SEC Probing Stanford Receiver for Keeping $118 Million

By: Mary Thompson and Scott Cohn - CNBC

Investor complaints about the long delays and puny payouts from the receiver in charge of rounding up assets from Allen Stanford's alleged $7 billion ponzi scheme have prompted an SEC investigation of the receiver.

SEC Inspector General David Kotz confirms he is looking into whether the SEC's actions regarding oversight of the receiver has been on the up and up. In a motion filed Monday, attorneys said that of the $119.7 million recovered by the receiver, $118.2 million has gone to expenses and fees, leaving just $1.5 million for investors.

The receiver, Dallas attorney Ralph Janvey, was appointed by a federal judge at the SEC's request, after the agency sued Stanford in 2009. But more than two years later, Janvey has recovered just pennies on the dollar for Stanford investors.

"We did receive a complaint recently about Stanford receivership-related issue," Kotz told CNBC. "We have looked at it and plan to open up an inquiry or investigation with respect to allegations regarding improper conduct of SEC employees."

It is the latest in a series of Stanford-related investigations by Kotz, who earlier found SEC staffers were aware of problems at Stanford as far back as 1997.

The new investigation is apparently the result of a request by a Massachusetts law firm, Kachroo Legal Services, that has been attempting to intervene in the Stanford litigation on behalf of a handful of Stanford investors claiming "malfeasance and waste" in the receivership.

The complaint also alleges an improper relationship between Janvey and the official court-appointed Stanford investors committee, which consists of four attorneys and two individual investors. Rather than looking out for all 28,000 investors, the complaint alleges, the committee is simply generating more fees for the attorneys.

"And the potential compensation to these attorneys is enormous," the complaint says.

Janvey's attorney, Kevin Sadler, tells CNBC in a statement that Janvey has not yet heard from Kotz, "but will respond promptly and appropriately to any such request or inquiry, just as the receiver has responded to numerous requests from other government agencies" since being appointed in February of 2009.

"The allegation of an 'inside deal' between the receiver and the investors committee is patently false and completely irresponsible," the statement adds.

"Through dozens of motions, reports and fee applications filed with the court, as well as hearings held in open court, all of the receiver's activities have been transparent and open to scrutiny by the Court and other interested parties."

But attorney Gaytri Kachroo, who filed the new motion and requested the Inspector General's investigation, notes that the last time the SEC objected to a bill from Janvey was more than a year ago.

Stanford, 61, has denied wrongdoing and claims Janvey and the SEC have been dismantling a legitimate business. He is scheduled to go on trial in January on 14 criminal counts.

The SEC and Stanford

A Securities and Exchange Commission worker gave investors false and misleading information about an alleged Ponzi scheme that could have hindered investigation of a fraud in which he also was a victim, the agency’s watchdog said.

The employee, based at SEC headquarters in Washington, shared non-public information with several investors during the SEC’s investigation and litigation of the case, SEC Inspector General H. David Kotz said in his semi-annual report to Congress released today. The report didn’t identify either the SEC employee or the firm accused of conducting the fraud.

Kotz opened his probe in February after a senior official said the employee had contacted fellow investors and told them that the company was legitimate and that investors “would be receiving considerable sums of money,” according to the report. Some or all of the investors knew the man worked at the SEC and believed he had first-hand knowledge of the investigation, according to the report.

“His conduct not only confused certain investors and gave them a false sense of hope, but it also had the potential to adversely affect an on-going enforcement investigation,” Kotz said in the report. The employee was placed on administrative leave, and Kotz referred the matter for disciplinary action “up to and including dismissal,” according to the report.

The SEC sued the firm on Oct. 6 and won a judgment on Feb. 14, according to the report. Imperia Invest, a Web-based entity with a fictitious Bahamian address, was ordered to pay more than $15 million in a default judgment on Feb. 14 after failing to respond to the SEC’s lawsuit, according to court documents.

Becker

Elsewhere in the report, Kotz summarized the status of other on-going investigations, including one involving former SEC general counsel David M. Becker. Kotz said his office has searched 1.7 million e-mails and is beginning witness interviews to determine whether Becker violated conflict-of-interest rules.

