients following the Madoff scandal and global stock-market turmoil, the Stanford bank stated it was "strong, safe and fiscally sound." By then, serious pressure was building. Spooked by the global financial crisis, clients had begun trying to pull money out. Around that time, Mr. Kogutt, the investor from Texas, told a Stanford adviser, Patrick J. Cruickshank, that he wanted to do just that. "I wanted to have more diversified investments, but he said these were the safest things you could do with that kind of rate of return," Mr. Kogutt recalls. "He said, 'No. Leave it. Leave it.' " Mr. Cruickshank didn't return calls seeking comment. Between Jan. 21 and Feb. 6, top Stanford executives discussed the mounting problems in a series of meetings in Miami, according to an FBI affidavit included with the criminal complaint against Ms. Pendergest-Holt. The purpose of the meetings, the FBI says, was to prepare for testimony before the SEC, which was investigating Mr. Stanford's companies and seeking an accounting of the assets behind the CDs. During one meeting, Ms. Pendergest-Holt disclosed that one pool of assets had declined to $350 million from $850 million in June, the FBI says. She displayed a pie chart of a much larger pool that held more than $3 billion in real estate and a $1.6 billion loan to Mr. Stanford. The affidavit, which describes conversations that took place during the meetings, doesn't provide the names of the other executives involved. The Wall Street Journal identified them through interviews with people familiar with the matter.

In a subsequent telephone conversation, Stanford Financial's outside attorney, Thomas Sjoblom, told Stanford's general counsel, P. Mauricio Alvarado, "The assets may or may not be there," the affidavit said, without identifying the men by name. Mr. Rodriguez-Tolentino stated that if Ms. Pendergest-Holt's pie chart was accurate, then Stanford International Bank would be insolvent. Danny Bogar, Stanford Group's president "broke down crying" at one point, according to the affidavit, again without naming names. Mr. Sjoblom later "suggested they begin to pray together." The affidavit said Mr. Sjoblom told another executive, Lena Stinson, "The party is over." Mr. Sjoblom, who later withdrew as Stanford's attorney, didn't return calls seeking comment. Messrs. Bogar and Alvarado and Ms. Stinson all declined to comment.

On Feb. 19, two days after the SEC filed its civil lawsuit, Mr. Kogutt, his father and brother -- all three had invested in CDs -- boarded a plane to Antigua in hopes of retrieving their savings from Stanford International Bank. For two days, says Mr. Kogutt, they joined about 30 other frantic people, mostly from Mexico and South America, inside the bank's lobby, with a single bank employee trying to handle the crowd. After learning the bank had been placed in receivership, they returned to Texas, leaving behind instructions to wire their money home. To date, they have received nothing. Investigators now estimate that less than half of the $8 billion raised through CD sales will ever be recovered.