Stanford will go down as first major scandal exposed by blogging

I have spent the past 10 days or so on Stanford duty, watching what the SEC allege to be a fraudulent multi-billion financial empire unravel. At every juncture of the story I have found myself repeatedly asking one question: how come no one blew the whistle earlier?

Let's assume for the moment that Sir Allen Stanford is guilty as charged. (Yes, that's possibly unfair; this banking entrepreneur, who bankrolled the world of cricket, is not yet facing accusations of criminality. Yet with his sprawling financial assets having been frozen or seized by the local authorities in the US, the Caribbean and Latin America, Stanford Financial is not coming back from the dead any time soon.)

This will go down as the first major financial scandal to have been exposed primarily through the world of internet blogging. This was a piece of citizen cyber-police work that will probably show the old-fashioned non-pixelated variety to be thoroughly flat-footed.

Consider recent events. Alex Dalmady, a seasoned financial analyst who worked for many years in Venezuela but who now lives in Florida, was asked back in September to look at an entity called Stanford International Bank. A friend was considering taking out one of SIB's investments, which offered market-beating returns, but he wanted Dalmady to do a precautionary check.

The analyst says it took him just about half an hour examining SIB's financial statements, which he had downloaded from the web. They were too good to be true. SIB always seemed to beat the market, in every asset class and over every period, going back years.

Last month Dalmady published his thesis – that Stanford was simply too good to be true – in a Venezuelan magazine, and he then uploaded an English-language version to a file-sharing service on the web. That was picked up by bloggers in Latin America and then the US, who in turn alerted the mainstream press. The result is what you will have seen in this newspaper and on television screens since – financial implosion of Stanford and anguished queues of investors screaming for their money.

It's ironic that one of the few investors in the world who can claim to have beaten the market consistently over the long term – Warren Buffett – warned us so elegantly that scandals like of Stanford were about to be exposed.

Echoing JK Galbraith's observation in his seminal account of the Crash of 1929, Buffet declared: "It's only when the tide goes out that you discover who's been swimming naked."

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