It's a Scandal that Fraudsters Bernie Madoff and Robert Allen Stanford Were Not Shut Down by the SEC

Believe it or not Bernie Madoff’s phony monthly trading reports listed trades on days the market was closed, or at prices that were far off the market or in volumes that simply never existed. Yet, Madoff’s scam continued for 36 years, from 1972 until 2008, as the SEC was incapable of discovering the truth, and Madoff’s clients never read their phoney monthly statements, since through bull and bear markets Madoff always turned in profits that were not real. And shocking as it may seem, the SEC knew that Stanford was a fraud early on in 1998, but chose not to prosecute as the securities he sold were short term notes of a foreign bank supposedly yielding 12% and were not shares of stock. Imagine the stupidity of that pusillanimous decision. What a bunch of wimps!

 Such were the most shocking revelations at a Boston College Conference on the Madoff and Stanford Cases ” The Legacy of Mr. Ponzi,” that the American College of Bankruptcy organized last Friday, at which I was a speaker on the Madoff crimes. I emphasized the lackadaisical performance by the Securities and Exchange Commission as the key absurdity of allowing these crimes to damage so many naive investors who wanted to believe against all past investment history that Madoff’s year-in,year-out returns of 9%-10% and Stanford’s offer of a 12% coupon on his bank’s notes could somehow be a rational expectation by small investors entrusting these two con men with most of their valuable savings. By comparison, Mr. Ponzi was put out of business in a very short time long before there was even an SEC existing. So much for the securities regulatory process where scams are concerned. It is a travesty of justice.

 Clearly, the SEC should have had the smarts and the will to put Madoff and Stanford out of business before they were able to do so much harm. The fact that the SEC was inadequate to the challenge should give legislators the motivation to order a review of the agency’s leadership, manpower, and its statutory powers. It appears that the political connections of Madoff and the political contributions by Stanford may well have dulled or dented the investigations into their chicanery and kept the cops off the beat. Especially, as in the case of Madoff, the recent conviction of 5 employees together with the conviction of Madoff’s brother and other high-level employees reveals clearly the conspiracy pretty well included between 15 and 20 people. Stanford’s behavior involved an offshore bank in the Caribbean and so must not have been seen as so crucial to the SEC. It’s ability to make securities criminal cases is far overshadowed by the Justice Department.

 After 6 years of progress, Irving H. Picard, the Trustee for the Liquidation of Bernard L. Madoff Investments Securities, has been able to pay the innocent Madoff investors back 56% of the money they lost. With any luck in another 155 claims for $6 billion more payments, Picard is hopeful of returning 100% to those legitimate Madoff losers. “ My goal is 100%”, he said before a crowd of over 100 students and bankruptcy experts at Boston College Law School in Newton, Mass. on Friday. He has spent $980 million in legal and administrative fees to collect $9.8 billion so far. By comparison the Stanford fundraising is only about $240 million, while the costs have been $120 million or 50% of receipts. Picard revealed for the first time that fabricated backdated trades for Madoff’s sons(one committed suicide) in Apple common shares that threw off paper profits of $6.5 million suggests that they “should have known” the enterprise was a scam.

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

Where is the Stanford Ponzi loot? This is the man who knows

Victims of the massive Allen Stanford Ponzi scheme got a rare bit of good news Thursday. Some $18 million in Stanford funds that had been parked in Canada was returned to the U.S. for distribution to investors.

 But the payment is tiny in comparison to the $5 billion in actual losses from the scam, and the court-appointed receiver who has spent the past five years searching for Stanford's billions tells CNBC it is unlikely investors will ever recover much because for the most part, "the money is gone."

 "I think about the victims every day," Dallas attorney Ralph Janvey told CNBC in an exclusive interview, his first since being appointed five years ago.

 "They believed what they were told. And I will say publicly I don't think the victims should be blamed for anything," Janvey said. "They made an investment based on what they were told. What they were told was wrong and it was fraud."

 A federal judge placed Stanford's global financial empire in receivership—and under Janvey's control—after the Securities and Exchange Commission filed suit in 2009. The suit accused Stanford of running "a fraud of shocking magnitude" based on bogus certificates of deposit.

 Stanford's brokers sold the CDs—issued by his offshore bank in Antigua and Barbuda—to investors around the world. But a federal jury found in 2012 that most of the funds went to support Stanford's lavish lifestyle. Stanford is serving a 110-year prison sentence, and appealing his conviction on 13 criminal counts. 

Comparisons to Madoff Ponzi scheme

 Since taking over as receiver, Janvey has been searching the world for assets as well as enduring frequent comparisons to the much more successful recovery effort in the Bernard Madoff Ponzi scheme.

 "I don't minimize the Madoff fraud and I don't want to minimize the Madoff tragedy," Janvey said. "But Stanford was much more complicated."

 That is reflected in the fact that while Janvey's counterpart in the Madoff case—trustee Irving Picard—has said investors could eventually recoup all of their principal. Janvey says the best case scenario for Stanford investors is "pennies on the dollar."

 So far, Stanford's 28,000 victims—more than 10 times the number of victims in the Madoff case—have received next to nothing. Janvey received court approval last year to begin making his first distribution to clients. The $55 million being paid out amounts to less than one penny on the dollar.

 To date, Janvey says, he has recovered only about $263 million. But nearly half of that—around $120 million—has been eaten up by expenses including $57 million just to wind down Stanford's global operations including 130 companies and 3,000 employees in 30 countries. Janvey says the money, including fees for him and a team of experts, "had to be spent" because of the complexity of the fraud.

 "Stanford was spending $33 million a month on expenses," Janvey said. "We had to shut that down. It's also going to litigation; with the goal being what we spend is to bring money back into receivership to distribute to the victims."

Who Kept Allen Stanford's Money?

Janvey has filed dozens of lawsuits seeking more than $680 million from banks, law firms, politicians and charities that benefited from Stanford's largess. For the most part, they have been unwilling to give any of the money back.

"We had to sue the Democratic and Republican committees to get back over a million dollars.That shouldn't happen," Janvey said.

It took a federal appeals court ruling last year to get the campaign contributions returned, after the committees challenged Janvey's standing to claw back the money.

"Stanford had no right to give the money for political contributions, and they had no right to give it away," Janvey said. "We have other politicians who still have money who haven't given it to us yet."

They include President Barack Obama's 2008 presidential campaign, which received $4,600, according to court filings, and Senate Minority Leader Mitch McConnell, R-Ky., who received $2,500. Janvey said the amounts are too small to justify the cost of litigation.

"Another example is the University of Miami," Janvey said. "They got $6 million to do a study of fish and coral in Antigua. That did not help the victims. That money should come back to the receivership estate so it can be distributed to the victims."

A university spokeswoman declined to comment.

Stanford's Ponzi scheme: Who was Allen Stanford?

anvey is also a party in suits against five banks that did business with Stanford, alleging they knew or should have known about the fraud.

"They were on notice and they did nothing about it. And they enabled that fraud to go on for years and years and years," he said.

The cases are similar to allegations against Madoff's primary banker—JPMorgan Chase—which earlier this year agreed to pay more than $2 billion to head off criminal charges. But Stanford's banks, HSBC, Societe Generale, Toronto Dominion, Trustmark and Bank of Houston, have all moved to dismiss the allegations. Janvey said the Justice Department should be investigating Stanford's banks the way it did with Madoff's.

"I would encourage the government to look at the banks," Janvey said. "We are here to assist them if they want our assistance."

Further frustrating Janvey's efforts is the fact that the Securities Investor Protection Corporation (SIPC) has refused to provide coverage to Stanford victims—another contrast to the Madoff case, where the SIPC has not only paid victims but also covered the trustee's expenses.

