By Robert Schmidt and Joshua Gallu - (Bloomberg)
For 40 years, the U.S. Securities and Exchange Commission and the congressionally chartered group that protects against broker theft have worked in tandem to reimburse people whose accounts are pilfered.
Now the SEC and the Securities Investor Protection Corp., or SIPC, are about to face off in a bitter court fight that may determine how future fraud victims are covered, raise broker fees that support SIPC and cast doubt on the SEC’s political independence.
The dispute centers on whether more than 7,000 brokerage customers who invested in the alleged $7 billion Ponzi scheme run by R. Allen Stanford are entitled to have their losses covered by SIPC.
SIPC, a nonprofit corporation funded by the brokerage industry, says the Stanford investments don’t fit into the confines of the federal law that governs who’s eligible for the payouts. Investors and their advocates in Congress say SIPC is deliberately taking a narrow view of the law to protect brokers from higher assessments.
The SEC’s commissioners, who have oversight of SIPC, ultimately sided with the investors. In June, the agency ordered SIPC to start a process that could grant up to $500,000 per client -- the same maximum amount it offers in any case. After SIPC balked, the SEC for the first time sued the group in federal court in Washington.
Dollars and Principles
As the two prepare for a Jan. 24 court date, SIPC has come out swinging, hiring two prominent law firms and an ex-federal judge who’s been on the short list for a Republican Supreme Court nomination. In legal briefs, it accuses the SEC of ceding to pressure from Congress to flout the letter of the law, and argues that the agency’s position jeopardizes investor payouts in other cases, including for clients of Bernard Madoff and MF Global Holdings Ltd (MFGLQ).
“The dollars are such and the principles are such that we have to take it seriously,” said Stephen Harbeck, who has worked at SIPC for 36 years and is now its president.
Harbeck said the group would probably have to spend most if not all of the $1.5 billion in its fund and possibly have to borrow more from the Treasury if the court orders it into the Stanford case.
The case “challenges the entire nature of the relationship between the SEC and SIPC,” he added. “I’m quite sure it’s not for the better.”
High-Interest CDs
SIPC may be best known for its logo, which dues-paying brokerage firms put on their marketing materials to show customers they’re protected. While investors may regard the label as equivalent to the guarantee that the Federal Deposit Insurance Corp. gives to bank accounts, SIPC doesn’t run a general insurance fund or cover investment losses. Under the Securities Investor Protection Act, it’s supposed to aid investors when their securities or cash are stolen or go missing.
Stanford, who’s in prison awaiting trial, allegedly used his brokerage to entice investors to buy high-interest certificates of deposits via his private Stanford International Bank Ltd. in Antigua. Instead, according to prosecutors, much of the money was used to support Stanford’s businesses and lifestyle.
Harbeck has said that SIPC shouldn’t get involved because investors received actual CDs after the brokerage passed their money to a bank. What happened after that isn’t under SIPC’s purview because the Stanford account holders have possession of their securities, he told a court-appointed receiver in 2009. SIPC covers theft but not fraud, he said.
Letters from Lawmakers
The SEC’s staff initially agreed. So did David Becker, the SEC’s general counsel at the time, according to an inspector general’s report. As the commissioners mulled the matter, more than 50 lawmakers signed letters asking SEC Chairman Mary Schapiro to explain why constituents weren’t getting aid while SIPC was helping a court-appointed receiver recover billions of dollars for victims of Madoff’s fraud.
Schapiro and other commissioners rejected the staff’s analysis and ordered it redone, according to five people with knowledge of the matter. The SEC commissioners eventually decided that there was no true separation between Stanford’s bank and the brokerage firm. Customers who made investments with the bank, the SEC said, were effectively depositing money with the brokerage and should get SIPC coverage.
Angela Shaw, who founded the Stanford Victims’ Coalition after her family lost $4.6 million in the alleged fraud, said there was no reason for clients to think they weren’t backstopped by the fund.
Settlement Rejected
SIPC “helped Stanford defraud investors, period,” said Shaw, who said that about 7,800 of 20,000 Stanford investors used the brokerage. “They slapped that logo on everything to create an illusion of protection.”
After the SEC ordered the payout, SIPC privately offered to settle the matter with the agency for about $250,000 per customer, according to two people familiar with the legal negotiations. The SEC’s five commissioners voted to reject the deal, the people said.
SEC spokesman John Nester said SIPC’s accusation that the agency was responding to pressure from Congress was “inaccurate” and said “the commission’s decision was based on the facts and the law.”
He declined to comment on the settlement talks. “We have had a long, positive relationship with SIPC that we intend to continue,” Nester said.
SIPC’s Harbeck also declined to discuss the settlement offer. He said that “at the staff level” relations with the SEC still “are really good.”
SEC Criticized
The larger Stanford case has been a lingering embarrassment for the SEC, which has come under criticism from investors and lawmakers for failing to uncover Ponzi schemes. The agency’s inspector general’s office determined that the SEC failed to conduct a meaningful investigation of Stanford Financial Group until 2005 even though its examiners suspected the firm of engaging in fraud eight years earlier.
Stanford was accused by the SEC in February 2009 of running a “massive, ongoing fraud,” and was later indicted on criminal charges. He has denied all wrongdoing.
The SEC, led by its chief litigator Matthew Martens, has taken a narrow tack in the SIPC case. In court papers, the agency says it has full authority over SIPC and asks the judge to enforce its order.
SIPC’s legal team at Kirkland & Ellis LLP -- which includes former U.S. appellate judge Michael McConnell, mentioned as a possible Supreme Court nominee during the George W. Bush administration -- argues that the court shouldn’t just rule on the order but determine whether the Stanford investors are covered by SIPC. The group’s board has also retained law firm Covington & Burling LLP.
‘Wrongheaded Notion’
“The SEC’s position is predicated on the wrongheaded notion that it has the legal authority to compel SIPC to take whatever action the SEC says it must take,” SIPC said in a Dec. 27 court filing.
SIPC’s attorneys also noted that the investor fund first declined to get involved in the Stanford case in August 2009 -- a decision that wasn’t challenged by the SEC for almost two years.
“The SEC expressed no disagreement with SIPC until June 2011, when a United States senator announced a hold on two nominees to become SEC commissioners while the SEC considered this issue -- and the commission abruptly flipped its position on SIPC and Stanford the next day,” SIPC wrote in its filing.
Increased Dues
The Securities Industry and Financial Markets Association, a Washington-based trade association for the brokerage industry, has also weighed in, estimating in an analysis it released last August that its firms’ dues to SIPC would more than double if the protection was extended the way the SEC wants.
Brokers currently pay one-quarter of 1 percent of their net operating revenues from their securities businesses in an annual SIPC assessment.
“While we are very sympathetic for any loss incurred by victims of the Stanford Financial fraud, SIPC as created by Congress in 1970 was never enabled to provide coverage as proposed by the SEC in this case,” said Andrew DeSouza, a Sifma spokesman. “An unprecedented expansion of SIPC protection to investment fraud losses is something Congress never intended.”
Senator David Vitter, the Louisiana Republican who refused to allow the vote on the SEC nominees until the agency weighed in on the Stanford case, said in a statement that SIPC’s court filings and public comments show “just how desperate they are to divert attention from their untenable position.”
Protection Fund
The senator, who has some 1,800 Stanford investors in his state, said that SIPC has “never before in history” ignored an order from the SEC to liquidate a failed brokerage and assess the claims of victims. SIPC is mainly worried that payments to Stanford investors would drain its protection fund, he said.
“Even more disturbing, they’ve highlighted directly to me concerns that their big firm dues-payers are balking at the prospect of having to replenish the fund after a Stanford payout,” Vitter said.
Harbeck said that SIPC’s board, which voted 6-0 to reject the SEC’s order, includes only two industry representatives and has members appointed by the Treasury and the Federal Reserve.
“The viewpoints of the industry were heard, but were by no means controlling,” Harbeck said. “We’ve looked at this as objectively as we can.’
Showing posts with label cds. Show all posts
Showing posts with label cds. Show all posts
Tuesday, 17 January 2012
Thursday, 13 October 2011
Stanford Judge Says Receiver May Need to Conclude Search for ‘Pot of Gold’
By Laurel Brubaker Calkins and Andrew Harris
R. Allen Stanford’s court-appointed receiver may need to stop searching for a secret “pot of gold” and pay defrauded investors from the assets he has recovered so far, the judge overseeing the case said.
“I’m concerned the receiver is expending resources that could otherwise be distributed to investors trying to track down missing resources,” U.S. District Judge David Godbey said during a hearing today in Dallas for dozens of Stanford-related civil cases.
Stanford, 61, was sued by the U.S. Securities and Exchange Commission in February 2009 on claims he swindled investors of more than $7 billion through allegedly bogus certificates of deposit at his Antigua-based Stanford International Bank.
“If we knew where it was and were able to go get it, we would have,” SEC attorney David Reece told Godbey, referring to Stanford’s missing billions.
“When the U.S. Justice Department has already checked and there’s no pot of gold, then the receiver can stand down,” Godbey told lawyers for the receiver and investors. “There’s apparently not some trail to a $5 billion secret Swiss bank account that anyone knows about.”
Awaiting Trial
Stanford, who denies all wrongdoing, has been in custody as a flight risk since his indictment on parallel criminal charges in June 2009. He is being treated for a prison-acquired addiction to anxiety drugs while he awaits trial, set for January in Houston federal court.
Godbey told lawyers in Dallas today he’s concerned that receiver Ralph Janvey is duplicating efforts by U.S. prosecutors, who are also tracking Stanford’s assets overseas. The Justice Department has won administrative freezes on more than $300 million in Stanford-related bank accounts in Switzerland and the United Kingdom. These accounts are beyond Janvey’s control and may represent the receivership’s largest category of recoverable assets, according to court filings.
The Stanford receivership has about $100 million in unrestricted cash on hand, Kevin Sadler, Janvey’s lead lawyer, told Godbey today. This represents proceeds from the sale of virtually all of Stanford’s U.S. real estate and private equity holdings, after payment of the receivership’s fees and expenses.
Antigua, Barbuda
Stanford owned additional real estate in the Caribbean nation of Antigua and Barbuda, which is under the control of a separate liquidator appointed by that nation’s government. Lawyers for Janvey and Stanford’s Antiguan liquidators told Godbey today that they can’t agree how to share control of Stanford’s island properties and investor records located in Antigua.
“The U.S. receiver has liquidated 95 percent of what the receiver has control over that’s sellable,” Sadler told Godbey. “We’re basically out of the real estate business and the private equity business. We’ve got some lawsuits that’ll go on for years. And we’ve got some cash, but not enough to distribute right now because of the cost.”
Sadler said if the U.S. receiver gained control of the frozen U.K. and Swiss bank accounts and sold the Antiguan real estate, then there might be enough cash to justify the cost of creating a claims process to distribute recovered assets to investors.
“It’s not going to get cheaper the longer you wait,” Godbey told Sadler.
‘In Limbo’
“If we leave this just in limbo for another two or three years waiting to see if there’s a bigger pot of money, it may be difficult for people to put together claims,” Godbey said. “The prospects of finding a secret Swiss bank account with $5 billion in it is not something you’re holding out much hope for.”
The U.S. receiver and an official investors’ committee have filed more than 100 fraudulent transfer and aiding-and-abetting lawsuits, seeking to claw back proceeds from CD investors or payments to vendors, consultants or financial advisers who worked with Stanford’s companies. Court filings estimate these actions, if successful, could return as much as $500 million to the estate.
“We’ve sued everyone we can find,” Sadler told Godbey today.
Godbey asked the receiver for a plan detailing “what needs to be done to bring this to a conclusion and what it will cost” to complete the task of repaying Stanford’s investors. He didn’t set a timetable for further action on the matter
R. Allen Stanford’s court-appointed receiver may need to stop searching for a secret “pot of gold” and pay defrauded investors from the assets he has recovered so far, the judge overseeing the case said.
“I’m concerned the receiver is expending resources that could otherwise be distributed to investors trying to track down missing resources,” U.S. District Judge David Godbey said during a hearing today in Dallas for dozens of Stanford-related civil cases.
Stanford, 61, was sued by the U.S. Securities and Exchange Commission in February 2009 on claims he swindled investors of more than $7 billion through allegedly bogus certificates of deposit at his Antigua-based Stanford International Bank.
