Is Spencer Barasch the man who single-handedly let alleged Ponzi schemer R. Allen Stanford off the hook three times, costing investors more than $7 billion?
Or is he an honest Dallas defense attorney unfairly blamed for the failings of a government regulator?
The Securities and Exchange Commission's inspector general has a 151-page report that says he was the former. It skewers Barasch, former head of the SEC's enforcement efforts at its Fort Worth office, as a poster child for an agency that critics say missed one of the biggest investor scams of our generation.
The report said that over a seven-year period Barasch rebuffed repeated pleas from agency staff to investigate Stanford's offshore bank and his oversized investment claims. An SEC inquiry likely would have stopped the alleged Ponzi scheme as early as 1998, the inspector general said.
Barasch's supporters at the SEC and now in his world of white-collar private practice say he's being scapegoated.
"He didn't do anything illegal – I guess the worst you could say about him was that he had used poor judgment," said Mary Lou Felsman, a retired SEC attorney who worked with Barasch in Fort Worth.
The 52-year-old partner at the Dallas office of Andrews Kurth LLP isn't talking. His firm issued a supportive statement after last Friday's detailed report, saying Barasch had served the SEC with "honor, integrity and distinction."
But his actions raise questions about the culture of the SEC's Fort Worth office, charged with regulating securities trading in Texas and three other states.
The office was tarnished previously when one of its top trial attorneys, Phillip Offill, was convicted of masterminding penny stock fraud after he left the commission. Offill, a former pal of Barasch's, was sentenced to eight years in federal prison Friday.
Outrageous claims
Federal officials contend that Stanford orchestrated a Ponzi scheme by advising clients to invest more than $7 billion in certificates of deposit from the Stanford International Bank on the Caribbean island of Antigua.
Stanford's lure, according to authorities, was a promise of outlandish returns – more than 10 percent a year. In 2002, when worldwide markets fell 25 percent, Stanford said his portfolio returned better than 12 percent, which SEC lawyers thought to be fraud.
In 1998, Barasch's first year as enforcement chief, an SEC examiner recommended pursuing evidence that Stanford was promising investors unlikely rates of return, the inspector general's report said. Barasch declined.
Felsman said she was stunned by the decision. For an enforcement chief to turn down an examiner's recommendation was unprecedented, she and two other former SEC lawyers said.
"They almost always said yes," said Felsman.
According to the inspector general, Barasch told an SEC attorney in 2009 that he discounted the 1998 request after he called Stanford's Dallas attorney, Wayne Secore, asked if there was a case and was assured that there wasn't.
Barasch told investigators he didn't recall saying that and said taking an opposing counsel's word at face value would be "absurd." Secore, a former SEC attorney, didn't respond to calls.
The report also said Barasch dismissed investor complaints about Stanford in 2002 and 2003 and quelled two other staff efforts to investigate Stanford – one in 2002 and one immediately before he left the SEC in April 2005.
In 2005, the report said, an SEC staff attorney presented the agency's latest findings at a regional meeting of securities law enforcers attended by Barasch. The audit showed growing concern that the alleged Ponzi scheme was growing and putting billions of dollars at risk.
During the presentation, Barasch was said to look "annoyed." Afterward, he reportedly told the attorney he had "no interest" in bringing action against Stanford.
"I thought I'd turned in a good piece of work and was talking about it to significant players in the regulatory community," Victoria Prescott, the attorney, said in the report. "And I no sooner sit down, shut up and the meeting ended, but then I got pulled aside and was told this has already been looked at and we're not going to do it."
In April 2005, Barasch announced he was leaving the SEC for Andrews Kurth. After he left, examination lawyers resubmitted the case to enforcement staff and pleaded with them to go after Stanford.
A formal investigation was started in 2006, but agency red tape and internal squabbling prevented the SEC from actually filing a civil lawsuit against Stanford until February 2009.
Among the reasons given by Barasch and others for why Stanford wasn't looked at:
•Stanford initially had few U.S. investors.
•Getting subpoena power to access Stanford's offshore bank's financial documents was considered difficult.
•The case initially didn't have victims complaining about losses because Stanford was still taking in enough money to pay returns.
It also was perceived to be a difficult case to make work. The report blames a short-sighted mentality at the Fort Worth office, citing lawyers there who said a quest for "stats" on convictions made officials gun-shy on tougher cases. That approach, the report said, came from Barasch and now-retired director Harold Degenhardt, who didn't return calls for comment.
Personality clashes
Barasch's management style and ego clashed with some coworkers and drove some out of the SEC, say former coworkers.
"Spence was a really bright guy, but I didn't trust him because he lied a lot," said Hugh Wright, whom Barasch replaced as head of enforcement in Fort Worth. Wright, who is now retired, headed up the regulatory side of the SEC office after Barasch took his job. "He told you want you wanted to hear."
Others who worked with Barasch at the SEC said making enemies came with the territory.
