SEC Seeks Sanctions Against Ex-Stanford Brokerage Execs

By Joshua Gallu (Bloomberg)

 The U.S. Securities and Exchange Commission accused four former executives of R. Allen Stanford’s Houston-based brokerage of facilitating the sale of bogus investments that fueled a $7 billion Ponzi scheme.
Top officials at the Stanford Financial Group Co. unit willfully aided and abetted the fraud, which unraveled in February 2009, the SEC said today in an administrative order. The agency named Jay Comeaux, the brokerage’s president from 1996 to 2005, his successor Daniel Bogar, private client group head Jason Green and Bernerd Young, a former regulator who became chief compliance officer.

Comeaux settled the claims without admitting or denying the allegations and agreed to be barred from associating with a broker or investment adviser. An administrative law judge will determine any financial penalties. Bogar, Green and Young are fighting the SEC’s claims.
Stanford, 62, was found guilty in March of using the brokerage to sell fraudulent certificates of deposit issued by his Antigua-based bank over the course of 20 years. He is serving a 110-year prison sentence for the fraud, which drew on more than 20,000 investors worldwide. Stanford’s former accountants and other executives also face criminal and civil claims.
The SEC has been reviewing the brokerage’s role for more than two years amid criticism from investors and lawmakers who said regulators should’ve caught the fraud sooner. The SEC’s internal watchdog faulted the agency in a report, saying no meaningful probe of Stanford’s businesses was conducted until 2005, even though examiners suspected fraud eight years earlier.

Fighting Claims

J. Randall Henderson, an attorney for Young, said yesterday his client will fight the claims “with whatever possible in terms of resources and energy.”
John Kincade, an attorney for Green, said in an e-mail that his client had no knowledge of Stanford’s fraud. “We look forward to the opportunity to clear Mr. Green’s name, and we are confident we will succeed.”
Phone calls to attorneys for Comeaux and Bogar weren’t immediately returned.
Bogar, Young and Green took several trips to Antigua to investigate and perform due diligence on Stanford’s bank, and they knew that the bank refused to allow the brokerage to review and confirm its investment portfolio, including historical performance and claims that it was focused on highly liquid investments, the SEC said.

False Claims

They then armed brokers with offering documents making claims they knew to be false, including that depositors were protected by a comprehensive insurance program. In 2007 and 2008, the brokerage sold more than $2 billion of the CDs, the SEC said.

“They mischaracterized Stanford’s CD program as safe and secure when in fact it was a secret trading program known only to a select few individuals,” Kevin Edmundson, an assistant director of enforcement in the SEC’s regional office in Fort Worth, Texas, said in an interview. “U.S. investors deserved to know that the CD program was a black box.”

The brokerage, which derived more than half of its revenue from the CDs, also gave employees financial incentives to sell the fraudulent products, according to the order. Advisers got 1 percent upon the sale, a trailing commission of 1 percent for each year of the CD’s term and additional quarterly bonuses based on total volume of CDs sold. By February 2008, an outside consultant advised the executives that the compensation was above the market rate and resulted in a distorted focus on the sale of Stanford CDs, the SEC said.

Conflicts of Interest

Bogar and Young also knew or were reckless in not knowing that the brokerage failed to disclose certain conflicts of interest, according to the SEC. The conflicts included the brokerage earning revenue from Stanford’s bank by managing its private equity investments and producing research reports on its asset allocation at the same time it was selling the CDs, according to the order.

Young became the top compliance official at Stanford’s brokerage in 2006 after having worked for nearly two decades at the National Association of Securities Dealers, which became the Financial Industry Regulatory Authority in 2007. He headed NASD’s Dallas office from 1999 to 2003, the brokerage-industry self-regulator said in a 2009 report. Young now works at Magnolia, Texas-based MGL Consulting LLC.

