"Kachroo Legal Services, P.C. wishes to inform Stanford investors that despite slanderous representations it will not file amended claims for any Stanford investors unnecessarily and it is not our intention to do so, nor has it ever been. KLS is attempting to extend an offer to review your claim and if it is found to be lacking to amend it to participate in any potential class action we file. The review would be done free of charge. Note also that unlike the 30 percent contingency of other attorneys, KLS is charging a small up front stipend and only a 15 percent contingency fee upon recovery."
Please contact us IMMEDIATELY to review your claim so that you are included in the class action at wlugo@kachroolegal.com or by calling 617-864-0755.
Wednesday 30 March 2011
Saturday 26 March 2011
First Lawsuit against the SEC Announced
I would encourage everyone to read this lawsuit from start to finish, it will give you hope for our action when the time comes.
It should also make those of you who self-filed realise what is at stake here and convince you to do the right thing and make sure your Registration of Interest filing is not rejected by the SEC and you lose the chance to be part of our lawsuit.
The fact that this action has been filed will convince the SEC to go through each and every Registration of Interest to try and deny as many as they can and they know that once they have rejected your filing you cannot come back later, so please think carefully, it is worth the risk for a few hundred dollars?
Now read the case that has been filed:
Stanford Investors Sue SEC for Losses in Alleged Swindle
Stanford Investors v USA
It should also make those of you who self-filed realise what is at stake here and convince you to do the right thing and make sure your Registration of Interest filing is not rejected by the SEC and you lose the chance to be part of our lawsuit.
The fact that this action has been filed will convince the SEC to go through each and every Registration of Interest to try and deny as many as they can and they know that once they have rejected your filing you cannot come back later, so please think carefully, it is worth the risk for a few hundred dollars?
Now read the case that has been filed:
Stanford Investors Sue SEC for Losses in Alleged Swindle
Stanford Investors v USA
Friday 25 March 2011
URGENT - PROPOSAL TO ALL SELF-FILERS AND OTHERS EXPECTING COVERAGE IN THE KLS CLASS ACTION LAWSUIT AGAINST THE SEC
To: ALL SELF-FILERS AND OTHERS EXPECTING COVERAGE IN THE KLS CLASS ACTION LAWSUIT AGAINST THE SEC
From: Kachroo Legal Services, P.C. (KLS)
We are currently in the process of amending on behalf of Stanford Investors all self-filed or otherwise filed administrative claims under the U.S. Federal Tort Claims Act. It has come to our attention that many claims do not have required information and statements necessary to formulate a valid administrative claim. It has also come to our attention that the letters of claim filed by many attorneys on behalf of Stanford investors are insufficient to establish a claim under the FTCA, because not all information required in the FTCA forms is provided. All such claims will be deemed invalid with or without any response from the SEC.
IT IS IMPERATIVE that such claims be amended and refiled by KLS as soon as possible.
Kachroo Legal Services will be providing amendment of your claims if you provide the following within the next month:
1. Your last financial statement evidencing investment into Stanford International Bank, or any Stanford entity;
2. Your name and full contact information including email and phone numbers;
3. A witness name and address to your specific investment;
4. Whether you have made any insurance claim for recovery of your claim.
5. If you have invested less than $100,000 USD, legal fees of $500; If you have invested less than $1mill USD, legal fees of $1000;
If you have invested more than $1mill USD, legal fees of $1500.
Please contact us IMMEDIATELY to file your amended claim so that you are included in the class action at wlugo@kachroolegal.com or by calling 617-864-0755.
From: Kachroo Legal Services, P.C. (KLS)
We are currently in the process of amending on behalf of Stanford Investors all self-filed or otherwise filed administrative claims under the U.S. Federal Tort Claims Act. It has come to our attention that many claims do not have required information and statements necessary to formulate a valid administrative claim. It has also come to our attention that the letters of claim filed by many attorneys on behalf of Stanford investors are insufficient to establish a claim under the FTCA, because not all information required in the FTCA forms is provided. All such claims will be deemed invalid with or without any response from the SEC.
IT IS IMPERATIVE that such claims be amended and refiled by KLS as soon as possible.
Kachroo Legal Services will be providing amendment of your claims if you provide the following within the next month:
1. Your last financial statement evidencing investment into Stanford International Bank, or any Stanford entity;
2. Your name and full contact information including email and phone numbers;
3. A witness name and address to your specific investment;
4. Whether you have made any insurance claim for recovery of your claim.
5. If you have invested less than $100,000 USD, legal fees of $500; If you have invested less than $1mill USD, legal fees of $1000;
If you have invested more than $1mill USD, legal fees of $1500.
Please contact us IMMEDIATELY to file your amended claim so that you are included in the class action at wlugo@kachroolegal.com or by calling 617-864-0755.
Thursday 24 March 2011
Allen Stanford Drops Suit Against Feds For Allegedly Violating Constitutional Rights
Alleged ponzi-schemer Allen Stanford has dropped a lawsuit seeking $7.2 billion from federal law enforcement because he says they violated his constitutional rights, but indicated that he could refile once the criminal case against him concludes.
Stanford sued Justice Department officials as well as Federal Bureau of Investigation and Security and Exchange Commission agents last month for allegedly violating his Fourth, Fifth, Sixth and Eighth Amendment rights (guarding against unreasonable searches and seizures; abuse of government authority in a legal procedure; protecting rights related to criminal prosecutions; and cruel and unusual punishment, respectively).
Stephen R. Cochell, a Texas-based lawyer for Stanford, wrote in a motion filed last week that the claims in the action "will be preserved without pursuit of this case at this time." A federal judge ordered the case dismissed on Monday.
In the suit, Stanford had alleged that agents of the U.S. "conspired to deprive Mr. Stanford of his civil rights by and through tactics taken under color of law, but which violate basic constitutional principles" and "used over $51,000,000 of Mr. Stanford's own money to fund their investigation" while opposing attempts by Stanford to defend himself.
Stanford alleged that he came under scrutiny because the SEC was being criticized in late 2008 and early 2009 for failing to detect misconduct by Bernie Maddoff.
A judge ruled in January that Stanford was incompetent to stand trial and recommended he undergo treatment for his reported traumatic brain injury, addiction to an anti-anxiety medication and major depressive disorder at a federal facility with suitable medical capabilities. Stanford, whose full name is Robert Allen Stanford, is currently inmate #35017-183 and is being held in Butner, N.C.
Tuesday 22 March 2011
Attorney Visits Antigua Ahead of SIC Lawsuit
Antigua, St John's - With 500-600 investors and “close to a billion dollars of investment” under her representation, Boston attorney Gaytri Kachroo is forging forward with claims against the Securities and Exchange Commission (SEC) in the United States.
Around 400 of these investors are supposedly based locally, all having invested between US$25,000 and US$20 M in the alleged Stanford Ponzi scheme.
The claimants will wait six months for a response from the US government before proceeding with a lawsuit against the government itself, over the SEC’s alleged negligence.
The SEC has reportedly investigated Sir R Allen Stanford four times, concluding each time with the suspicion that Stanford’s operation was a Ponzi scheme, or that there was something amiss, but failing to formally notify anyone.
“That of course has deprived our clients of a lot of money, and we will seek redress from the US government for that,” the attorney said in an exclusive interviews with Caribarena.com on Monday.
Kachroo said she might be looking to partner with local counsel and approach the local receivers to “figure a way out of this.”
The attorney, on island since Friday, was able to meet with a score of local claimants over the weekend, with most concerned about the action taken by the local receivership “to guarantee recovery…”
Regarding the status of the local receivership, Kachroo said, “There is a lot of confusion as to who is really in charge here and what is happening.”
She pointed out that there was a successful court action filed against the current receivership, and reportedly met with an appeal.
Despite the seemingly slow progress in the recovery process, Kachroo has assured that action planned in the coming months should yield some fruit.
Speaking about the lawsuit filed against local law firm Cort and Cort, in which Minister of National Security and Labour Dr Errol Cort is a senior partner – Kachroo said although she is not too familiar with the case, she is aware that there are several lawsuits out there.
“It is unclear to me whether they are valid; whether the constituency of investors I represent would back those lawsuits, and we are looking very carefully as to the action we would like on behalf of the investors we represent,” she said.
Also, as far as the lawsuit against the Antiguan government, Kachroo said there is some question as to the authority of the diminutive group of investors that filed the action that seems to reflect the position of all the investors. This suit was filed 18 months ago.
“We are going to be looking into that as well, because we represent a number of people here and we want to make sure those people either back that lawsuit or whatever they feel about that suit is represented in the proceedings,” Kachroo said. “It's unclear that the voices of all the investors is being represented in the cause and actions that are being put forward.”
Additionally, Kachroo said the current structure of the Stanford Investors Committee in the US needs to be examined “because it doesn’t fully represent all of the investors’ wishes.”
The investors the lawyer refers to include those in the US and throughout the world.
“We represent over 500 and 600 of these investors that have put money into Stanford within the US and outside…. Many of my clients are telling me they are not happy with the way the US receivership is proceeding; with the way claims have been processed and lawsuits have been handled, so we will be doing something about that,” she said.
Kachroo also predicted the number of local investors seeking returns would increase.
Saturday 19 March 2011
Clinton is urged to help victims of Stanford scandal
Sixteen members of Congress, including U.S. Rep. Travis Childers of Booneville, have asked Secretary of State Hillary Clinton to help victims of the Stanford financial scandal.
Their letter, dated Oct. 20, urges Clinton to refer the thousands of Stanford claims, totaling billions of dollars, to the Foreign Claims Settlement Commission.
“A referral to the FCSC will provide a forum for victims of the Stanford Ponzi scheme to obtain compensation for the massive financial losses they have suffered,” they say.