“If we knew where it was and were able to go get it, we would have,” SEC attorney David Reece told Godbey, referring to Stanford’s missing billions.
“When the U.S. Justice Department has already checked and there’s no pot of gold, then the receiver can stand down,” Godbey told lawyers for the receiver and investors. “There’s apparently not some trail to a $5 billion secret Swiss bank account that anyone knows about.”
Awaiting Trial
Stanford, who denies all wrongdoing, has been in custody as a flight risk since his indictment on parallel criminal charges in June 2009. He is being treated for a prison-acquired addiction to anxiety drugs while he awaits trial, set for January in Houston federal court.
Godbey told lawyers in Dallas today he’s concerned that receiver Ralph Janvey is duplicating efforts by U.S. prosecutors, who are also tracking Stanford’s assets overseas. The Justice Department has won administrative freezes on more than $300 million in Stanford-related bank accounts in Switzerland and the United Kingdom. These accounts are beyond Janvey’s control and may represent the receivership’s largest category of recoverable assets, according to court filings.
The Stanford receivership has about $100 million in unrestricted cash on hand, Kevin Sadler, Janvey’s lead lawyer, told Godbey today. This represents proceeds from the sale of virtually all of Stanford’s U.S. real estate and private equity holdings, after payment of the receivership’s fees and expenses.
Antigua, Barbuda
Stanford owned additional real estate in the Caribbean nation of Antigua and Barbuda, which is under the control of a separate liquidator appointed by that nation’s government. Lawyers for Janvey and Stanford’s Antiguan liquidators told Godbey today that they can’t agree how to share control of Stanford’s island properties and investor records located in Antigua.
“The U.S. receiver has liquidated 95 percent of what the receiver has control over that’s sellable,” Sadler told Godbey. “We’re basically out of the real estate business and the private equity business. We’ve got some lawsuits that’ll go on for years. And we’ve got some cash, but not enough to distribute right now because of the cost.”
Sadler said if the U.S. receiver gained control of the frozen U.K. and Swiss bank accounts and sold the Antiguan real estate, then there might be enough cash to justify the cost of creating a claims process to distribute recovered assets to investors.
“It’s not going to get cheaper the longer you wait,” Godbey told Sadler.
‘In Limbo’
“If we leave this just in limbo for another two or three years waiting to see if there’s a bigger pot of money, it may be difficult for people to put together claims,” Godbey said. “The prospects of finding a secret Swiss bank account with $5 billion in it is not something you’re holding out much hope for.”
The U.S. receiver and an official investors’ committee have filed more than 100 fraudulent transfer and aiding-and-abetting lawsuits, seeking to claw back proceeds from CD investors or payments to vendors, consultants or financial advisers who worked with Stanford’s companies. Court filings estimate these actions, if successful, could return as much as $500 million to the estate.
“We’ve sued everyone we can find,” Sadler told Godbey today.
Godbey asked the receiver for a plan detailing “what needs to be done to bring this to a conclusion and what it will cost” to complete the task of repaying Stanford’s investors. He didn’t set a timetable for further action on the matter
As Stanford Victims Grumble, Court Approves Receiver's Latest Fee Request
by Julie Triedman
On Tuesday, the Dallas federal district court judge overseeing the receivership of alleged Ponzi schemer R. Allen Stanford's collapsed financial empire of approved the latest $1 million in legal fees requested by receiver Ralph Janvey and the outside law firms advising him.
But while Janvey and his team keep drawing regular paychecks in connection with their recovery efforts on behalf of Stanford investors, as The American Lawyer reports in its October issue, much about the proceedings and Janvey's future role in them remains uncertain.
Federal district court Judge David Godbey is expected to rule soon on a July motion to intervene filed by a group of disgruntled Stanford investors who claim their interests are not being adequately represented by the committee appointed by Janvey to fill that role.
Those moving to intervene accuse the lawyers serving as members of the committee of "double dipping" in the estate because they were paid retainers up front by individual victims and are also eligible under their contracts with the receiver to collect large contingency fees based on what they recover.
Since early this year, Janvey has tapped the committee to take over a number of fraudulent conveyance claims he and his team originally developed, removing the day-to-day expense of litigating those claims. Janvey told the judge in court filings this past summer that he did so as a cost-saving measure.
Janvey's recovery efforts in the case continue to move slowly. To date, of the estimated $7.2 billion lost via Stanford's alleged scheme, the receiver's legal team has recovered just over $146 million. (Another $63 million was sitting in Stanford accounts the day Janvey was appointed.)
Much of the total recovery has already been spent on a combination of legal and professional fees ($50 million) and expenses ($50 million). A majority of the legal fees have gone to one firm, Baker Botts, where Austin-based litigation partner Kevin Sadler is heading up the firm's efforts.
U.S. investors who bought bogus certificates of deposit via the Stanford brokerage entity—a group that includes only a fraction of the 20,000-plus investors harmed by Stanford's alleged worldwide scam—are also waiting impatiently on a forthcoming decision by the Securities Investor Protection Corporation on whether they are entitled to relief for their losses.
SIPC officials said in June that the agency expected to issue its decision in the matter by mid-September. On September 16, however, SIPC Chairman Orlan Johnson announced that the agency's board was delaying a decision pending further review "of the many and complex issues in the Stanford case." Johnson, who is also the co-chair of Saul Ewing's securities transactions and regulations practice group, did not respond to a request for comment.
On Tuesday, the Dallas federal district court judge overseeing the receivership of alleged Ponzi schemer R. Allen Stanford's collapsed financial empire of approved the latest $1 million in legal fees requested by receiver Ralph Janvey and the outside law firms advising him.
But while Janvey and his team keep drawing regular paychecks in connection with their recovery efforts on behalf of Stanford investors, as The American Lawyer reports in its October issue, much about the proceedings and Janvey's future role in them remains uncertain.
Federal district court Judge David Godbey is expected to rule soon on a July motion to intervene filed by a group of disgruntled Stanford investors who claim their interests are not being adequately represented by the committee appointed by Janvey to fill that role.
Those moving to intervene accuse the lawyers serving as members of the committee of "double dipping" in the estate because they were paid retainers up front by individual victims and are also eligible under their contracts with the receiver to collect large contingency fees based on what they recover.
Since early this year, Janvey has tapped the committee to take over a number of fraudulent conveyance claims he and his team originally developed, removing the day-to-day expense of litigating those claims. Janvey told the judge in court filings this past summer that he did so as a cost-saving measure.
Janvey's recovery efforts in the case continue to move slowly. To date, of the estimated $7.2 billion lost via Stanford's alleged scheme, the receiver's legal team has recovered just over $146 million. (Another $63 million was sitting in Stanford accounts the day Janvey was appointed.)
Much of the total recovery has already been spent on a combination of legal and professional fees ($50 million) and expenses ($50 million). A majority of the legal fees have gone to one firm, Baker Botts, where Austin-based litigation partner Kevin Sadler is heading up the firm's efforts.
U.S. investors who bought bogus certificates of deposit via the Stanford brokerage entity—a group that includes only a fraction of the 20,000-plus investors harmed by Stanford's alleged worldwide scam—are also waiting impatiently on a forthcoming decision by the Securities Investor Protection Corporation on whether they are entitled to relief for their losses.
SIPC officials said in June that the agency expected to issue its decision in the matter by mid-September. On September 16, however, SIPC Chairman Orlan Johnson announced that the agency's board was delaying a decision pending further review "of the many and complex issues in the Stanford case." Johnson, who is also the co-chair of Saul Ewing's securities transactions and regulations practice group, did not respond to a request for comment.
Thursday, 6 October 2011
The Joint Liquidators of Stanford International Bank, Ltd. invite you to attend an online presentation
Dear Creditors/Victims -
The Joint Liquidators of Stanford International Bank, Ltd. invite you to attend an online presentation:
- LIVE Webinar featuring joint liquidators Marcus Wide & Hugh Dickson
- The Joint Liquidators will be informing creditors/victims about the current status of the liquidation and responding to questions from creditors/victims who will have the opportunity to send in questions during the presentation.
- Tuesday, October 11 at 11:00 a.m. EDT – presentation is expected to last approximately 1 hour.
- Register today – limited spaces available – Please visit
https://event.onlineseminarsolutions.com/eventRegistration/EventLobbyServlet?target=registration.jsp&eventid=365630&sessionid=1&key=7B9889A4B001041
3216182FC970B085C&sourcepage=register
to complete registration. There is no cost for you to attend this presentation.
- Please log-in to Webinar 10 minutes prior to start time.
- You will also have the option of listening to the presentation in Spanish.
If you are unable to listen to the presentation on Tuesday October 11 please note that the presentation will also be posted to the liquidation website (www.sibliquidation.com) approximately 24 hours after the conclusion of the presentation.
Friday, 30 September 2011
Victims angry at delay
Agency undecided on helping with Stanford losses
Gerard Shields
Advocate Washington bureau
WASHINGTON — Louisiana victims allegedly bilked of their savings by Texas financier Robert Allen Stanford are getting increasingly frustrated by the delay of an agency deciding whether they can recoup some of their losses.
The Securities Investor Protection Corp. announced earlier in the year that it would decide by Sept. 15 on whether to make about 1,800 Louisiana investors — mostly from Baton Rouge, Lafayette and Covington — eligible to receive at least part of their savings back.
The agency that stands as the U.S. investors’ first line of defense is two weeks late in meeting its deadline.
And those who sank money into Stanford’s operation are getting increasingly nervous.
“Everyone is just desperately watching it,” said Jean Anne Mayhall, founder of the Louisiana Stanford Victims Group.
SIPC chairman Orlan Johnson said the organization needs more time because of the complex issues in the Stanford case.
Stanford stands accused of bilking investors of $7.2 billion, including $1 billion in Louisiana, charges he denies.
“We fully appreciate the gravity of this matter and remain committed to reviewing it thoroughly and with all deliberate speed,” Johnson said in a statement.
That isn’t soothing investors such as Pete Verbois, a 66-year-old former Exxon Mobil worker who lost about $650,000 with Stanford. Even if SIPC makes a decision, it will be awhile before any victims receive their money, Verbois said.
“It’s going to be a lot of red tape before they cut a check,” said Verbois, of St. Francisville. “It’s pretty frustrating.”
In June, the U.S. Securities and Exchange Commission determined that victims of Stanford should be eligible to recoup some of their losses from the SIPC’s special fund created by Congress. The SEC has threatened to sue SIPC if it decides otherwise.
The SIPC fund is replenished by member financial institutions. Federal law allows for each victim to receive up to $500,000 of their losses.
A source of frustration among the Stanford investors is that SIPC paid back $732.6 million to victims of convicted Wall Street swindler Bernard Madoff, Mayhall said.
SIPC has denied paying Stanford victims, saying that unlike in the Madoff case, investors actually received certificates of deposit, even though they eventually lost their money when the CDs became worthless.
“We have had to fight every step of the way for over two years to be granted the same coverage that Madoff victims received in two weeks,” Mayhall said.
Mayhall said she contacted SIPC, which meets four times a year, and was told that its next scheduled meeting is in December. She said an agency representative told her that the organization will make a decision before then.
U.S. Rep. Bill Cassidy, R-Baton Rouge, isn’t surprised by the SIPC delay, he said. The case is complex, with investors living as far away as South America, he said.
It took months for the SEC to make its determination too, Cassidy said.
“We all want the decision to be made yesterday,” Cassidy said. “On the other hand, it’s a pretty complicated case. It’s not to excuse it, it’s just to understand it.”
Gerard Shields
Advocate Washington bureau
WASHINGTON — Louisiana victims allegedly bilked of their savings by Texas financier Robert Allen Stanford are getting increasingly frustrated by the delay of an agency deciding whether they can recoup some of their losses.
The Securities Investor Protection Corp. announced earlier in the year that it would decide by Sept. 15 on whether to make about 1,800 Louisiana investors — mostly from Baton Rouge, Lafayette and Covington — eligible to receive at least part of their savings back.
The agency that stands as the U.S. investors’ first line of defense is two weeks late in meeting its deadline.
And those who sank money into Stanford’s operation are getting increasingly nervous.
“Everyone is just desperately watching it,” said Jean Anne Mayhall, founder of the Louisiana Stanford Victims Group.