Money hidden offshore?

Stanford's deep political connections as well as rumors—mostly cultivated by him—that he worked as a government informant have led to speculation he may have some money hidden offshore. But Janvey says that is not the case.

"And we've looked. It's one of the things we did in the early days of the receivership. It doesn't exist," he said. "We've traced the money. The money is gone. And that's very frustrating for the victims, I understand that. But the money was gone before we came in."

Janvey says the money that was not redeemed by Stanford investors "went to his spending."

"He had to buy the reputation that he—quote—'earned,' and he used victims' money to get there."

Some $208 million is frozen in Swiss banks, with about two-thirds of the money to go into the receivership controlled by Janvey, and the rest to go to court-appointed liquidators in Antigua. But much of that money is contingent on Stanford's criminal appeal. Stanford, who is representing himself, recently filed a motion from prison asking for another six months to file his initial brief.

Janvey estimates it will take another five years of litigation before he has exhausted his recovery efforts.

Since the scandal broke in 2009, 67 Stanford clients have died.

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

Five years after Stanford scandal, many victims penniless

By: Scott Cohn

Five years after learning they were victims of a $7 billion Ponzi scheme, investors in the Stanford Financial Group say they feel abandoned, even though their losses rival those in the Madoff scam that was revealed two months earlier.

Unlike the Madoff case, in which a court-appointed trustee has said he is well on his way to recovering all of the investors' principal—estimated at $17.5 billion—Stanford victims have recovered less than one penny on the dollar since the Securities and Exchange Commission sued the firm and a court placed it in receivership on Feb. 17, 2009.

"I do have to say the Stanford victims do feel like the stepchildren in the Ponzi world," said Angela Shaw Kogutt, who estimates her family lost $4.5 million in the scam. Shaw heads the Stanford Victims Coalition, which has been trying for years to drum up support in Washington.

Some 28,000 investors—10 times the number of direct investors in the Madoff case—bought certificates of deposit from Stanford International Bank in Antigua, which was owned by Texas financier R. Allen Stanford. Stanford's U.S. sales force had promised the investors—many of them retired oil workers—that the CDs were at least as safe as instruments from a U.S. bank. But a jury later found most of the clients' money financed Stanford's lavish lifestyle instead of the high-grade securities and real estate it was supposed to. 

Stanford, who portrayed himself as a self-made billionaire, exuded the American Dream. He claimed to have built his global financial empire from a family insurance business in his rural hometown of Mexia, Texas. A generous contributor to politicians of all stripes, Stanford effectively took over the financial sector in Antigua while nurturing rumors of his unique connections.

But asked directly by CNBC in 2009 about suggestions he was a government informant, Stanford demurred.

"You talkin' about the CIA?" he asked. "I'm not gonna talk about that."

On the eve of the fifth anniversary of the scandal, Dallas attorney Ralph Janvey, appointed by a federal judge to head the receivership and round up assets for the victims, said he feels the victims' pain.

"Even though my team and I have worked hard and made much progress over the last five years, the process of unwinding the fraud and the pace of recovering money have been frustratingly slow," Janvey wrote in an open letter to "all those affected by the Stanford fraud."

In the Stanford case, progress is relative.

Last April, Janvey won court approval to begin distributing $55 million to some investors. In the letter, he said $25 million has already been distributed, another $5.5 million could be paid this month and another $18 million in Stanford assets from Canada could be distributed this year as well. 

But the rest of the investors' money was either spent by Stanford or is tied up in litigation. Janvey said some $200 million in assets is in Swiss banks and tied up in the criminal forfeiture process. He has sued dozens of people and institutions that allegedly profited from the Ponzi scheme, seeking more than $680 million. The prospects for recovering anything close to that amount, however, are unclear.

"Asset recovery litigation is difficult, lengthy and expensive," Janvey wrote. "The defendants, many of whom have significant resources, are defending the cases aggressively, and many of the favorable rulings in these cases have already been appealed."

Further complicating matters, victims allege: the Justice Department has not been as aggressive in the Stanford case as it has been in the Madoff case.

Even the federal judge overseeing the Stanford receivership, David Godbey in Dallas, made note of the apparent contrast during a status hearing Jan. 16, a week after authorities announced a $2 billion settlement with JPMorgan Chase for its role in the Madoff scandal.

"I read with interest in the media that JPMorgan Chase is paying the Madoff folks a whole bunch of money. I assume our check will follow shortly," Godbey said, according to a transcript of the hearing.

No fewer than five banks—though not JPMorgan Chase—have been sued in the Stanford case for allegedly facilitating the fraud, but there have been no signs of interest from criminal authorities. A spokesman for the Justice Department did not respond to a request for a comment.

The government did prosecute Allen Stanford and several of his top executives. Stanford, 63, is serving a 110-year sentence at a federal penitentiary in Florida. He has appealed his 2012 conviction on 13 criminal counts, but with his assets frozen and having fired his court-appointed attorney, Stanford is representing himself and filing handwritten legal motions from prison. One was filed March 4, 2013 and another on March 12, 2013.

"I or any other American citizen deserve better than this," he wrote in a filing last March. "The presumed innocent part of our constitution is only a myth in America today."

The pending appeal is yet another complication for Stanford's victims, since approximately $300 million he was ordered to forfeit as a result of his conviction cannot be released until the appeals process is complete.

But one of the biggest sources of frustration for the victims is another stark contrast to the Madoff case. 

The Securities Investor Protection Corp. (SIPC), which insures U.S. brokerage accounts, has refused to pay Stanford victims, while qualified Madoff victims are eligible for SIPC's maximum coverage of $500,000 per account.

The SEC sued SIPC in 2012 on behalf of the Stanford investors, arguing they also were entitled to coverage, as Stanford's U.S. brokerage was an SIPC member. But SIPC says its insurance covers only securities, and even if the Stanford CDs are considered securities, they are worthless.

The judge in the case sided with SIPC. A federal appeals panel is considering the SEC's appeal, and victims are anxiously waiting for a ruling.

"I really think the only chance the victims really have to recover something is either years down the road or through SIPC," said Kogutt of the victims' coalition.

Because many of the victims are elderly, there is no time to waste. Since the scandal broke in 2009, 176 of Stanford's investors have died. 

To join the debate click here. 

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

LEGISLATIVE ALERT 11/12

LEGISLATION TO BE INTRODUCED IN HOUSE, HEARINGS SET  BILL ALSO BEING PREPARED IN SENATE!

• Garrett & Maloney to introduce legislation in House. Senator Vitter current lead sponsor in Senate
• House hearings set for 11/21
• Selective grassroots to commence
• 5th Anniversary media needs victims willing to be interviewed by media

Dear NIAP Member & Madoff Investor, 

 Greetings.  I am excited to announce that SIPC legislation is to be introduced later this week or early next followed by Congressional hearings on Thursday, Nov 21. The legislation is to be jointly introduced by Congressman Garrett (NJ) and Congresswoman Carolyn Maloney (NY).  Similar legislation is expected to be introduced shortly in the Senate as well, consistent with the strategy laid out by Congressman Garrett in the last Congress. 

The intention is to have the legislation introduced by approximately 15 co-sponsors, and followed by an extensive outreach effort via Garrett’s and Maloney’s offices, our lobby team and our own grassroots efforts to ramp up sponsorship numbers.

 The specific bill language is still going through final stages, and a bill number and title will be finalized shortly. We will make the bill public as soon as we receive the final version.  As you probably know, it prevents clawback of the innocent, insures SIPC payments to $500,000 based on account statements, and gives the SEC authority over SIPC.