They also note that the losses include property they say was improperly seized by the Commonwealth of Antigua and Barbuda, headquarters for Stanford International Bank Ltd., which issued certificates of deposit now virtually worthless after the collapse of Stanford Financial Group in February.
That’s when SFG was accused by the U.S. Securities and Exchange Commission of masterminding a Ponzi scheme.
Andy Laney, State Department spokesman, confirmed Wednesday the letter’s receipt, saying it will be reviewed “very carefully,” with a response going directly to the letter-writers.
The FCSC has jurisdiction over claims between the U.S. and foreign governments arising from differences related to property taking.
Stanford’s CEO R. Allen Stanford, Chief Investment Officer Laura Pendergest-Holt of Baldwyn, two other top executives and an Antiguan regulator are accused in the scheme. While the regulator awaits extradition, the others have pleaded not guilty and await trial.
Key witness
James M. Davis of Baldwyn, the company’s chief financial officer, has pleaded guilty to the federal charges and is expected to be the government’s key witness at trial.
Stanford had an office in Tupelo and numerous residents of the region report lost substantial savings when SFG collapsed in February with the SEC accusations.
Childers is the only Mississippi member of Congress to sign the letter.
Sens. Roger Wicker of Tupelo and Thad Cochran of Oxford, as well as Reps. Gene Taylor of Bay St. Louis and Gregg Harper of Brandon, have been active in seeking help for Stanford victims, said their spokesmen, although they didn’t receive a copy of the Clinton letter in time to sign it for delivery Wednesday.
No one from Rep. Bennie Thompson’s office returned a call for a comment
Their letter, dated Oct. 20, urges Clinton to refer the thousands of Stanford claims, totaling billions of dollars, to the Foreign Claims Settlement Commission.
“A referral to the FCSC will provide a forum for victims of the Stanford Ponzi scheme to obtain compensation for the massive financial losses they have suffered,” they say.
They also note that the losses include property they say was improperly seized by the Commonwealth of Antigua and Barbuda, headquarters for Stanford International Bank Ltd., which issued certificates of deposit now virtually worthless after the collapse of Stanford Financial Group in February.
That’s when SFG was accused by the U.S. Securities and Exchange Commission of masterminding a Ponzi scheme.
Andy Laney, State Department spokesman, confirmed Wednesday the letter’s receipt, saying it will be reviewed “very carefully,” with a response going directly to the letter-writers.
The FCSC has jurisdiction over claims between the U.S. and foreign governments arising from differences related to property taking.
Stanford’s CEO R. Allen Stanford, Chief Investment Officer Laura Pendergest-Holt of Baldwyn, two other top executives and an Antiguan regulator are accused in the scheme. While the regulator awaits extradition, the others have pleaded not guilty and await trial.
Key witness
James M. Davis of Baldwyn, the company’s chief financial officer, has pleaded guilty to the federal charges and is expected to be the government’s key witness at trial.
Stanford had an office in Tupelo and numerous residents of the region report lost substantial savings when SFG collapsed in February with the SEC accusations.
Childers is the only Mississippi member of Congress to sign the letter.
Sens. Roger Wicker of Tupelo and Thad Cochran of Oxford, as well as Reps. Gene Taylor of Bay St. Louis and Gregg Harper of Brandon, have been active in seeking help for Stanford victims, said their spokesmen, although they didn’t receive a copy of the Clinton letter in time to sign it for delivery Wednesday.
No one from Rep. Bennie Thompson’s office returned a call for a comment
Congressmen urge SEC to decide Stanford aid issues
Fifty-three members of Congress - including all of Mississippi's - this week asked the Securities and Exchange Commission to prioritize a decision about whether Stanford investment victims qualify for federal assistance.
"We are aware of several issues the SEC staff has raised with respect to whether Stanford victims qualify for SIPC coverage," said the March 16 letter to SEC Chairwoman Mary L. Schapiro.
"The bottom line is that all investors' funds are missing and the SEC failed to act in a timely manner to put an end to Allen Stanford's fraud."
The Securities Investor Protection Corp. is a quasi-public agency that acts like the banks-related Federal Deposit Insurance Corp. to ensure that securities investors are protected, when member funds get into trouble.
Thousands of investors with Stanford Financial Group, which had a Tupelo office, lost their life savings and retirement funds in early 2009 when the Stanford financial empire collapsed under the weight of an SEC investigation.
Subsequently, CEO R. Allen Stanford and four of his top executives were indicted as players in a $7.2 billion Ponzi scheme. They also face civil lawsuits.
The letter's signers include Mississippi Sens. Thad Cochran and Roger Wicker, as well as Reps. Bennie Thompson, Alan Nunnelee, Gregg Harper and Steven Palazzo.
The immediate problem for Stanford investors, officials say, is that SFG was not directly a member of SIPC, although affiliate broker-dealer Stanford Group Co. was.
"These Americans relied on the SEC to uphold its federal mandate to protect investors," the five-page letter states, "and the SEC failed in this regard."
The letter reminds the federal agency that it knew as early as 1997 that Stanford investors were in jeopardy of losing their money, but did not start any official investigation until 2004.
Still, the SEC's financial concerns were not known publicly until 2009, when it was too late for investors to recover their money.
"We urge you to prioritize the determination of whether Stanford victims qualify for SIPC coverage," the U.S. Senate and House members said.
"We are aware of several issues the SEC staff has raised with respect to whether Stanford victims qualify for SIPC coverage," said the March 16 letter to SEC Chairwoman Mary L. Schapiro.
"The bottom line is that all investors' funds are missing and the SEC failed to act in a timely manner to put an end to Allen Stanford's fraud."
The Securities Investor Protection Corp. is a quasi-public agency that acts like the banks-related Federal Deposit Insurance Corp. to ensure that securities investors are protected, when member funds get into trouble.
Thousands of investors with Stanford Financial Group, which had a Tupelo office, lost their life savings and retirement funds in early 2009 when the Stanford financial empire collapsed under the weight of an SEC investigation.
Subsequently, CEO R. Allen Stanford and four of his top executives were indicted as players in a $7.2 billion Ponzi scheme. They also face civil lawsuits.
The letter's signers include Mississippi Sens. Thad Cochran and Roger Wicker, as well as Reps. Bennie Thompson, Alan Nunnelee, Gregg Harper and Steven Palazzo.
The immediate problem for Stanford investors, officials say, is that SFG was not directly a member of SIPC, although affiliate broker-dealer Stanford Group Co. was.
"These Americans relied on the SEC to uphold its federal mandate to protect investors," the five-page letter states, "and the SEC failed in this regard."
The letter reminds the federal agency that it knew as early as 1997 that Stanford investors were in jeopardy of losing their money, but did not start any official investigation until 2004.
Still, the SEC's financial concerns were not known publicly until 2009, when it was too late for investors to recover their money.
"We urge you to prioritize the determination of whether Stanford victims qualify for SIPC coverage," the U.S. Senate and House members said.
Wednesday 16 March 2011
Letter to the editor HOUSTON CHRONICLE
March 14, 2011, 9:27PM
Agencies failed
It has been more than two years since 1,290 Texans lost their life savings in the R. Allen Stanford debacle. Many of the victims were teachers, nurses and firefighters, and these losses reflect most, if not all, of the retirement funds they accumulated over many years of hard work. These Texans relied on the Securities Exchange Commission (SEC) to uphold its federal mandate to protect investors, and despite numerous warnings about Stanford Financial over several years, the SEC failed to act on behalf of investors.
In 2010, SEC Inspector General David Kotz revealed the SEC was aware as early as 1997 that Stanford investors’ funds were in jeopardy of being stolen. It wasn’t until 2004 — seven years after the SEC first became aware of problems at Stanford — that it opened an official investigation. By the time the SEC took action in this case, it was too late for the Stanford victims who had lost virtually everything.
To make matters worse, the Stanford investors were customers of Stanford Group Co. (SGC), a broker-dealer that was a member of the Securities Investor Protection Corp.(SIPC). SIPC allowed SGC to use its seal for brochures, promotional materials and correspondence to give investors additional confidence. “Member SIPC” was adorned on its correspondences to investors, yet to date SIPC, which is under SEC authority, has refused to provide any remedy for Stanford victims. Customers of the Stanford broker dealer have been denied coverage, despite previous cases where investors in similar situations were covered. Skip Swingle, a victim of SGC, aptly warned, “I don’t think it’s just Stanford victims that should be concerned about what’s going on, but everybody.”
On Monday I sent a letter to SEC Chairman Mary Schapiro asking again for an expedited review of this issue. No one can restore all that these victims lost. We cannot replace the trust that was violated, nor can we say that this fraud won’t happen again. What the SEC and SIPC can and should do is live up to the mandate of encouraging investment by establishing customer confidence. If they do not, brokerage firms across the country might reconsider the placement of the SIPC seal, and investors will see it as a symbol of caution, not protection.
— U.S. REP. JOHN CULBERSON,
7th Congressional District of Texas
Agencies failed
It has been more than two years since 1,290 Texans lost their life savings in the R. Allen Stanford debacle. Many of the victims were teachers, nurses and firefighters, and these losses reflect most, if not all, of the retirement funds they accumulated over many years of hard work. These Texans relied on the Securities Exchange Commission (SEC) to uphold its federal mandate to protect investors, and despite numerous warnings about Stanford Financial over several years, the SEC failed to act on behalf of investors.
In 2010, SEC Inspector General David Kotz revealed the SEC was aware as early as 1997 that Stanford investors’ funds were in jeopardy of being stolen. It wasn’t until 2004 — seven years after the SEC first became aware of problems at Stanford — that it opened an official investigation. By the time the SEC took action in this case, it was too late for the Stanford victims who had lost virtually everything.
