Monday 2 August 2010

Stanford victims back bill

Some Baton Rouge-area residents are among thousands of investors supporting federal legislation that would provide partial relief from more than $7 billion in losses allegedly suffered at the hands of Texas financier Robert Allen Stanford.

“We’re super happy, but we’re really nervous at the same time,” Baton Rouge resident Blaine Smith said. “This is such a huge step in the right direction for us.”

Smith said Friday that he lost about $1 million in retirement savings in 2009, when Stanford was shut down by the Securities and Exchange Commission and indicted on federal fraud charges in Houston.

Early last year, thousands of other investors who lost billions to Bernard Madoff of New York recovered more than $500 million from the Securities Investor Protection Corp.

The SIPC is funded by the financial services industry. It provides partial restitution to victims of fraud committed by securities dealers who work for SIPC members.

Madoff, however, had pleaded guilty to federal charges and later was sent to prison for 150 years.

Stanford maintains that he is innocent. He remains in federal custody in Houston, where he is scheduled for trial in January.

Stanford’s chief financial officer, Mississippi resident James M. Davis, has pleaded guilty to felony charges, though. And Davis stated in court that he helped Stanford perpetrate massive frauds against his investors.

Against this backdrop last week, U.S. Rep. John Culberson, R-Houston, was able to move a proposed amendment to the Securities Investor Protection Act of 1970 through a subcommittee of the House Appropriations Committee.

That proposal is narrowly written to provide SIPC coverage for investors defrauded by an SIPC member whose assets were placed under a federal receivership after Jan. 1, 2009, and before March 1, 2009.

Stanford’s assets were placed under receivership in February 2009.

Angela Shaw, who founded the Stanford Victims Coalition in the Dallas area, said Thursday that SEC attorneys helped craft Culberson’s proposal.

That was a surprise because SEC Chairman Mary Schapiro had not yet announced a decision on a request by the Louisiana delegation and other members of Congress for SIPC coverage of Stanford victims.

SEC spokesmen were asked Friday for confirmation of SEC participation in the legislative proposal, but they did not respond.

“The SEC was clearly involved with this new development,” said John Wade, a St. Tammany Parish veterinarian and partner in a pet identification-chip business that lost more than $1 million in retirement funds to Stanford.

“So many people are clinging onto this hope,” Wade said of Culberson’s proposal.

U.S. Rep. Bill Cassidy, R-Baton Rouge, confirmed initial action on Culberson’s proposal, which he described as “encouraging news for Stanford victims who have sought help from the SEC for a year and a half.”

The proposal, however, will not become law unless it first passes the full Appropriations Committee and then is approved by both the House and Senate.

Old anger

The reported SEC support was welcomed by investors and legislators who were furious in April, when the SEC’s Office of Inspector General reported that the SEC’s enforcement division repeatedly ignored early recommendations for action against Stanford.

“The OIG investigation found that the SEC’s Fort Worth office was aware since 1997 that Robert Allen Stanford was likely operating a Ponzi scheme,” the OIG reported.

“We found that over the next 8 years, the SEC’s Fort Worth examination group conducted four examinations of Stanford’s operations, finding in each examination that (certificates of deposit) could not have been ‘legitimate,’ ” Inspector General H. David Kotz wrote.

A Ponzi is an illegal scheme in which no actual investments are made. Instead, money from new investors simply is used to pay earlier investors relatively small fake dividends or fake profits while the schemers convert much of the money to their own uses.

Stanford Group Co. poured much of its investors’ money into Stanford International Bank on the Caribbean island of Antigua, federal prosecutors and SEC attorneys allege in an indictment and civil suit against Robert Allen Stanford.

Those federal attorneys also allege that Stanford, in effect, used the Antiguan facility as his personal piggy bank.

During those important early years, Kotz reported in April, SEC enforcement action was thwarted by a Fort Worth enforcement chief who later attempted repeatedly to gain SEC permission to work for Stanford.

In addition, Kotz reported, the SEC’s own policies encouraged enforcement officers to concentrate on easy, simple cases and avoid complicated, difficult investigations.

Cassidy said the SEC’s “mission statement is to protect investors. They failed, and innocent Louisiana families paid the price.”

“The SEC Inspector General’s report paints a picture of an SEC that was asleep at the wheel and allowed innocent people to be robbed of their hard-earned savings,” said U.S. Sen. Mary Landrieu, D-La. “Congress must continue to press forward to ensure that the victims of this disgraceful Ponzi scheme get the relief they need.”

“The depth of the failure at the SEC in the Stanford investigation is unbelievable,” said U.S. Sen. David Vitter, R-La.

Vitter added that he is pushing for a Senate Banking Committee hearing on Kotz’ report in September because: “The one thing that is clear from the report is that the debt the SEC owes the Stanford victims is enormous.”

U.S. Rep. Charlie Melancon, D-Napoleonville, is one of Vitter’s re-election opponents. But he joined Vitter in seeking SIPC assistance for Stanford investors.

“I urge the SEC to act swiftly in correcting these wrongs, so these families whose retirement and savings were stolen as a result of greed and government failure can begin rebuilding their lives,” Melancon said.

In April, the SEC’s Schapiro said of Kotz’ findings: “We will carefully analyze the report and implement any additional reforms as necessary for effective investor protection.”

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