Stanford Financial Claims 5th Distribution October 25th 2013

Receiver files 5th Schedule of Payments to be Made Pursuant to the Interim Distribution Plan - On October 25, 2013, the Receiver filed his 5th Schedule of distribution payments with the United States District Court for the Northern District of Texas, Dallas Division. The 5th Schedule will be followed by others, each of which will be submitted by the Receiver on a rolling basis as additional responses to Certification Notices are received and processed.

To view a copy of the 5th Schedule, please click here:

http://sivg.org.ag/topic225.html

For a full and open debate on the Stanford Receivership visit the Stanford International Victims Group - SIVG official forum http://sivg.org.ag/

The Stanford Ponzi Scheme: The Whistleblower’s View

"In August 1997, I assigned an experienced and highly skilled examiner to go to Houston to analyze Stanford’s revenue stream, its methods of product distribution, and its sales practices. In only a week the examiner was able to collect enough evidence to suggest that Stanford was engaged in a fraudulent scheme – most likely a Ponzi scheme. Our conclusion was based on a significant capital infusion of funds into the broker-dealer, the source of which appeared to be investor funds. We also noted apparent misrepresentations regarding the safety and security of the investments. It was highly unlikely that the high returns being paid to investors from the CDs along with the high recurring referral fees being paid to Stanford’s broker-dealer could be generated without engaging in significant risk."

Julie Preuitt

by Julie Preuitt, Fort Worth Regional Office
U.S. Securities and Exchange Commission

Before the Subcommittee on Oversight and Investigations, Committee on Financial Services, U.S. House of Representatives

May 13, 2011

Introduction

Thank you for the opportunity to testify before this subcommittee with respect to my work for the Securities & Exchange Commission (SEC or Commission) as it relates to R. Allen Stanford and his affiliated companies as well as my experience as a whistleblower within the Commission. Since 1992 I have been employed by the Commission in its Fort Worth office. In my testimony I am stating my personal views which do not necessarily reflect the views of Commission staff, the Commission, or its Commissioners.

My Role with the Commission

I would like to begin my testimony by explaining my role at the Commission. Starting as a staff accountant my duties were to conduct examinations of registered broker-dealers and transfer agents. The examinations were designed to determine the registrants’ compliance with the Securities Act of 1933 and the Securities Exchange Act of 1934, with particular emphasis on the anti-fraud provisions. I became a first line supervisor (branch chief) in 1997, where I became deeply involved in making many of the decisions regarding the direction of the Fort Worth broker-dealer examination program. In 2003 I was promoted to an assistant director position where I became responsible for running the broker-dealer program. In that role two first line supervisors as well as nine examination staff and one support person reported to me.

The Stanford Examinations

First, I would like to note that I am just a representative of the many highly experienced and skilled examiners who have done their best to protect all investors including those defrauded by Stanford. I know this may not provide comfort and certainly doesn’t lessen the Stanford victims’ losses in any way, but I and the examination staff truly care about being an advocate for the investor. Behind the public, impersonal face of a large institution like the SEC are many individuals that truly mourn your loss.



The intertwining of my career with Stanford started simply enough. In August 1997, I had just been promoted to the position of first line supervisor. One of my responsibilities was to select broker-dealers in the Fort Worth Region for examination. In an effort to familiarize myself with the registrants and to target high risk firms for examination, I began by reviewing the annual filings required by all registered broker-dealers. Stanford’s filings immediately stood out in the review process because the firm was generating millions of dollars in revenue although it had only been in existence for two years. Furthermore, the firm had generated all of the revenue by engaging in a business model which typically offered very little revenue – selling certificates of deposit (CDs). In a more typical situation at the time, a broker-dealer would receive perhaps $50 to $100 for the sale or referral of a CD.



In August 1997, I assigned an experienced and highly skilled examiner to go to Houston to analyze Stanford’s revenue stream, its methods of product distribution, and its sales practices. In only a week the examiner was able to collect enough evidence to suggest that Stanford was engaged in a fraudulent scheme – most likely a Ponzi scheme. Our conclusion was based on a significant capital infusion of funds into the broker-dealer, the source of which appeared to be investor funds. We also noted apparent misrepresentations regarding the safety and security of the investments. It was highly unlikely that the high returns being paid to investors from the CDs along with the high recurring referral fees being paid to Stanford’s broker-dealer could be generated without engaging in significant risk.