SIPC chairman Orlan Johnson said the organization needs more time because of the complex issues in the Stanford case.
Stanford stands accused of bilking investors of $7.2 billion, including $1 billion in Louisiana, charges he denies.
“We fully appreciate the gravity of this matter and remain committed to reviewing it thoroughly and with all deliberate speed,” Johnson said in a statement.
That isn’t soothing investors such as Pete Verbois, a 66-year-old former Exxon Mobil worker who lost about $650,000 with Stanford. Even if SIPC makes a decision, it will be awhile before any victims receive their money, Verbois said.
“It’s going to be a lot of red tape before they cut a check,” said Verbois, of St. Francisville. “It’s pretty frustrating.”
In June, the U.S. Securities and Exchange Commission determined that victims of Stanford should be eligible to recoup some of their losses from the SIPC’s special fund created by Congress. The SEC has threatened to sue SIPC if it decides otherwise.
The SIPC fund is replenished by member financial institutions. Federal law allows for each victim to receive up to $500,000 of their losses.
A source of frustration among the Stanford investors is that SIPC paid back $732.6 million to victims of convicted Wall Street swindler Bernard Madoff, Mayhall said.
SIPC has denied paying Stanford victims, saying that unlike in the Madoff case, investors actually received certificates of deposit, even though they eventually lost their money when the CDs became worthless.
“We have had to fight every step of the way for over two years to be granted the same coverage that Madoff victims received in two weeks,” Mayhall said.
Mayhall said she contacted SIPC, which meets four times a year, and was told that its next scheduled meeting is in December. She said an agency representative told her that the organization will make a decision before then.
U.S. Rep. Bill Cassidy, R-Baton Rouge, isn’t surprised by the SIPC delay, he said. The case is complex, with investors living as far away as South America, he said.
It took months for the SEC to make its determination too, Cassidy said.
“We all want the decision to be made yesterday,” Cassidy said. “On the other hand, it’s a pretty complicated case. It’s not to excuse it, it’s just to understand it.”
Sunday, 18 September 2011
Records Show Meeks Sought Favours for Pal from "Ponzi" Tycoon
By ISABEL VINCENT and MELISSA KLEIN
The e-mail was flagged “Importance: High.” A top executive at the Stanford Financial Group wanted an answer.
“Have we an update on Antigua?” demanded Lionel C. Johnson, a senior VP.
“Greg Meeks and Ed Ahmad have both called again this afternoon inquiring about the status of Ahmad’s VIP-box invitations.”
The Feb. 19, 2008, e-mail, obtained by The Post, was addressed to Yolanda Suarez, chief counsel for the company run by now-disgraced billionaire banker Allen Stanford. It and other insistent messages during that period show Queens Rep. Gregory Meeks was determined to get his pal, Edul Ahmad, invited to a Caribbean cricket match so he could meet another Meeks buddy, Stanford.
The urgent pleas were made a year after Ahmad handed Meeks $40,000.
Stanford would also throw cash at the congressman a few months later -- hosting a lavish fund-raiser in St. Croix in July 2008, complete with Cristal champagne and caviar, that raised at least $13,800 for Meeks’ campaign committee.
Now the circle of friends threatens to become a circle of felons.
Stanford, 61, is awaiting trial on charges he engineered a $7 billion Ponzi scheme. Ahmad, 43, was indicted this summer in New York, accused of falsifying $50 million in loan applications. And Meeks, 57, is under investigation by the House Committee on Standards of Official Conduct for the $40,000 Ahmad payment and is at the center of a separate federal probe for his role in a Queens nonprofit that allegedly stiffed Hurricane Katrina victims.
Meeks, an eight-term congressman, has a penchant for hobnobbing with shady characters and had few qualms about accepting their cash -- or doing them favors.
Stanford, a flamboyant businessman from Texas who once ran a bodybuilding gym in Waco, took over the family financial business. He also started his own bank in 1985 on the island of Montserrat and later moved his operations to Antigua. Forbes ranked him as the 205th-richest American in 2008, with an estimated worth of $2.2 billion.
Meeks’ relationship with Stanford dates back to at least 2003, when the congressman and his wife traveled to Antigua and Barbados on a junket sponsored by the Inter-American Economic Council, a Washington, DC, nonprofit backed by Stanford. It would be the first of many trips to sunny climes that Meeks and his wife, Simone-Marie, would take on the nonprofit’s dime.
Meeks sits on both the House’s Financial Services and Foreign Affairs committees and belonged to the Caribbean Caucus, an informal group of lawmakers Stanford sought to woo.
The economic development of the Caribbean, and the US Virgin Islands in particular, has been Congressman Meeks’ focus for over a decade,” Johnson, an executive in charge of government affairs at Stanford Group, wrote in an e-mail exhorting company employees to attend the July 2008 fund-raiser. Ticket prices began at $1,000 for the soirée at Stanford’s hilltop compound in St. Croix.
Eighty guests dined on lobster, caviar and foie gras and sipped Cristal and Mondavi Opus 1, a Napa Valley red that retails for $200 a bottle. An organizer of the party said the cost of the catering alone topped $25,000.
But, records show, the Meeks campaign reimbursed Stanford for only $3,591.
Stanford company employees donated $7,200, and Stanford himself gave $4,600. The company’s PAC kicked in another $2,000. The total take for the fund-raiser appears to be $34,000, according to campaign finance records.
The Texas receiver for the victims of Stanford’s alleged Ponzi scheme is seeking to claw back the $6,600 donated by Stanford and the company’s PAC, along with money Stanford gave to other pols, including Harlem Rep. Charles Rangel.
“Representative Meeks has not returned any of the money requested. The receiver asked Representative Meeks to join the dozens of other politicians and political committees who have returned their Stanford-related contributions,” said Kevin Sadler, the attorney for the receiver.
Sadler said he is in talks with Rangel’s lawyer to return the money, which included $8,300 to the Rangel campaign and $2,500 to his National Leadership PAC. Both Meeks and Rangel have said in the past that they gave the donations to charity.
In 2006, Stanford called in a chit for his generosity, asking Meeks to use his influence with Venezuelan President Hugo Chavez. The billionaire wanted Meeks to tell Chavez to begin a criminal investigation into a whistleblower at Stanford’s Venezuelan bank.
Meeks allegedly was heard on a speakerphone telling Stanford he would intervene with Chavez, according to the Miami Herald.
Meeks was soon in Venezuela visiting Chavez, ostensibly to thank him for providing cheap home heating oil to Americans. A year later, the whistleblower was arrested.
While Meeks was meeting with Chavez, there were already grave concerns among US government officials about Stanford’s reputation. The US ambassador to Barbados attended a “Legends of Cricket” breakfast along with Stanford in Bridgetown and tried to avoid being photographed in public with him.
“His companies are rumored to engage in bribery, money-laundering and political manipulation,” read a May 2006 diplomatic cable about the breakfast meeting, released last month by WikiLeaks.
When Stanford was knighted in Antigua in 2006, the title was so controversial that the country’s prime minister called the honor “most unfortunate.”
Stanford was indicted in June 2009 on charges of perpetrating a $7 billion fraud by selling certificates of deposit that promised inflated rates of return. He is currently being held at a medical center in the feds’ Butner, NC, prison, the same lockup holding Ponzi king Bernie Madoff. Stanford was declared incompetent to stand trial in January because of an addiction to prescription medication, but he is expected to be re-evaluated.
Meeks refused to answer any questions about his relationship with Stanford, or why he agreed to introduce Ahmad to the billionaire.
Both men have an interest in cricket. Stanford owned a cricket team and stadium, and Ahmad sponsored his own cricket competition in New York.
Meeks and Ahmad are longtime friends. The congressman held after-hours meetings with the real-estate broker at his Queens district office, and Ahmad boasted that he had his own personal political representation.
Meeks claims the $40,000 he pocketed from Ahmad was a loan, but a House ethics panel said it appeared to be a gift. Meeks paid back the money in 2010, but only after federal investigators questioned Ahmad about it.
Like Stanford, Ahmad’s businesses were long dogged by allegations of scandal, including predatory lending and forged documentation. State authorities launched five probes into his real-estate operations between 2006 and 2008.
Ahmad, who is currently out on $2.5 million bail and prohibited from traveling to his native Guyana, faces up to 30 years in prison. The government has said that additional charges or more defendants are likely in his case.
Kings of Queens
Allen Stanford
Texas billionaire in jail awaiting trial on charges he ran an $7 billion Ponzi scheme. Accused of selling certificates of deposit promising improbably high interest rates. Big-time political donor, whose nonprofit Inter-American Economic Council hosted Caribbean junkets for members of Congress, including Meeks. Held a 2008 St. Croix fund-raiser for Meeks.
Congressman Gregory Meeks
An eight-term Democratic congressman representing Queens, Meeks is the subject of a House ethics probe for accepting a $40,000 payment from Queens businessman Edul Ahmad in 2007. Also under federal investigation for his role in a Queens charity. Arranged for Ahmad to meet banker Allen Stanford, for whom Meeks did favors, including personally lobbying Venezuelan President Hugo Chavez.
Edul Ahmad
Queens real-estate broker and catering hall owner indicted on charges of mortgage fraud. Accused of falsifying $50 million in loan applications. Currently out on $2.5 million bail. Denied permission by the feds to travel to his native Guyana. Longtime friend of Meeks. Sought introduction Stanford through Meeks.
The e-mail was flagged “Importance: High.” A top executive at the Stanford Financial Group wanted an answer.
“Have we an update on Antigua?” demanded Lionel C. Johnson, a senior VP.
“Greg Meeks and Ed Ahmad have both called again this afternoon inquiring about the status of Ahmad’s VIP-box invitations.”
The Feb. 19, 2008, e-mail, obtained by The Post, was addressed to Yolanda Suarez, chief counsel for the company run by now-disgraced billionaire banker Allen Stanford. It and other insistent messages during that period show Queens Rep. Gregory Meeks was determined to get his pal, Edul Ahmad, invited to a Caribbean cricket match so he could meet another Meeks buddy, Stanford.
The urgent pleas were made a year after Ahmad handed Meeks $40,000.
Stanford would also throw cash at the congressman a few months later -- hosting a lavish fund-raiser in St. Croix in July 2008, complete with Cristal champagne and caviar, that raised at least $13,800 for Meeks’ campaign committee.
Now the circle of friends threatens to become a circle of felons.
Stanford, 61, is awaiting trial on charges he engineered a $7 billion Ponzi scheme. Ahmad, 43, was indicted this summer in New York, accused of falsifying $50 million in loan applications. And Meeks, 57, is under investigation by the House Committee on Standards of Official Conduct for the $40,000 Ahmad payment and is at the center of a separate federal probe for his role in a Queens nonprofit that allegedly stiffed Hurricane Katrina victims.
Meeks, an eight-term congressman, has a penchant for hobnobbing with shady characters and had few qualms about accepting their cash -- or doing them favors.
Stanford, a flamboyant businessman from Texas who once ran a bodybuilding gym in Waco, took over the family financial business. He also started his own bank in 1985 on the island of Montserrat and later moved his operations to Antigua. Forbes ranked him as the 205th-richest American in 2008, with an estimated worth of $2.2 billion.
Meeks’ relationship with Stanford dates back to at least 2003, when the congressman and his wife traveled to Antigua and Barbados on a junket sponsored by the Inter-American Economic Council, a Washington, DC, nonprofit backed by Stanford. It would be the first of many trips to sunny climes that Meeks and his wife, Simone-Marie, would take on the nonprofit’s dime.
Meeks sits on both the House’s Financial Services and Foreign Affairs committees and belonged to the Caribbean Caucus, an informal group of lawmakers Stanford sought to woo.
The economic development of the Caribbean, and the US Virgin Islands in particular, has been Congressman Meeks’ focus for over a decade,” Johnson, an executive in charge of government affairs at Stanford Group, wrote in an e-mail exhorting company employees to attend the July 2008 fund-raiser. Ticket prices began at $1,000 for the soirée at Stanford’s hilltop compound in St. Croix.
Eighty guests dined on lobster, caviar and foie gras and sipped Cristal and Mondavi Opus 1, a Napa Valley red that retails for $200 a bottle. An organizer of the party said the cost of the catering alone topped $25,000.
But, records show, the Meeks campaign reimbursed Stanford for only $3,591.