 After hearings, the bill will be moved to a mark-up session in the House Subcommittee on Capital Markets, voted on and moved to the Financial Services Committee.

  Next Steps on Grassroots. We will want to focus our House grassroots efforts on key Financial Services Committee members, as well as other influential House members, particularly those in districts or states with sizeable Madoff and Stanford victim constituents.  Our Senate strategy will focus on Senate members on the Senate Banking Committee and other key Senate members.

  The first wave of Grassroots letters and communications however will go out to those who are sponsoring the legislation at introduction, thanking them for their support and encouraging their reaching out to their colleagues to do the same. 

 Stay Tuned!  In the coming days we will be providing more detailed information, as well as laying out the details for the grassroots outreach.  We will also undertake a rapid fundraising campaign to assist costs of Congressional hearings and grassroots support.

  We look forward to working with all previous and current leaders in this effort as well. 

  Game on!
  Most sincerely,
 Ron Stein, CFP
 President, NIAP

CONTACT INFORMATION:

Victims Needed for Media interviews & Congressional testimony

Volunteers and Funds Needed. Please assist us in whatever way you can!  

Email us at: djmionis@investoraction.org

              rstein@investoraction.org

Call us at: 800-323-9250

www.investoraction.org 

www.fixsipcnow.com

Read More: http://sivg.org.ag/topic233.html 

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

Kachroo Legal Services Stanford Update October 23rd 2013

STANFORD UPDATE OCTOBER 23rd 2013

TO ALL SEC CLIENTS
TO ALL SFA CLIENTS


Dear Stanford Clients:

We write to update you with important information regarding the claim against the SEC and


ZELAYA V. UNITED STATES OF AMERICA

As you may be aware, United States District Court Judge Robert N. Scola recently issued an order granting the Government’s second motion to dismiss the Plaintiffs’ complaint. This ruling comes despite the historic victory previously achieved in surviving the Government’s first motion to dismiss. The result of the order is that the lower court has made a final determination on the entire case and as such KLS is now in a position to appeal the entire case to the United States Court of Appeals for authoritative resolution of all issues.

To that end, KLS has filed a notice of appeal earlier this month, and will submit its full appeal brief in November. KLS will of course keep all clients up to date with developments in the case as they arise, including the approximate timeline of the appeal.


STANFORD FURTHER ACTIONS

In accordance with our previous updates, we would like to make sure that all clients are aware of progress with the Dallas receiver. By now, clients should have received:

1) A notice of Determination
2) A Certification Notice.


If You Have Already Received A Certification Notice

For those of you who have already received a notice directly, it is important to let us know as soon as possible so that we can assist you in processing your claim. Please forward any and all paperwork you have received from the Receiver. Please also sign the attached confirmation in order for us to be able to deal with the Receiver on your behalf directly.


If You Have Not Yet Received A Certification Notice

If you have not yet received a notice, we can check on the current status of your case on your behalf. To enable us to do this, please sign the attached confirmation. Please also be vigilant for any notifications sent to you directly by email as there are strict deadlines to respond.


If You Are Not Yet a Stanford Further Actions (SFA)

Client If you have not yet signed a retainer agreement with KLS, time is running out to submit and process these claims. If you would like us to deal with these claims to the receiver on your behalf, please sign the enclosed authorization form and or contact us with any queries you may have. We can then forward you our standard retainer letter.


SALE OF STANFORD INVESTORS’ CLAIMS

KLS is being solicited by a number of funds that appear to have increased their initial offers to acquire claims from Stanford investors to between 10 and 20 cents on the dollar (i.e. 10-20% of their claimed value). If any of our clients have an interest in pursuing such an offer, please advise us directly so we can facilitate discussions with these funds.

Very truly yours,

Gaytri D. Kachroo
Kachroo Legal Services, P.C.


Read More: http://sivg.org.ag/topic224.html 


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

Receiver files 4th Schedule of Payments to be Made Pursuant to the Interim Distribution Plan

On October 17th, 2013, the Receiver filed his 4th Schedule of distribution payments with the United States District Court for the Northern District of Texas, Dallas Division. The 4th Schedule will be followed by others, each of which will be submitted by the Receiver on a rolling basis as additional responses to Certification Notices are received and processed.

To view a copy of the 4th Schedule, please click here:

http://sivg.org.ag/topic217.html


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

Comparing the Asset Recovery Efforts in the Madoff and Stanford Ponzi Schemes

Posted on April 4, 2012 by hdkotz

In my capacity as Inspector General for the Securities and Exchange Commission (SEC), I uncovered significant failings on the part of the SEC in connection with two monumental Ponzi schemes. My office found that the SEC missed numerous opportunities to uncover Bernie Madoff's $50 billion Ponzi scheme and failed to undertake an adequate investigation with respect to Allen Stanford's $7 billion fraud.

After these frauds were finally revealed, efforts were made in both cases to assist victims in recovering assets. In Madoff, the Securities Investor Protection Corporation (SIPC) appointed Irving H. Picard as a trustee for the liquidation of Bernard L. Madoff Investment Securities LLC with David J. Sheehan of Baker Hostetler, serving as his Chief Counsel. In Stanford, the United States District Court for the Northern District of Texas, Dallas Division appointed Ralph S. Janvey as receiver for the Stanford estate.

By all accounts, Picard and Sheehan have been tremendously successful. According to published reports, since being named trustee, Picard has filed more than 1,000 lawsuits, and recovered about $11 billion of the approximately $17 billion of capital believed to have been lost in the Madoff fraud. On the other hand, Janvey hasn't fared as well for the Stanford victims; he has recovered $217 million, according to recent reports, but has incurred $102 million in fees, making the actual recovery approximately $115 million. In October 2011, the U.S. District Judge in the Stanford cases stated that he thought Janvey may need to stop searching and "stand down." Janvey has been criticized by Stanford investors for his high fees, not giving them updates and the "glacial" speed of the process.

How is it that one recovery effort has been so much more fruitful than the other? Janvey defends his work saying that the recovery process was difficult because the assets were scattered across dozens of countries but Picard and Sheehan successfully found many assets in foreign countries on behalf of Madoff investors.

Perhaps the process works better through a trustee rather than a receiver or perhaps Picard and Sheehan have just been more aggressive and effective in convincing investors to settle rather than litigate. Without knowing all the facts, it is not fair to conclude anything definitive about why Madoff investors are in such a better position than Stanford ones. But we can say for sure, that the process of recovering assets can be a very difficult one, and Picard and Sheehan deserve significant credit for their successes. When Bernie Madoff first confessed, it was generally thought that investors would receive pennies on the dollar for their losses, if anything at all. When Picard and Sheehan are finished, they may end up being much closer to whole than anyone would have predicted.

One Stanford Client Lost $20 Million, Ex-Executive Tells Jurors at Trial

By Andrew Harris - Jan 27, 2012
Bloomberg

A former Stanford Group Co. executive told a jury that one client of R. Allen Stanford’s securities brokerage lost at least $20 million before the business was closed by U.S. regulators.

Jason Green, who led Stanford Group’s private-client group, offered the figure while being cross-examined by the defense on the fifth day of Stanford’s investor fraud trial in federal court in Houston.

Stanford’s lawyers have said that customers who bought the certificates of deposit issued by Antigua-based Stanford International Bank Ltd. and sold by the brokerage were able to withdraw every penny of their money until the Securities and Exchange Commission sued in February 2009.

Asked by defense attorney Ali Fazel if anybody had not gotten their money back before then, Green replied, “Yes, one person I know of specifically” was denied $20 million. Green later identified the client as Michael Moreno, who had residences in Lafayette, Louisiana, and in Houston.