To make matters worse, the Stanford investors were customers of Stanford Group Co. (SGC), a broker-dealer that was a member of the Securities Investor Protection Corp.(SIPC). SIPC allowed SGC to use its seal for brochures, promotional materials and correspondence to give investors additional confidence. “Member SIPC” was adorned on its correspondences to investors, yet to date SIPC, which is under SEC authority, has refused to provide any remedy for Stanford victims. Customers of the Stanford broker dealer have been denied coverage, despite previous cases where investors in similar situations were covered. Skip Swingle, a victim of SGC, aptly warned, “I don’t think it’s just Stanford victims that should be concerned about what’s going on, but everybody.”
On Monday I sent a letter to SEC Chairman Mary Schapiro asking again for an expedited review of this issue. No one can restore all that these victims lost. We cannot replace the trust that was violated, nor can we say that this fraud won’t happen again. What the SEC and SIPC can and should do is live up to the mandate of encouraging investment by establishing customer confidence. If they do not, brokerage firms across the country might reconsider the placement of the SIPC seal, and investors will see it as a symbol of caution, not protection.
— U.S. REP. JOHN CULBERSON,
7th Congressional District of Texas
Monday 14 March 2011
Allen Stanford’s Bail Request Denied by U.S. Appeals Court
Indicted financier R. Allen Stanford was denied release from prison while he awaits trial on charges he led a $7 billion investment swindle.
A U.S. appeals court in New Orleans issued the ruling today in Stanford’s fourth bid to be allowed to post bail. Stanford, 60, has been detained since June 2009 because of concern that he might try to flee.
“We dismiss this appeal for lack of jurisdiction,’’ the three-judge appellate panel said in a ruling posted to the court’s website.
The appellate court refused three times before to order Stanford’s release based on what he claimed were violations of his constitutional rights. The former billionaire alleged in the latest request that he has been denied his right to a speedy trial under a federal statute that guards against unreasonable prosecution delays.
Stanford was deemed a flight risk by U.S. District Judge David Hittner of Houston, who ordered him held without bond after the Stanford Group Co. founder was indicted on 21 criminal counts in June 2009.
Ali Fazel, one of Stanford’s criminal defense lawyers, said the legal team is considering its next moves.
‘Do Some Homework’
“I need to do some homework before we decide,” Fazel said. “This was a different issue here, one that doesn’t come up often.”
Fazel said Stanford could ask for the entire Fifth Circuit to review his bail request or ask for a hearing at the U.S. Supreme Court on the matter. He declined further comment, citing Hittner’s gag order on attorneys in the case.
Stanford denies charges that he swindled investors of more than $7 billion through a scheme prosecutors say was built on fake certificates of deposit at his Antigua-based Stanford International Bank. Stanford also denies parallel civil fraud allegations by the U.S. Securities and Exchange Commission.
The former financier was transferred in February from a Houston lockup to a North Carolina prison hospital, where he’s being treated for a jail-acquired dependence on anxiety drugs and lingering mental injuries suffered in a jailhouse beating.
Stanford had been set for trial in January of this year until Hittner, on the advice of three psychiatrists, found him mentally unfit to participate in his defense. Hittner ordered Stanford into a prison rehabilitation facility and indefinitely postponed his trial until he is mentally able to assist his attorneys.
The criminal case is U.S. v. Stanford, 09cr342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank, 09cv298, U.S. District Court, Northern District of Texas Dallas).
A U.S. appeals court in New Orleans issued the ruling today in Stanford’s fourth bid to be allowed to post bail. Stanford, 60, has been detained since June 2009 because of concern that he might try to flee.
“We dismiss this appeal for lack of jurisdiction,’’ the three-judge appellate panel said in a ruling posted to the court’s website.
The appellate court refused three times before to order Stanford’s release based on what he claimed were violations of his constitutional rights. The former billionaire alleged in the latest request that he has been denied his right to a speedy trial under a federal statute that guards against unreasonable prosecution delays.
Stanford was deemed a flight risk by U.S. District Judge David Hittner of Houston, who ordered him held without bond after the Stanford Group Co. founder was indicted on 21 criminal counts in June 2009.
Ali Fazel, one of Stanford’s criminal defense lawyers, said the legal team is considering its next moves.
‘Do Some Homework’
“I need to do some homework before we decide,” Fazel said. “This was a different issue here, one that doesn’t come up often.”
Fazel said Stanford could ask for the entire Fifth Circuit to review his bail request or ask for a hearing at the U.S. Supreme Court on the matter. He declined further comment, citing Hittner’s gag order on attorneys in the case.
Stanford denies charges that he swindled investors of more than $7 billion through a scheme prosecutors say was built on fake certificates of deposit at his Antigua-based Stanford International Bank. Stanford also denies parallel civil fraud allegations by the U.S. Securities and Exchange Commission.
The former financier was transferred in February from a Houston lockup to a North Carolina prison hospital, where he’s being treated for a jail-acquired dependence on anxiety drugs and lingering mental injuries suffered in a jailhouse beating.
Stanford had been set for trial in January of this year until Hittner, on the advice of three psychiatrists, found him mentally unfit to participate in his defense. Hittner ordered Stanford into a prison rehabilitation facility and indefinitely postponed his trial until he is mentally able to assist his attorneys.
The criminal case is U.S. v. Stanford, 09cr342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank, 09cv298, U.S. District Court, Northern District of Texas Dallas).
Saturday 12 March 2011
Update on The Status of Morgenstern & Blue’s Stanford-Related Cases and Recovery Efforts and Other Case Developments
March 11, 2011
Dear Clients:
We continue to work hard to advance the cases we are pursuing on your behalf, both individually, and as members of the Official Stanford Investors Committee. While progress has been slow, we DO believe that the cases are advancing. The Committee meets on at least a weekly basis, and has additional monthly meetings with the Receiver and his team. We communicate with each other on the Committee numerous times every day. We are reviewing and analysing tens of thousands of documents relating to the cases we have filed, and other potential cases that we intend to file on behalf of the Stanford investors (contrary to some reports being circulated, we do not believe that the claims we are considering are barred by any statute of limitations defense and with respect to certain possible actions we have entered into agreements tolling any applicable statute of limitations). The Committee has filed dozens of cases against third parties in its own name and in conjunction with the Receiver, seeking recovery of tens of millions of dollars, and pursuant to a now Court-approved agreement with the Receiver, will now be taking over the prosecution of virtually all of the pending litigation against third parties (other than the claims against investors and brokers already filed by the receiver) and will be filing new lawsuits seeking substantial recoveries. We have also submitted a “protective claim” with the SEC, although we continue to be sceptical about whether those claims will prove to be successful.
Progress IS being made, although not as quickly as we would like. We were all disappointed that Mr. Stanford’s criminal trial was postponed, and we have expressed that displeasure and asked that the Court overseeing that case hold the trial as soon as possible. We continue to believe that the information and documents that will be revealed as part of the criminal case will be very useful in our efforts on your behalf. At the request of the Committee and its members, the Court presiding over the receivership cases has scheduled a status conference on March 28 in Dallas in connection with all the cases. We will provide you with a further update immediately following the conference.
As you know, Peter Morgenstern has headed the team representing you in the Stanford matter. One of the members of the team, Greg Blue, has left the firm, and will no longer be involved in the Stanford case. We have brought on several additional legal and administrative staff to augment our team, including a highly-experienced commercial litigator, another attorney and additional paralegals. We will also be working with outstanding co-counsel, both in our role as members of the Committee, and in the bank and other litigations we are litigating on your behalf. As a result of these changes, we will soon be changing the name of the firm, and we are completing a relocation to new offices. Our new address is 380 Madison Avenue, New York, New York 10017. Our telephone number and email addresses will remain the same. There will be no interruption in our vigorous pursuit of recoveries on your behalf.
Peter D. Morgenstern
Dear Clients:
We continue to work hard to advance the cases we are pursuing on your behalf, both individually, and as members of the Official Stanford Investors Committee. While progress has been slow, we DO believe that the cases are advancing. The Committee meets on at least a weekly basis, and has additional monthly meetings with the Receiver and his team. We communicate with each other on the Committee numerous times every day. We are reviewing and analysing tens of thousands of documents relating to the cases we have filed, and other potential cases that we intend to file on behalf of the Stanford investors (contrary to some reports being circulated, we do not believe that the claims we are considering are barred by any statute of limitations defense and with respect to certain possible actions we have entered into agreements tolling any applicable statute of limitations). The Committee has filed dozens of cases against third parties in its own name and in conjunction with the Receiver, seeking recovery of tens of millions of dollars, and pursuant to a now Court-approved agreement with the Receiver, will now be taking over the prosecution of virtually all of the pending litigation against third parties (other than the claims against investors and brokers already filed by the receiver) and will be filing new lawsuits seeking substantial recoveries. We have also submitted a “protective claim” with the SEC, although we continue to be sceptical about whether those claims will prove to be successful.
Progress IS being made, although not as quickly as we would like. We were all disappointed that Mr. Stanford’s criminal trial was postponed, and we have expressed that displeasure and asked that the Court overseeing that case hold the trial as soon as possible. We continue to believe that the information and documents that will be revealed as part of the criminal case will be very useful in our efforts on your behalf. At the request of the Committee and its members, the Court presiding over the receivership cases has scheduled a status conference on March 28 in Dallas in connection with all the cases. We will provide you with a further update immediately following the conference.
As you know, Peter Morgenstern has headed the team representing you in the Stanford matter. One of the members of the team, Greg Blue, has left the firm, and will no longer be involved in the Stanford case. We have brought on several additional legal and administrative staff to augment our team, including a highly-experienced commercial litigator, another attorney and additional paralegals. We will also be working with outstanding co-counsel, both in our role as members of the Committee, and in the bank and other litigations we are litigating on your behalf. As a result of these changes, we will soon be changing the name of the firm, and we are completing a relocation to new offices. Our new address is 380 Madison Avenue, New York, New York 10017. Our telephone number and email addresses will remain the same. There will be no interruption in our vigorous pursuit of recoveries on your behalf.