Stanford company employees donated $7,200, and Stanford himself gave $4,600. The company’s PAC kicked in another $2,000. The total take for the fund-raiser appears to be $34,000, according to campaign finance records.
The Texas receiver for the victims of Stanford’s alleged Ponzi scheme is seeking to claw back the $6,600 donated by Stanford and the company’s PAC, along with money Stanford gave to other pols, including Harlem Rep. Charles Rangel.
“Representative Meeks has not returned any of the money requested. The receiver asked Representative Meeks to join the dozens of other politicians and political committees who have returned their Stanford-related contributions,” said Kevin Sadler, the attorney for the receiver.
Sadler said he is in talks with Rangel’s lawyer to return the money, which included $8,300 to the Rangel campaign and $2,500 to his National Leadership PAC. Both Meeks and Rangel have said in the past that they gave the donations to charity.
In 2006, Stanford called in a chit for his generosity, asking Meeks to use his influence with Venezuelan President Hugo Chavez. The billionaire wanted Meeks to tell Chavez to begin a criminal investigation into a whistleblower at Stanford’s Venezuelan bank.
Meeks allegedly was heard on a speakerphone telling Stanford he would intervene with Chavez, according to the Miami Herald.
Meeks was soon in Venezuela visiting Chavez, ostensibly to thank him for providing cheap home heating oil to Americans. A year later, the whistleblower was arrested.
While Meeks was meeting with Chavez, there were already grave concerns among US government officials about Stanford’s reputation. The US ambassador to Barbados attended a “Legends of Cricket” breakfast along with Stanford in Bridgetown and tried to avoid being photographed in public with him.
“His companies are rumored to engage in bribery, money-laundering and political manipulation,” read a May 2006 diplomatic cable about the breakfast meeting, released last month by WikiLeaks.
When Stanford was knighted in Antigua in 2006, the title was so controversial that the country’s prime minister called the honor “most unfortunate.”
Stanford was indicted in June 2009 on charges of perpetrating a $7 billion fraud by selling certificates of deposit that promised inflated rates of return. He is currently being held at a medical center in the feds’ Butner, NC, prison, the same lockup holding Ponzi king Bernie Madoff. Stanford was declared incompetent to stand trial in January because of an addiction to prescription medication, but he is expected to be re-evaluated.
Meeks refused to answer any questions about his relationship with Stanford, or why he agreed to introduce Ahmad to the billionaire.
Both men have an interest in cricket. Stanford owned a cricket team and stadium, and Ahmad sponsored his own cricket competition in New York.
Meeks and Ahmad are longtime friends. The congressman held after-hours meetings with the real-estate broker at his Queens district office, and Ahmad boasted that he had his own personal political representation.
Meeks claims the $40,000 he pocketed from Ahmad was a loan, but a House ethics panel said it appeared to be a gift. Meeks paid back the money in 2010, but only after federal investigators questioned Ahmad about it.
Like Stanford, Ahmad’s businesses were long dogged by allegations of scandal, including predatory lending and forged documentation. State authorities launched five probes into his real-estate operations between 2006 and 2008.
Ahmad, who is currently out on $2.5 million bail and prohibited from traveling to his native Guyana, faces up to 30 years in prison. The government has said that additional charges or more defendants are likely in his case.
Kings of Queens
Allen Stanford
Texas billionaire in jail awaiting trial on charges he ran an $7 billion Ponzi scheme. Accused of selling certificates of deposit promising improbably high interest rates. Big-time political donor, whose nonprofit Inter-American Economic Council hosted Caribbean junkets for members of Congress, including Meeks. Held a 2008 St. Croix fund-raiser for Meeks.
Congressman Gregory Meeks
An eight-term Democratic congressman representing Queens, Meeks is the subject of a House ethics probe for accepting a $40,000 payment from Queens businessman Edul Ahmad in 2007. Also under federal investigation for his role in a Queens charity. Arranged for Ahmad to meet banker Allen Stanford, for whom Meeks did favors, including personally lobbying Venezuelan President Hugo Chavez.
Edul Ahmad
Queens real-estate broker and catering hall owner indicted on charges of mortgage fraud. Accused of falsifying $50 million in loan applications. Currently out on $2.5 million bail. Denied permission by the feds to travel to his native Guyana. Longtime friend of Meeks. Sought introduction Stanford through Meeks.
Friday, 1 July 2011
SIPC to Announce Stanford Liquidation Decision in Mid-September
WASHINGTON, July 1, 2011 /PRNewswire-USNewswire/ -- The Securities Investor Protection Corporation ("SIPC"), which maintains a special reserve fund mandated by Congress to protect the customers of insolvent brokerage firms, said today that it expects its Board of Directors to announce on or about September 15, 2011 its decision about the referral provided by the U.S. Securities and Exchange Commission ("SEC") with respect to the Stanford Group Company, operated by Robert Allen Stanford.
On February 17, 2009, the SEC filed an action in the U.S. District Court for the Northern District of Texas alleging that Stanford orchestrated an $8 billion fraud based on false promises of guaranteed returns related to certificates of deposit ("CDs") issued by the Antiguan-based Stanford International Bank ("SIB"). The SEC's Complaint alleged that SIB sold approximately $7.2 billion of CDs to investors by promising returns that were "improbable, if not impossible." See: Â Complaint, SEC v. Stanford International Bank, Ltd., et al., Case No. 3:09-CV-0298-N (N.D. Tex. filed February 17, 2009).
In response to the SEC's request for emergency relief, the Court immediately issued a temporary restraining order, froze the defendants' assets, and appointed a receiver to marshal those assets. Â The SEC filed a second amended complaint on June 19, 2009, alleging that Stanford conducted a Ponzi scheme.
SIPC President and CEO Stephen Harbeck said that SIPC has already started conferring with the SEC and the Stanford receiver regarding the SEC's referral in the Stanford matter.
The SEC's referral on June 15, 2011 was the first time the SEC had informed SIPC of the possibility that the Stanford matter was appropriate for a proceeding under the Securities Investor Protection Act ("SIPA").
ABOUT SIPC
The Securities Investor Protection Corporation is the U.S. investor's first line of defense in the event a brokerage firm fails, owing customers cash and securities that are missing from customer accounts. SIPC either acts as trustee or works with an independent court-appointed trustee in a brokerage insolvency case to recover funds.
The statute that created SIPC provides that customers of a failed brokerage firm receive all non-negotiable securities - such as stocks or bonds -- that are already registered in their names or in the process of being registered. At the same time, funds from the SIPC reserve are available to satisfy the remaining claims for customer cash and/or securities custodied with the broker for up to a maximum of $500,000 per customer. Â This figure includes a maximum of $250,000 on claims for cash. From the time Congress created it in 1970 through December 2010, SIPC has advanced $ 1.6 billion in order to make possible the recovery of $ 109.3 billion in assets for an estimated 739,000 investors.
On February 17, 2009, the SEC filed an action in the U.S. District Court for the Northern District of Texas alleging that Stanford orchestrated an $8 billion fraud based on false promises of guaranteed returns related to certificates of deposit ("CDs") issued by the Antiguan-based Stanford International Bank ("SIB"). The SEC's Complaint alleged that SIB sold approximately $7.2 billion of CDs to investors by promising returns that were "improbable, if not impossible." See: Â Complaint, SEC v. Stanford International Bank, Ltd., et al., Case No. 3:09-CV-0298-N (N.D. Tex. filed February 17, 2009).
In response to the SEC's request for emergency relief, the Court immediately issued a temporary restraining order, froze the defendants' assets, and appointed a receiver to marshal those assets. Â The SEC filed a second amended complaint on June 19, 2009, alleging that Stanford conducted a Ponzi scheme.
SIPC President and CEO Stephen Harbeck said that SIPC has already started conferring with the SEC and the Stanford receiver regarding the SEC's referral in the Stanford matter.
The SEC's referral on June 15, 2011 was the first time the SEC had informed SIPC of the possibility that the Stanford matter was appropriate for a proceeding under the Securities Investor Protection Act ("SIPA").
ABOUT SIPC
The Securities Investor Protection Corporation is the U.S. investor's first line of defense in the event a brokerage firm fails, owing customers cash and securities that are missing from customer accounts. SIPC either acts as trustee or works with an independent court-appointed trustee in a brokerage insolvency case to recover funds.
The statute that created SIPC provides that customers of a failed brokerage firm receive all non-negotiable securities - such as stocks or bonds -- that are already registered in their names or in the process of being registered. At the same time, funds from the SIPC reserve are available to satisfy the remaining claims for customer cash and/or securities custodied with the broker for up to a maximum of $500,000 per customer. Â This figure includes a maximum of $250,000 on claims for cash. From the time Congress created it in 1970 through December 2010, SIPC has advanced $ 1.6 billion in order to make possible the recovery of $ 109.3 billion in assets for an estimated 739,000 investors.
Wednesday, 22 June 2011
Allen Stanford’s Criminal Trial Delayed to January While He’s in Treatment
Source:Bloomberg
Indicted financier R. Allen Stanford’s criminal trial was postponed to January from September so he can complete rehabilitation treatment for dependence on anti-anxiety drugs prescribed by prison doctors.
U.S. District Judge David Hittner in Houston said doctors treating Stanford said that it will take him as long as four more months to kick his dependence on anti-anxiety drugs prescribed after he was severely beaten by another inmate in September 2009.
Hittner found Stanford incompetent to assist in his own defense in January after three psychiatrists testified the former billionaire’s mental capacities were diminished from over-medication and lingering head injuries suffered in the prison fight.
Stanford was moved in February from a Houston jail to the federal medical center at the Butner, North Carolina, prison complex, on the expectation his rehabilitation would take as long as four months. Last month, Hittner scheduled the Stanford Group Co. founder for trial in September based on his expected return to Houston this month.
“However, the court now finds it has no alternative but to grant FMC’s request for an additional four months to continue treating Stanford,’’ Hittner said in a ruling handed down today. “Assuming FMC needs the entire four months to treat Stanford, the court now sets Stanford’s jury trial to commence January 2012.’’
Hittner said if Stanford recovers more quickly and returns to Houston sooner than expected, his trial may be moved up again.
Stanford Denies Wrongdoing
Stanford, 61, denies all wrongdoing in connection with civil and criminal allegations he defrauded investors of more than $7 billion through allegedly bogus certificates of deposit issued by Antigua-based Stanford International Bank Ltd.
Stanford has been incarcerated as a flight risk since his indictment and arrest in June 2009.
Ali Fazel, a lawyer for Stanford, declined to comment on today’s order, citing a ruling by Hittner barring lawyers from publicly discussing the case.
Laura Sweeney, a spokeswoman for the Justice Department, also declined to comment, citing the judge’s gag order.
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).
Indicted financier R. Allen Stanford’s criminal trial was postponed to January from September so he can complete rehabilitation treatment for dependence on anti-anxiety drugs prescribed by prison doctors.
U.S. District Judge David Hittner in Houston said doctors treating Stanford said that it will take him as long as four more months to kick his dependence on anti-anxiety drugs prescribed after he was severely beaten by another inmate in September 2009.
Hittner found Stanford incompetent to assist in his own defense in January after three psychiatrists testified the former billionaire’s mental capacities were diminished from over-medication and lingering head injuries suffered in the prison fight.
Stanford was moved in February from a Houston jail to the federal medical center at the Butner, North Carolina, prison complex, on the expectation his rehabilitation would take as long as four months. Last month, Hittner scheduled the Stanford Group Co. founder for trial in September based on his expected return to Houston this month.
“However, the court now finds it has no alternative but to grant FMC’s request for an additional four months to continue treating Stanford,’’ Hittner said in a ruling handed down today. “Assuming FMC needs the entire four months to treat Stanford, the court now sets Stanford’s jury trial to commence January 2012.’’
Hittner said if Stanford recovers more quickly and returns to Houston sooner than expected, his trial may be moved up again.
Stanford Denies Wrongdoing
Stanford, 61, denies all wrongdoing in connection with civil and criminal allegations he defrauded investors of more than $7 billion through allegedly bogus certificates of deposit issued by Antigua-based Stanford International Bank Ltd.
Stanford has been incarcerated as a flight risk since his indictment and arrest in June 2009.
Ali Fazel, a lawyer for Stanford, declined to comment on today’s order, citing a ruling by Hittner barring lawyers from publicly discussing the case.