Becker, who re-joined the SEC in 2009 after the Bernard Madoff Ponzi scheme unraveled, has been sued by the trustee liquidating the jailed money manager’s business over profits he inherited from his parents’ Madoff account. Becker helped set SEC policy stemming from the case before leaving in February.

The inspector general’s staff has met with congressional investigators on the Becker probe and plans to issue findings before Sept. 30, according to the report.

Pornography

The report also details new cases of agency employees and contractors viewing pornography on SEC computers, following reports last year that 30 workers had improperly used agency computers for that purpose in the preceding five years.

An accountant based at the agency’s Washington headquarters “successfully accessed numerous sexually explicit photographs from his SEC computer, including graphic depictions of sexual acts” -- often during normal work hours, according to the report. Managers recommended that he be fired, the report said.

Two Washington-based attorneys were also accused of accessing pornography at work. One of them resigned, according to the report, and management recommended that the other -- who used an SEC computer to access “inappropriate images of partially or fully nude women” -- be fired.

In another case, a contractor was fired and escorted from the building after admitting he had been viewing pornography on his SEC computer for at least a year, even as he’d received computer training and notices that such behaviour was banned.

SEC Chairman Mary Schapiro said last year that she was “angry and frustrated that a very few individuals have demonstrated that they are willing to place the credibility of the SEC at risk.”

John Nester, an SEC spokesman, declined to comment on the inspector general’s investigations.

“The Stanford Ponzi Scheme: Lessons for Protecting Investors from the Next Securities Fraud"

Friday, May 13, 2011 10:00 AM in 2128 Rayburn HOB
Oversight and Investigations


Click here for the Archived Webcast of this hearing.

WITNESS LIST

Panel I

Mr. H. David Kotz, Inspector General, Office of the Inspector General, U.S. Securities and Exchange Commission

Mr. Robert Khuzami, Director, Division of Enforcement, U.S. Securities and Exchange Commission

Mr. Carlo di Florio, Director, Office of Compliance Inspections and Examinations, U.S. Securities and Exchange Commission

Mr. Richard Ketchum, Chief Executive Officer, Financial Industry Regulatory Authority


Panel II

Ms. Julie Preuitt, Assistant Regional Director, U.S. Securities and Exchange Commission Fort Worth Regional Office

Mr. Charles Rawl, former employee Stanford Group Company

Mr. Stanford Kauffman, victim of the Stanford fraud

***********

Submit a Question for YourWitness

UPDATE 1-FBI probing ex-SEC official on Stanford matter

* FBI, U.S. attorney probing ex-SEC official Barasch

* Barasch gave legal advice to Stanford after leaving SEC

* Republicans critical of SEC's failures on Stanford (Rewrites throughout; adds comments from SEC, lawmaker)

Federal criminal authorities are investigating whether a former U.S. securities regulator inappropriately represented alleged fraudster Allen Stanford after he left the agency in 2005.

Spencer Barasch, former head of enforcement for the U.S. Securities and Exchange Commission in Fort Worth, Texas, is being probed by the U.S. Attorney's Office and Federal Bureau of Investigation, SEC enforcement director Robert Khuzami and SEC Inspector General David Kotz told lawmakers on Friday.

The criminal probe follows SEC internal findings that Barasch made numerous requests after he left the SEC to represent Stanford and was turned down each time.

Barasch persisted in his requests even though he directly dealt with Stanford matters while at the SEC and was partly responsible for ignoring repeated red flags SEC examiners raised about Stanford as early as 1997, Kotz found in a 2010 report. He later eventually did provide some legal counsel to Stanford in 2006, the report found.

"The rules clearly prohibited [Barasch] from ... in my view, representing Mr. Stanford," Khuzami told a House Financial Services oversight subcommittee on Friday. "We made a referral to criminal authorities."

In addition, Kotz and Khuzami said they had also referred the matter for investigation to the Texas and Washington, D.C. bars.

Republican lawmakers called the hearing to investigate why it took the SEC so long to probe Stanford, a Texas financier, despite repeated attempts by SEC examiners to bring the matter to the enforcement division's attention.