Stanford, 61, who was indicted in June 2009, is accused of leading a $7 billion investment fraud cantered on CD sales. He is charged with 14 counts including mail fraud, wire fraud and obstruction of an SEC probe. He denies the charges.

Stanford, who suffered a jailhouse beating after his arrest, began rubbing his head during today’s proceeding. The judge offered to let him lie down and follow the trial from another room.

Joined in 1996
Green told the court yesterday that he joined the Stanford Group brokerage in 1996 and stayed until its end.

Moreno, he said, entrusted Stanford’s business with almost $50 million before withdrawing some of those funds to address a tax obligation. The $20 million withdrawal request was made shortly before Stanford stopped allowing clients to redeem CDs before their maturity date to stanch the outflow of capital as the global financial crisis deepened.

He also spoke of his efforts to persuade Stanford and the company’s chief financial officer, James M. Davis, to reassure customers after New York money manager Bernard Madoff’s December 2008 arrest for running the largest investment fraud in U.S. history.

‘Antiguan Madoff’
Green read an e-mail he sent to Stanford and Davis days before the SEC sued, in which he cited news articles that accused “Sir Allen of being the Antiguan Madoff” and said that he and other managers believed that if immediate steps weren’t taken to provide transparency, “we would not have a business to defend.”

On cross-examination today, Fazel asked Green about risk disclosures provided to prospective clients, offering them the opportunity to ask questions and receive answers about the firm’s “financial condition and affairs.”

Fazel asked if there was anything illegal about that.

“Only if people lie about their financial condition and affairs,” Green replied.

“Did you lie?” the lawyer asked.

“No, but I feel like I was lied to,” Green said. “I have a lot of clients, friends, relatives who haven’t gotten a penny back because there was no money.”

Later, Fazel questioned Green about Stanford Group’s ability to conduct financial research. The former executive told the court about a unit in Washington staffed with people he described as “political insiders,” including a retired brigadier general and a surgeon formerly with the U.S. Food and Drug Administration.

‘Politics Into Profit’
Their mission was to analyse legislation and “turn politics into profit,” Green said.

Asked by Fazel what became of that group after the Stanford firm closed, he replied, “I think they went to MF Global (MFGLQ).”

MF Global Holdings Ltd., parent company of the MF Global Inc. commodities brokerage, filed for bankruptcy protection in October. More than $1.2 billion may be missing from its customers’ accounts, trustee James Giddens has said.

The criminal case is U.S. v. Stanford, 09-cr-342, U.S. District Court, Southern District of Texas (Houston). The SEC case against Stanford is Securities and Exchange Commission v. Stanford International Bank, 09-cv-298, U.S. District Court, Northern District of Texas (Dallas).

Stanford Decried Greed in Speech Shown at Trial

By Laurel Brubaker Calkins and Andrew Harris - Jan 26, 2012

R. Allen Stanford, standing trial on allegations he led a $7 billion investment fraud, appeared in an October 2008 video shown to his jury decrying “damn greed” on Wall Street as the financial crisis deepened.

“People are stupid, they’re greedy, they’re lazy, they don’t stick to their core values,” he told a gathering of Stanford Financial Group Co. executives in Miami. “We’re different.”

In the video, shown today in Houston federal court, the financier told his audience that the company was “$5.5 billion more liquid than it should have been.” Four months later, U.S. regulators sued Stanford claiming his businesses were missing billions of dollars in investor money. He was indicted in June 2009.

Charged with mail fraud, wire fraud and obstructing a U.S. Securities and Exchange Commission probe, Stanford, 61, told jurors earlier this week that he isn’t guilty. He faces as long as 20 years in prison if convicted on the most serious charges.

U.S. District Judge David Hittner, who is overseeing Stanford’s case, said the trial, which began Jan. 23, could last six weeks.

Earlier today, the former president of Stanford Group Co.’s private client group testified about a monthly newsletter Stanford drafted for his investors and sent to him for his input in December 2008, the month that New York money manager Bernard Madoff confessed to the biggest Ponzi scheme in U.S. history.

‘Exposure’ to Madoff
“We want our depositors to know that SIBL had no direct or indirect exposure to any of Madoff’s investments” or to subprime debt,’’ said Jason Green, read from the newsletter.

Green also read to the jury the text of an e-mail message he sent to Stanford and to Stanford’s chief financial officer, Jim Davis, less than a week before the SEC filed suit and put him out of business. Davis is the Stanford finance chief who has pleaded guilty to the scheme and is expected to testify against Stanford.

In the e-mail, Green urged the men to hire a major accounting firm as the Stanford business auditor, replacing a sole practitioner in Antigua, to publish a validation of its asset values by their custodians, and to hold a conference call or town meeting with Stanford investors to provide transparency in the “trust-but-verify” post-Madoff era.

‘Antiguan Madoff’
Green in that e-mail referenced news articles accusing “Sir Allen of being the Antiguan Madoff,” adding that he and other managers believed that absent taking the steps he’d outlined, “We would not have a business to defend.”

Asked by prosecutor William Stellmach whether Stanford responded, Green said, “The silence was deafening. No.”

Earlier today, Green testified that Stanford structured commissions at his securities brokerage to reward members of his sales force who sold the most certificates of deposit issued by his Antigua bank.

Those CDs are at the heart of U.S. government charges that Stanford orchestrated an investment fraud scheme.

Brokers who had quarterly sales of at least $1 million in CDs in excess of any funds clients withdrew during the period earned bonuses and commissions twice as big as those paid to employees who didn’t, Green said. Those who fell short of that target were dropped to the lowest compensation rate.

‘Reward Growth’
“You’d only get 50 percent of what you’d make,” Green testified today. He said he understood Stanford designed the compensation system “to reward growth” in CD sales, an objective the financier often emphasized in capital letters in company memos.

Dressed in a charcoal-gray suit and blue shirt, Stanford watched and took notes as Green, a former top aide, answered the prosecutor’s questions and read from documents shared with the jury.

Green told jurors that while he hasn’t been criminally charged for his role in the alleged scheme, he has been sued by former brokerage clients on claims of negligence for recommending the CDs.

Green said the receiver appointed in a lawsuit filed against Stanford by the U.S. Securities and Exchange Commission also sued him, seeking to recover those bonuses and commissions he earned selling the CDs.

‘Taking Some Risk’
“I’m taking some risk in testifying, but I feel that it’s the right thing to do,” Green said under questioning by Stellmach. “That’s why I’m here.”

Stanford first began selling his Caribbean bank CDs to U.S. citizens around the time Green joined the company in 1996. Previously, the CDs were only sold to non-American citizens to limit the Antiguan bank’s exposure to U.S. regulations and oversight, Green said.

Stanford’s CDs paid as much as 4.5 percentage points higher interest than comparable CDs issued by American banks, Green said, based on what employees were told were consistent double- digit earnings by the bank’s “globally diversified portfolio.”

“The bank was earning on average a 6 percent spread on what it was paying clients and earning, so they could afford to pay the clients a higher rate,” the one-time branch manager testified. Advisers were told the bank’s portfolio consisted largely of marketable securities that could be converted to cash “very quickly; that was one of the big selling points of the bank in terms of mitigating risk” to investors’ money, he said.

13 Years
Green said that during his 13 years at Stanford’s company, about 3 percent of the bank’s investment portfolio was managed by analysts in Stanford’s office in Memphis, Tennessee, while the rest was handled by a team of European money managers.

Prosecutors accuse Stanford of skimming more than $1 billion in investor deposits to fund a lavish lifestyle and support a wide array of real estate developments and unrelated companies ranging from regional airlines to newspapers.

