SEC Officials: Units Collaborating Better After Stanford Fraud

May 13, 2011
By Jessica Holzer

WASHINGTON -(Dow Jones)- The Securities and Exchange Commission's investigation and examination units are now coordinating more closely on cases after the regulator ignored claims that now-jailed money manager R. Allen Stanford was running a $7 billion Ponzi scheme, top SEC officials will testify in a hearing Friday.

The improved collaboration "has resulted in a number of notable enforcement actions in the past two years," SEC Enforcement Chief Robert Khuzami and Office of Compliance Inspections and Examinations Director Carlo di Florio said in prepared remarks to the oversight panel of the House Financial Services Committee to be delivered at the hearing.

The officials said the SEC is also vigorously pursuing its civil case against Stanford and other people charged in the alleged fraud and is still investigating whether there was possible misconduct by former SEC employees.

Senior enforcement staff in the SEC's Fort Worth, Texas, regional office failed for years to open an investigation into certificate of deposits sold by a unit of Stanford's company despite numerous red flags, including the conclusions of SEC examiners stretching back to 1997 that Stanford was likely running a Ponzi scheme, the SEC's internal watchdog concluded in a March 2010 report.

Stanford has pleaded not guilty to criminal charges, detailed in a 14-count indictment, that he ran a $7 billion Ponzi scheme out of Stanford International Bank Ltd. on the island of Antigua. He is now awaiting trial, set for September, in a federal medical facility in North Carolina where he is receiving psychiatric treatment. His lawyers persuaded a federal judge to delay Stanford's trial, originally set for January, because he was mentally unfit to participate in his defense.

An SEC assistant regional director for the Fort Worth office, Julie Preuitt, will testify as part of a second panel of witnesses about her numerous attempts to get enforcement staff to open an investigation into Stanford and what she describes as retaliation for whistleblowing. Preuitt was reprimanded after she raised concerns to superiors about a new "quick-hit" approach to broker-dealer examinations that was adopted by the office and her supervisory duties were taken away.

She said no one has been disciplined for the alleged retaliation she said she experienced, even though SEC Inspector General David Kotz recommended potential disciplinary action against the office's associate director and regional director, who has since retired.

"The Commission has failed to discipline any one, at least not visibly, nor has there been any effort made to restore me to a position with similar duties and responsibilities to the one held before," she said in prepared testimony.

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