Before the end of September 1997, we reported our findings to enforcement in the Fort Worth office. Although the examiner, the associate regional director and I were anxious to get enforcement to act on our concerns, we were met with little enthusiasm. By January of 1998, when the associate regional director retired, we had yet to persuade enforcement to open an investigation. However, before the associate regional director left the Commission, she repeatedly reiterated her concerns to both the examination and enforcement staff. She also encouraged me to keep fighting for the Stanford investors.



In May 1998, after receiving an inquiry from another agency regarding Stanford’s activities, enforcement decided to open a preliminary investigation. Then, in June of that same year, Fort Worth’s investment advisory examination group started an examination of Stanford to, in part, follow up on the broker-dealer examination findings. By the beginning of July the investment advisory group also had substantial concerns regarding Stanford’s business model.



In July of 1998, I was summoned to the office of the associate director for enforcement for a meeting. I recall that he discussed some of the reasons why a decision had been made to close the investigation, but I don’t recall what any of those reasons were. Unfortunately, my clearest memory of that meeting is leaving his office feeling absolutely heartsick.



In November of 2002, the investment advisory examination group again conducted an examination of Stanford. The group found significant problems at the firm including failing to meet its fiduciary duty to clients. As I had in 1998, I was involved in multiple discussions with the investment advisory lead examiner about how obvious the fraudulent scheme seemed to be, but how difficult it seemed to get action from enforcement regarding this particular set of circumstances. In fact, rather than opening an investigation, enforcement advised the investment advisory examination group that it would be referring their findings to the Texas State Securities Board. I was disappointed in enforcement’s decision. It made no sense to me that enforcement would refer such a complicated scheme to an agency which had a far more limited jurisdictional reach.



In approximately September of 2004, the associate director for examinations asked me to make Stanford an examination priority. This was the same associate director for examinations who was in place at the time of the 2002 examination program and he was gravely concerned about Stanford’s activities. I considered this assignment to be a tremendous challenge. I had no doubt that we would find numerous indicia of fraud, but I was extremely concerned about how I could convince the same associate director of enforcement, who had declined to investigate Stanford three times earlier, that there was any reason to pursue an investigation this time? However, we both concluded that my concerns were trivial compared to our mission to protect the investing public.



In October 2004, two examiners who I considered to be some of the best in the Commission went to Houston and began another examination. Meanwhile, an attorney advisor assigned to the examination staff and I began to develop alternate strategies to pursuing the investigation so that we could overcome any previous objections raised by enforcement staff. Since we could not gain access to financial records held in a foreign country, we worked with examiners to develop objective analytical methods to demonstrate what we believed to be the impossibility of Stanford’s purported returns.



In March of 2005, as we were nearing completion of the examination, a summary of our findings and conclusions were presented at a regional regulators’ meeting. The immediate reaction from both the Fort Worth regional director and the associate director for enforcement was decidedly negative.



Around the time of this fourth unofficial declination to pursue an enforcement investigation, the associate director for enforcement announced his imminent departure from the Commission. I decided that the best course of action was to wait until he departed the Commission to officially refer our findings.

Opening the Stanford Investigation

Within two or three weeks of the just mentioned meeting, when the associate director for enforcement departed, I referred the examination to an assistant director in enforcement who I believed would be more likely to tackle an investigation into Stanford. The assistant director immediately responded to the referral; however, he too, was also soon departing the Commission so it was referred to another assistant director in enforcement. The new assistant director initially reacted with great enthusiasm and even considered filing an emergency court action which would halt the apparent fraud immediately. However, he soon took on a much more negative view of the facts and circumstances. Eventually, enforcement asked us to refer the case to the self-regulatory organization FINRA. Although we complied with the request, we remained undaunted in our determination to move Stanford forward into an SEC investigation. Just as in the case of the referral to the Texas State Securities Board, it seemed difficult to imagine that an agency with a smaller jurisdictional net could be as well-equipped as the SEC to tackle such a significant investigation. We continued to work on developing legal theories and case strategies. Despite our efforts, in approximately October of 2005, the assistant director announced his decision to close what had been up to now only an informal, or preliminary, investigation.