The financier is also accused of deceiving employees and investors about the extent to which he personally managed the bank’s investment portfolio. The government claims Stanford and the company’s finance chief managed about 90 percent of the bank’s funds, which prosecutors told jurors Stanford treated “like a personal piggybank.”

Green testified that he would have been concerned to learn that Laura Pendergest Holt, the firm’s chief investment officer, wasn’t overseeing all of Stanford’s investment portfolio as he’s been told by “Mr. Stanford, Mr. Davis, everyone that was affiliated with the bank that was in a position to know.”

“You wanted to know that somebody was managing the managers,” Green said. Pendergest Holt told him “maybe two or three days before the FBI and the receiver shut us down” that she managed just a fraction of the bank’s portfolio.

Regional Teams
Stanford organized brokers into regional teams that competed to sell the most CDs every quarter. Team names ranged from the Miami Money Machine for Stanford’s top producers in South Florida to the Aztec Eagles for his Mexican operation. Prosecutors showed jurors a scorecard that Green said showed sales by these “superstars” were as much as $323 million in 2006, which was 110 percent of their goal.

Green said Stanford clearly ran the company, in his opinion. He recalled an instance where Stanford heatedly objected to a decision made by Davis.

“‘I don’t know who Jim Davis thinks he is,’” Green said he remembered Stanford shouting. “‘This is my company.’ I know that he talked to Mr. Davis about it, and I’m sure he gave him an earful. Mr. Davis wasn’t very nice to me for some time” after the incident.

The criminal case is U.S. v. Stanford, 09-cr-342, U.S. District Court, Southern District of Texas (Houston). The SEC case against Stanford is Securities and Exchange Commission v. Stanford International Bank, 09-cv-298, U.S. District Court, Northern District of Texas (Dallas).

Fate of 7,000 Stanford Ponzi Investors Hangs on Rare SEC Lawsuit

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.’

SEC, SIPC ready to rumble over Ponzi pay-outs

Regulator demands repayment of losses by Stanford investors

By Dan Jamieson
December 18, 2011 6:01 am ET

The securities industry is watching intently as the Securities and Exchange Commission and the Securities Investor Protection Corp. get set to do battle in court over SIPC's refusal to make good on some of the losses suffered by victims of R. Allen Stanford's alleged $7 billion Ponzi scheme.

A lawsuit filed by the SEC last week to force SIPC's hand is an unprecedented legal test of the limits of the commission's power over the government-created and industry-funded entity that protects investors in cases where brokerage firms fail, observers said.

But more than just a legal question is in dispute. Broker-dealers are worried about higher SIPC assessments if Stanford claims are paid out of the non-profit organization's reserve fund.

“It's a scary thought,” David Sobel, general counsel of Abel/Noser Corp., said about higher assessments.

Mr. Sobel, who also is chairman of the National Association of Independent Broker/Dealers Inc., said representatives of small broker-dealers have been actively discussing the ramifications of the case and are looking for ways to aid SIPC's legal fight against the SEC.

SIPC president Steve Harbeck acknowledged that higher assessments might be necessary if SIPC has to cover Stanford victims. The added burden could put its $1.4 billion reserve fund at risk, he said.

That's of concern to the brokerage industry, which is still smarting from the costs of covering victims of the $65 billion Bernard Madoff Ponzi scheme. In 2009, SIPC increased assessments on broker-dealers to 0.25% of net operating revenue, from a flat $150 prior to the Madoff scandal.

The bump-up meant that even small firms faced SIPC bills of several thousand dollars a year.

“It's killing off the small firms,” Mr. Sobel said. “Why should we be paying off for fraud?”

Indeed, SIPC does not protect investors from fraud — only for missing cash and securities held in custody at a failed broker-dealer.

That's why many in the securities industry questioned SIPC's liquidation of the Madoff firm, where it is covering claims based on how much cash investors deposited.

Mr. Harbeck said investors at Bernard L. Madoff Investment Securities LLC were issued statements showing that securities were held at the Madoff brokerage firm, while Stanford investors knew they were buying CDs from an Antiguan bank.

“It's a bright-line rule — if you leave it with a brokerage firm, SIPC will give it back to you,” while in the Stanford case, customers actually held the CDs, he said.

SIFMA SUPPORT
The Securities Industry and Financial Markets Association has been urging SIPC to hang tough on Stanford.

“Crucially, unlike the situation [with Madoff], the purchasers of [Stanford] CDs actually purchased the very security they sought to acquire,” SIFMA said in an August letter to SIPC.

Covering Stanford would be “an unprecedented expansion of SIPC protection to investment fraud losses,” SIFMA added in a statement last week after the SEC filed suit.

In its court filing, the SEC argued that Stanford customers should be covered by SIPC because the fraudulent CDs were sold through the brokerage firm and because Allen Stanford controlled all of the firm's non- brokerage entities.

Even for experts, the distinction between the Madoff and Stanford cases isn't an easy one to make.

“It isn't clear to me why SIPC isn't doing what they normally do,” Thomas Gorman, a former SEC lawyer and a partner at Dorsey & Whitney LLP, said about SIPC's refusal to liquidate the Stanford brokerage firm.

Legal observers were struck by the SEC's tone in essentially pulling rank on both SIPC and the court.

In its court filing, the agency claims that it has sole authority to determine if SIPC should get involved in a case — a determination the SEC says is not subject to judicial review.

The SEC said that disputes over what assets deserve SIPC protection should be handled via the claims process SIPC administers after taking over a failed firm.

SIPC countered that the SEC's move was an “extraordinary example of overreaching.” In its own filing last week, SIPC said the SEC “wants to avoid judicial scrutiny [because it] cannot prevail under any serious analysis of the facts and the law in this case.”

The legal action by the SEC is the first time the agency has invoked its authority to force action by SIPC.

If the court grants the SEC's request, Mr. Harbeck said SIPC would appeal. SEC spokesman John Nester declined to comment.

Legal observers were uncertain how the dispute might play out, given its unprecedented nature.

The legal fight is a marked contrast with what many have viewed as a hands-off policy the SEC historically has taken toward SIPC.

SEC AT FAULT?
A March 2011 report from the SEC's inspector general faulted the agency for not having a formal SIPC oversight process.

But the Stanford case and other major frauds have given the SIPC liquidation process a high profile. The SEC's action in suing SIPC came amidst intense political pressure to cover Stanford victims.

Despite the fight, SIPC and the SEC are working more closely together than ever. In addition to the Lehman Brothers Holdings Inc. and Madoff cases, the SEC and SIPC are now dealing with the MF Global Holdings Ltd. failure.

“We work with those folks every day, and that will continue,” Mr. Harbeck said about the SEC. “We have to compartmentalize that” cooperation from the legal dispute.

Is SIPC afraid of lawsuits in the Stanford case? (Updated)

Source: Loren Steffy (Chron.com)

(Updates with comments from Vitter’s office.)


For years, almost 8,000 investors who lost money in the collapse of Stanford Financial’s U.S. brokerage have been waiting for a decision on whether their losses will be covered by the Securities Investor Protection Corp. Back in June, the Securities and Exchange Commission said that they should. SIPC itself has yet to make a decision, and 18 members of Congress recently gave the insurance fund a Dec. 15 deadline for coming up with an answer.

Now, SIPC apparently is attempting to reach some sort of settlement with the SEC, though the details remain unclear. U.S. Sen. David Vitter, R-La., told the Advocate in Baton Rouge that in earlier discussions with him, SIPC Chairman Orlan Johnson “expressed concern that the organization could be sued in the Stanford matter by financial institutions who contribute to the fund, further delaying the compensation.”