Laura Sweeney, a spokeswoman for the Justice Department, also declined to comment, citing the judge’s gag order.
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).
Tuesday, 21 June 2011
SEC concludes Stanford is guilty
Securities News Network
Monday 20 June 2011
Sir Allen Stanford has not been convicted of any offence. Nor have any regulatory proceedings been concluded against him. Yet the USA's Securities and Exchange Commission has decided that he ran a Ponzi scheme and that "investors" are entitled to certain statutory protections.
A statement issued by the SEC on 15th June says " The Securities and Exchange Commission today concluded that certain individuals who invested money through the Stanford Group Company – a U.S. broker-dealer owned and used by Allen Stanford to perpetrate a massive Ponzi scheme – are entitled to the protections of the Securities Investor Protection Act of 1970 (SIPA)."
The commission does not, in fact, appear to have concluded any formal inquiry. Instead it appears to be relying on a report by a Court Appointed Receiver for the Stanford Group Company that there were a number of companies which “were operated in a highly interconnected fashion, with a core objective of selling” the CDs.
Among other things, the receiver also says that “[c]orporate separateness was not respected within the Stanford empire. ... Money was transferred from entity to entity as needed, irrespective of legitimate business need. Ultimately, all of the fund transfers supported the Ponzi scheme in one way or another, or benefited Allen Stanford personally.”
It is the finality of the wording that causes concern: "the" features strongly, juxtaposed with "Ponzi scheme."
The SEC does - almost - recognise that there has been no finding in any court of competent jurisdiction that there was in fact a Ponzi scheme: indeed, the best it can do is to refer to its early filings: "According to its 2009 complaint, the SEC alleged that Allen Stanford operated a Ponzi scheme in which certain investors were sold certificates of deposit (CDs) issued by Stanford International Bank Ltd. (SIBL) through the Stanford Group Company (SGC). SGC is a SIPC Member."
This is nothing more than an attempt to use its own earlier filings to bolster its current statements.The analysis upon which the SEC bases its current statements can be found (pdf) at http://sec.gov/rules/other/2011/stanford-sipa-analysis.pdf.
The fact remains that Stanford remains not guilty and not subject to any formal finding of impropriety within the regulatory regime. The SEC's actions and the wording it has adopted are tainting the jury pool for the eventual criminal trial, and producing a background which prosecutors will be able to use to great prejudicial effect.
Of course, if there was a ponzi scheme (and that remains uncertain although there are sufficient grounds for suspicion of some kind of impropriety), then victims should be able to use the full weight of the law to protect themselves against loss. But the other side of the coin is that Stanford is entitled to a clean run at a defence.
The SEC, by its choice of language, is seriously undermining that entitlement
Monday 20 June 2011
Sir Allen Stanford has not been convicted of any offence. Nor have any regulatory proceedings been concluded against him. Yet the USA's Securities and Exchange Commission has decided that he ran a Ponzi scheme and that "investors" are entitled to certain statutory protections.
A statement issued by the SEC on 15th June says " The Securities and Exchange Commission today concluded that certain individuals who invested money through the Stanford Group Company – a U.S. broker-dealer owned and used by Allen Stanford to perpetrate a massive Ponzi scheme – are entitled to the protections of the Securities Investor Protection Act of 1970 (SIPA)."
The commission does not, in fact, appear to have concluded any formal inquiry. Instead it appears to be relying on a report by a Court Appointed Receiver for the Stanford Group Company that there were a number of companies which “were operated in a highly interconnected fashion, with a core objective of selling” the CDs.
Among other things, the receiver also says that “[c]orporate separateness was not respected within the Stanford empire. ... Money was transferred from entity to entity as needed, irrespective of legitimate business need. Ultimately, all of the fund transfers supported the Ponzi scheme in one way or another, or benefited Allen Stanford personally.”
It is the finality of the wording that causes concern: "the" features strongly, juxtaposed with "Ponzi scheme."
The SEC does - almost - recognise that there has been no finding in any court of competent jurisdiction that there was in fact a Ponzi scheme: indeed, the best it can do is to refer to its early filings: "According to its 2009 complaint, the SEC alleged that Allen Stanford operated a Ponzi scheme in which certain investors were sold certificates of deposit (CDs) issued by Stanford International Bank Ltd. (SIBL) through the Stanford Group Company (SGC). SGC is a SIPC Member."
This is nothing more than an attempt to use its own earlier filings to bolster its current statements.The analysis upon which the SEC bases its current statements can be found (pdf) at http://sec.gov/rules/other/2011/stanford-sipa-analysis.pdf.
The fact remains that Stanford remains not guilty and not subject to any formal finding of impropriety within the regulatory regime. The SEC's actions and the wording it has adopted are tainting the jury pool for the eventual criminal trial, and producing a background which prosecutors will be able to use to great prejudicial effect.
Of course, if there was a ponzi scheme (and that remains uncertain although there are sufficient grounds for suspicion of some kind of impropriety), then victims should be able to use the full weight of the law to protect themselves against loss. But the other side of the coin is that Stanford is entitled to a clean run at a defence.
The SEC, by its choice of language, is seriously undermining that entitlement
Monday, 20 June 2011
Stanford Receiver Sues Libyan Fund for $55 Million Withdrawn, Lawyer Says
Source:Bloomburg
R. Allen Stanford’s court-appointed receiver sued the Libyan government wealth fund for $55 million he claims the state withdrew from Stanford’s alleged Ponzi scheme before it collapsed in early 2009, according to the receiver’s lawyer.
Ralph S. Janvey, Stanford’s receiver, also won a temporary freeze on some Libyan government bank accounts in the U.S. until a federal judge can determine if the money should be distributed to investors allegedly swindled of more than $7 billion, said Janvey’s lead attorney, Kevin M. Sadler.
“The payments made to the Libyan defendants were fraudulent transfers, using funds which Stanford obtained by fraud from investors who purchased Stanford’s phony CDs even as the Ponzi scheme was beginning to collapse,’’ Sadler said today by e-mail.
Janvey’s suit was filed under seal June 3 in U.S. District Court in Dallas, Sadler said. The lawsuit couldn’t be independently confirmed using the court’s electronic docket.
Stanford, 61, denies all allegations of wrongdoing. He previously said he met with Libyan sovereign-wealth fund officials shortly before the U.S. Securities and Exchange Commission seized his operations on suspicion of fraud in February 2009.
The Libyans withdrew $12 million of their Stanford investment immediately after this meeting, which occurred in Libya “just three weeks before the SEC filed suit,’’ Sadler said in today’s e-mail.
Order to Freeze
Janvey obtained a court order on June 6 freezing $55 million in Libyan assets in U.S. bank accounts, pending a December hearing before U.S. District Judge David Godbey, Sadler said. The judge oversees the SEC’s case against Stanford and several of his companies.
Stanford faces 14 criminal charges that he deceived investors about the safety and oversight of certificates of deposit sold by his Antigua-based Stanford International Bank Ltd. He is in a prison hospital unit in Butner, North Carolina, until he completes rehabilitation from a prescription-drug dependency he acquired in jail.
The former billionaire has been in custody as a flight risk since his indictment in June 2009. His attorneys have asked for a delay in his criminal trial, now scheduled for September in Houston federal court, until he is found competent to assist in his defense.
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, 09-cv-298, U.S. District Court, Northern District of Texas (Dallas).
R. Allen Stanford’s court-appointed receiver sued the Libyan government wealth fund for $55 million he claims the state withdrew from Stanford’s alleged Ponzi scheme before it collapsed in early 2009, according to the receiver’s lawyer.
Ralph S. Janvey, Stanford’s receiver, also won a temporary freeze on some Libyan government bank accounts in the U.S. until a federal judge can determine if the money should be distributed to investors allegedly swindled of more than $7 billion, said Janvey’s lead attorney, Kevin M. Sadler.
“The payments made to the Libyan defendants were fraudulent transfers, using funds which Stanford obtained by fraud from investors who purchased Stanford’s phony CDs even as the Ponzi scheme was beginning to collapse,’’ Sadler said today by e-mail.
Janvey’s suit was filed under seal June 3 in U.S. District Court in Dallas, Sadler said. The lawsuit couldn’t be independently confirmed using the court’s electronic docket.
Stanford, 61, denies all allegations of wrongdoing. He previously said he met with Libyan sovereign-wealth fund officials shortly before the U.S. Securities and Exchange Commission seized his operations on suspicion of fraud in February 2009.
The Libyans withdrew $12 million of their Stanford investment immediately after this meeting, which occurred in Libya “just three weeks before the SEC filed suit,’’ Sadler said in today’s e-mail.
Order to Freeze
Janvey obtained a court order on June 6 freezing $55 million in Libyan assets in U.S. bank accounts, pending a December hearing before U.S. District Judge David Godbey, Sadler said. The judge oversees the SEC’s case against Stanford and several of his companies.
Stanford faces 14 criminal charges that he deceived investors about the safety and oversight of certificates of deposit sold by his Antigua-based Stanford International Bank Ltd. He is in a prison hospital unit in Butner, North Carolina, until he completes rehabilitation from a prescription-drug dependency he acquired in jail.
The former billionaire has been in custody as a flight risk since his indictment in June 2009. His attorneys have asked for a delay in his criminal trial, now scheduled for September in Houston federal court, until he is found competent to assist in his defense.
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, 09-cv-298, U.S. District Court, Northern District of Texas (Dallas).
Compensating Stanford’s Investors
Source: NewYork Times
The Securities and Exchange Commission froze the assets of R. Allen Stanford’s financial empire almost two years ago. But authorities are still figuring out whether investors can get compensated for some of their losses
The S.E.C. is pushing for investors who bought more than $7.2 billion in allegedly bogus certificates of deposit from Mr. Stanford’s Antiguan bank to be treated as brokerage customers by the Securities Investor Protection Corporation. If that happens, clients could get at least some of their money back.
SIPC provides a measure of protection for customers when a broker becomes insolvent, paying up to $500,000 per customer that includes $250,000 in cash. The program, which is not intended to provide insurance against fraud, only covers the brokerage firm’s customers and not those who dealt with an affiliate, like an offshore bank, that is not qualified to participate in the program.
Mr. Stanford’s financial empire included a brokerage firm, called the Stanford Group Company, which promoted the C.D.’s to investors by promising above-market returns. The actual issuer of the C.D.’s, however, was his Antiguan bank, Stanford International Bank. The entity was not a broker-dealer and so it fell outside of the protections afforded by SIPC.
In a letter sent in August 2009 to the trustee appointed to gather assets for Mr. Stanford’s investors, SIPC denied that it was required to provide any coverage because the C.D.’s were bought from the offshore bank, even though the brokerage arm marketed them. The agency explained that the Stanford Group Company was merely an “introducing” broker that was not responsible for maintaining any securities on behalf of customers. As such, the agency was not responsible when the Antiguan bank collapsed and the C.D.’s became worthless.
The S.E.C. took a different position last week. In an analysis of the case , the S.E.C. told SIPC that it was putting form over substance by focusing solely on which of the various entities controlled by Mr. Stanford had issued the C.D.’s. Under the S.E.C.’s rationale, Mr. Stanford ignored those legal niceties and treated the various companies as one source of money for his alleged Ponzi scheme, taking money from each as if it were his personal piggy bank. “Credible evidence shows that Stanford structured the various entities in his financial empire,” according the S.E.C. “for the principal, if not sole, purpose of carrying out a single fraudulent Ponzi scheme.”
The S.E.C. asserted in its analysis that SIPC should cover investors. In effect, the agency said Mr. Stanford effectively stole from customers of the brokerage firm by selling worthless C.D.’s, much like the Ponzi scheme perpetrated by Bernard L. Madoff in which fictitious securities totaling $64 billion were credited to client accounts when it collapsed.
But the S.E.C. also makes it clear that any calculation of victim claims should not be based on the purported value of the C.D.’s reflected on the account statements provided by Stanford International Bank, but instead only the actual amount invested. Not surprisingly, this is the same position taken by the trustee appointed to liquidate Mr. Madoff’s firm, Irving H. Picard, and SIPC in dealing with investors in that Ponzi scheme.