Peter D. Morgenstern
Friday 11 March 2011
Divided Fort Worth office of SEC was plagued by inaction
FORT WORTH -- Julie Preuitt is into NASCAR, stopping con men and doing what she believes is right -- even when it meant flushing her career down the SEC commode.
She was an SEC branch chief examining securities brokers and dealers when a routine look at a company put her on high alert. Preuitt believed her staff had found a scam: An off-shore bank was offering CDs with payoffs that were, to her thinking, "absolutely ludicrous."
It should have been a Tom Clancy moment. But in the Fort Worth regional office of the Securities and Exchange Commission where Preuitt worked, leaders regarded the case as what they called a "goat screw." They passed on orders to kill it.
Snap a picture: It's June 2009. The SEC announces bad news for a Texas billionaire. He's being sued, accusing of running a Ponzi scheme that any aspiring Bernie Madoff could appreciate. Singled out for hard work on the case was the Fort Worth office. Plaudits went to many, including two high-ranking Fort Worth officials.
What the picture doesn't show: The lawsuit against R. Allen Stanford came 12 years and about $7 billion too late.
And the praise didn't go to Preuitt, who first raised concerns in 1997. Instead, two people who pushed Preuitt aside enjoyed the acclaim. That is, until it began biting them on the ankles.
Soon after the announcement, the SEC's watchdog, the inspector general, began getting complaints that the office had not diligently pursued a probe until the SEC came under fire for failing to spot Madoff's Ponzi scheme.
Now, a starkly different image of the Fort Worth office is emerging from the watchdog report, government documents obtained by the Star-Telegram, and interviews with current and former staff members.
They show a troubled organization where senior managers for years resisted efforts to pursue complex cases in favor of the quick and easy that could run up its stats -- and they badly botched the Stanford case in its early years.
"The commission is very interested in a 'fraud of the day.' And [Stanford] wasn't ever the fraud of the day," Preuitt told the inspector general.
Stanford steadfastly maintains he did nothing wrong.
While Preuitt and the examination staff repeatedly flagged the Stanford companies as a Ponzi scheme, enforcement attorneys wouldn't budge. They ignored tips, largely disregarded state and federal concerns, and tried to fob off the matter to a private, less powerful financial regulator. The enforcement staff failed twice to read examiners' reports on Stanford.
All the while, investor losses swelled, the watchdog report says.
While the Fort Worth office was once gun-shy, SEC officials say those failings have largely been resolved since leadership changed and investigative powers were streamlined. They also say that the matter was complex, entangled in international law and a criminal investigation by the Justice Department, among other obstacles.
"I would say the public has every reason to be confident in both the performance and productivity of that office," said Robert Khuzami, head of the SEC's enforcement division in Washington.
"To the extent that there are personnel or other issues, those will be dealt with appropriately," he said. But "the performance of the office has been overwhelmingly positive."
Less focus is now placed on competing with other SEC offices' statistics for the number of cases closed, an SEC document says.
And Rose Romero, a former assistant U.S. prosecutor who now leads the Fort Worth office, said it is operating at its peak in spotting and stopping fraud, even though it has limited resources and a broad region.
"I think right now our staff is probably the best qualified staff that this office has probably ever seen," she said.
The office has rolled out some solid cases. Last year, it halted what it called frauds of $31 million, $24 million and $8.4 million, among others in Texas. An investigator even used Google to root out fraud at a major company.
Yet Romero and Kimberly Garber, who beat out Preuitt to become associate district administrator for examinations, are criticized by current and former staff members as being even more concerned with style over substance. When Preuitt opposed their decision to conduct quick-hit examination reviews, the office divided into two camps.
And Romero and Garber struck back, according to the inspector general.
Some staff members, speaking on the condition of anonymity, said they have no confidence in senior leadership. In Fort Worth, the office's strength had historically been in people like Preuitt, who were impolitic, willing to speak their minds and push co-workers and the D.C. bureaucracy to get things done. Management instead wants "tools to do away with people who have a dissenting opinion," one employee said.
And a lingering issue is how Romero has depicted the Stanford investigation. Testimony she gave to a U.S. Senate committee conflicts with records of her own office.
Apparent red flags
To its earliest investors, Stanford International Bank must have looked like some West Indies gold mine. The Antigua bank offered CDs paying interest rates markedly higher than those of U.S. banks. The Stanford Group Co., which registered with the SEC as a broker-dealer and investment adviser in 1995, was paid high referral fees for selling the CDs.
As early as the mid-1990s, the Texas State Securities Board passed along a tip to the SEC about Robert Allen Stanford's companies. "We actually found problems with Stanford," said Texas Securities Commissioner Denise Voigt Crawford.
By 1997, the Stanford companies caught Preuitt's attention. She wondered how the bank had gained nearly $307 million in deposits in a couple of years.
The watchdog report on Stanford details dogged efforts by Preuitt and the examination staff over ensuring years to find answers and prod enforcement to take action.
The first examination found apparent red flags. Preuitt concluded that the CDs were fraudulent. The staff labeled it a "Possible Ponzi scheme." The examination report was forwarded to enforcement, where it sat for eight months.
At the time, the Fort Worth office was led by Harold Degenhardt. He believed that the SEC was a beast that fed on a constant diet of cases. "As a result, cases like Stanford, which were not considered 'quick-hit' or 'slam-dunk' cases, were not encouraged," the inspector general concluded.
The Stanford case fell into the too-complex category. Getting bank records from Antigua would be a problem, enforcement said, and besides, the scheme didn't appear to affect U.S. investors. Preuitt's view: Why would that matter, if a broker-dealer in Houston was committing fraud?
In May 1998, with Degenhardt's approval, enforcement opened a matter under inquiry -- a preliminary look at whether an investigation would be appropriate. The inquiry went something like this:
The SEC asked for documents to be handed over voluntarily.
Stanford's bank refused.
Enforcement didn't try to get permission to issue subpoenas.
The office closed the inquiry three months later.
Meanwhile, another examination scrutinized Stanford's investment adviser operation. An examiner concurred that Stanford "was operating some kind of fraud," the watchdog report says.
Enforcement attorneys didn't bother to read the new 1998 examination, the inspector general reported. And yet they also suspected fraud.
"As far as I was concerned at that period of time, in enforcement we all thought it was a Ponzi scheme to start with. Always did," Hugh Wright, former assistant district administrator for the office's enforcement group, told the inspector general.
Still, the case was seen as too messy. The only thing left was to tell Preuitt because an enforcement chief "didn't expect a very happy response."
She was shocked, she later told the inspector general.
An unread report
In November 2002, the examination staff made a third swing at Stanford, and the matter was assigned the SEC's highest risk rating. But at enforcement, examiners struck out -- their report wasn't even read. Leaders thought the Texas State Securities Board could handle the case.
Enforcement also decided to refer to the state a letter from a woman worried that the life savings of her mother, about 75, were at risk.
The letter went to the state, Crawford said. The exam didn't.
In 2003, more complaints came, including one with dire warnings from a purported Stanford insider: "Stanford financial ... is a massive Ponzi scheme ... that will destroy the life savings of many."
Enforcement referred the letter to exam staff, the watchdog report says.
Preuitt felt she was being asked to go to battle with enforcement. She received a chain of e-mails showing enforcement wasn't interested in a Ponzi scheme that wasn't collapsing. "I love this stuff," Preuitt wrote in an e-mail. "We all are confident that there is illegal activity but no easy way to prove [it]. Before I retire, the Commission will be trying to explain why it did nothing. Until it falls apart all we can do is flag it every few years."
Another crimson flag was hoisted in December 2004. An exam concluded that the Stanford companies were violating numerous securities laws. By March 2005, Degenhardt and the office enforcement chief lowered the boom. The case would not be pursued, they said.
In April, the enforcement chief left, and the examination staff made yet another push.
By June, the office decided to pass the matter to a private regulator with no subpoena power. Enforcement did ask Stanford's bank to volunteer documents -- six days after the bank said it wouldn't provide them.
Tense meetings
Over the next few months, the office was in an all-out battle, as the examination staff -- Preuitt in particular -- fought to keep the investigation alive, even after Degenhardt departed in September.
A case was finally opened. But enforcement was getting cold feet by October 2005.
Upset, Preuitt started an e-mail campaign, the watchdog report says. An enforcement attorney complained that Preuitt's objections were forcing work on him. "Julie is just really passionate about this and is fighting hard ... and so we have to do all this stuff," the attorney said in an e-mail. "It's frustrating."
In early 2006, Romero was named regional director. As the investigation was crawling along, Preuitt, who had become an assistant regional director for exams, and Garber, a branch chief, vied to become associate district administrator for examinations.
Garber won.
Preuitt allies insist she was supportive of Garber. Whatever the case, it got ugly quickly. A conflict shaped up over a Garber initiative to do quick-hit reviews of broker dealers. Preuitt saw them as pointless.
During management meetings, Preuitt and Joel Sauer, a branch chief, voiced disagreements over the initiative, sometimes hotly.
Meetings became tense, with raised voices and "finger shaking" during one gathering.
By June 2008, Preuitt had been written up, pushed aside and stripped of supervising all but one employee, who later left.
Sauer wrote SEC officials in Washington to complain about her fate. The "culture of fear in the ... exam program is pervasive," he wrote. He also complained that Garber used agency funds to book employees at her brother's Kansas bed and breakfast; Romero knew of the family connection but did not object.
Garber responded by writing a letter of reprimand against him for making false statements. She ordered him to be monitored daily.
The inspector general found separately that Garber and Romero had acted inappropriately toward Preuitt and Sauer because of their objections.