The agency finally filed civil charges against Stanford in February 2009. Stanford was arrested in June 2009 and criminally charged with fraud in connection with a $7 billion scheme linked to certificates of deposit issued by his Antigua-based banking company. Stanford has denied any wrongdoing.

REVOLVING DOOR

After leaving the SEC, Barasch became a partner at law firm Andrews Kurth. In response to an inquiry from Reuters earlier this week, Andrews Kurth Managing Partner Bob Jewell said Barasch had not done anything wrong.

"We disagree with the characterization of Mr. Barasch's involvement put forth by the Inspector General in his report last year," he said. "We believe he acted properly during his contacts with the Stanford Financial Group and the Securities and Exchange Commission. He did not violate conflicts of interest."

The testimony about Barasch came on the same day the Project on Government Oversight, a government watchdog group, issued a report about the "revolving door" at the SEC. It found that 219 former officials at the SEC have left since 2006 to help clients with business before the agency. [ID:nN12129379].

Federal laws place certain restrictions on many SEC and other government employees once they return to the private sector. In addition to a one-year cooling off period, they are generally prohibited from representing a client before a government agency on any matter in which they were personally and substantially involved.

Some lawmakers say stricter policies are needed.

Republican Randy Neugebauer, the chairman of the panel, claimed Barasch represented a client before the SEC in a legal matter as recently as last Friday.

"One of the things that hopefully comes out of this is there are some tighter rules," he said. "It is obviously very alarming." (Reporting by Sarah N. Lynch; editing by Tim Dobbyn and Andre Grenon)

SEC to Release Findings on Stanford Investors SIPC Eligibility

The U.S. Securities and Exchange Commission, criticized for missing R. Allen Stanford's alleged $7 billion fraud, said it will decide "in the near future" whether victims should collect federal brokerage insurance.

The SEC has devoted "substantial time and effort" to determine whether the Securities Investor Protection Corp. erred in denying investors coverage, Robert Khuzami, the enforcement director, and Carlo di Florio, chief of inspections, said in prepared remarks for a hearing today of the House Financial Services Committee.

Investors, lawmakers and the SEC's inspector general have faulted the agency for ignoring warnings from its own examiners as far back as 1997. Stanford, 61, was indicted in June 2009 on 21 criminal charges as he was accused of misleading investors about the safety and oversight of certificates of deposit issued by his Antigua-based Stanford International Bank Ltd. Stanford denies the allegations.

Julie Preuitt, an SEC employee who worked on an examination of Stanford's business in 1997, said she was reprimanded after alerting supervisors to possible fraud and pushing for a more thorough investigation.

"I paid a heavy price for complaining," Preuitt said in prepared testimony. "At times I was not only ignored, but was actively rebuffed in my attempts to perform at a fully functioning level."

Inspector General H. David Kotz recommended in a report last year that the SEC consider taking disciplinary action against two managers in the Fort Worth, Texas, office who punished Preuitt.

According to Preuitt, that hasn't happened.

"The commission has failed to discipline anyone, 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," Preuitt said.

House Republicans to dissect SEC's Stanford failure

SEC to say numerous improvements have been made

* Republicans expected to question SEC competence

* SEC near recommendation on SIPC coverage for victims

U.S. securities regulators will argue they have mended their ways at a congressional hearing Friday into the decade-long failure to investigate Texas financier Allen Stanford's alleged Ponzi scheme.

Republicans are expected to demand answers as to why it took the Securities and Exchange Commission so long to probe Stanford despite repeated attempts by SEC examiners to bring the matter to the enforcement division's attention.

The hearing before the House Financial Services oversight subcommittee could fuel Republican calls to take an ax to the SEC's 2012 budget request.

The SEC says it needs a 16 percent budget increase to boost enforcement efforts and to carry out its new responsibilities under the Dodd-Frank law.

The SEC filed civil charges against Stanford in February 2009. He was then arrested in June 2009 and criminally charged with fraud in connection with a $7 billion scheme linked to certificates of deposit issued by his Antigua-based banking company.