The S.E.C. urged SIPC to initiate a liquidation proceeding like the one undertaken by Mr. Picard, including the appointment of a trustee to weigh claims from investors. This is more than just a request, however, because the S.E.C. has supervisory authority over SIPC. The last line of its analysis was a rather unsubtle hint to compensate investors:
“In a further exercise of its discretion, the Commission has authorized its staff to file in district court an application under Section 11(b) of [Securities Investor Protection Act] to compel SIPC to initiate a liquidation proceeding in the event SIPC refuses to do so.”
If SIPC does liquidate Mr. Stanford’s brokerage operation, not all investors may benefit, as some victims of Mr. Madoff are discovering.
Mr. Picard successfully argued in the federal bankruptcy court that those who withdrew more from their accounts with Mr. Madoff than they invested – the so-called “net winners” – are subject to clawback suits to repay their profits and have no claim for losses. The “net winners” issue was argued before the United States Court of Appeals for the Second Circuit in March, and a decision is likely to come in the near future.
It is not clear whether there were any “net winners” among Mr. Stanford’s investors. But there is a good possibility that some investors closed their accounts and took profits before the scheme collapsed. Any investors who profited on the C.D.’s from the Antiguan bank could face a similar situation to the “net winners” targeted by Mr. Picard.
I expect there to be similar clawback suits filed if SIPC does accede to the S.E.C.’s request. Given how contentious the Mr. Picard’s lawsuits against “net winners” have been, we can expect more of the same if SIPC liquidates Mr. Stanford’s brokerage firm.
The S.E.C.’s announcement had another salutary effect. Just a day before it issued its analysis, Senator David Vitter, Republican of Louisiana, placed a hold on the nominations of two commissioners to the S.E.C. until it announced its position on whether the investors were protected by SIPC.
The hold on the nominations has been removed, and everyone – except perhaps SIPC – is a bit happier. But when Mr. Stanford’s investors will receive some compensation for their losses is still unclear because a liquidation is only the start of the process, as the Madoff case shows.
The Securities and Exchange Commission froze the assets of R. Allen Stanford’s financial empire almost two years ago. But authorities are still figuring out whether investors can get compensated for some of their losses
The S.E.C. is pushing for investors who bought more than $7.2 billion in allegedly bogus certificates of deposit from Mr. Stanford’s Antiguan bank to be treated as brokerage customers by the Securities Investor Protection Corporation. If that happens, clients could get at least some of their money back.
SIPC provides a measure of protection for customers when a broker becomes insolvent, paying up to $500,000 per customer that includes $250,000 in cash. The program, which is not intended to provide insurance against fraud, only covers the brokerage firm’s customers and not those who dealt with an affiliate, like an offshore bank, that is not qualified to participate in the program.
Mr. Stanford’s financial empire included a brokerage firm, called the Stanford Group Company, which promoted the C.D.’s to investors by promising above-market returns. The actual issuer of the C.D.’s, however, was his Antiguan bank, Stanford International Bank. The entity was not a broker-dealer and so it fell outside of the protections afforded by SIPC.
In a letter sent in August 2009 to the trustee appointed to gather assets for Mr. Stanford’s investors, SIPC denied that it was required to provide any coverage because the C.D.’s were bought from the offshore bank, even though the brokerage arm marketed them. The agency explained that the Stanford Group Company was merely an “introducing” broker that was not responsible for maintaining any securities on behalf of customers. As such, the agency was not responsible when the Antiguan bank collapsed and the C.D.’s became worthless.
The S.E.C. took a different position last week. In an analysis of the case , the S.E.C. told SIPC that it was putting form over substance by focusing solely on which of the various entities controlled by Mr. Stanford had issued the C.D.’s. Under the S.E.C.’s rationale, Mr. Stanford ignored those legal niceties and treated the various companies as one source of money for his alleged Ponzi scheme, taking money from each as if it were his personal piggy bank. “Credible evidence shows that Stanford structured the various entities in his financial empire,” according the S.E.C. “for the principal, if not sole, purpose of carrying out a single fraudulent Ponzi scheme.”
The S.E.C. asserted in its analysis that SIPC should cover investors. In effect, the agency said Mr. Stanford effectively stole from customers of the brokerage firm by selling worthless C.D.’s, much like the Ponzi scheme perpetrated by Bernard L. Madoff in which fictitious securities totaling $64 billion were credited to client accounts when it collapsed.
But the S.E.C. also makes it clear that any calculation of victim claims should not be based on the purported value of the C.D.’s reflected on the account statements provided by Stanford International Bank, but instead only the actual amount invested. Not surprisingly, this is the same position taken by the trustee appointed to liquidate Mr. Madoff’s firm, Irving H. Picard, and SIPC in dealing with investors in that Ponzi scheme.
The S.E.C. urged SIPC to initiate a liquidation proceeding like the one undertaken by Mr. Picard, including the appointment of a trustee to weigh claims from investors. This is more than just a request, however, because the S.E.C. has supervisory authority over SIPC. The last line of its analysis was a rather unsubtle hint to compensate investors:
“In a further exercise of its discretion, the Commission has authorized its staff to file in district court an application under Section 11(b) of [Securities Investor Protection Act] to compel SIPC to initiate a liquidation proceeding in the event SIPC refuses to do so.”
If SIPC does liquidate Mr. Stanford’s brokerage operation, not all investors may benefit, as some victims of Mr. Madoff are discovering.
Mr. Picard successfully argued in the federal bankruptcy court that those who withdrew more from their accounts with Mr. Madoff than they invested – the so-called “net winners” – are subject to clawback suits to repay their profits and have no claim for losses. The “net winners” issue was argued before the United States Court of Appeals for the Second Circuit in March, and a decision is likely to come in the near future.
It is not clear whether there were any “net winners” among Mr. Stanford’s investors. But there is a good possibility that some investors closed their accounts and took profits before the scheme collapsed. Any investors who profited on the C.D.’s from the Antiguan bank could face a similar situation to the “net winners” targeted by Mr. Picard.
I expect there to be similar clawback suits filed if SIPC does accede to the S.E.C.’s request. Given how contentious the Mr. Picard’s lawsuits against “net winners” have been, we can expect more of the same if SIPC liquidates Mr. Stanford’s brokerage firm.
The S.E.C.’s announcement had another salutary effect. Just a day before it issued its analysis, Senator David Vitter, Republican of Louisiana, placed a hold on the nominations of two commissioners to the S.E.C. until it announced its position on whether the investors were protected by SIPC.
The hold on the nominations has been removed, and everyone – except perhaps SIPC – is a bit happier. But when Mr. Stanford’s investors will receive some compensation for their losses is still unclear because a liquidation is only the start of the process, as the Madoff case shows.
What and who does SIPC cover?
I do not know how correct the statements here are, but I picked this information off a Spanish blog where someone has been putting questions to Elizabeth Murphy, (secretary of the SEC) and I have translated through Google...hence the broken English. That said, some of information here will probably be of interest. Again, I stress these are not my words and I do not guarantee the statements are correct, but if they are, it clearly states that SIPC will become a Preferential creditor with the receivers and this what I have feared all along.
FAQ:
1.Q. What decided the SEC on June 15?
A.The SEC, in exercising its full authority over the SIPC liquidation ordered start of the QMS.
2.Q. What is SGC?
A. The Stanford Group Company ("SGC") is a broker operating through 29 offices located in U.S. territory, with a single owner: R. Allen Stanford. The brokerage firm was principally engaged in the sale in the United States certificates of deposit ("CDs") issued by the Stanford International Bank Limited ("SIBL"). The Stanford Group Venezuela, Mexico, Peru, Ecuador, and so on. Stanford entities are different from the Casa de Bolsa (SGC) U.S., registered with the SEC and member of SIPC.
3. Q.What does it mean in practice under SIPA liquidation of the SGC?
A.It means that investors with brokerage accounts in the SGC, who bought CDs SIBL through the GSC are included under the umbrella SIPA.
4. Q.What is a brokerage account?
A.It is a brokerage account, through which a broker-dealer is buying or selling securities on behalf of the client. For SIPA coverage, according to the SEC's decision last June 15, it is essential that the potential claimant has opened and maintained a brokerage account at Pershing LLC or JP Morgan Clearing Corporation, through the QMS.
5. Q.What benefit investors receive coverage included under the SIPA?
A.Receive up to $ 500,000 per customer. Only recognized net investment (principal). Excludes interest.
6. Q.What should I do if I am eligible happy to receive this benefit?
A.Wait for instructions from the SEC and / or the SIPC. BEWARE unscrupulous lawyers who want to fish in troubled waters!
7. Q.What should I do if I am eligible to be included within the coverage SIPA?
A.Join Covisal to continue pressuring the US Government in all scenarios. Support Covisal in all its actions and contribute monthly with its operating expenses.
8. Q.How does the payment of this economic relief to the "Distribution Fund" of the Judicial Administration in the U.S.?
A.As I explained in October 2010, economic relief from the SIPC is only a loan against repayment guaranteed by the Heritage of the Receivership. For this reason when the SIPC pays the economic relief to the victims, clients of the QMS, the SIPC will automatically become a preferential creditor of the "Distribution Fund" of the Receivership.
FAQ:
1.Q. What decided the SEC on June 15?
A.The SEC, in exercising its full authority over the SIPC liquidation ordered start of the QMS.
2.Q. What is SGC?
A. The Stanford Group Company ("SGC") is a broker operating through 29 offices located in U.S. territory, with a single owner: R. Allen Stanford. The brokerage firm was principally engaged in the sale in the United States certificates of deposit ("CDs") issued by the Stanford International Bank Limited ("SIBL"). The Stanford Group Venezuela, Mexico, Peru, Ecuador, and so on. Stanford entities are different from the Casa de Bolsa (SGC) U.S., registered with the SEC and member of SIPC.
3. Q.What does it mean in practice under SIPA liquidation of the SGC?
A.It means that investors with brokerage accounts in the SGC, who bought CDs SIBL through the GSC are included under the umbrella SIPA.
4. Q.What is a brokerage account?
A.It is a brokerage account, through which a broker-dealer is buying or selling securities on behalf of the client. For SIPA coverage, according to the SEC's decision last June 15, it is essential that the potential claimant has opened and maintained a brokerage account at Pershing LLC or JP Morgan Clearing Corporation, through the QMS.
5. Q.What benefit investors receive coverage included under the SIPA?
A.Receive up to $ 500,000 per customer. Only recognized net investment (principal). Excludes interest.
6. Q.What should I do if I am eligible happy to receive this benefit?
A.Wait for instructions from the SEC and / or the SIPC. BEWARE unscrupulous lawyers who want to fish in troubled waters!
7. Q.What should I do if I am eligible to be included within the coverage SIPA?
A.Join Covisal to continue pressuring the US Government in all scenarios. Support Covisal in all its actions and contribute monthly with its operating expenses.
8. Q.How does the payment of this economic relief to the "Distribution Fund" of the Judicial Administration in the U.S.?
A.As I explained in October 2010, economic relief from the SIPC is only a loan against repayment guaranteed by the Heritage of the Receivership. For this reason when the SIPC pays the economic relief to the victims, clients of the QMS, the SIPC will automatically become a preferential creditor of the "Distribution Fund" of the Receivership.
Sunday, 19 June 2011
Some (But Not All) Ponzi Scheme Investors Entitled to Protections of SIPA
Source: Forbes (Timothy Spangler)
This week, the Securities and Exchange Commission (SEC) held that certain individuals who invested money through the Stanford Group Company, the US broker-dealer that was owned and used by Allen Stanford in connection with his Ponzi scheme, will be entitled to the protections of the Securities Investor Protection Act of 1970 (SIPA). The SEC alleged that Stanford operated a Ponzi scheme in which certain investors were sold certificates of deposit (CDs) issued by Stanford International Bank Ltd. (SIBL) through the Stanford Group Company (SGC).
The SEC exercised its discretionary authority under SIPA, and requested that the Securities Investor Protection Corporation (SIPC) initiate a court proceeding under SIPA to liquidate the broker-dealer. SGC is a SIPC Member.
The SEC decided that investors with brokerage accounts at SGC, who purchased the CDs through the broker-dealer, qualify for “customer” status under SIPA. The report of the court appointed-receiver for SGC had noted that corporate separateness was not respected by Stanford, and that many of his companies “were operated in a highly interconnected fashion, with a core objective of selling” the CDs.