"Animosity toward Spence was more a function of what his job was at the SEC instead of who he is," said Jeffrey Ansley, a partner at Bracewell & Giuliani LLP in Dallas. Barasch hired Ansley to work at the SEC's Fort Worth office, where he stayed for three years before moving to the Department of Justice around 2003.
"When you look at how many people Spence supervised, the odds statistically say there are going to be people who are going to take issue with him," Ansley said.
More recent coworkers laud Barasch's professionalism, though they recognize that he's not always easy to work with.
"He doesn't pull punches with the attorneys who work for him, but his criticism was always constructive and professional," said Kara Altenbaumer-Price, who worked with him at Andrews Kurth for more than two years. "It was the sort of constructive criticism that makes young lawyers better."
Alan Buie, an assistant U.S. attorney who worked under Barasch at the SEC, said Barasch was a sharp and dedicated enforcement chief who "was truly passionate about protecting investors and serving the public."
"We took on plenty of big cases, and anybody who thinks we didn't just really isn't looking at the whole picture," said Buie, who left the SEC in October 2005. Buie and other current SEC attorneys cited complex trading cases against Houston-based Dynegy Inc. and Royal Dutch Shell Group as examples.
Finding new work
Barasch's choices after leaving the SEC also rattled regulators.
Just two months after leaving the agency, he asked its ethics branch for permission to represent Stanford, which was denied. Agency officials believed that Barasch's involvement with the Stanford deliberations while at the SEC permanently barred him from doing work for Stanford.
Despite that, Barasch did do a small amount of work for Stanford in October 2006, in apparent violation of rules. The SEC has referred the matter to the State Bar of Texas.
Stanford personally wanted Barasch for his legal team in 2006, instructing his advisers to find him and bring him on board. Informed about the SEC's ethics decision, Stanford wrote in an e-mail: "This is bs and I want to know why the SEC would/could conflict him out."
Barasch currently supervises three attorneys at Andrews Kurth in a growing securities law practice. Partner pay at Andrews Kurth ranges wildly, attorneys familiar with the firm say. The most successful can see $2 million in annual pay, though none could say how much Barasch earns.
Barasch's efforts to represent Stanford reflect the constant pressure to find new revenue as a new partner at a firm, said Michael Hurst, a Dallas attorney who has hired Barasch as an expert on cases. "Stanford is a rainmaker for not just white-collar attorneys but the entire civil practice," he said.
Barasch's e-mail to the SEC seeking permission to represent Stanford echoes that: "Every lawyer in Texas and beyond is going to get rich over this case. Okay? And I hated being on the sidelines."
Barasch also showed interest in representing another well-known investor, Mark Cuban, in the SEC's suit against the Dallas billionaire.
On Nov. 17, 2008, regulators charged the Dallas Mavericks owner with insider trading. Cuban immediately announced that he'd hired Paul Coggins, a well-known lawyer and former U.S. attorney.
In an e-mail to a person he thought could persuade Cuban to hire him, Barasch wrote that Coggins was a "blow hard [who] doesn't know anything about securities, and has no name appeal or clout with the SEC."
Barasch also suggested he could influence the SEC attorneys involved with the complaint against Cuban.
"I am friends with and helped promote two of the guys who signed the Complaint against Mark," Barasch wrote, according to a copy of the e-mail obtained by The Dallas Morning News. "Someone should tell Mark to look at my profile on my firm website, my SEC press releases, and advise Mark to add me to his defense team."
The SEC's case was dismissed by a federal judge in July 2009. Coggins declined to comment on Barasch's e-mail.
Andrews Kurth reiterated its support for Barasch this week, saying he "will remain a valued member of the Andrews Kurth team where he provides our clients with the highest possible quality of advice and counsel."
Meanwhile, Stanford is in jail in Houston, awaiting trial on criminal charges filed by the Department of Justice in June.
Barasch is not part of his legal team.
TIMELINE: SEC WAITS YEARS TO LAUNCH INVESTIGATION OF R. ALLEN STANFORD
1997: SEC Fort Worth examiners audit Stanford Financial Group and conclude it may be a Ponzi scheme.
1998: SEC enforcement, led by Spencer Barasch, quickly closes initial inquiry into Stanford, saying the plan lacked U.S. investors.
2002: SEC examiners again refer Stanford to enforcement. Enforcement ignores the research and says it will send a letter of complaint to the Texas State Securities Board, which never received the letter.
2003: SEC receives two complaints that Stanford is operating a Ponzi scheme, but it does nothing.
2004: SEC examiners again prepare a case against Stanford.
2005: Barasch Barsach and office head Harold Degenhardt tell examiners they will not take action against Stanford.
April 2005: Barasch leaves SEC for Andrews Kurth; SEC staff immediately refers Stanford case to enforcement staff.
2006: SEC officially opens investigation into Stanford.
2009: SEC sues Stanford in February; Justice Department adds criminal charges in June.
SOURCES: SEC inspector general, Dallas Morning News research
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