I did not accept his decision. I implored the new acting regional director of the Fort Worth office as well as the new head of enforcement to keep the investigation open and moving forward. It was agreed that I and the assistant director of enforcement would each prepare a memo explaining our opposing viewpoints and discuss them at a meeting. I’d like to believe that I wrote a very compelling memo and that is why it was ultimately decided to keep the case open, but the truth is that where there are that many indications of fraud, it is easy to be persuasive.



It should be noted that despite the decision to move forward with the investigation, it took another eleven months with little activity occurring on the investigation before a formal investigation was finally opened.

Institutional Influences Affecting the Stanford Investigation

Before I discuss my views on the causes for the long delay of the Stanford investigation I want to take a moment to express my personal admiration for the enforcement staff members who were able to overcome significant obstacles and obtain the critical evidence necessary to bring an action against R. Allen Stanford and his companies. Their hard work has continued in both the current litigation and in efforts to build cases against others involved in the Stanford fraud. It would be difficult to imagine a more talented or dedicated group of professionals. I believe that the public is well-served by having such individuals devote their life’s work to investor protection.



Much has been made of the former SEC-wide institutional influence that created an institutional bias against matters that were resource intensive and whose outcome was less than certain. Stanford was such a matter. There is no question that during the early Stanford timeframe, the Fort Worth office’s management firmly believed that the office’s success was measured strictly by the number of cases filed each year. Additionally, In Fort Worth, “beating” other offices by filing a greater number of cases was the highest goal. That is not to say that the Fort Worth staff did not bring meaningful cases; they did, and they should be credited for doing so. A prime example is the office’s 2002 case against a Houston energy company, Dynegy Inc., for accounting improprieties involving special-purpose entities and “round-trip” or “wash” trades. Another example is the office’s 2004 enforcement action against foreign-based oil companies Royal Dutch Petroleum Company and The “Shell” Transport and Trading Company, p.l.c., in connection with their overstatement of 4.47 billion barrels of hydrocarbon reserves. The companies paid a $120 million penalty.



The good news is that things are changing. In that regard, I want to commend Mr. Khuzami’s recognition that the evaluation of an office’s performance should include factors such as the quality, difficulty and programmatic significance of cases; the consideration of “quantity” has been placed in proper perspective. This can only encourage management decisions to be aligned with the public good.



I also want to express my appreciation to Mr. Khuzami for publicly acknowledging that the Commission could have taken a more imaginative approach to investigating Stanford. I urge Mr. Khuzami to carry that sentiment forward in the Commission’s approach to investigating other novel situations. A culture that has greater appreciation for thinking “outside the box” will well serve the interests of investors.

Raising Concerns about a “Quick-Hit” Mentality in Examinations

Unfortunately, the mentality that motivated managers in Fort Worth to sometimes ignore the best interests of the public in favor of a race for numbers has not been limited to the enforcement program.



In Mid-2006, after nearly nine years of on-again off-again battling with enforcement regarding Stanford, a new Associate Director for Examinations was hired. In short order it became clear that the new Associate Director wanted to create a culture within the examination program that mirrored enforcement’s emphasis on generating numbers. I feared the consequences of shifting from focusing on high risk examinations such as Stanford, to competing with other regional offices for statistical superiority. I expressed my concerns regarding this new approach, but my concerns were dismissed.



In the fall of 2007, the associate director for examinations announced her plan to have us conduct a new type of broker-dealer examination which would consist of interviewing a few senior personnel at brokerage firms over the course of a half day while reviewing limited, if any documentation. I found that plan to be nothing short of a subversion of the core mission of the examination program.



I had always focused Fort Worth’s regional broker-dealer examination program on the primary goal of protecting investors by rooting out fraud and other serious issues. This approach was based on the same tried and true core principles espoused by Director di Florio, recommended by the SEC’s Inspector General in the wake of the Madoff Ponzi scheme, and exemplified by the Fort Worth examination program’s work on Stanford. For example, during my tenure in management in Fort Worth: Examinations were selected based on high risk brokerage practices;



■Examinations were staffed by capable, well-qualified examiners;

■There was meaningful interaction and coordination with the investment advisory examination group;

■There was regular and consistent communication with enforcement staff;

■There was frequent coordination with other regulatory agencies; and

■Examinations were completed in a timely, efficient, and well-documented manner.