Those "improperly led to actions taken against them," according to a September 2009 report. It recommended Garber and Romero face possible disciplinary action. However, they didn't because they cleared their moves with human resources.
On the matter of the Kansas stay, the inspector general found Garber had violated the code of federal regulations by "using her public office for her family members' private gain," according to government documents obtained by the Star-Telegram. She was referred for disciplinary action.
"Appropriate action was taken," Garber said, declining to elaborate.
Preuitt declined to be interviewed. In a statement, she said, "Every working day, I get to devote my energies to thinking of and carrying out ways to prevent, find or stop fraud."
Sauer left the agency. He declined to comment on the matter.
'Performance failures'
Degenhardt and Romero both drew blanks last year on the history of the Stanford case. In a Star-Telegram interview, Degenhardt had indicated he was unfamiliar with it.
"I quite frankly don't know whether the Stanford organization had ever been examined," he said.
He did not respond to messages seeking further comment.
Romero's August testimony to a U.S. Senate committee about the case firmly established its beginning as 2004 and said it was triggered by four tips or complaints. She also said the SEC had followed up on tips over the years. She did not mention the 1997, 1998 or 2002 examinations. She did not explain that enforcement repeatedly tried to ditch the case. Romero declined to comment on her testimony. An SEC spokesman in Washington backed her account.
"The written and oral testimony accurately reflect that the investigation was prompted by several things, including the 2004 exam and tips that were received during the course of that exam. As noted in the inspector general's report, none of the previous examinations resulted in an investigation," he wrote in an e-mail.
It is unclear whether anyone in the Fort Worth office was ever disciplined for the Stanford miscues, even though the inspector general recommended that "performance failures" result in "appropriate action."
Romero declined to talk about any discipline or the inspector general's findings. "What I can say from my personal experience [is] ... both the exam staff and enforcement staff were working together really, really hard to investigate what was a very, very difficult case."
Preuitt remains at the Fort Worth office, with some role in the office's oil and gas task force.
Romero's first version of Preuitt's job: "She is an assistant director and right now she is in charge of the oil and gas task force in implementing" that initiative.
Romero's second version: "I'm in charge of it."
This was also with this article
SEC discontent
As recently as April, a survey showed that discontent in the Fort Worth office persists, according to an e-mail from manager Kim Garber obtained by the Star-Telegram. Personnel complained:
The SEC (and particularly the exam program) has developed a paternalistic culture.
People are being forced to work around those with performance problems, either because they lack tools or management lacks the will to address problems. When managers try to do the right thing, they suffer the consequences, with grievances or complaints to the inspector general.
While confidentiality of personnel actions is critical, high-performing examiners want a strong message to be sent regarding accountability/consequences.
Staffers have learned to effectively use the union as a "threat" to keep managers off their back when addressing destructive/wasteful practices, such as excessive chitchat, long lunches and shortened exam hours.
SEC officials said the survey was part of an effort to be candid about problems.
How this article was reported
This article is based on internal SEC e-mails, a transcript of a Senate banking committee hearing, confidential documents, inspector general reports, and interviews with numerous current and former SEC staff members, among other sources.
She was an SEC branch chief examining securities brokers and dealers when a routine look at a company put her on high alert. Preuitt believed her staff had found a scam: An off-shore bank was offering CDs with payoffs that were, to her thinking, "absolutely ludicrous."
It should have been a Tom Clancy moment. But in the Fort Worth regional office of the Securities and Exchange Commission where Preuitt worked, leaders regarded the case as what they called a "goat screw." They passed on orders to kill it.
Snap a picture: It's June 2009. The SEC announces bad news for a Texas billionaire. He's being sued, accusing of running a Ponzi scheme that any aspiring Bernie Madoff could appreciate. Singled out for hard work on the case was the Fort Worth office. Plaudits went to many, including two high-ranking Fort Worth officials.
What the picture doesn't show: The lawsuit against R. Allen Stanford came 12 years and about $7 billion too late.
And the praise didn't go to Preuitt, who first raised concerns in 1997. Instead, two people who pushed Preuitt aside enjoyed the acclaim. That is, until it began biting them on the ankles.
Soon after the announcement, the SEC's watchdog, the inspector general, began getting complaints that the office had not diligently pursued a probe until the SEC came under fire for failing to spot Madoff's Ponzi scheme.
Now, a starkly different image of the Fort Worth office is emerging from the watchdog report, government documents obtained by the Star-Telegram, and interviews with current and former staff members.
They show a troubled organization where senior managers for years resisted efforts to pursue complex cases in favor of the quick and easy that could run up its stats -- and they badly botched the Stanford case in its early years.
"The commission is very interested in a 'fraud of the day.' And [Stanford] wasn't ever the fraud of the day," Preuitt told the inspector general.
Stanford steadfastly maintains he did nothing wrong.
While Preuitt and the examination staff repeatedly flagged the Stanford companies as a Ponzi scheme, enforcement attorneys wouldn't budge. They ignored tips, largely disregarded state and federal concerns, and tried to fob off the matter to a private, less powerful financial regulator. The enforcement staff failed twice to read examiners' reports on Stanford.
All the while, investor losses swelled, the watchdog report says.
While the Fort Worth office was once gun-shy, SEC officials say those failings have largely been resolved since leadership changed and investigative powers were streamlined. They also say that the matter was complex, entangled in international law and a criminal investigation by the Justice Department, among other obstacles.
"I would say the public has every reason to be confident in both the performance and productivity of that office," said Robert Khuzami, head of the SEC's enforcement division in Washington.
"To the extent that there are personnel or other issues, those will be dealt with appropriately," he said. But "the performance of the office has been overwhelmingly positive."
Less focus is now placed on competing with other SEC offices' statistics for the number of cases closed, an SEC document says.
And Rose Romero, a former assistant U.S. prosecutor who now leads the Fort Worth office, said it is operating at its peak in spotting and stopping fraud, even though it has limited resources and a broad region.
"I think right now our staff is probably the best qualified staff that this office has probably ever seen," she said.
The office has rolled out some solid cases. Last year, it halted what it called frauds of $31 million, $24 million and $8.4 million, among others in Texas. An investigator even used Google to root out fraud at a major company.
Yet Romero and Kimberly Garber, who beat out Preuitt to become associate district administrator for examinations, are criticized by current and former staff members as being even more concerned with style over substance. When Preuitt opposed their decision to conduct quick-hit examination reviews, the office divided into two camps.
And Romero and Garber struck back, according to the inspector general.
Some staff members, speaking on the condition of anonymity, said they have no confidence in senior leadership. In Fort Worth, the office's strength had historically been in people like Preuitt, who were impolitic, willing to speak their minds and push co-workers and the D.C. bureaucracy to get things done. Management instead wants "tools to do away with people who have a dissenting opinion," one employee said.
And a lingering issue is how Romero has depicted the Stanford investigation. Testimony she gave to a U.S. Senate committee conflicts with records of her own office.
Apparent red flags
To its earliest investors, Stanford International Bank must have looked like some West Indies gold mine. The Antigua bank offered CDs paying interest rates markedly higher than those of U.S. banks. The Stanford Group Co., which registered with the SEC as a broker-dealer and investment adviser in 1995, was paid high referral fees for selling the CDs.
As early as the mid-1990s, the Texas State Securities Board passed along a tip to the SEC about Robert Allen Stanford's companies. "We actually found problems with Stanford," said Texas Securities Commissioner Denise Voigt Crawford.
By 1997, the Stanford companies caught Preuitt's attention. She wondered how the bank had gained nearly $307 million in deposits in a couple of years.
The watchdog report on Stanford details dogged efforts by Preuitt and the examination staff over ensuring years to find answers and prod enforcement to take action.
The first examination found apparent red flags. Preuitt concluded that the CDs were fraudulent. The staff labeled it a "Possible Ponzi scheme." The examination report was forwarded to enforcement, where it sat for eight months.
At the time, the Fort Worth office was led by Harold Degenhardt. He believed that the SEC was a beast that fed on a constant diet of cases. "As a result, cases like Stanford, which were not considered 'quick-hit' or 'slam-dunk' cases, were not encouraged," the inspector general concluded.
The Stanford case fell into the too-complex category. Getting bank records from Antigua would be a problem, enforcement said, and besides, the scheme didn't appear to affect U.S. investors. Preuitt's view: Why would that matter, if a broker-dealer in Houston was committing fraud?
In May 1998, with Degenhardt's approval, enforcement opened a matter under inquiry -- a preliminary look at whether an investigation would be appropriate. The inquiry went something like this:
The SEC asked for documents to be handed over voluntarily.
Stanford's bank refused.
Enforcement didn't try to get permission to issue subpoenas.
The office closed the inquiry three months later.
Meanwhile, another examination scrutinized Stanford's investment adviser operation. An examiner concurred that Stanford "was operating some kind of fraud," the watchdog report says.
Enforcement attorneys didn't bother to read the new 1998 examination, the inspector general reported. And yet they also suspected fraud.
"As far as I was concerned at that period of time, in enforcement we all thought it was a Ponzi scheme to start with. Always did," Hugh Wright, former assistant district administrator for the office's enforcement group, told the inspector general.
Still, the case was seen as too messy. The only thing left was to tell Preuitt because an enforcement chief "didn't expect a very happy response."
She was shocked, she later told the inspector general.
An unread report
In November 2002, the examination staff made a third swing at Stanford, and the matter was assigned the SEC's highest risk rating. But at enforcement, examiners struck out -- their report wasn't even read. Leaders thought the Texas State Securities Board could handle the case.
Enforcement also decided to refer to the state a letter from a woman worried that the life savings of her mother, about 75, were at risk.
The letter went to the state, Crawford said. The exam didn't.
In 2003, more complaints came, including one with dire warnings from a purported Stanford insider: "Stanford financial ... is a massive Ponzi scheme ... that will destroy the life savings of many."