Vitter’s press secretary, Luke Bolar, told me the senator has been working with SIPC and the SEC in hopes of reaching an agreement. SIPC is expected to present a settlement offer to the SEC next week, Bolar said. I haven’t heard back from SIPC’s spokeswoman yet.

The SEC, however, doesn’t have to agree. It has the authority to sue SIPC and force it to comply with the commission’s order in June. Presumably, some sort of agreement would speed any recovery to Stanford’s investors, who have been waiting for almost three years. SIPC already is covering losses for victims of Bernard Madoff’s Ponzi scheme and is planning to cover customers who lost money in the collapse of MF Global. Some of the brokerages that contribute to SIPC may be getting worried that they will be hit with big assessments to cover the payouts.

Unlike Madoff and MF Global, the Stanford case is more complicated. SIPC doesn’t typically cover certificates of deposit, which is what most Stanford investors bought, but the CDs were sold though Stanford’s SIPC-insured brokerage.

Meanwhile, Stanford Financial’s founder, R. Allen Stanford, is scheduled to appear at a hearing later this month to determine if he’s competent to begin his criminal trial, which is set to start in January.

Does SEC Discipline Make Up for Failures in Ponzi Scheme Investigations?

By MICHAEL SMALLBERG

The Washington Post reported on Friday that the Securities and Exchange Commission (SEC) has disciplined eight employees for failing to crack down on Bernard Madoff's multi-billion dollar Ponzi Scheme despite receiving multiple tips indicating that Madoff was cheating investors.

We are pleased to see the SEC finally taking action more than two years after the Office of Inspector General (OIG) issued an exhaustive report detailing the agency's failures since 1992 to follow up on evidence pointing to Madoff’s scheme. But will the discipline be enough to satisfy the agency’s critics and defrauded Madoff investors? And how does it compare with the SEC’s response to other disciplinary recommendations issued by the OIG?

The Post reported that eight employees were subject to disciplinary action that included suspensions, pay cuts, and demotions. A document obtained by the Post showed that the employees included an enforcement manager, a senior officer in the agency’s inspections office, and staff attorneys. An outside law firm, along with the SEC’s head of human resources, had recommended firing one of the employees, but SEC Chairman Mary Schapiro decided that doing so “would harm the agency’s work,” according to an SEC spokesman. That employee received a 30-day suspension along with a reduction in pay and grade.

In its 2009 report, the OIG questioned the performance of 21 of the 56 SEC employees it examined who worked on the Madoff probe. The OIG concluded that “a thorough and competent investigation or examination was never performed” even though the SEC “received more than ample information in the form of detailed and substantive complaints over the years.”

An SEC official recently told Congress that 35 of these employees had left the agency voluntarily, including some who ended up at high-paying jobs in the private sector. Another employee who was a “key participant” in the Madoff probe received a $1,200 cash award that was partly related to his or her work on a follow-up investigation of Madoff. The SEC still has not fired anyone for mistakes related to the Madoff case.

House Oversight and Government Reform Committee Chairman Darrell Issa (R-CA) stated that “[a]fter all the talk about ethics and cleaning up the SEC, the entire Madoff scandal continues to place serious doubt on claims of meaningful progress.”

At a hearing earlier this year, Chairman Schapiro told Congress that the SEC employees who worked on the Madoff case “aren’t bad people. In some cases they were people who were very junior and not adequately trained or supervised.” She also noted that the SEC had to comply with civil service rules in deciding on the appropriate disciplinary action for these employees. In addition to disciplining individual employees, the SEC has also initiated a number of structural reforms to improve its investigation and examination processes in the aftermath of the Madoff debacle.

Earlier this year, POGO sent a letter to Chairman Schapiro raising concerns about the SEC’s recent handling of OIG disciplinary recommendations. Over a roughly two-year period, the OIG recommended disciplinary action for nearly 100 SEC employees, including 17 recommendations for disciplinary action “up to and including dismissal.” However, only 11 employees and contractors were terminated or removed from their contract during this period, according to SEC records provided to Chairman Issa. At least 16 employees resigned rather than facing any disciplinary action.

In addition to the Madoff case, the OIG also reported on the SEC’s failures to crack down on the Ponzi Scheme orchestrated by R. Allen Stanford. While this case may not have received as much media attention as the Madoff debacle, it also exposed serious problems at the SEC, including a failure to follow up on red flags uncovered by the agency’s own examinations staff. In a separate investigation, the OIG found that officials in the SEC’s Fort Worth office mistreated employees who raised concerns about a newly announced program that would have required staffers to waste their time on quick-hit, superficial examinations. (One of these employees, Julie Preuitt, had also raised red flags about Stanford’s scheme as early as 1997.)

Once again, the SEC has dragged its feet in responding to the OIG’s recommendations for disciplinary action stemming from these investigations. At a hearing last fall, SEC Enforcement Director Robert Khuzami told the Senate Banking Committee that the process for considering disciplinary action against the enforcement staff who mishandled the Stanford case was “fully under way.” In response to follow-up questions from the hearing, Rose Romero—one of the officials from the Fort Worth office who was cited by the OIG for taking retaliatory action against her staff—stated that some of the employees who worked on the investigation had actually received an award:

In recognition of their around-the-clock efforts and fortitude in overcoming efforts to obstruct the investigation by Stanford and his cronies, I nominated the attorneys, examiners and managers that completed the investigation for a “Director’s Award.” On my recommendation, Robert Khuzami, Director of the Division of Enforcement, issued the awards on July 1, 2010.

At a hearing earlier this year, it was revealed that a former Enforcement official in the Fort Worth office who did legal work for Stanford after leaving the agency is now the subject of a criminal inquiry by the Department of Justice. But other employees who participated in the bungled investigation have not been disciplined, in many cases because they voluntarily left the SEC.

The SEC also did not discipline Romero or Kimberly Garber, the two officials cited in the OIG report on whistleblower retaliation at the Fort Worth office. The Fort Worth Star-Telegram reported that the SEC declined to take disciplinary action because Garber and Romero had “cleared their moves with human resources,” and HR had no reason to retaliate against anyone. This explanation prompted a scathing letter from Senator Charles Grassley (R-IA), who pointed out that “such a policy would make a mockery of whistleblower protections throughout the government.”

Preuitt told Congress that “right after the report came out that there was retaliation against me, I understand that both the people that retaliated against me received a large bonus,” and that Garber was “put on the executive committee for the national exam program.” Both Romero and Garber stepped down this year without receiving any discipline.

In our letter to Chairman Schapiro earlier this year, we emphasized that it was important for the SEC to hold those who commit misconduct accountable and encourage whistleblowers to step forward:

[T]he SEC should be fostering an internal culture that promotes the detection of waste, fraud, and abuse, protects employees who blow the whistle, and holds employees and contractors fully accountable for their misconduct. Especially at a time when the SEC is encouraging outside whistleblowers to come forward with information on misconduct in the securities industry, it is more important than ever for the SEC to hold wrongdoers accountable within the agency.

Specifically, we recommended that the SEC implement OIG disciplinary recommendations in a timely fashion or explain in the public record why it disagrees with the OIG’s findings; make it a goal to release and post OIG investigative reports that are of public interest or have already been released through FOIA (for instance, the report on whistleblower retaliation at the Fort Worth is still nowhere to be found on the websites of the SEC or OIG); disclose any statutory provisions or agency rules that guide officials in determining what form of disciplinary action to take; and, when utilizing an alternative process for reviewing the OIG’s findings, take every possible step to ensure that the process is fair, transparent, and accountable.