These practices quickly identified concerns about Stanford and they were key in developing other significant cases. For example, in 2006, the broker-dealer and investment advisory examination teams along with input from FINRA’s enforcement division devoted significant resources to the review of the sales practices and the investment products being sold to military members. We were successful in helping to bring not only an enforcement action against one of the largest brokerage firms selling to military members, but also our findings were instrumental in Congress’s 2006 decision to enact the Military Personnel Financial Services Protection Act which prohibited future sales of periodic payment plans.



I, and one of the first line supervisors who worked at my direction, Joel Sauer, explained why these mini-examinations would offer no discernable value to the broker-dealer program. We already had extensive information on each firm through past examinations, through quarterly filings, and through the information provided by FINRA which conducted routine examinations on a regular, frequent schedule. Furthermore, such examinations would be at the expense of meaningful program priorities. The Associate Director stated that she wanted a significant increase in numbers and this is how we would do it. The Regional Director concurred with the Associate Director.



Since local management refused to even discuss our concerns, I contacted headquarters, about the Associate Director’s examination proposal. Despite protracted resistance from the Associate Director, OCIE ultimately quashed the mini broker-dealer examinations for some of the same reasons that Mr. Sauer and I had initially expressed.



I paid a heavy price for complaining. First I received a Letter of Reprimand for not being supportive of the Associate Director’s “program initiatives” and for contacting OCIE regarding the Associate Director’s failure to follow OCIE guidelines. Two months later, in June 2008, I was transferred to a new position.



Mr. Sauer complained to the then Chairman, Executive Director and the Director for OCIE for the mistreatment I received. In response he received a Letter of Counseling, daily monitoring, and a Letter of Reprimand for complaining about the Regional Director and the Associate Director. The associate director and regional director made the situation so antagonistic that Mr. Sauer was eventually left the Commission. Only the year before Mr. Sauer had received an award for examination excellence, submitted by these same individuals.



I believe my new position was truly an attempt to drive me out of the Commission. I was assigned to report to the Regional Director (who retired last month) who would at times go weeks or even months intentionally avoiding any contact with me. At times I was not only ignored, but was actively rebuffed in my attempts to perform at a fully functioning level. My responsibilities and duties have generally been undefined and those that have been assigned are generally not commensurate with my pay grade and salary. I have been excluded from training and participation in management meetings or decisions.



Despite these limitations, I have done my best to be productive and effective as well as taking every advantage to learn and grow. I have become more involved in the enforcement investigative process. I have developed relationships with the public affairs office and become more extensively involved in investor education. I have organized training sessions for local staff and other regulators in the region on oil and gas fraud. I took advantage of the opportunity to lead or be involved in four examinations, two of which were with examiners in other regional offices. I’m proud to say that all four resulted in enforcement referrals and the respondents are in the process of settling charges with the Commission or are being actively investigated. There is no doubt in my mind, though, that my situation has diminished my ability to serve the investing public.



The Inspector General released a report in September, 2009 which recommended potential discipline for the associate Director and the regional director (who has since retired), for retaliating against Mr. Sauer and myself. The Commission has failed to discipline any one, at least not visibly, nor has there been any effort made to restore me to a position with similar duties and responsibilities to the one held before.



My situation should not be viewed in isolation. It is part of a cultural problem which continues to impact the Commission’s effectiveness. As Mr. di Florio pointed out in his testimony before the Senate’s Committee on Banking, Housing and Urban Affairs in September of 2010, in a self-assessment of OCIE it was concluded there was a need to create an environment for the staff to have open, candid communication and personal accountability for quality. I urge you to seek the trust of the staff by acting on those situations, such as the one in Fort Worth, where management has not fostered the desired environment.



I believe I have been very successful in serving the investing public. I have spearheaded many examinations that resulted in significant findings of fraud and monies recovered for investors. The types of cases I’ve worked on have varied from misconduct on the part of municipal officials, market manipulation, late trading in mutual funds, churning variable annuities, theft, selling inappropriate mutual fund share classes, issuer fraud in private securities, Ponzi schemes and misrepresentations and omissions in the sale of securities to name just a few. I’m proud to say that I have worked on cases where I helped stop fraud against the elderly, military members, municipalities and public institutions, affinity groups and hard-working blue-collar and professional individuals.