To contact the reporter on this story: Joshua Gallu in Washington at jgallu@bloomberg.net

SEC Said to Prepare Vote on Cases Against Ex-Stanford Executives

By Joshua Gallu (Bloomberg)

U.S. Securities and Exchange Commission investigators have proposed sanctions against at least five former Stanford Financial Group Co. executives and brokers for their roles in selling investments that fueled R. Allen Stanford’s alleged $7 billion Ponzi scheme, according to two people with knowledge of the matter.

The SEC’s five commissioners are scheduled to vote Jan. 12 on whether to authorize the enforcement actions, which target brokers and senior executives at Stanford’s Houston-based brokerage, the people said, speaking on condition of anonymity because the matter isn’t public. The vote by the commissioners could still be delayed or tabled, the people said.

The actions, which seek to bar the executives and brokers from working in the industry and claw back sales commissions, come almost three years after the SEC sued Stanford and a federal grand jury indicted him on 21 criminal counts alleging he used his U.S. brokerage to sell bogus certificates of deposits for his Antigua-based bank.

The SEC lawyers claim the employees ignored red flags signaling that they were selling fraudulent products, such as above-market returns promised on the CDs and outsized commissions to the brokers who sold them, one of the people said.

The investigators are treating the cases as a legal test of whether they can sanction brokers for failing to conduct due diligence on in-house products, the people said. If successful, the cases could be replicated against more ex-Stanford brokers over time, said the person.

Former NASD Official

One of the former Stanford employees whose actions were reviewed by investigators was Bernerd Young, the former regulator who later became Stanford’s chief compliance officer. Young received a notice in June 2010 from SEC investigators that they planned to recommend an enforcement action against him for his role in the Stanford matter, according to his broker records.

Young became the top compliance official at Stanford’s brokerage in 2006 after having worked for nearly two decades at the National Association of Securities Dealers, which later became the Financial Industry Regulatory Authority, the brokerage industry’s self-regulator. He headed the NASD’s Dallas office from 1999 to 2003, Finra said in a 2009 report. Young now works at Magnolia, Texas-based MGL Consulting LLC.

‘Aggressive Defense’

“If the Commission authorizes the Staff to bring a formal action against Bernie, it will be met with a fierce and aggressive defense,” Melinda G. LeGaye, founder and president of MGL Consulting, said in a statement today. The SEC staff “has repeatedly changed its focus in an attempt to secure Commission authorization to bring a formal action against him.”

Young “has continued to cooperate and provide documentation and detailed explanations to not only refute the Staff’s allegations but also to assist in their understanding of events while Bernie was at Stanford Financial Group,” LeGaye said.

Randle Henderson, an attorney for Young, said in a phone interview that he didn’t know whether the SEC was considering sanctions against Young. He said he has submitted multiple briefs to the SEC in defense of his client.

Trial Date

Stanford, 61, has denied the fraud allegations and last month requested that his Jan. 23 trial date be delayed by three months after his expert witnesses quit because they weren’t being paid. He is being held without bail. Stanford’s former accountants and heads of finance and investment also face criminal and civil claims.

The SEC has been reviewing the case for more than two years as Stanford customers and lawmakers criticized investigators for not catching the alleged scheme sooner. The SEC’s inspector general said the agency didn’t conduct a meaningful probe of Stanford’s business until 2005, even though examiners suspected fraud eight years earlier.

Senate Resolution Seeks Sanctions Against Antigua

Caribarena
Monday, 12 December 2011 02:30 Colin Sampson

Antigua St John's - A group of United States senators has again asked the US Senate to recommend the imposition of economic and financial sanctions on Antigua & Barbuda.

The proposed sanctions are outlined in Senate Resolution No 346, placed before the Senate on December 8.

The full text of Senate Resolution 346 is appended below.

The resolution deals extensively with matters relating to actions taken by the Government of Antigua & Barbuda (GOAB) in response to the Allen Stanford debacle.