Enforcement referred the letter to exam staff, the watchdog report says.
Preuitt felt she was being asked to go to battle with enforcement. She received a chain of e-mails showing enforcement wasn't interested in a Ponzi scheme that wasn't collapsing. "I love this stuff," Preuitt wrote in an e-mail. "We all are confident that there is illegal activity but no easy way to prove [it]. Before I retire, the Commission will be trying to explain why it did nothing. Until it falls apart all we can do is flag it every few years."
Another crimson flag was hoisted in December 2004. An exam concluded that the Stanford companies were violating numerous securities laws. By March 2005, Degenhardt and the office enforcement chief lowered the boom. The case would not be pursued, they said.
In April, the enforcement chief left, and the examination staff made yet another push.
By June, the office decided to pass the matter to a private regulator with no subpoena power. Enforcement did ask Stanford's bank to volunteer documents -- six days after the bank said it wouldn't provide them.
Tense meetings
Over the next few months, the office was in an all-out battle, as the examination staff -- Preuitt in particular -- fought to keep the investigation alive, even after Degenhardt departed in September.
A case was finally opened. But enforcement was getting cold feet by October 2005.
Upset, Preuitt started an e-mail campaign, the watchdog report says. An enforcement attorney complained that Preuitt's objections were forcing work on him. "Julie is just really passionate about this and is fighting hard ... and so we have to do all this stuff," the attorney said in an e-mail. "It's frustrating."
In early 2006, Romero was named regional director. As the investigation was crawling along, Preuitt, who had become an assistant regional director for exams, and Garber, a branch chief, vied to become associate district administrator for examinations.
Garber won.
Preuitt allies insist she was supportive of Garber. Whatever the case, it got ugly quickly. A conflict shaped up over a Garber initiative to do quick-hit reviews of broker dealers. Preuitt saw them as pointless.
During management meetings, Preuitt and Joel Sauer, a branch chief, voiced disagreements over the initiative, sometimes hotly.
Meetings became tense, with raised voices and "finger shaking" during one gathering.
By June 2008, Preuitt had been written up, pushed aside and stripped of supervising all but one employee, who later left.
Sauer wrote SEC officials in Washington to complain about her fate. The "culture of fear in the ... exam program is pervasive," he wrote. He also complained that Garber used agency funds to book employees at her brother's Kansas bed and breakfast; Romero knew of the family connection but did not object.
Garber responded by writing a letter of reprimand against him for making false statements. She ordered him to be monitored daily.
The inspector general found separately that Garber and Romero had acted inappropriately toward Preuitt and Sauer because of their objections.
Those "improperly led to actions taken against them," according to a September 2009 report. It recommended Garber and Romero face possible disciplinary action. However, they didn't because they cleared their moves with human resources.
On the matter of the Kansas stay, the inspector general found Garber had violated the code of federal regulations by "using her public office for her family members' private gain," according to government documents obtained by the Star-Telegram. She was referred for disciplinary action.
"Appropriate action was taken," Garber said, declining to elaborate.
Preuitt declined to be interviewed. In a statement, she said, "Every working day, I get to devote my energies to thinking of and carrying out ways to prevent, find or stop fraud."
Sauer left the agency. He declined to comment on the matter.
'Performance failures'
Degenhardt and Romero both drew blanks last year on the history of the Stanford case. In a Star-Telegram interview, Degenhardt had indicated he was unfamiliar with it.
"I quite frankly don't know whether the Stanford organization had ever been examined," he said.
He did not respond to messages seeking further comment.
Romero's August testimony to a U.S. Senate committee about the case firmly established its beginning as 2004 and said it was triggered by four tips or complaints. She also said the SEC had followed up on tips over the years. She did not mention the 1997, 1998 or 2002 examinations. She did not explain that enforcement repeatedly tried to ditch the case. Romero declined to comment on her testimony. An SEC spokesman in Washington backed her account.
"The written and oral testimony accurately reflect that the investigation was prompted by several things, including the 2004 exam and tips that were received during the course of that exam. As noted in the inspector general's report, none of the previous examinations resulted in an investigation," he wrote in an e-mail.
It is unclear whether anyone in the Fort Worth office was ever disciplined for the Stanford miscues, even though the inspector general recommended that "performance failures" result in "appropriate action."
Romero declined to talk about any discipline or the inspector general's findings. "What I can say from my personal experience [is] ... both the exam staff and enforcement staff were working together really, really hard to investigate what was a very, very difficult case."
Preuitt remains at the Fort Worth office, with some role in the office's oil and gas task force.
Romero's first version of Preuitt's job: "She is an assistant director and right now she is in charge of the oil and gas task force in implementing" that initiative.
Romero's second version: "I'm in charge of it."
This was also with this article
SEC discontent
As recently as April, a survey showed that discontent in the Fort Worth office persists, according to an e-mail from manager Kim Garber obtained by the Star-Telegram. Personnel complained:
The SEC (and particularly the exam program) has developed a paternalistic culture.
People are being forced to work around those with performance problems, either because they lack tools or management lacks the will to address problems. When managers try to do the right thing, they suffer the consequences, with grievances or complaints to the inspector general.
While confidentiality of personnel actions is critical, high-performing examiners want a strong message to be sent regarding accountability/consequences.
Staffers have learned to effectively use the union as a "threat" to keep managers off their back when addressing destructive/wasteful practices, such as excessive chitchat, long lunches and shortened exam hours.
SEC officials said the survey was part of an effort to be candid about problems.
How this article was reported
This article is based on internal SEC e-mails, a transcript of a Senate banking committee hearing, confidential documents, inspector general reports, and interviews with numerous current and former SEC staff members, among other sources.
Thursday 10 March 2011
Fort Worth SEC leader to Resign
Rose Romero, months after a sharp rebuke from the U.S. Senate and a scathing watchdog report, will step down in mid-April as director of the Securities and Exchange Commission's troubled Fort Worth regional office after serving five years, the agency announced Wednesday.
The SEC praised the former Fort Worth police officer and federal prosecutor for leading cases against investment frauds that netted millions in penalties, although in September she was accused of misleading a Senate committee about her office's probe of an alleged Ponzi scheme by Robert Allen Stanford.
"The many successful cases brought by the Fort Worth office are a testament to her commitment and ability," Robert Khuzami, director of the SEC's Division of Enforcement, said in a statement.
Romero did not respond to requests for comment Wednesday.
The SEC quoted her as saying: "I am blessed to have had the opportunity to work with the talented and dedicated professionals in the Fort Worth office. Their commitment to the mission of finding and prosecuting fraud has been remarkable. I will be forever grateful for their dedicated service and their unwavering support."
Although her office handled numerous cases during the past half-decade, her tenure was greatly colored by the Stanford case, which prompted criticism of the SEC for failing to uncover the alleged fraud before and after Romero took over. Sen. David Vitter, R-La., said he obtained confidential e-mails showing that the SEC created a deceptive timeline of the case to make it appear that the agency didn't learn of concerns about Stanford until 2004.
But the agency's inspector general testified that examiners first warned of possible fraud in 1997 and conducted examinations in 1998, 2002 and 2004 -- all before Romero's tenure -- concluding each time that Stanford was likely operating a fraudulent scheme. The report said SEC staff urged the enforcement branch to act but was in effect shut down. The agency moved against Stanford in 2009, three years after Romero took over the regional office, alleging the Eastern Hills High School grad defrauded investors of $8 billion.
Romero repeatedly apologized to the committee but maintained that the agency was aggressively pursing the Stanford operation.
Lawmakers asked Khuzami, who took office two days after the SEC announced the Stanford case, why no one had been fired for not acting against Stanford earlier.
"The process is under way," he said. As for a systemic failure to act, Khuzami said, "We weren't as creative as we should be," adding that operational changes and improved coordination meant that "it wouldn't happen today."
Romero told the Star-Telegram after the hearing that she had not offered her resignation. Wednesday's announcement gave no indication whether she was resigning voluntarily.
The inspector general's investigation into the handling of the Stanford case, issued last March, criticized the office for focusing on "quick hits" to pump up its case numbers instead of pursuing more complex cases that would tie up resources.
It also criticized Romero and one of her lieutenants for taking inappropriate actions toward two staffers who pushed for the Stanford investigation.
Conspicuously absent from the SEC's announcement of the Romero departure was any mention of the Stanford case. Instead, it praised Romero for helping win $137.9 million in penalties from a Swiss firm and multimillion-dollar penalties in other cases. During her tenure, the SEC successfully mounted a case against a former Perot Systems employee who made $8.1 million trading on insider information about Dell's planned takeover of the Dallas firm.
The SEC said Romero plans to practice law in the private sector.
The local office suffered a raft of embarrassing episodes involving career staff members during Romero's time as director, the latest surfacing publicly only this week.
One of her subordinates was among two dozen SEC employees found to have accessed pornography websites while at work, the commission's inspector general disclosed.
The SEC praised the former Fort Worth police officer and federal prosecutor for leading cases against investment frauds that netted millions in penalties, although in September she was accused of misleading a Senate committee about her office's probe of an alleged Ponzi scheme by Robert Allen Stanford.
"The many successful cases brought by the Fort Worth office are a testament to her commitment and ability," Robert Khuzami, director of the SEC's Division of Enforcement, said in a statement.
Romero did not respond to requests for comment Wednesday.
The SEC quoted her as saying: "I am blessed to have had the opportunity to work with the talented and dedicated professionals in the Fort Worth office. Their commitment to the mission of finding and prosecuting fraud has been remarkable. I will be forever grateful for their dedicated service and their unwavering support."
Although her office handled numerous cases during the past half-decade, her tenure was greatly colored by the Stanford case, which prompted criticism of the SEC for failing to uncover the alleged fraud before and after Romero took over. Sen. David Vitter, R-La., said he obtained confidential e-mails showing that the SEC created a deceptive timeline of the case to make it appear that the agency didn't learn of concerns about Stanford until 2004.