Many have asked me why I haven’t left the Commission over the course of the last several years. My answer has always been the same. I believe passionately in the mission of the SEC. I am proud to have devoted most of my professional life to the service of the investing public. I have tried to serve with honor and integrity. I am grateful for the many strong relationships I have developed with managers and staff throughout the Commission, which have kept me going through this difficult period. I am proud of the many accomplishments of the examiners and managers with whom I have worked all of these years. I hope I am fortunate enough to spend the remaining part of my career in the service of the Commission.

Source: Securities And Exchange Commission

Affected investor - Stanford International Bank Case SEC v. Stanford International Bank, 09-00298, U.S. District Court, Northern District of Texas (Dallas).

On the 17th of February, 2009 the Securities and Exchange Commission (SEC) accused Allen Stanford and his finance boss Jame M. Davis of having installed a Ponzi scheme in the enterprises controlled by them, including the bank of Antigua.

Many innocent people trusted the Government of United States and its regulatory institutions.

They invested with a brokerage that was regulated by the SEC, and whose brokers were members of FINRA (Financial Industry Regulatory Authority) and SIPC (Securities Investor Protection Corporation). The SEC and FINRA allowed such a Brokerage Firm to operate in USA.

After almost two years there is no yet a solution but many news related with the negligence of SEC and FINRA, the internal corruption in the SEC and the “institutional influences” from US-government agency which allowed Allen Stanford to build his Ponzi scheme.

It is quite evident that the SEC and FINRA are responsible for prosecuting fraud and wrongdoing.

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Feds probe banker Allen Stanford's ties to Congress

The Ponzi scheme was able to continue for so long due to “institutional influences” within the SEC.

As Feds Closed In, Stanford Boosted Efforts To Buy Influence...



"John Cornyn: In November 2004, right after the election, Texas Sen. John Cornyn traveled to Antigua on Stanford's. The purpose of the trip, which cost over $7,000? To investigate the financial industry. Too bad he didn't seem to notice anything."


Senator Bill Nelson from Florida received $6,100 from Allen Stanford.
Stanford got approval to create the first company of its kind in Miami: a foreign trust office that could bypass regulators
Florida's top financial regulator and several lawmakers want an investigation of the state's agreement with banker Allen Stanford to operate a Miami office -- with no government scrutiny.

The ties between indicted banker Allen Stanford and members of Congress -- including millions in contributions and weekends in five-star Caribbean resorts -- are now the subject of a sweeping federal investigation.

One of Congress' most powerful members, Pete Sessions sent an Email to Allen Stanford on Feb. 17.
``I love you and believe in you,'' said the e-mail sent ``If you want my ear/voice -- e-mail,'' it said, signed ``Pete.''

The Democratic Senatorial Campaign Committee received $950,000 from Allen Stanford and his affiliated companies.
The National Republican Congressional Committee follows with $238,500 from Allen Stanford and his affiliated companies.
The Democratic Congressional Campaign Committee received $202,000 from Allen Stanford and his affiliated companies.
The Republican National Committee got $128,500 from Allen Stanford and his affiliated companies.
The National Republican Senatorial Committee took $83,345 from Allen Stanford and his affiliated companies.

It is clear the Ponzi scheme was able to continue for so long due to “institutional influences”


Click here to read the complete list of US-politicians who received money from Allen Stanford.


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(Washington, D.C.) - U.S. Sen. David Vitter today reacted to the report released by the Inspector General of the Securities and Exchange Commission that revealed the agency was aware of fraud committed by Texas financier Allen Stanford and did not pursue an investigation.

"The depth of the failure at the SEC in the Stanford investigation is unbelievable,” said Vitter. “There were four examinations in 1997, 1998, 2002, and 2004, and in each case examiners concluded that Stanford's CDs were likely a Ponzi scheme. Yet the SEC did absolutely nothing while Stanford fleeced investors for roughly $8 billion. What is clear from the report is that the debt the SEC owes the Stanford victims is enormous."

In August of 2009 Vitter hosted a U.S. Senate Banking Committee field hearing on the Stanford case in Baton Rouge. At that time, it was determined that the original IG report was insufficient, which led Vitter, along with Sen. Richard Shelby, to request a more complete report from the SEC on the investigation. Vitter will meet with David Kotz, inspector general of the SEC and author of the report, later this week.