Stanford, who has denied any wrongdoing, is scheduled to go on trial in September.

His arrest came the same month as the sentencing of epic swindler Bernard Madoff, whose Ponzi scheme went undetected for years by the SEC despite tips and the suspicions of some agency staffers.

A Ponzi scheme is one in which money from new investors is used to pay out early investors.

Witnesses at Friday's hearing will include SEC Enforcement Director Robert Khuzami, examinations and inspections director Carlo di Florio, and an SEC employee who repeatedly warned about Stanford and was punished after she complained about watered-down examinations.

Also due to appear is SEC Inspector General David Kotz, who issued a report in 2010 faulting the SEC's enforcement staff for repeatedly failing to investigate Stanford.

He laid out numerous recommendations to improve SEC enforcement and examinations, all of which Kotz will tell lawmakers on Friday "have been implemented and closed to our satisfaction," according to prepared testimony posted on the House panel's website.

Khuzami and di Florio will express deep regret that the SEC failed to act more quickly. "More remains to be done, but...we have made great strides to put in place the people and structures to prevent another occurrence of Stanford-type problems."

Republicans are expected to ask why no one has been disciplined at the SEC over the Stanford matter, and why the victims of the alleged scheme are still fighting to get the Securities Investor Protection Corp to cover their claims.

Khuzami and di Florio's prepared testimony says the SEC is close to finalizing a recommendation to SIPC on whether the victims' claims should be covered.

Allen Stanford Investor Suit Should Be Dismissed, SEC Says

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

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

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

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

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

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

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

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

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

The investor case is Robert Juan Dartez LLC v. U.S., 3:11- cv-0602, U.S. District Court, Northern District of Texas (Dallas). The criminal case is U.S. v. Stanford, 09-cr-342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank, 09cv298, U.S. District Court, Northern District of Texas (Dallas).

Letter to the editor HOUSTON CHRONICLE

March 14, 2011, 9:27PM

Agencies failed

It has been more than two years since 1,290 Texans lost their life savings in the R. Allen Stanford debacle. Many of the victims were teachers, nurses and firefighters, and these losses reflect most, if not all, of the retirement funds they accumulated over many years of hard work. These Texans relied on the Securities Exchange Commission (SEC) to uphold its federal mandate to protect investors, and despite numerous warnings about Stanford Financial over several years, the SEC failed to act on behalf of investors.

In 2010, SEC Inspector General David Kotz revealed the SEC was aware as early as 1997 that Stanford investors’ funds were in jeopardy of being stolen. It wasn’t until 2004 — seven years after the SEC first became aware of problems at Stanford — that it opened an official investigation. By the time the SEC took action in this case, it was too late for the Stanford victims who had lost virtually everything.

To make matters worse, the Stanford investors were customers of Stanford Group Co. (SGC), a broker-dealer that was a member of the Securities Investor Protection Corp.(SIPC). SIPC allowed SGC to use its seal for brochures, promotional materials and correspondence to give investors additional confidence. “Member SIPC” was adorned on its correspondences to investors, yet to date SIPC, which is under SEC authority, has refused to provide any remedy for Stanford victims. Customers of the Stanford broker dealer have been denied coverage, despite previous cases where investors in similar situations were covered. Skip Swingle, a victim of SGC, aptly warned, “I don’t think it’s just Stanford victims that should be concerned about what’s going on, but everybody.”

On Monday I sent a letter to SEC Chairman Mary Schapiro asking again for an expedited review of this issue. No one can restore all that these victims lost. We cannot replace the trust that was violated, nor can we say that this fraud won’t happen again. What the SEC and SIPC can and should do is live up to the mandate of encouraging investment by establishing customer confidence. If they do not, brokerage firms across the country might reconsider the placement of the SIPC seal, and investors will see it as a symbol of caution, not protection.

— U.S. REP. JOHN CULBERSON,
7th Congressional District of Texas

SEC Chairwoman Under Fire Over Ethics Issues

The Securities and Exchange Commission took a beating two years ago for failing to detect Bernard L. Madoff’s multibillion-dollar Ponzi scheme during the decades that he ran it.