But the agency's inspector general testified that examiners first warned of possible fraud in 1997 and conducted examinations in 1998, 2002 and 2004 -- all before Romero's tenure -- concluding each time that Stanford was likely operating a fraudulent scheme. The report said SEC staff urged the enforcement branch to act but was in effect shut down. The agency moved against Stanford in 2009, three years after Romero took over the regional office, alleging the Eastern Hills High School grad defrauded investors of $8 billion.
Romero repeatedly apologized to the committee but maintained that the agency was aggressively pursing the Stanford operation.
Lawmakers asked Khuzami, who took office two days after the SEC announced the Stanford case, why no one had been fired for not acting against Stanford earlier.
"The process is under way," he said. As for a systemic failure to act, Khuzami said, "We weren't as creative as we should be," adding that operational changes and improved coordination meant that "it wouldn't happen today."
Romero told the Star-Telegram after the hearing that she had not offered her resignation. Wednesday's announcement gave no indication whether she was resigning voluntarily.
The inspector general's investigation into the handling of the Stanford case, issued last March, criticized the office for focusing on "quick hits" to pump up its case numbers instead of pursuing more complex cases that would tie up resources.
It also criticized Romero and one of her lieutenants for taking inappropriate actions toward two staffers who pushed for the Stanford investigation.
Conspicuously absent from the SEC's announcement of the Romero departure was any mention of the Stanford case. Instead, it praised Romero for helping win $137.9 million in penalties from a Swiss firm and multimillion-dollar penalties in other cases. During her tenure, the SEC successfully mounted a case against a former Perot Systems employee who made $8.1 million trading on insider information about Dell's planned takeover of the Dallas firm.
The SEC said Romero plans to practice law in the private sector.
The local office suffered a raft of embarrassing episodes involving career staff members during Romero's time as director, the latest surfacing publicly only this week.
One of her subordinates was among two dozen SEC employees found to have accessed pornography websites while at work, the commission's inspector general disclosed.
Wednesday 9 March 2011
SEC Chairwoman Under Fire Over Ethics Issues
The Securities and Exchange Commission took a beating two years ago for failing to detect Bernard L. Madoff’s multibillion-dollar Ponzi scheme during the decades that he ran it.
Now, its chairwoman is coming under Congressional fire for hiring as the S.E.C.’s general counsel someone with a Madoff financial interest — David M. Becker, who participated in matters involving how the scheme’s victims would be compensated.
The revelations about Mr. Becker’s role have raised fresh questions about ethical standards and practices at the agency, where Mary L. Schapiro was brought in as chairwoman two years ago with a mandate to strengthen its enforcement unit. Ms. Schapiro will appear before Congress on Thursday to discuss the matter. Questions about Mr. Becker arose last month after Irving H. Picard, the trustee overseeing the Madoff case, sued him and two of his brothers to recover $1.5 million of the $2 million they had inherited in 2004 from a Madoff investment by their late mother. Mr. Becker’s financial ties to Madoff had not been publicly disclosed until that suit.
Mr. Becker said that he advised Ms. Schapiro and the chief ethics officer of his financial interest in a Madoff investment account, “either shortly before or after” joining the agency in February 2009.
Last Friday, H. David Kotz, the agency’s inspector general, announced that he would investigate the potential conflicts in Mr. Becker’s role as a Madoff recipient who was also the S.E.C.’s general counsel and senior policy director involved in decisions relating to the Ponzi scheme. Ms. Schapiro requested the review, a commission spokesman said.
Lawmakers have also asked Ms. Schapiro for details of her discussions with Mr. Becker about his Madoff account when she hired him in 2009. Ms. Schapiro missed a deadline on Monday for those responses. An S.E.C. spokesman said Ms. Schapiro declined to comment on Tuesday.
“One of the things the S.E.C. does is hold companies to a very high standard with regards to transparency and disclosure,” said Representative Randy Neugebauer, Republican of Texas, who is one of four Republican lawmakers asking Ms. Schapiro about her dealings with Mr. Becker and his disclosures. “We think it’s important that the same integrity exists within the S.E.C., ensuring that people working there do not have conflicts of interest and that here is a process to vet those issues and make sure they are taken care of in a way that gives confidence.”
Perhaps the most significant Madoff matter involving Mr. Becker is a proposed reversal of the agency’s recommendation on how to compensate victims of the scheme, according to two people briefed on the S.E.C.’s discussions who asked not to be identified because they were not authorized to discuss the matter. While the agency had agreed on a deal that would return to investors only the money they had put into their Madoff accounts, Mr. Becker argued that the commission should change its stance to allow victims to keep some of the gains their investments had generated, since the investment would have grown somewhat over time even in a low-interest account. The Becker family would benefit from this approach.
Mr. Becker did not return a call for comment.
In correspondence with lawmakers late last month, Mr. Becker also said that he alerted the ethics office about his family’s Madoff investment again that May after he received a letter from a number of law firms representing Madoff victims asking that the commission change its proposed compensation formula. Among the issues are whether Madoff investors who withdrew money before the fraud was exposed must return some of their proceeds — and if so, how much — to other investors.
“I recognized that it was conceivable that this issue could affect my financial interests because the issue could affect the trustee’s decision to bring clawback actions against persons like me,” Mr. Becker wrote in response to lawmakers. The ethics officer approved his participation, he said. That officer reported directly to Mr. Becker and spent only 25 minutes reviewing the matter, according to Congressional staff members briefed on the discussions who requested anonymity because they also were not authorized to discuss the matter publicly.
Now, its chairwoman is coming under Congressional fire for hiring as the S.E.C.’s general counsel someone with a Madoff financial interest — David M. Becker, who participated in matters involving how the scheme’s victims would be compensated.
The revelations about Mr. Becker’s role have raised fresh questions about ethical standards and practices at the agency, where Mary L. Schapiro was brought in as chairwoman two years ago with a mandate to strengthen its enforcement unit. Ms. Schapiro will appear before Congress on Thursday to discuss the matter. Questions about Mr. Becker arose last month after Irving H. Picard, the trustee overseeing the Madoff case, sued him and two of his brothers to recover $1.5 million of the $2 million they had inherited in 2004 from a Madoff investment by their late mother. Mr. Becker’s financial ties to Madoff had not been publicly disclosed until that suit.
Mr. Becker said that he advised Ms. Schapiro and the chief ethics officer of his financial interest in a Madoff investment account, “either shortly before or after” joining the agency in February 2009.
Last Friday, H. David Kotz, the agency’s inspector general, announced that he would investigate the potential conflicts in Mr. Becker’s role as a Madoff recipient who was also the S.E.C.’s general counsel and senior policy director involved in decisions relating to the Ponzi scheme. Ms. Schapiro requested the review, a commission spokesman said.
Lawmakers have also asked Ms. Schapiro for details of her discussions with Mr. Becker about his Madoff account when she hired him in 2009. Ms. Schapiro missed a deadline on Monday for those responses. An S.E.C. spokesman said Ms. Schapiro declined to comment on Tuesday.
“One of the things the S.E.C. does is hold companies to a very high standard with regards to transparency and disclosure,” said Representative Randy Neugebauer, Republican of Texas, who is one of four Republican lawmakers asking Ms. Schapiro about her dealings with Mr. Becker and his disclosures. “We think it’s important that the same integrity exists within the S.E.C., ensuring that people working there do not have conflicts of interest and that here is a process to vet those issues and make sure they are taken care of in a way that gives confidence.”
Perhaps the most significant Madoff matter involving Mr. Becker is a proposed reversal of the agency’s recommendation on how to compensate victims of the scheme, according to two people briefed on the S.E.C.’s discussions who asked not to be identified because they were not authorized to discuss the matter. While the agency had agreed on a deal that would return to investors only the money they had put into their Madoff accounts, Mr. Becker argued that the commission should change its stance to allow victims to keep some of the gains their investments had generated, since the investment would have grown somewhat over time even in a low-interest account. The Becker family would benefit from this approach.
Mr. Becker did not return a call for comment.
In correspondence with lawmakers late last month, Mr. Becker also said that he alerted the ethics office about his family’s Madoff investment again that May after he received a letter from a number of law firms representing Madoff victims asking that the commission change its proposed compensation formula. Among the issues are whether Madoff investors who withdrew money before the fraud was exposed must return some of their proceeds — and if so, how much — to other investors.
“I recognized that it was conceivable that this issue could affect my financial interests because the issue could affect the trustee’s decision to bring clawback actions against persons like me,” Mr. Becker wrote in response to lawmakers. The ethics officer approved his participation, he said. That officer reported directly to Mr. Becker and spent only 25 minutes reviewing the matter, according to Congressional staff members briefed on the discussions who requested anonymity because they also were not authorized to discuss the matter publicly.
Wednesday 2 March 2011
Financier Allen Stanford seeks release from jail
NEW ORLEANS — Lawyers for jailed Texas financier R. Allen Stanford said his right to a speedy trial after his 2009 indictment have been violated and they asked a federal appeals court Wednesday to let him go free on bond as he awaits trial in what prosecutors said was a huge Ponzi scheme.
A federal prosecutor said delays have been for legitimate reasons, including time needed to find a co-defendant, and Stanford's own request for a continuance to prepare for a complex trial.
"Mr. Stanford is responsible for every single bit of the delay that he now says makes him eligible for release," Assistant U.S. Attorney Gregg Costa told the three-judge panel of the 5th U.S. Circuit Court of Appeals.
The panel, including the 5th Circuit's chief judge, Edith Jones, gave no indication when it would rule.