Vitter serves on the U.S. Senate Committee on Banking, Housing and Urban Affairs and has been actively working on this issue to help bring relief to the victims of this scheme.

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SEC's corruption allowed Stanford's fraud.


The Securities and Exchange Commission knew that Allen Stanford was involved in a Ponzi scheme as far back as 1997, according to a report released Friday by SEC Inspector General David Kotz.

The 159-page report said the scheme was able to continue for so long due to “institutional influences” within the SEC, and the agency’s desire to chase after slam-dunk cases.

"In the Madoff case, we saw the Commission's depth of incompetency, now, in the Stanford case, we see that not only is the SEC incompetent, it is also appears to be corrupt,"

Read more here...


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DOJ Halted SEC's Investigation Into Stanford Financial


“For over a decade, the US government, including the DOJ (Department of Justice), the Treasury and the SEC had solid evidence of Robert Allen Stanford’s alleged criminal activities and investors were never warned. Whether Robert Allen Stanford is guilty or not, the reality is that our entire life’s savings is lost and these victims relied on information from the US government agencies when making the decision to invest with Stanford Group.
These agencies did not disclose critical information that would have prevented us from losing our life’s savings.”

“The entire world is watching how the American judicial and financial regulatory system will handle the debilitating losses of victims of massive fraud like the Stanford case. These victims have been denied help by the US government and are now facing a long road to an extremely limited recovery.“

Read more here.


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Memorable phrases to never forget


The 159-page of SEC Inspector General David Kotz's report said the scheme was able to continue for so long due to "institutional influences" within the SEC, and the agency's desire to chase after slam-dunk cases.


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


“The one thing that is clear from the inspector general David Kotz's report is that the debt the SEC owes the Stanford victims is enormous,” said U.S. Sen. David Vitter.


Rose Romero (director of the SEC's Fort Worth regional office): "we did not think there were any American investors so it really did not concern us".


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


“Keep an eye on these people [Stanford] because it looks like a Ponzi scheme to me, and some day it’s going to blow up,” said a retiring assistant district administrator for the Fort Worth examination program in 1997 to the branch chief.


Simon, the Florida banking director who approved the agreement, says he should have banned the office from handling money.
Art Simon, now admits he made a mistake.


Several lawyers said much of the responsibility rests with Simon. ”In this case, he was responsible for having an effective system of enforcement,” said Jeffrey Sonn, a Fort Lauderdale securities attorney. “The state didn’t do the kind of reviews it needed to do.”


“As God is my witness,” Stanford said, “there is no Ponzi scheme, there was no intentional fraud.”
The company "had far more assets, solid assets, cash and other assets that could cover all our liabilities worldwide."


``I love you and believe in you,'' said the e-mail sent ``If you want my ear/voice -- e-mail,'' it said, signed ``Pete Sessions.''

Watchdog Blasts Private Financial Regulators

In a letter sent today to Congress' banking and finance committees, a leading government watchdog has urged House and Senate lawmakers to crack down on the financial-services industry's internal "private self-regulatory organizations," or SROs, a less understood but problematic player in the global financial meltdown. Put simply, an SRO is a regulator within, say, the securities industry tasked with protecting investors, but is often led, in a glaring conflict of interest, by the very same people that regulator is supposed to be overseeing. If that sounds dubious, well, that's because it is. And as the Project on Government Oversight (POGO) contends in its letter, one prominent SRO, the Financial Industry Regulatory Authority (FINRA), has an "abysmal track record," so much that POGO openly questions "whether FINRA can ever be an effective regulator given its cozy relationship with the securities industry."

Despite FINRA's stated commitment to "putting investors first," a look at the regulator's record in the past few calamitous years casts doubt on that claim. FINRA, the POGO letter states, neglected to step in and regulate firms like Lehman Brothers, Bear Stearns, and Merrill Lynch that all collapsed under FINRA's watch, while also failing to spot the massive, multibillion-dollar Ponzi schemes run by Bernie Madoff and Allen Stanford. In Stanford's case, POGO found, an internal FINRA review discovered the regulator missed Stanford's scheme on several occasions; and with Madoff, the private regulator claimed it wasn't at fault for letting the biggest Ponzi scheme in history slip by even though experts said Madoff was under FINRA's purview.