Now, its chairwoman is coming under Congressional fire for hiring as the S.E.C.’s general counsel someone with a Madoff financial interest — David M. Becker, who participated in matters involving how the scheme’s victims would be compensated.

The revelations about Mr. Becker’s role have raised fresh questions about ethical standards and practices at the agency, where Mary L. Schapiro was brought in as chairwoman two years ago with a mandate to strengthen its enforcement unit. Ms. Schapiro will appear before Congress on Thursday to discuss the matter. Questions about Mr. Becker arose last month after Irving H. Picard, the trustee overseeing the Madoff case, sued him and two of his brothers to recover $1.5 million of the $2 million they had inherited in 2004 from a Madoff investment by their late mother. Mr. Becker’s financial ties to Madoff had not been publicly disclosed until that suit.

Mr. Becker said that he advised Ms. Schapiro and the chief ethics officer of his financial interest in a Madoff investment account, “either shortly before or after” joining the agency in February 2009.

Last Friday, H. David Kotz, the agency’s inspector general, announced that he would investigate the potential conflicts in Mr. Becker’s role as a Madoff recipient who was also the S.E.C.’s general counsel and senior policy director involved in decisions relating to the Ponzi scheme. Ms. Schapiro requested the review, a commission spokesman said.

Lawmakers have also asked Ms. Schapiro for details of her discussions with Mr. Becker about his Madoff account when she hired him in 2009. Ms. Schapiro missed a deadline on Monday for those responses. An S.E.C. spokesman said Ms. Schapiro declined to comment on Tuesday.

“One of the things the S.E.C. does is hold companies to a very high standard with regards to transparency and disclosure,” said Representative Randy Neugebauer, Republican of Texas, who is one of four Republican lawmakers asking Ms. Schapiro about her dealings with Mr. Becker and his disclosures. “We think it’s important that the same integrity exists within the S.E.C., ensuring that people working there do not have conflicts of interest and that here is a process to vet those issues and make sure they are taken care of in a way that gives confidence.”

Perhaps the most significant Madoff matter involving Mr. Becker is a proposed reversal of the agency’s recommendation on how to compensate victims of the scheme, according to two people briefed on the S.E.C.’s discussions who asked not to be identified because they were not authorized to discuss the matter. While the agency had agreed on a deal that would return to investors only the money they had put into their Madoff accounts, Mr. Becker argued that the commission should change its stance to allow victims to keep some of the gains their investments had generated, since the investment would have grown somewhat over time even in a low-interest account. The Becker family would benefit from this approach.

Mr. Becker did not return a call for comment.

In correspondence with lawmakers late last month, Mr. Becker also said that he alerted the ethics office about his family’s Madoff investment again that May after he received a letter from a number of law firms representing Madoff victims asking that the commission change its proposed compensation formula. Among the issues are whether Madoff investors who withdrew money before the fraud was exposed must return some of their proceeds — and if so, how much — to other investors.

“I recognized that it was conceivable that this issue could affect my financial interests because the issue could affect the trustee’s decision to bring clawback actions against persons like me,” Mr. Becker wrote in response to lawmakers. The ethics officer approved his participation, he said. That officer reported directly to Mr. Becker and spent only 25 minutes reviewing the matter, according to Congressional staff members briefed on the discussions who requested anonymity because they also were not authorized to discuss the matter publicly.

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

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

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

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

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

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

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Feds probe banker Allen Stanford's ties to Congress

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

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



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


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

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

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

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

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


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


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

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

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

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

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SEC's corruption allowed Stanford's fraud.


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

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

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

Read more here...


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DOJ Halted SEC's Investigation Into Stanford Financial


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

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

Read more here.


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Memorable phrases to never forget


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


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


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


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


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


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


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


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


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


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

Angry Investors Threaten Suit

Plaintiffs Claim Regulators Ignored Warnings of Fraud

By BILL LODGE
Advocate Staff Writer

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Whistleblowers ignored?