Stanford and others face a variety of federal charges in Houston federal court, including mail fraud, wire fraud and conspiracy in what prosecutors say was a $7 billion pyramid scheme. A trial date is currently on hold while Stanford undergoes treatment for an anti-anxiety drug addiction.
Both sides agreed that continuances have been necessary due to the complexity of the case. The defense, however, argued in briefs and in Wednesday's hearing that the federal district judge in the case erred in failing to allow bond for Stanford. The speedy trial act, they said, requires trial within 90 days of arrest. It makes allowances for various delays that have the effect of suspending the 90-day period, but defense attorneys argued that the judge did not make the required findings of fact in court to justify continued custody of Stanford.
Court appointed defense lawyer Ali Fazel told the 5th Circuit that Stanford should be released from Bureau of Prisons custody so that he can begin to aide his defense attorneys while he undergoes drug treatment.
Costa noted that this is not Stanford's first attempt to win release. U.S. District Judge David Hittner has previously determined that Stanford is a flight risk.
Stanford's trial had been set to begin on Jan. 24 but Hittner agreed to delay its start until the financier can be treated for several medical problems affecting his competency.
Psychiatrists testified in January in Houston that Stanford was suffering a major depression and is dealing with the untreated aftereffects of a traumatic brain injury suffered during a jail fight in September 2009. They also said Stanford was being overmedicated for his depression and became addicted to an anti-anxiety medication called Clonazepam.
Stanford's attorneys have asked for at least a two-year delay to deal with his medical problems as well as various legal issues related to getting ready for trial. Prosecutors, who agree a delay is needed, have said two years is unreasonable.
After losing a bid last year to have an insurance policy cover his legal fees, Stanford is now considered an indigent defendant and has to rely on court appointed attorneys.
A federal prosecutor said delays have been for legitimate reasons, including time needed to find a co-defendant, and Stanford's own request for a continuance to prepare for a complex trial.
"Mr. Stanford is responsible for every single bit of the delay that he now says makes him eligible for release," Assistant U.S. Attorney Gregg Costa told the three-judge panel of the 5th U.S. Circuit Court of Appeals.
The panel, including the 5th Circuit's chief judge, Edith Jones, gave no indication when it would rule.
Stanford and others face a variety of federal charges in Houston federal court, including mail fraud, wire fraud and conspiracy in what prosecutors say was a $7 billion pyramid scheme. A trial date is currently on hold while Stanford undergoes treatment for an anti-anxiety drug addiction.
Both sides agreed that continuances have been necessary due to the complexity of the case. The defense, however, argued in briefs and in Wednesday's hearing that the federal district judge in the case erred in failing to allow bond for Stanford. The speedy trial act, they said, requires trial within 90 days of arrest. It makes allowances for various delays that have the effect of suspending the 90-day period, but defense attorneys argued that the judge did not make the required findings of fact in court to justify continued custody of Stanford.
Court appointed defense lawyer Ali Fazel told the 5th Circuit that Stanford should be released from Bureau of Prisons custody so that he can begin to aide his defense attorneys while he undergoes drug treatment.
Costa noted that this is not Stanford's first attempt to win release. U.S. District Judge David Hittner has previously determined that Stanford is a flight risk.
Stanford's trial had been set to begin on Jan. 24 but Hittner agreed to delay its start until the financier can be treated for several medical problems affecting his competency.
Psychiatrists testified in January in Houston that Stanford was suffering a major depression and is dealing with the untreated aftereffects of a traumatic brain injury suffered during a jail fight in September 2009. They also said Stanford was being overmedicated for his depression and became addicted to an anti-anxiety medication called Clonazepam.
Stanford's attorneys have asked for at least a two-year delay to deal with his medical problems as well as various legal issues related to getting ready for trial. Prosecutors, who agree a delay is needed, have said two years is unreasonable.
After losing a bid last year to have an insurance policy cover his legal fees, Stanford is now considered an indigent defendant and has to rely on court appointed attorneys.
Tuesday 1 March 2011
SocGen, Stanford Receiver Spar Over Swiss Bank Data Subpoena
Societe Generale Private Banking (Suisse) SA urged a U.S. judge in Dallas to block subpoenas for Swiss banking records sought by the receiver for indicted financier R. Allen Stanford.
Stanford, who allegedly led a $7 billion fraud scheme, routed more than $100 million in investor funds through the Swiss bank accounts, court-appointed receiver Ralph Janvey told U.S. District Judge David Godbey in papers filed Feb. 22.
Janvey subpoenaed Stanford’s personal and business banking records in December from the Lausanne, Switzerland-based unit of Paris-based Societe Generale, France’s second-largest lender. The bank said Janvey should seek the records through international banking treaties, as the bankers could be jailed for breaking Swiss privacy laws.
“There’s no reason not to go to the Hague Convention when you have conflicts of law as serious as the one you have here,’” SocGen’s lawyer, Noelle Reed, told Godbey in court today. ”My client takes very seriously the criminal statutes we have referred to.”
Stanford, 60, is accused in civil and criminal cases of misleading investors about the nature and oversight of certificates of deposit they purchased from his Antigua-based Stanford International Bank Ltd.
The U.S. Securities and Exchange Commission sued the former Stanford Group Co. principal two years ago, resulting in Janvey’s appointment. A U.S. grand jury in Houston indicted him on 21 criminal counts four months later.
Stanford Denies Wrongdoing
Stanford, who has denied the civil and criminal allegations, is being held without bail while awaiting trial.
He is being treated for a prison-acquired prescription drug addiction at the same U.S. correctional complex where Bernard Madoff is serving a 150-year sentence for an unrelated Ponzi scheme.
Societe Generale, in papers filed with Godbey earlier today, said Janvey opted to serve the subpoena upon a bank office in Miami, rather than comply with the international legal procedures for taking evidence abroad outlined in the Hague Convention.
His demand placed bank officers at risk of criminally violating Swiss banking secrecy laws, said Reed, a Houston-based attorney with New York’s Skadden Arps Slate Meagher & Flom LLP.
“The threat of criminal punishment is real, including the possibility of imprisonment,” Reed said. “Swiss residents cannot avoid these laws simply by turning information over to their American counterparts to be ‘produced’ in this country.”
‘Given You Nothing’
Janvey’s lawyer, Kevin Sadler, told the judge today it’s “speculative” of the bank to say it will be prosecuted for breaking privacy laws.
“They’ve given you nothing that the risk of prosecution is likely or probable,” Sadler said.
More than $70 million of the money sent to the Swiss accounts was diverted to Stanford’s personal accounts and more than $1 million used to bribe Stanford International Bank’s Antiguan outside auditor, Sadler said in the Feb. 22 filing.
“This was a Ponzi scheme, and the Swiss banks are one of the conduits through which money flowed,’’ John Little, the court-appointed examiner who speaks for Stanford’s investors, told Godbey today. “This idea of going to the Hague Convention will buy us six more months or a year of delay, and that delay is killing the investors. There has to be a Swiss interest against facilitating fraud.’’
Godbey took the lawyers’ arguments under advisement and said he’d rule as promptly as possible.
Stanford, who allegedly led a $7 billion fraud scheme, routed more than $100 million in investor funds through the Swiss bank accounts, court-appointed receiver Ralph Janvey told U.S. District Judge David Godbey in papers filed Feb. 22.
Janvey subpoenaed Stanford’s personal and business banking records in December from the Lausanne, Switzerland-based unit of Paris-based Societe Generale, France’s second-largest lender. The bank said Janvey should seek the records through international banking treaties, as the bankers could be jailed for breaking Swiss privacy laws.
“There’s no reason not to go to the Hague Convention when you have conflicts of law as serious as the one you have here,’” SocGen’s lawyer, Noelle Reed, told Godbey in court today. ”My client takes very seriously the criminal statutes we have referred to.”
Stanford, 60, is accused in civil and criminal cases of misleading investors about the nature and oversight of certificates of deposit they purchased from his Antigua-based Stanford International Bank Ltd.
The U.S. Securities and Exchange Commission sued the former Stanford Group Co. principal two years ago, resulting in Janvey’s appointment. A U.S. grand jury in Houston indicted him on 21 criminal counts four months later.
Stanford Denies Wrongdoing
Stanford, who has denied the civil and criminal allegations, is being held without bail while awaiting trial.
He is being treated for a prison-acquired prescription drug addiction at the same U.S. correctional complex where Bernard Madoff is serving a 150-year sentence for an unrelated Ponzi scheme.
Societe Generale, in papers filed with Godbey earlier today, said Janvey opted to serve the subpoena upon a bank office in Miami, rather than comply with the international legal procedures for taking evidence abroad outlined in the Hague Convention.
His demand placed bank officers at risk of criminally violating Swiss banking secrecy laws, said Reed, a Houston-based attorney with New York’s Skadden Arps Slate Meagher & Flom LLP.
“The threat of criminal punishment is real, including the possibility of imprisonment,” Reed said. “Swiss residents cannot avoid these laws simply by turning information over to their American counterparts to be ‘produced’ in this country.”
‘Given You Nothing’
Janvey’s lawyer, Kevin Sadler, told the judge today it’s “speculative” of the bank to say it will be prosecuted for breaking privacy laws.
“They’ve given you nothing that the risk of prosecution is likely or probable,” Sadler said.
More than $70 million of the money sent to the Swiss accounts was diverted to Stanford’s personal accounts and more than $1 million used to bribe Stanford International Bank’s Antiguan outside auditor, Sadler said in the Feb. 22 filing.
“This was a Ponzi scheme, and the Swiss banks are one of the conduits through which money flowed,’’ John Little, the court-appointed examiner who speaks for Stanford’s investors, told Godbey today. “This idea of going to the Hague Convention will buy us six more months or a year of delay, and that delay is killing the investors. There has to be a Swiss interest against facilitating fraud.’’
Godbey took the lawyers’ arguments under advisement and said he’d rule as promptly as possible.