Then again, when you look at FINRA's leadership, it's hardly surprising the regulator failed to spot the likes of Madoff and Merrill, Stanford and Bear Stearns. As POGO's letter says, conflicts of interests are rife within FINRA, to wit: FINRA chairman and CEO Richard Ketchum is a Citigroup alum; the regulator's executive overseeing member regulation came from Charles Schwab; and another executive in charge of enforcement is a former partner at a top law firm representing major financial institutions. Not to mention FINRA's ties to Madoff and Stanford—Shana Madoff, Bernie's niece, was on FINRA's compliance advisory committee until the firm went under, and two top level staffers for Allen Stanford served on other FINRA committees. "FINRA's numerous failures," POGO writes, "should hardly come as a surprise given the incestuous relationship between SROs and the financial services industry."

Yet despite these criticisms, FINRA's Ketchum wants more power for his organization, like overseeing investment advisers as well as securities brokers. Thus the purpose of POGO's letter today is to urge Congress not to let that power grab happen, and even more to encourage House and Senate lawmakers to curtail FINRA's authority. "Effective, independent, and efficient government regulation is the only proper way to safely oversee our markets," the letter concludes. "Our economy is too important to be left in the hands of the very financial industry that brought us to the brink of collapse."

Stanford victims ask why Texas didn't act sooner

In the aftermath of the R. Allen Stanford case, some local investors are asking: Where was the State of Texas?

Investors who lost money in the Houston financier's alleged Ponzi scheme now say the state's financial oversight was too lax.

"We have the right to know what the (Texas State Securities Board) knew and when they knew it, details of their past investigations, and why they didn't disclose anything to the citizens of Texas all these years," Austin investor Annalisa Mendez said.

In fact, the state looked into Stanford's dealings years ago.

The Securities Board wrote a memo in the mid-1990s, expressing concern "that the high return rates and commissions for CDs made it difficult for the Stanford bank to make a legitimate profit on the CDs," according to a September Financial Industry Regulatory Authority report on the aftermath of both the Bernard Madoff and Stanford cases.

FINRA is a private corporation that provides regulatory oversight of all securities firms nationwide.

Texas Securities Commissioner Denise Voigt Crawford mentioned the securities board's involvement with the Stanford case in Feb. 20 testimony to the state Senate Committee on Finance, just after the scandal broke.

"We looked at him about 10 years ago, because there was evidence of potential money-laundering," Crawford said in response to a question from state Sen. Steve Ogden, R-Bryan.

The FBI and the Securities and Exchange Commission took the case, "which is what should have happened," she said. "But why it took 10 years for the feds to move on it, I could not answer."

The SEC has been criticized by investors who say the agency didn't do enough, quickly enough, to stop Stanford.

In 2003, some Stanford employees told the SEC they suspected fraud at the company.

In 2005, the SEC's Fort Worth office started an informal investigation into the sale of certificates of deposit by Stanford International Bank, which is based in Antigua.

But it was not until this past February that the SEC sued Stanford, alleging he was running a "massive Ponzi scheme" based on fraudulent CDs.

The SEC's inspector general concluded in a report that the agency had fulfilled its duty to check out accusations against Stanford.

The report found that the agency's inquiry was "hampered by a lack of cooperation" from Stanford and his attorneys, as well as by jurisdictional obstacles and obstruction by regulators in Antigua.

Stanford's attorney, Kent Schaffer, denied that his client had operated a Ponzi scheme, saying that money from the CD program was invested in a "wide range of investments."

What caused the losses were the government's lawsuit and fraud investigation, which prompted a run on the bank, he said.