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

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

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

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

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

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

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

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

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

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

Investors sue government

Breaking News Alerts
Plaintiffs claim regulators ignored warnings of fraud

By BILL LODGE
Advocate Staff Writer

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

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

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

“We’ve waited for the last two years for our Congress people and senators to help us,” said Graham. “It’s an absolute joke.”

Graham already is a plaintiff in a civil lawsuit against the people who marketed Stanford’s worthless certificates of deposit and other investment vehicles in Louisiana.

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

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

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

A Ponzi is an illegal investment scheme that involves few, if any, actual investments. Early investors are paid dividends described by Ponzi operators as profits. The money actually comes from later investors. The scheme collapses when promoters can no longer coax money from newly targeted victims.

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

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

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

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

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

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

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

Whistleblowers ignored?

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

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

“Every tool, every resource, and every person (in the SEC) has to be brought to bear in the fight against white-collar crime,” Markopolos testified. “Government has coddled, accepted and ignored white-collar crime for too long.”

Markopolos added: “It is time the nation woke up and recognized that it’s not the armed robbers or drug dealers who cause us the most economic harm.

“It’s the white-collar criminals living in the most expensive homes and who have the most impressive resumes who harm us the most,” Markopolos told members of Congress. “They steal our pensions, bankrupt our companies and destroy thousands of jobs, ruining countless lives.”

Last year, SEC Inspector General David Kotz reported that commission officials repeatedly failed to pursue whistleblower allegations between 1997 and 2005 that Stanford was defrauding his investors. During that same time, Kotz reported, examiners in the SEC’s Fort Worth office called for investigation of Stanford at least three times.

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

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

“We don’t think the idea of pursuing a suit against the SEC has much merit to it,” Preis said. “The chances of ever collecting from the United States government are slim to none.”

Katchroo said she believes ordinary people can fight City Hall and even collect damages from the federal government in the Stanford and Madoff tragedies.

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

The SEC won’t talk about Kachroo’s efforts in either case.

“Decline comment on both,” e-mailed SEC spokesman John J. Nester.

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

SEC Did Nothing to Stop Stanford Ponzi Scheme for Years

Newly released documents detail 12 years of fits and starts at the Securities and Exchange Commission as financier Allen Stanford was allegedly running a global Ponzi scheme.

At one point, an SEC official laments in an e-mail, "Before I retire, the Commission will be trying to explain why it did nothing." The e-mail from Fort Worth, Texas, Regional Office Assistant Director Julie Preuitt was written in 2004. The agency did not move in on Stanford until 2009.

The documents are exhibits in a scathing report issued in March by SEC Inspector General H. David Kotz. His investigation found SEC staffers were aware of potential problems at the Stanford Financial Group as far back as 1997, but that the SEC's Enforcement Division repeatedly declined to take action. The agency released the exhibits Tuesday after repeated requests by CNBC under the Freedom of Information Act.

Kotz's investigation also found the SEC's former enforcement chief in Fort Worth, Spencer Barasch, repeatedly sought to represent Stanford after leaving the agency, even after being told by the SEC's ethics office that he could not.

The exhibits show Allen Stanford himself pushed for Barasch's hiring. With SEC investigators bearing down on the company in 2006, Stanford wrote in an e-mail to Chief Financial Officer James Davis and General Counsel Mauricio Alvarado, "The former SEC Dallas lawyer we spoke about in St. Croix. Get him on board asap."

SEC officials blocked Barasch from representing Stanford, but the documents show Barasch billed Stanford for work done in 2006. He sought to represent Stanford again after the SEC lawsuit in 2009, but officials again ruled he had a conflict of interest. According to a transcript released Tuesday, Kotz asked Barasch about the 2009 request, and Barasch replied, "Every lawyer in Texas and beyond is going to get rich over this case. Okay? And I hated being on the sidelines."

Barasch, who has not been charged with wrongdoing, has not responded to previous requests for a comment about any role he may have played in the Stanford affair.

The documents show Allen Stanford's attempts to exert his influence may have extended beyond the SEC. In a 2004 e-mail exchange with the subject "Stanford — Call to Federal Reserve," SEC officials contemplate the fact that someone at Stanford — the name in the e-mail is redacted — had contacted someone at the Federal Reserve, whose name is also redacted.

