Angry Investors Threaten Suit

Plaintiffs Claim Regulators Ignored Warnings of Fraud

By BILL LODGE
Advocate Staff Writer

Some of the investors alleged to have been defrauded by Texas
promoter Robert Allen Stanford say they will use a
Massachusetts lawyer to sue the federal government for
alleged failure to take timely regulatory action against him.

I believe we’re going to join this lawsuit,” said Baton Rouge
real estate investor Jason S. Graham, 39.

Graham is one of more than 1,000 residents of the Baton
Rouge, Lafayette and Covington areas who lost an estimated
combined total of more than $1 billion to Stanford’s
operations. Those estimates are by state Rep. Bodi White, RCentral,
and Baton Rouge attorney Phillip W. Preis.

We’ve waited for the last two years for our Congress people
and senators to help us,” said Graham. “It’s an absolute joke.
”
Graham already is a plaintiff in a civil lawsuit against the
people who marketed Stanford’s worthless certificates of
deposit and other investment vehicles in Louisiana.

That lawsuit and similar actions across the country, however,
were suspended more than a year ago on orders from a Dallas
federal judge.

U.S. District Judge David Godbey ruled that those lawsuits
would interfere with a court-appointed receiver’s efforts to
track down the remnants of Stanford’s assets.

But attorney Gaytri Kachroo, of Cambridge, Mass., filed a
class-action suit against the federal government in November
for alleged failure by the Securities and Exchange Commission
to protect people’s savings from New Yorker Bernard Madoff’s
admitted Ponzi scheme.

A Ponzi is an illegal investment scheme that involves few, if
any, actual investments. Early investors are paid dividends
described by Ponzi operators as profits. The money actually
comes from later investors.

The scheme collapses when promoters can no longer coax
money from newly targeted victims.

Madoff is serving a 150-year term in federal prison for bilking
billions of dollars from pension funds, mutual funds and indidual investors.

The scheme collapses when promoters can no longer coax money from newly targeted victims.

Madoff is serving 150-year term in federal prison for bilking billions of dollars from pension funds, mutual funds and individual investors.

Kachroo said she now is filing administrative law claims with
the SEC in the Stanford case in order to preserve the rights of
people in Louisiana and other states to file a class-action suit
against the commission after the Feb. 16 filing deadline. That
date will mark the second anniversary of the SEC’s action to
shut down Stanford’s worldwide operations.

In such cases, plaintiffs cannot sue the federal government
until after a federal agency has denied investors’ claims,
Kachroo said.

Kachroo said last week that she has filed with the SEC claims
by 30 Stanford investors. Another 270 claims were being
processed by her staff, she said.

SEC lawyers in Dallas and federal prosecutors in Houston
allege in court filings that Stanford operated a Ponzi scheme
that harvested at least $7.2 billion from more than 25,000
people from Baton Rouge to Bogota, from Venezuela to
Europe.

Stanford, 60, remains in federal custody in Houston, where he
faces federal fraud charges.

James M. Davis, a Baldwyn, Miss., resident who served as
Stanford’s chief financial officer, has pleaded guilty to felony
charges and admitted that Stanford’s operations were a huge
Ponzi from the beginning.

Whistleblowers ignored?

For nearly nine years before Madoff admitted that his
investment empire was a giant Ponzi, financial analyst and
certified fraud examiner Harry Markopolos had warned the
SEC that the man was a criminal.

Kachroo represented Markopolos when he testified Feb. 4,
2009, before the U.S. House of Representatives’ Committee on
Financial Services.

“Every tool, every resource, and every person (in the SEC) has
to be brought to bear in the fight against white-collar crime,”
Markopolos testified. “Government has coddled, accepted and
ignored white-collar crime for too long.
”
Markopolos added: “It is time the nation woke up and
recognized that it’s not the armed robbers or drug dealers who
cause us the most economic harm.

“It’s the white-collar criminals living in the most expensive
homes and who have the most impressive resumes who harm
us the most,” Markopolos told members of Congress. “They
steal our pensions, bankrupt our companies and destroy
thousands of jobs, ruining countless lives.
”
Last year, SEC Inspector General David Kotz reported that
commission officials repeatedly failed to pursue whistleblower
allegations between 1997 and 2005 that Stanford was
defrauding his investors. During that same time, Kotz
reported, examiners in the SEC’s Fort Worth office called for
investigation of Stanford at least three times.

In Baton Rouge, Preis continues to pursue a civil lawsuit on
behalf of Stanford investors against the state Office of
Financial Institutions. That suit alleges that OFI officials failed
investors by ignoring warning signs that Stanford’s operations
were fraudulent.

Preis said last week he believes that suit has a chance of
success, but he asserted that Kachroo has picked too big a rival
in the Stanford and Madoff litigation.

“We don’t think the idea of pursuing a suit against the SEC has
much merit to it,” Preis said. “The chances of ever collecting
from the United States government are slim to none.
”
Katchroo said she believes ordinary people can fight City Hall
and even collect damages from the federal government in the
Stanford and Madoff tragedies.

We believe we have a fairly good chance in both cases,”
Kachroo said.

The SEC won’t talk about Kachroo’s efforts in either case.
“
"Decline comment on both,"” e-mailed SEC spokesman John J.Nester.

Stanford was scheduled for trial on his criminal charges this
month. But a federal judge in Houston postponed that trial
indefinitely after being informed that Stanford has become
addicted to painkillers while in federal custody.