Finra messed up, what a shock

The report by Finra on its failure to detect the alleged Ponzi scheme at Allen Stanford’s offshore bank is no shock.
Finra makes the SEC look like an agressive regulator. And this should give anyone reason to pause when you consider that Mary Schaprio, the current Securities and Exchange Commission chairman, most recently headed-up Finra.
Schaprio tells us her mission is to beef-up the SEC’s enforcement procedures in the wake of its own failings on Stanford and more significantly its botched investigation–or non-investigation–of Bernard Madoff. Why didn’t she first do this when she was at Finra?
The report outling Finra’s missteps notes regulators failed to follow-up on claims made by former Stanford brokers that the CDs the firm’s offshore bank in Antigua was selling were either bogus or “too good to be true.” Going as far back as 2004, a number of brokers raised this claim in arbitration disputes they had with Stanford.
Late last year, after Madoff was arrested, I began investigating allegations that Stanford’s financial empire was a Ponzi scheme. I did this while I was still working at BusinessWeek and early on I came across a few arbitration cases in which brokers had alleged the returns Stanford CDs seemed too good to be true.
Soon after Stanford was charged by the SEC with civil fraud, a source pointed me to an old lawsuit filed in Florida state court where a former employee also claimed the operation was a Ponzi scheme.
All of of these legal filings were either in the public record or in Finra files, yet it appears the level of communication between Finra’s arbitration unit and its enforcement operation is poor. This has been a long standing complaint from brokers, investors and securities lawyers and it needs to be fixed.
The inability of one side of an organization to talk to another can be damaging to a business. It’s no less damaging for a regulatory agency. But when regulators don’t communicate, innocent investors get hurt.

Finra Missed Chances to Catch Stanford and Madoff, Report Says

The Financial Industry Regulatory Authority didn’t fully probe transactions at Bernard Madoff’s firm and repeatedly failed to investigate tips about R. Allen Stanford’s alleged $7 billion fraud, an internal report said.
The staff of the U.S. brokerage industry’s main regulator is “not adequately trained” on its investigative authority, and the Washington-based regulator lacks procedures to escalate matters to senior management or special investigators “based on the gravity and substance of the fraud allegations,” according to a report posted on Finra’s Web site today.
The findings follow a series of reports by Securities and Exchange Commission Inspector General H. David Kotz, which faulted the SEC’s oversight of Madoff over 16 years and examined the agency’s attempts to investigate Stanford. In the Stanford case, Kotz concluded that the SEC was hampered by jurisdictional limits and Stanford’s refusal to cooperate.
“As regulators, we owe it to investors -- especially those harmed by recent scandals -- to develop a better, more comprehensive, response to fraud,” Finra Chief Executive Officer Richard Ketchum said in a statement. “I am committed to taking the lessons from the report’s findings to make Finra even stronger.”
Finra said it will create a new Office of Fraud Detection and Market Intelligence to ensure that staff with expertise in fraud detection respond rapidly to suspected scams.

Senate Holds Hearing on Stanford

Stanford Regulators Admit Not Pursuing '03 Fraud Claim

The industry self-regulatory organization that was supposed to police the brokers at the Stanford Financial Group acknowledges that a Stanford employee alleged in 2003 that the company was running a Ponzi scheme, but the organization did not follow up on the claim based of its own policy, which has since been changed.

The disclosure comes in testimony from Daniel Sibears, Executive Vice President of the Financial Industry Regulatory Authority, FINRA, prepared for a Senate Banking Committee hearing on Monday.

In 2003, Stanford advisor Leyla Wydler alleged in an arbitration case that the company was "engaged in a Ponzi scheme to defraud its clients."

Wydler lost the arbitration case, and FINRA is now acknowledging that her allegations of fraud were never passed on to investigators by the FINRA arbitration panel. Sibears' testimony said that prior to this year, FINRA procedure was to review fraud claims in arbitrations involving customers, but not those that involved employment disputes like Leyla Wydler's.

"This was based on an assessment that customer claims were most likely to evidence misconduct leading to investor harm," the testimony says.

Sibears insists in the testimony that "FINRA reviews every customer complaint and regulatory tip it receives." Nontheless, he acknowledged, the procedure involving employment disputes was changed in March of this year. The change came less than a month after the Securities and Exchange Commission sued Stanford, alleging an $8 billion Ponzi scheme.

Sibears' testimony claimed that even if the agency had followed up on Wydler's allegations, it likely would have run into barriers from regulators in Antigua, home of Stanford's offshore bank, where he says officials were less than cooperative in investigating subsequent tips.

After she lost the arbitration in 2004, Wydler brought her concerns to the Securities and Exchange Commission, which launched a formal investigation the following year. But the SEC did not sue Stanford until this year. The agency says it, too, was thwarted by Antiguan regulators, and added the nation's chief financial regulator to its complaint in June.

Hundreds of people attended the Banking Committee hearing, which was held in Baton Rouge, LA, home to a large concentration of Stanford investors. They have complained that regulators were slow to catch the alleged fraud, which affected some 28,000 investors.