The SEC staffers conclude there is nothing they can do about the development, which leads Assistant Regional Director Preuitt to write, "I love this stuff. We all are confident that there is illegal activity but no easy way to prove. 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." The e-mail is dated October 25, 2004.

By then, officials in Fort Worth had been looking into issues at Stanford Financial for years. In 1997, examiners found evidence of "possible misrepresentation and misapplication of customer funds," according to one of the newly released documents. The report noted that Stanford himself had made a $19 million cash contribution to the company in 1996, and "We are concerned that the cash contribution may have come from funds invested by customers in (Stanford International Bank)."

The report was referred to the Enforcement Division, which ultimately chose not to pursue the matter. Among those who made the decision: regional enforcement chief Spencer Barasch.

The SEC released the Inspector General's report — minus the exhibits — on April 16, the same day the Commission announced a high-profile fraud suit against Goldman Sachs. That triggered charges the SEC was trying to bury the report amid the publicity surrounding the Goldman Sachs case, but a subsequent report by the Inspector General found no evidence of that.

Allen Stanford is scheduled to go on trial in January on 21 criminal counts.

Did SEC Hide Botched Stanford Probe? I.G. Says Timing Is "Suspicious"

In the style of "Mad" magazine, it's the season of con vs. con at the Securities and Exchange Commission -- only no one's laughing.

Word on the inside is that the Commission covered up -- or at least ignored -- an investigation of billionaire R. Allen Stanford, who is awaiting trial in a Texas jail on 21 criminal charges that his Antiguan bank allegedly sold questionable certificates of deposit with "improbably high" interest rates and was running a Ponzi scheme at the same time.

"They didn't call him 'Agile Allen' for nothing," according to a source familiar with the case.

The SEC apparently wasn't nearly so agile.

A report by SEC Inspector General H. David Kotz claims the SEC was aware Stanford was running a $7 billion Ponzi scheme as far back as 1997, but waited until late 2005 to step in. The Commission filed civil charges in the case in February 2009.

Kotz noted that the Commission filed civil fraud charges against Goldman Sachs last April, on the same day it released his report critical of the Stanford investigation. The timing of the Goldman filing is "suspicious," said Kotz, who went on to suggest that the Goldman charges diverted attention from the report of the botched Stanford probe.

The inspector general said the timing of the two actions in April "strains credulity." Kotz made his suspicions public at a September 22 congressional hearing on the Stanford investigation before Senate Banking Committee.

Republican sources in Washington claimed the SEC made Goldman the poster boy for greed as a cover for the Stanford investigative foul up. These sources also suspect Goldman was sued to help boost support for the new regulatory reforms governing Wall Street's occasionally bad behavior.

Though SEC denies the Goldman announcement was a cover-up of the Stanford probe, Kotz wondered out loud if in fact the timing might have been politically motivated.

Republican speculation aside, Mr. Kotz told the committee that top officials at the SEC's Fort Worth office were "being judged on the numbers of cases they brought, so-called 'stats'," the obvious and easy cases. "Complex cases were disfavored," Mr. Kotz explained, because they were not "slam dunks." Mr. Allen's case is a rat's nest of allegations including, but hardly limited to, the purchase of a Caribbean island. In other words, it didn't add up as a "stat" or "quick hit" case.

Robert Khuzami, director of SEC's Enforcement Division, and Carlo di Florio, director of the Office of Compliance Inspections and Examinations, said they are moving to implement the reforms demanded by Mr. Kotz.

Mr. Khuzami said he was alerting what he called "rank and file" SEC inspectors that quick hits do not drive enforcement. He said the divisions are now coordinating their efforts and stepping up the pace.

So what does it take to make the SEC do the right thing? Among the suggestions by Mr. Khuzami and Mr. di Florio is to expand training programs and modernize the management structure. In addition, they added, it's time to place "seasoned investigative attorneys back on the front lines and improve examiners' risk management techniques." No one on the Senate panel bothered to ask where these "seasoned attorneys" have been hiding.