Resolution 346 describes Antigua & Barbuda as committing “numerous acts against the interest of US citizens,” violating “the order of the United States District Court for the Northern District of Texas,” and challenging “the authority of the (said) Court” as well as “the authority of the United States Department of Justice”.

The resolution accuses the GOAB of benefitting from Stanford International Bank (SIB) certificates of deposit to the tune of US$85M, and demands the return of the money. It also points to a March 2010 statement by the GOAB which shows that Antigua & Barbuda knew – or ought to have known – that SIB was operating outside accepted banking international standards.

In this connection, Resolution 346 accuses Antigua & Barbuda of harbouring former FSRC CEO Leroy King by failing to extradite him to the US to stand trial. The role played by former finance minister Dr Errol Cort, and his law firm, Cort & Cort, was not overlooked. The resolution alleges that over US$1M of Stanford investor funds found its way either to Cort or the firm.

Most striking, perhaps, is the specific mention of the expropriation by the GOAB of the Half Moon Bay resort property. This matter is prominently referred to in Resolution 346, and among the several remedies (acts of restitution and subordination) that the US Senate is asked to require from Antigua & Barbuda is a demand that Antigua & Barbuda fulfill its obligations regarding the expropriation.

The ultimate punch line of Resolution 346 is found in the final paragraph, which reads as follows:

“The Secretary of the Treasury should direct the United States Executive Directors of the International Bank for Reconstruction and Development and the International Development Association (commonly known as the “World Bank'') and the International Monetary Fund to use the voice and vote of the United States to ensure that any future loan made by the World Bank or the International Monetary Fund to the Government of Antigua and Barbuda is conditioned on providing complete redress of the matters, and satisfaction of the requirements, described under paragraph (1).”

The resolution was read into the Congressional Record and referred to the Senate Committee on Foreign Relations for further consideration before being returned to the floor of the Senate for possible action.

The Senate Committee on Foreign Relations is chaired by John Kerry (D) Massachusetts – no stranger to Antigua & Barbuda. However Richard Lugar (R) Indiana is Ranking Member (Leader of the Minority). Something of a Republican activist, Lugar is seen as likely to take the matter up by scheduling a hearing before the committee.

This is not the first time the United States Senate has been asked to adopt a resolution of this kind. In 2009, the Senate passed a comparable resolution, on that occasion sponsored by a group of seven senators led by Senator Richard Shelby (R) Alabama.

In 2010, Congressman Mike Coffman (R) Colorado introduced a similar measure into the House of Representatives. Coffman is expected to revive his own resolution in support of the latest action in the Senate.

The House Committee on Foreign Relations is chaired by Congresswoman Ileana Ross-Lehtinen (R) Florida. Ross-Lehtinen represents a state where many investors lost huge sums in the fall of the Stanford Empire. She has already indicated her willingness to hold hearings in the matter.

After hearings – most likely early in 2012 - the House and Senate committees may bring the matter to the floor of their respective chambers with a recommendation to proceed with a general vote.

Senate Resolution No 346 is sponsored by senators David Vitter (R) Louisiana, Thad Cochran (R) Mississippi, Roger Wicker (R) Mississippi, and Richard Shelby (R) Alabama. All these senators represent states where many citizens have been severely damaged by the collapse of the alleged Allen Stanford “Ponzi Scheme”.

Senator Vitter is a member of the Senate Committee on Banking and the Committee on Small Business & Entrepreneurship – among others.

Ranking Member (Leader of the Minority) on the powerful Senate Appropriations Committee, Cochran fulfills the same role on the Subcommittee on Defense, and serves on the Subcommittee on Homeland Security.
Senator Wicker is an active member of the Senate Committees on Banking, Commerce and Armed Services.

Possibly the most powerful of the resolution’s four co-sponsors, Senator Shelby is Leader of the Minority on the Senate Banking Committee. He also serves on several Subcommittees, including Economic Policy, Financial Institutions and International Trade & Finance.