David Becker was the Securities and Exchange Commission's top lawyer, but he could not keep Bernie Madoff away from his own mother

By AL LEWIS

When she died in 2004, she left Mr. Becker and his siblings an estate that included a $2 million Madoff account. His father had made the investment, originally. Didn't his parents ever get a fake statement in the mail and say, "Hey, this is great. Maybe we should show our son, the securities lawyer?"

Mr. Becker's parents died not knowing how the investment would turn out. Mr. Becker's brother liquidated the account in 2005 to pay estate taxes, also not knowing.

Mr. Becker informed his boss, SEC Chairman Mary Schapiro, and the SEC's ethics office, after Mr. Madoff finally confessed to running the world's greatest Ponzi scheme right under the SEC's nose. Oh, he was some character -- taking money from a regulator's mom. But Mr. Becker's colleagues at the SEC told him not to worry about it.

Mr. Becker went right on dealing with Madoff matters, influencing such questions as how much victims should receive in compensation from the Securities Investor Protection Corp. and whether Congress should limit clawback lawsuits in Ponzi schemes.

Nobody said anything about his mom's Madoff loot.

"It simply did not occur to me then that his mother's account, closed years ago, could present a financial conflict of interest," Ms. Schapiro told Congress last week.

This is the sentence that Ms. Schapiro should have used to start off her resignation speech.

Despite her vast regulatory experience and legal training, she doesn't seem to have any idea what happens after a Ponzi scheme implodes: A bankruptcy trustee sues everyone who ever took a fictitious profit so that the money can be divided up fairly among all the victims.

The SEC, which preaches disclosure, never said a word until, inevitably, Mr. Becker was hit with a clawback lawsuit. Turns out $1.5 million of the $2 million in his parents' account were fictitious profits, according to SEC Inspector General David Korz, who has turned the matter over to the Justice Department to see whether criminal conflict-of-interest laws were violated.

"I thought it doubtful that the trustee would institute a clawback action against me," Mr. Becker told Congress last week.

Mr. Becker has already left the SEC. So this is the sentence where he should have begun his announcement to resign from the practice of law. All those Madoff victims, out all that money, and they were never going to knock on his door for the $1.5 million? Hey, stop paying the bank while you're at it, Mr. Becker. Maybe they won't foreclose on your home.

"For those who think I acted in my financial interest, I would point out that I took a pay cut of over 90% to return to the SEC," Mr. Becker told Congress. "I ... forfeited millions of dollars to serve my country."

Cue the John Philip Sousa music here. Mr. Becker should have taken the millions he could have earned in private practice and left the country alone.

The SEC's job is to root out deadly conflicts of interest in America's corporations. But Mr. Becker and Ms. Schapiro couldn't smell them in their own office.

Stanford investors insurance coverage source of internal SEC dispute

Loren Steffy
Chron.com

The Securities and Exchange Commission’s change of heart with regard to the long-suffering investors of Allen Stanford is now a little more clear.

Earlier this week, the SEC’s inspector general released his latest report, this one focusing on potential conflicts of interest involving David Becker, the commission’s former general counsel and senior policy director. Becker was involved in the SEC’s case to liquidate Bernard Madoff’s investment firm under the Securities Investor Protection Act, a 1970s law that created an industry-funded insurance program for investors who lost money through broker fraud. Becker, it was later reported, had inherited some “fictitious profits” from a Madoff account that had belonged to his mother and that was liquidated after her death.

The rules for coverage under SIPA, which is administered through the Securities Investor Protection Corp., are very specific. Becker supported the idea that Madoff investors were covered, but he opposed the idea in the Stanford case, according to the report.

Becker himself took a different approach when he analyzed SIPA coverage issue for investors in the multi-billion Ponzi scheme ofR. Allen Stanford from the approach described above in the Madoff Liquidation. After the SEC brought a civil enforcement action against Stanford and three ofhis companies, the President and CEO of SIPC sent a letter to the receiver appointed for the Stanford matter indicating that, based on the facts as set forth by the receiver, there was no basis for SIPC to initiate a proceeding under SIPA with respect to Stanford investors. Becker testified that he became involved initially in the SEC’s considerations about SIPC coverage with respect to Stanford investors, and his opinion as to the matter “was that SIPA, the statute, did not cover the Stanford situation,” noting that although “it didn’t make sense that it would not cover something like Stanford, but cover Madoff, … the law is the law.” By contrast, in the Madoff Liquidation, Becker considered a variety of approaches for determining net equity in order to, as Becker testified, “take the position which got the most money [to] injured investors consistent with the law.”

Becker’s opposition to SIPC coverage for Stanford investors may be the reason that the SEC appeared to support SIPC’s position that clients of Stanford’s brokerage weren’t covered, even though Stanford’s brokerage, a SIPC member, peddled the bogus certificates of deposit at the heart of the alleged Ponzi scheme.

After Becker left, the SEC changed its mind on the idea of SIPC coverage, saying many of Stanford’s U.S. investors should be covered under the law. SIPC’s board is still considering the SEC’s decisions, and its expected to announce its own decision this month.

Here’s the full inspector general’s report.

Oig-560 Madoff v Stanford Sipc

Ex-McCarter Lawyer a Key Figure in New Madoff Film

Posted by Brian Baxter

Two years ago Gaytri Kachroo was chair of McCarter & English's international practice. She resigned from the firm in July 2009 as a result of conflicts related to several cases she was pursing on her own probing the $20 billion Ponzi scheme perpartrated by Bernard Madoff.

Now, Kachroo can be seen on film relentlessly pursuing that goal in Chasing Madoff, a documentary about Harry Markopolos and his team, known as the Fox Hounds, and their quest to get someone, anyone, to listen to Markopolos's long-held concerns about Bernard L. Madoff Investment Securities.

Kachroo, who serves as an associate producer on the film, began working with Markopolos in 2005 after the two met at a meeting hosted by the U.S. Chamber of Commerce in Cambridge, Mass. The meeting came around the same time that Markopolos, a former options trader turned financial fraud investigator, wrote a 19-page memo to the SEC titled "The World's Largest Hedge Fund is a Fraud."

Kachroo soon joined the Fox Hound team assembled by Markopolos. Other members of the self-appointed financial truth squad—which collected evidence on the Madoff enterprise and used it to implore the SEC to implement necessary regulatory changes—include research analyst Neil Chelo, hedge fund manager Frank Casey, and former financial journalist Michael Ocrant.

Since joining the Markopolos team, Kachroo has helped prepare the whistle-blower for testimony before Congress, advised the Fox Hound on a report compiled by the SEC inspector general that recommended revisions to the regulator's mandate and the adoption of new whistle-blower protections, and brokered book and movie deals for Markopolos. The book and movie rights were not very lucrative, Markopolos told The New York Times, but brought much-needed attention to the issue of regulatory reform and whistle-blower rights.

In October 2009, Kachroo opened her own firm, Boston-based Kachroo Legal Services, where she employs three attorneys, one of whom is John Ray III, a former senior litigation associate at Ropes & Gray now suing the firm for discrimination.

Kachroo currently represents dozens of Madoff victims in lawsuits seeking compensation for investment losses and also serves as vice chair of a global alliance of 50 law firms representing former Madoff investors. She also represents a group of clients seeking to be reimbursed for investments made with R. Allen Stanford, another former financier alleged to have run a $7 billion Ponzi scheme.


Chasing Madoff opened Friday in New York.

S.E.C. Files Were Illegally Destroyed, Lawyer Says

August 17, 2011
By EDWARD WYATT - New York Times

An enforcement lawyer at the Securities and Exchange Commission says that the agency illegally destroyed files and documents related to thousands of early-stage investigations over the last 20 years, according to information released Wednesday by Congressional investigators.