The Kotz report landed on SEC Commissioner Mary Schapiro's desk in March. The Senate hearing gave the lawmakers a chance to vent their dissatisfaction with the Commission, but it's anyone's guess if substance will come out of the Senate probe. Last year, for example, the House Financial Services Committee held hearings on the $336 billion auction rate securities scandal, but no legislation or regulations followed. When Rep. Barney Frank (D-MA) was asked about this failure, he replied, "The ('08) meltdown got in the way." It now remains to be seen if the Senate Committee can find a clear path to financial reform of the SEC's enforcement process.

The hearing produced notable contradictions. Sen. Richard Shelby (R-Ala), the committee's ranking republican, said the Bernard Madoff $65 billion Ponzi scheme had caught the SEC flatfooted though at least one part of the Commission had been aware of the Stanford case for years. Sen. Shelby was obviously unaware that there had been warnings about Madoff as far back as the late 1990s.

"I believe this should mark the beginning of our review of this troublesome episode," Sen. Shelby said, referring to Mr. Stanford. "We need to know exactly why evidence of this fraud was not more thoroughly pursued."

He added that Mr. Khuzami had brought to light "a colossal failure of the SEC."

Observers wondered why Sen. Shelby was so outraged. "Is he living on another planet?" asked one source. "Is this the first time it crossed his mind that the SEC is maybe a little slow off the mark?"

Another open question: Why was no one fired because of the incompetent handling of the Stanford affair? It seemed a rhetorical question, given that no one was fired in the wake of the Madoff scandal, which was a much larger fraud. Lawmakers also expressed concern that the head of the Fort Worth division later offered to defend Mr. Stanford before the Senate committee.

"It takes time for a culture to change," Mr. Kotz said. "It takes time to trickle down the line."

In the meantime, the investing public will just have to wait on trickle-down ethics to kick in before trust is restored.

Federal authorities are considering whether to prosecute a former securities regulator in Fort Worth who repeatedly quashed investigations of R. Allen

WASHINGTON – Federal authorities are considering whether to prosecute a former securities regulator in Fort Worth who repeatedly quashed investigations of R. Allen Stanford's offshore banking empire.

Securities and Exchange Commission Inspector General David Kotz reported earlier this year that Spencer C. Barasch had “a significant role” in decisions not to formally investigate Stanford, who the SEC has since accused of running an $8 billion Ponzi scheme.

Kotz told lawmakers Wednesday that his office has “had discussions with criminal authorities about whether there would be any criminal action arising because of that.”

Kotz's report, issued earlier this year, also said that Barasch later represented Stanford despite ethics laws against doing so.

Under questioning from Sen. Jim Bunning, R-Ky., Kotz said he'd learned the SEC would ask the State Bar of Texas to investigate Barasch for disciplinary violations.

“If you don't get the Justice Department involved in this, shame on you as the inspector general,” Bunning said. "That, to me, is criminal negligence. And the sooner they get him before a U.S. court, the better I will like it."

Officials at Barasch's law firm, Andrews Kurth, couldn't immediately be reached for comment.

Kotz delivered his testimony during a hearing of the Senate Banking Committee that examined how the SEC's Fort Worth office missed several opportunities to stop Stanford's alleged scheme before it grew larger.

SEC officials said they would implement all of Kotz's recommendations, including increasing coordination between the SEC's examiners and enforcement staff.

The inspector general's report said that SEC examiners in Fort Worth suspected as early as 1997 that Stanford was probably operating a massive Ponzi scheme through certificates of deposit marketed to Americans and investors in other countries.

However, the Fort Worth enforcement staff didn't formally investigate those concerns until 2006, by which time the amount invested in Stanford's CDs had grown much larger.

In Feb. 2009, the SEC accused Stanford and three of his firms of fraud and other securities violations for operating a “massive Ponzi scheme” estimated at $8 billion. The Justice Department also has filed criminal charges against an Antiguan banking regulator who allegedly conspired with Stanford to obstruct SEC investigations over the years.

Rose Romero, the director of the SEC's Fort Worth division, told lawmakers Wednesday that the SEC has notified other Stanford executives and financial advisers “that we intend to recommend fraud charges against them.”