A SIPA liquidation proceeding will allow investors with accounts at SGC to file claims with a trustee selected by SIPC. The trustee would decide whether the investors have “customer” claims that are protected by the statute. An investor who disagreed with the trustee’s determination could seek court review.
This week, the Securities and Exchange Commission (SEC) held that certain individuals who invested money through the Stanford Group Company, the US broker-dealer that was owned and used by Allen Stanford in connection with his Ponzi scheme, will be entitled to the protections of the Securities Investor Protection Act of 1970 (SIPA). The SEC alleged that Stanford operated a Ponzi scheme in which certain investors were sold certificates of deposit (CDs) issued by Stanford International Bank Ltd. (SIBL) through the Stanford Group Company (SGC).
The SEC exercised its discretionary authority under SIPA, and requested that the Securities Investor Protection Corporation (SIPC) initiate a court proceeding under SIPA to liquidate the broker-dealer. SGC is a SIPC Member.
The SEC decided that investors with brokerage accounts at SGC, who purchased the CDs through the broker-dealer, qualify for “customer” status under SIPA. The report of the court appointed-receiver for SGC had noted that corporate separateness was not respected by Stanford, and that many of his companies “were operated in a highly interconnected fashion, with a core objective of selling” the CDs.
A SIPA liquidation proceeding will allow investors with accounts at SGC to file claims with a trustee selected by SIPC. The trustee would decide whether the investors have “customer” claims that are protected by the statute. An investor who disagreed with the trustee’s determination could seek court review.
Certain Stanford Investors Get Some SEC Support
Source:247wallst.com
It looks like at least some of the investors who were screwed by Stanford may get to recover some assets. This is not meant to be a catch-all recovery nor for all investors, at least not the way we have read into a release from the SEC today. The news release from the Securities and Exchange Commission concluded that “certain individuals who invested money through the Stanford Group Company – a U.S. broker-dealer owned and used by Allen Stanford to perpetrate a massive Ponzi scheme – are entitled to the protections of the Securities Investor Protection Act of 1970 (SIPA).”
Before thinking this encompasses all assets for all customers, that might not be the case. The SEC went on to note, “on the specific facts of this case, investors with brokerage accounts at SGC who purchased the CDs through the broker-dealer qualify for protected “customer” status under SIPA.” This covers Stanford Group Company that was owned by Allen Stanford “to perpetrate a massive Ponzi scheme.”
Today’s news out of the SEC noted that these investors were sold certificates of deposit, or CDs, which were issued by Stanford International Bank Ltd. through the Stanford Group Company, and Stanford Group Company is a SIPC Member.
The SEC determined that customers’ claims should be based on their net investment in the fraudulent CDs used to carry out the Ponzi scheme. A SIPA liquidation proceeding would allow investors with accounts at SGC to file claims with a trustee selected by SIPC. Unfortunately for investors, it appears to be up to the trustee to decide whether investors have customer claims protected by a statute. Those who disagree with the trustee’s determination could seek a court review.
Lastly, the SEC noted, “The Commission has authorized its staff to file an action in federal district court under SIPA to compel SIPC to initiate a liquidation proceeding in the event SIPC does not do so.”
The SEC also provided a massive support document titled ANALYSIS OF SECURITIES INVESTOR PROTECTION ACT COVERAGE FOR STANFORD GROUP COMPANY.
What this translates to certainly does not sound immediately like a full restitution. The analysis in the formal letter from the SEC to SIPC noted that the SEC “is making a formal request to the SIPC Board of Directors to take the necessary steps to institute a SIPA liquidation proceeding of SGC. Should the Board refuse to take such action, the Commission has authorized its Division of Enforcement to bring an action in district court against SIPC to compel the institution of a proceeding to liquidate SGC under SIPA.”
A separate release from SIPC noted, “The Securities Investor Protection Corporation (“SIPC”), which maintains a special reserve fund mandated by Congress to protect the customers of insolvent brokerage firms, said that it will analyze the referral provided today by the U.S. Securities and Exchange Commission (“SEC”) with respect to the Stanford Group Company, operated by Robert Allen Stanford.”
Unfortunately, this is one of those situations that caught many investors off balance and has killed more than a few fortunes. Any and all Stanford investors will want to look far deeper than the amount of coverage we can give to this tragic topic.
It looks like at least some of the investors who were screwed by Stanford may get to recover some assets. This is not meant to be a catch-all recovery nor for all investors, at least not the way we have read into a release from the SEC today. The news release from the Securities and Exchange Commission concluded that “certain individuals who invested money through the Stanford Group Company – a U.S. broker-dealer owned and used by Allen Stanford to perpetrate a massive Ponzi scheme – are entitled to the protections of the Securities Investor Protection Act of 1970 (SIPA).”
Before thinking this encompasses all assets for all customers, that might not be the case. The SEC went on to note, “on the specific facts of this case, investors with brokerage accounts at SGC who purchased the CDs through the broker-dealer qualify for protected “customer” status under SIPA.” This covers Stanford Group Company that was owned by Allen Stanford “to perpetrate a massive Ponzi scheme.”
Today’s news out of the SEC noted that these investors were sold certificates of deposit, or CDs, which were issued by Stanford International Bank Ltd. through the Stanford Group Company, and Stanford Group Company is a SIPC Member.
The SEC determined that customers’ claims should be based on their net investment in the fraudulent CDs used to carry out the Ponzi scheme. A SIPA liquidation proceeding would allow investors with accounts at SGC to file claims with a trustee selected by SIPC. Unfortunately for investors, it appears to be up to the trustee to decide whether investors have customer claims protected by a statute. Those who disagree with the trustee’s determination could seek a court review.
Lastly, the SEC noted, “The Commission has authorized its staff to file an action in federal district court under SIPA to compel SIPC to initiate a liquidation proceeding in the event SIPC does not do so.”
The SEC also provided a massive support document titled ANALYSIS OF SECURITIES INVESTOR PROTECTION ACT COVERAGE FOR STANFORD GROUP COMPANY.
What this translates to certainly does not sound immediately like a full restitution. The analysis in the formal letter from the SEC to SIPC noted that the SEC “is making a formal request to the SIPC Board of Directors to take the necessary steps to institute a SIPA liquidation proceeding of SGC. Should the Board refuse to take such action, the Commission has authorized its Division of Enforcement to bring an action in district court against SIPC to compel the institution of a proceeding to liquidate SGC under SIPA.”
A separate release from SIPC noted, “The Securities Investor Protection Corporation (“SIPC”), which maintains a special reserve fund mandated by Congress to protect the customers of insolvent brokerage firms, said that it will analyze the referral provided today by the U.S. Securities and Exchange Commission (“SEC”) with respect to the Stanford Group Company, operated by Robert Allen Stanford.”
Unfortunately, this is one of those situations that caught many investors off balance and has killed more than a few fortunes. Any and all Stanford investors will want to look far deeper than the amount of coverage we can give to this tragic topic.
Monday, 6 June 2011
Stanford's receiver sues him for $1.8 billion from CD loans
A court-appointed receiver filed suit Friday against jailed financier R. Allen Stanford, asking return of $1.8 billion loaned to him since 1999.
The lawsuit filed in North Texas U.S. District Court claims that across the years, Stanford rarely earned any income outside what he was loaned from Stanford International Bank Ltd.’s certificate of deposit sales. He also never repaid the money, it says.
Stanford was chief executive officer of Stanford Financial Group and its affiliates until early 2009, when the international financial empire came crashing down under the weight of a U.S. Securities and Exchange Commission investigation.
He, four Stanford executives and an Antiguan bank regulator were indicted on multiple charges that they ran or participated in a $7.2 billion Ponzi scheme on CD investors.
The lawsuit says the investors numbers 50,000 in 100 countries. Scores of Mississippians were among them and lost their retirement funds and life savings.
Stanford, who is in jail, is set to go on trial Sept. 12 in Houston, Texas. The others are expected to be tried afterward.
They all pleaded not guilty, except former COO James M. Davis, who pleaded guilty later in 2009 and will testify against them.
The new lawsuit insists that at least since 1999, Stanford’s financial empire was insolvent. It also insists that each payment of CD proceeds to him was “made with actual intent to hinder, delay and defraud” its creditors.
Ralph Janvey, the receiver, said he’s still seeking records from Antigua and Switzerland, where a “secret” account disbursed money to Stanford.
He also says that at the time SIB was placed into receivership in Februrary 2009, the bank was insolvent by more than $6 billion.
“R. Allen Stanford was either unable to repay principal or interest on the loans or never intended to do so,” the lawsuit states.
The lawsuit filed in North Texas U.S. District Court claims that across the years, Stanford rarely earned any income outside what he was loaned from Stanford International Bank Ltd.’s certificate of deposit sales. He also never repaid the money, it says.
Stanford was chief executive officer of Stanford Financial Group and its affiliates until early 2009, when the international financial empire came crashing down under the weight of a U.S. Securities and Exchange Commission investigation.
He, four Stanford executives and an Antiguan bank regulator were indicted on multiple charges that they ran or participated in a $7.2 billion Ponzi scheme on CD investors.
The lawsuit says the investors numbers 50,000 in 100 countries. Scores of Mississippians were among them and lost their retirement funds and life savings.
Stanford, who is in jail, is set to go on trial Sept. 12 in Houston, Texas. The others are expected to be tried afterward.
They all pleaded not guilty, except former COO James M. Davis, who pleaded guilty later in 2009 and will testify against them.
The new lawsuit insists that at least since 1999, Stanford’s financial empire was insolvent. It also insists that each payment of CD proceeds to him was “made with actual intent to hinder, delay and defraud” its creditors.
Ralph Janvey, the receiver, said he’s still seeking records from Antigua and Switzerland, where a “secret” account disbursed money to Stanford.
He also says that at the time SIB was placed into receivership in Februrary 2009, the bank was insolvent by more than $6 billion.
“R. Allen Stanford was either unable to repay principal or interest on the loans or never intended to do so,” the lawsuit states.
Saturday, 4 June 2011
The Stanford Timeline
1985 Robert Allen Stanford starts Guardian International Bank on the Caribbean island of Montserrat with $6 million in seed money from an unknown source.
Mid-1990s Stanford is asked by government officials in Montserrat to leave the country. He relocates the bank to Antigua and names it Stanford International Bank.
1996 Jay Comeaux, Alvaro Trullenque and their investment team leave Merrill Lynch with the Stanford account to start Stanford Group Company in City Plaza.
1998 Stanford begins selling its disputed certificates of deposit.
1999 Stanford Group Company receives a negative annual supervisory review in which the Securities and Exchange Commission finds that some advisers' actions are inconsistent with the investors' intentions.
1999 The Justice Department tells the SEC to stand down in an investigation on Stanford.
2001 The first known complaint regarding Stanford's referral fees is filed with the SEC.
2002 The first known letter from a Stanford insider in Antigua is sent to the SEC detailing the alleged Ponzi scheme.
2003 A complaint is filed with the National Association of Securities Dealers in regards to misleading materials for the CDs.
2006 Regulators require that Stanford modify its CD Disclosure Statement.
2007 NASD fines Stanford $20,000 for failing to "establish and maintain a supervisory system reasonably designed to achieve compliance with applicable securities laws." Later, the Financial Industry Regulatory Agency fines Stanford $10,000 for distributing literature that "failed to disclose a conflict of interest" between advisers and the bank and also for a failure to present "fair and balanced treatment of the risks and potential benefits of a CD investment."
2008 FINRA fines the Stanford Group Company $10,000 for a failure to properly report customer transactions.
2008 FINRA fines Stanford Group $30,000 for a failure to disclose adviser compensation in published research reports.
2008 Alex Dalmady's Duck Tales blog details Stanford's possible Ponzi scheme.
February 2009 Federal regulators storm the Houston offices of Stanford Financial Group and issue a freeze on all of the companies and their associated assets.
March 2009 Ten Louisiana investors who lost millions sue their financial advisers, arguing that the men misrepresented the investment products they sold.
June 2009 Stanford and six others are indicted and jailed on charges the international banking empire was really just a $7 billion Ponzi scheme built on lies, bluster and bribery. If convicted of all charges in the 21-count indictment, Stanford could face as much as 250 years in prison.
July 2009 Stanford and his co-defendants ask for the delay of an August trial, citing the complexity of the case; the government does not oppose the request.