The destroyed files comprise records of at least 9,000 preliminary inquiries into matters involving notorious individuals like Bernard L. Madoff, as well as several major Wall Street firms that later were the subject of scrutiny after the 2008 financial crisis, including Goldman Sachs, Lehman Brothers, Citigroup and Bank of America.

The S.E.C. is the very agency that is charged with making sure that Wall Street firms retain records of their own activities, and has brought numerous enforcement cases against firms for failing to do so.

The agency's records were routinely destroyed under an S.E.C. policy, since changed, that called for the disposal of records of a preliminary inquiry that was closed if it did not get upgraded to a formal investigation, according to Congressional records and people involved in inquiries into the matter. The agency believes that both the original policy and the new rules comply with federal document-retention laws.

John Nester, an S.E.C. spokesman, said that while the agency was not required to retain all documents, it changed its policy last year regarding destruction of files for "matters under investigation," the category of initial inquiry by the S.E.C.'s enforcement division that is the subject of the current scrutiny.

Changes were made to the S.E.C. policy after questions about the document destruction were raised in early 2010 by Darcy Flynn. Mr. Flynn, an employee of the S.E.C.'s enforcement division for 13 years, began a new job in January 2010 helping to manage the disposition of records for the division. Mr. Flynn, who continues to work at the S.E.C., has sought protection under federal whistle-blower laws.

The document disposal, which was first reported by Rolling Stone magazine on Wednesday, is the subject of inquiries by the Senate Judiciary Committee; the National Archives and Records Administration, which oversees laws governing federal agency records; and the inspector general of the S.E.C., according to the records and to people involved in the investigations.

In addition to whether the document disposal violated federal laws about government records, officials are concerned that the S.E.C. policy might have hindered later investigations into the same people or companies or covered up wrongdoing.

"These records may contain critical information that could be extremely useful in piecing together complex cases, even if not immediately pursued," Senator Charles E. Grassley, an Iowa Republican who is the ranking member on the Senate Judiciary Committee, wrote in a letter to the S.E.C. on Wednesday.

Mr. Nester declined to comment on Mr. Grassley's letter or on a letter to Mr. Grassley from a lawyer for Mr. Flynn that laid out the allegations in detail.

H. David Kotz, the S.E.C. inspector general, said that he was investigating the issue and hoped to complete a report by the end of September. A spokesman for the National Archives did not respond to requests for comment late Wednesday afternoon.

The National Archives wrote to the S.E.C. last year, saying that it "appears that there has been an unauthorized disposal of federal records," and asked for further information, according to Mr. Flynn's chronology.

Mr. Flynn said that S.E.C. officials discussed whether to lie about the document destruction because they might be open to criminal liability. Unlawful and willful destruction of federal records is punishable by up to three years in prison.

The S.E.C. replied to the National Archives in a letter, saying that it was "not aware of any specific instances of the destruction of records" that should have been retained. It added that it "cannot say with certainty that no such documents have been destroyed over the past seventeen years."

The letter from Mr. Flynn's lawyer said that the old document destruction policy gave S.E.C. officials assurance that if they closed an inquiry without upgrading it to a formal investigation, there would be no record of their actions.

It is common for S.E.C. employees to leave the agency for the private sector and then begin representing clients before the agency. Mr. Flynn contends that the practice increases the likelihood that S.E.C. investigators could do undetected favors for former colleagues and their clients by quashing investigations.

Whether that revolving door led to the closing of an investigation in 2001 involving Deutsche Bank and the destruction of the files is part of the investigation by the S.E.C.'s inspector general.

Two Peas in a Pod?

UPDATE: Allen Stanford and Whitey Bulger:
Two Peas in a Pod?
Posted by Larry Doyle on June 23, 2011

I referenced the potential similarity in the cases of alleged financial scammer Allen Stanford and noted Boston gangster James J. “Whitey” Bulger in May 2009.

Our nation and especially Stanford Financial investors continue to wait to learn what may have really happened with Allen Stanford. Was he a pawn for the Department of Justice and/or other government agencies looking to infiltrate the Central and South American drug trade?

As for Whitey, after sixteen years of living on the lam, we wait no longer as news broke overnight that the notorious South Boston gangster was picked up in sunny Santa Monica, California.

I am sure the boys back in Boston may get a real chuckle from the fact that Whitey was allegedly using the alias, Charlie Rosenzweig. That said, there is little to chuckle about the personal damage and destruction Whitey and his Winter Hill Gang wrecked by pushing drugs into the streets of South Boston,… amongst other things as well, including murder and extortion!!

While there is nothing romantic about the story of Whitey Bulger, there is certainly a special place in hell for him.

Here’s hoping America can really learn what happened with Allen Stanford.

For those unfamiliar with Whitey, he is Boston’s greatest gangster, a government informant who simultaneously continued to run his gangland activities, one of the FBI’s Most Wanted, and still on the lam. The Martin Scorsese film, The Departed, was largely based on Whitey and his boys. If Whitey dealt in drugs and murder, is Stanford Financial, operated by Allen Stanford, a financial version of a government cover totally run amuck?

We all know the SEC totally dropped the ball in the oversight of the Bernie Madoff Ponzi scheme. On the heels of that and to alleviate massive pressure on the commission, the SEC quickly moved on Allen Stanford.

Evidence has emerged that the Texan who bankrolled English cricket may have been a US government informer.

Sir Allen Stanford, who is accused of bank fraud, is the subject of an investigation by the BBC’s Panorama.

Sources told Panorama that if he was a paid anti-drug agency informer, that could explain why a 2006 probe into his financial dealings was quietly dropped.

Sir Allen vigorously denies allegations of financial wrongdoing, despite a massive shortfall in his bank’s assets.

But the British receiver of his failed Stanford International Bank – based in Antigua – told Panorama that the books clearly show the deficit.

If in fact this development is accurate, has the U.S. government, via the DEA, facilitated a Ponzi scheme? I am not so naive as to think that there aren’t massive undercover operations ongoing regularly to infiltrate and expose illicit activities. However, if in fact that were the case, how did the DEA lose control of Stanford’s investment activities? Is this situation an indication that the Obama administration will not partake of these types of undercover operations? Is there a massive in-house brawl currently ongoing between the DEA and the SEC?

The BBC reports:

Secret documents seen by Panorama show both governments knew in 1990 that the Texan was a former bankrupt and his first bank was suspected of involvement with Latin American money-launderers.

In 1999, both the British and the Americans were aware of the facts surrounding a cheque for $3.1m (£2.05m) that Sir Allen paid to the Drug Enforcement Administration (DEA).

It was drug money originally paid in to Stanford International Bank by agents acting for a feared Mexican drug lord known as the ‘Lord of the Heavens’.

The cheque was proof that Stanford International Bank had been used to launder Mexican drug money – whether or not Sir Allen knew it at the time.

On 17 February of this year, the US Securities and Exchange Commission (SEC) accused Sir Allen of running a multi-billion dollar Ponzi fraud – when cash from new depositors is used to pay dividends to old depositors – civil charges he has denied.

Two and a half months after the SEC filing, the Texan has not yet faced criminal charges.

He was initially investigated by the SEC for running a possible Ponzi fraud in the summer of 2006, but by the winter of that year the inquiry was stopped.

Is this another version of the Whitey Bulger story in which the criminal turned informant continues to operate his own illicit activities? Whitey is now on the lam and his FBI protection, John J. Connolly, is cooling his heels in a federal penitentiary.

The intrigue of this situation is surreal, but the natural and instinctive question has to be: if Uncle Sam (DEA) provided cover for Allen Stanford in the pursuit of illicit drug related activities, did Uncle Sam also provide cover for Bernie Madoff as well?