Allen Stanford Investor Suit Should Be Dismissed, SEC Says

The U.S. asked a federal judge to throw out claims that the Securities and Exchange Commission should be held accountable for failing to stop an alleged Ponzi scheme by R. Allen Stanford earlier than it did.

SEC officials have legal protection for policy decisions, such as whether to take enforcement action when they suspect wrongdoing, the government said in papers filed yesterday in federal court in Dallas.

“Plaintiffs are challenging a policy choice -- something they may not do by way of a tort suit for damages,” the government said in the filing. “Congress did not intend to provide for judicial review of the quality of investigative efforts.”

Eight investors in the indicted financier’s Antigua-based Stanford International Bank Ltd. sued regulators last month for their losses, which amounted to about $18.7 million. They said “negligence and misconduct” by officials in the SEC’s Fort Worth, Texas, office let Stanford’s activities continue unchecked for years after alarms were raised by agency investigators.

Edward Gonzalez, the investors’ attorney, said federal law doesn’t shield the U.S. from liability for damages caused by government misconduct.

Immunity Limits
“The complaint in this case clearly alleges such misconduct,” Gonzalez said in an e-mail. “The suggestion that a blanket of immunity covers all enforcement-related acts by SEC personnel is incorrect.”

The SEC seized Stanford’s businesses in February 2009 on suspicion he was paying above-market rates to early buyers of certificates of deposit by taking funds from later depositors. Stanford, who denies all wrongdoing, was indicted in June 2009 on charges he defrauded investors of more than $7 billion.

The SEC’s inspector general, in a report issued last year, faulted the agency’s Fort Worth office and some of its employees for failing to take action against Stanford sooner.

The Fort Worth staff conducted four reviews of Houston- based Stanford Financial Group Co. starting in 1997 and determined after each one that Stanford’s purported CD returns were highly unlikely, SEC Inspector General H. David Kotz said in the report. In spite of those determinations, the SEC didn’t conduct a meaningful probe of Stanford’s operation until 2005, he said.

The investor case is Robert Juan Dartez LLC v. U.S., 3:11- cv-0602, U.S. District Court, Northern District of Texas (Dallas). The criminal case is U.S. v. Stanford, 09-cr-342, 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).