January 2011 A federal judge again postpones the criminal trial because Stanford needs to be weaned off an anti-anxiety drug prescribed for him in prison and undergo more tests to determine his competency. His lawyers seek a two-year delay.
February 2011 Stanford files a lawsuit seeking $7.2 billion in damages, claiming that U.S. prosecutors "undertook illegal tactics" in their investigation. He contends that the federal government used more than $51 million of his assets to pursue the cases against him. One month later, he drops the allegations.
May 2011 The U.S. Department of Justice issues a superceding indictment against Stanford, who now faces a total of 14 counts on conspiracy to commit wire fraud and mail fraud, wire fraud, mail fraud, conspiracy to obstruct an SEC investigation, obstruction of an SEC investigation and conspiracy to commit money laundering. U.S. District Judge David Hittner signs an order setting Stanford's trial for Sept. 12.
Mid-1990s Stanford is asked by government officials in Montserrat to leave the country. He relocates the bank to Antigua and names it Stanford International Bank.
1996 Jay Comeaux, Alvaro Trullenque and their investment team leave Merrill Lynch with the Stanford account to start Stanford Group Company in City Plaza.
1998 Stanford begins selling its disputed certificates of deposit.
1999 Stanford Group Company receives a negative annual supervisory review in which the Securities and Exchange Commission finds that some advisers' actions are inconsistent with the investors' intentions.
1999 The Justice Department tells the SEC to stand down in an investigation on Stanford.
2001 The first known complaint regarding Stanford's referral fees is filed with the SEC.
2002 The first known letter from a Stanford insider in Antigua is sent to the SEC detailing the alleged Ponzi scheme.
2003 A complaint is filed with the National Association of Securities Dealers in regards to misleading materials for the CDs.
2006 Regulators require that Stanford modify its CD Disclosure Statement.
2007 NASD fines Stanford $20,000 for failing to "establish and maintain a supervisory system reasonably designed to achieve compliance with applicable securities laws." Later, the Financial Industry Regulatory Agency fines Stanford $10,000 for distributing literature that "failed to disclose a conflict of interest" between advisers and the bank and also for a failure to present "fair and balanced treatment of the risks and potential benefits of a CD investment."
2008 FINRA fines the Stanford Group Company $10,000 for a failure to properly report customer transactions.
2008 FINRA fines Stanford Group $30,000 for a failure to disclose adviser compensation in published research reports.
2008 Alex Dalmady's Duck Tales blog details Stanford's possible Ponzi scheme.
February 2009 Federal regulators storm the Houston offices of Stanford Financial Group and issue a freeze on all of the companies and their associated assets.
March 2009 Ten Louisiana investors who lost millions sue their financial advisers, arguing that the men misrepresented the investment products they sold.
June 2009 Stanford and six others are indicted and jailed on charges the international banking empire was really just a $7 billion Ponzi scheme built on lies, bluster and bribery. If convicted of all charges in the 21-count indictment, Stanford could face as much as 250 years in prison.
July 2009 Stanford and his co-defendants ask for the delay of an August trial, citing the complexity of the case; the government does not oppose the request.
January 2011 A federal judge again postpones the criminal trial because Stanford needs to be weaned off an anti-anxiety drug prescribed for him in prison and undergo more tests to determine his competency. His lawyers seek a two-year delay.
February 2011 Stanford files a lawsuit seeking $7.2 billion in damages, claiming that U.S. prosecutors "undertook illegal tactics" in their investigation. He contends that the federal government used more than $51 million of his assets to pursue the cases against him. One month later, he drops the allegations.
May 2011 The U.S. Department of Justice issues a superceding indictment against Stanford, who now faces a total of 14 counts on conspiracy to commit wire fraud and mail fraud, wire fraud, mail fraud, conspiracy to obstruct an SEC investigation, obstruction of an SEC investigation and conspiracy to commit money laundering. U.S. District Judge David Hittner signs an order setting Stanford's trial for Sept. 12.
Friday, 27 May 2011
Stanford Investors Sue Former Auditor BDO US for $10.7 Billion Over Fraud
BDO USA LLP and its parent, the ex- auditors of indicted financier R. Allen Stanford’s former company, were sued for $10.7 billion by investors claiming BDO ignored signs of potential fraud.
“Despite the pervasive fraud that infected Stanford Financial Group’s operations, BDO repeatedly issued unqualified audit opinions on its Stanford client’s annual financial statements,” Edward Snyder, a lawyer for Stanford investors, said in a complaint filed yesterday in federal court in Dallas.
Stanford’s companies “needed BDO’s unqualified audit opinions to satisfy securities regulators and to continue recommending” sales of the allegedly bogus certificates of deposit at Stanford International Bank Ltd. in Antigua, the investors said in the complaint.
U.S. Securities and Exchange Commission regulators seized Stanford’s operations in February 2009 on allegations they were involved in a “massive Ponzi scheme” that defrauded investors of more than $7 billion.
“We have yet to be served with the complaint and therefore are unable to comment at this time,” Jerry Walsh, a spokesman for BDO, said in an e-mail. “However, the fact that this complaint was not filed until now -- years after the Stanford fraud came to light and after many other investor complaints were filed -- reflects a transparent understanding that the allegations lack merit.”
Criminal Charges
Stanford, 61, has been incarcerated since June 2009 as a flight risk after he was indicted on parallel criminal fraud charges. He denies the charges and is scheduled for trial in federal court in Houston in September.
In addition to claims that auditors intentionally concealed fraudulent activity, the investors also contend four BDO executives played key roles in a Stanford-sponsored task force that assisted the Antiguan banking authorities in overhauling their banking regulations in the late 1990s, allegedly weakening them in ways that aided Stanford.
The Stanford task force rewrote Antigua’s money-laundering act “to ensure that ‘fraud’ and ‘false accounting’ did not fall under the Act’s prescribed list of violations,” the investors said. After the laws were rewritten in April 1999, the U.S. Treasury Department issued an advisory warning banks to give Antiguan financial transactions “enhanced scrutiny” because of money-laundering concerns, according to the complaint.
‘Speculative Investments’
The investors also accuse BDO auditors of ignoring signs Stanford’s company was operating as an unregistered hedge fund “illegally disguising itself as a bank.” They claim investors were sold hedge fund shares “disguised as CDs,” and that clients’ cash was pooled by Stanford’s company to make “illiquid, speculative investments” instead of the safe, liquid portfolio promised to clients.
“BDO’s cozy relationship with the Stanford Financial Group was steeped in conflicts of interest and required ongoing deception and duplicitous manipulation of the facts to enable the Ponzi scheme to grow exponentially for over a decade,” investors said in the complaint. “The result is the loss of thousands of investors’ life savings.”
The complaint, which seeks to represent all Stanford investors, was filed on behalf of three Texans who lost more than $3.2 million on certificates of deposit issued by Stanford’s Antiguan bank. They seek $10.7 billion in damages from BDO, which is what they calculate Stanford investors worldwide collectively lost on the Antiguan CDs.
The case is Wilkinson v. BDO USA LLP, 3:11-cv-1115, U.S. District Court, Northern District of Texas (Dallas).
“Despite the pervasive fraud that infected Stanford Financial Group’s operations, BDO repeatedly issued unqualified audit opinions on its Stanford client’s annual financial statements,” Edward Snyder, a lawyer for Stanford investors, said in a complaint filed yesterday in federal court in Dallas.
Stanford’s companies “needed BDO’s unqualified audit opinions to satisfy securities regulators and to continue recommending” sales of the allegedly bogus certificates of deposit at Stanford International Bank Ltd. in Antigua, the investors said in the complaint.
U.S. Securities and Exchange Commission regulators seized Stanford’s operations in February 2009 on allegations they were involved in a “massive Ponzi scheme” that defrauded investors of more than $7 billion.
“We have yet to be served with the complaint and therefore are unable to comment at this time,” Jerry Walsh, a spokesman for BDO, said in an e-mail. “However, the fact that this complaint was not filed until now -- years after the Stanford fraud came to light and after many other investor complaints were filed -- reflects a transparent understanding that the allegations lack merit.”
Criminal Charges
Stanford, 61, has been incarcerated since June 2009 as a flight risk after he was indicted on parallel criminal fraud charges. He denies the charges and is scheduled for trial in federal court in Houston in September.
In addition to claims that auditors intentionally concealed fraudulent activity, the investors also contend four BDO executives played key roles in a Stanford-sponsored task force that assisted the Antiguan banking authorities in overhauling their banking regulations in the late 1990s, allegedly weakening them in ways that aided Stanford.
The Stanford task force rewrote Antigua’s money-laundering act “to ensure that ‘fraud’ and ‘false accounting’ did not fall under the Act’s prescribed list of violations,” the investors said. After the laws were rewritten in April 1999, the U.S. Treasury Department issued an advisory warning banks to give Antiguan financial transactions “enhanced scrutiny” because of money-laundering concerns, according to the complaint.
‘Speculative Investments’
The investors also accuse BDO auditors of ignoring signs Stanford’s company was operating as an unregistered hedge fund “illegally disguising itself as a bank.” They claim investors were sold hedge fund shares “disguised as CDs,” and that clients’ cash was pooled by Stanford’s company to make “illiquid, speculative investments” instead of the safe, liquid portfolio promised to clients.
“BDO’s cozy relationship with the Stanford Financial Group was steeped in conflicts of interest and required ongoing deception and duplicitous manipulation of the facts to enable the Ponzi scheme to grow exponentially for over a decade,” investors said in the complaint. “The result is the loss of thousands of investors’ life savings.”
The complaint, which seeks to represent all Stanford investors, was filed on behalf of three Texans who lost more than $3.2 million on certificates of deposit issued by Stanford’s Antiguan bank. They seek $10.7 billion in damages from BDO, which is what they calculate Stanford investors worldwide collectively lost on the Antiguan CDs.
The case is Wilkinson v. BDO USA LLP, 3:11-cv-1115, U.S. District Court, Northern District of Texas (Dallas).
Monday, 16 May 2011
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
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
Sunday, 17 April 2011
Grizzlies Sued Over Stanford Funds; More Money Sought From Memphis Hospitals
The court-appointed receiver for disgraced financier R. Allen Stanford’s empire, along with an official group of Stanford investors, has added another Memphis name to the group of entities they’re suing.
They also want more money from two Memphis entities they’ve already sued.
On Thursday, Stanford receiver Ralph Janvey filed a joint suit against the owners of pro basketball teams the Houston Rockets and the Memphis Grizzlies.
That suit seeks the recovery of almost $1.6 million in allegedly sham CD proceeds from Stanford.
The suit says that investigation is continuing and that the final amount might be higher. It does not break the amount down between the two NBA teams.
Meanwhile, the Stanford Investors Committee filed suit in February against St. Jude Children’s Research Hospital; its fundraising arm, ALSAC; and the Le Bonheur Children’s Hospital Foundation.
That suit sought to recover at least $7.3 million in Stanford funds.
The same day the Grizzlies were sued, an amended complaint was filed against the hospital entities asking for more money.
The “official Stanford Investors Committee” in the amended complaint says it has now identified almost $12 million in Stanford funds paid to the ALSAC-related defendants and at least $1.5 million to Le Bonheur.
All the sides in the ALSAC-related case have met for at least one mediation session. A court form shows the April 7 session was unsuccessful.
They also want more money from two Memphis entities they’ve already sued.
On Thursday, Stanford receiver Ralph Janvey filed a joint suit against the owners of pro basketball teams the Houston Rockets and the Memphis Grizzlies.
That suit seeks the recovery of almost $1.6 million in allegedly sham CD proceeds from Stanford.
The suit says that investigation is continuing and that the final amount might be higher. It does not break the amount down between the two NBA teams.
Meanwhile, the Stanford Investors Committee filed suit in February against St. Jude Children’s Research Hospital; its fundraising arm, ALSAC; and the Le Bonheur Children’s Hospital Foundation.
That suit sought to recover at least $7.3 million in Stanford funds.
The same day the Grizzlies were sued, an amended complaint was filed against the hospital entities asking for more money.
The “official Stanford Investors Committee” in the amended complaint says it has now identified almost $12 million in Stanford funds paid to the ALSAC-related defendants and at least $1.5 million to Le Bonheur.
All the sides in the ALSAC-related case have met for at least one mediation session. A court form shows the April 7 session was unsuccessful.
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.