SEC Did Nothing to Stop Stanford Ponzi Scheme for Years
November 10, 2010
By Jack Kelly
Newly released documents detail 12 years of fits and starts at the Securities and Exchange Commission as financier Allen Stanford
was allegedly running a global Ponzi scheme.
At one point, an SEC official laments in an e-mail, "Before I retire, the Commission will be trying to explain why it did
nothing." The e-mail from Fort Worth, Texas, Regional Office Assistant Director Julie Preuitt was written in 2004. The agency
did not move in on Stanford until 2009.
The documents are exhibits in a scathing report issued in March by SEC Inspector General H. David Kotz. His investigation found
SEC staffers were aware of potential problems at the Stanford Financial Group as far back as 1997, but that the SEC's Enforcement
Division repeatedly declined to take action. The agency released the exhibits Tuesday after repeated requests by CNBC under the
Freedom of Information Act.
Kotz's investigation also found the SEC's former enforcement chief in Fort Worth, Spencer Barasch, repeatedly sought to represent
Stanford after leaving the agency, even after being told by the SEC's ethics office that he could not.
The exhibits show Allen Stanford himself pushed for Barasch's hiring. With SEC investigators bearing down on the company in 2006,
Stanford wrote in an e-mail to Chief Financial Officer James Davis and General Counsel Mauricio Alvarado, "The former SEC Dallas
lawyer we spoke about in St. Croix. Get him on board asap."
SEC officials blocked Barasch from representing Stanford, but the documents show Barasch billed Stanford for work done in 2006.
He sought to represent Stanford again after the SEC lawsuit in 2009, but officials again ruled he had a conflict of interest.
According to a transcript released Tuesday, Kotz asked Barasch about the 2009 request, and Barasch replied, "Every lawyer in
Texas and beyond is going to get rich over this case. Okay? And I hated being on the sidelines."
Barasch, who has not been charged with wrongdoing, has not responded to previous requests for a comment about any role he may
have played in the Stanford affair.
The documents show Allen Stanford's attempts to exert his influence may have extended beyond the SEC. In a 2004 e-mail exchange
with the subject "Stanford - Call to Federal Reserve," SEC officials contemplate the fact that someone at Stanford - the name
in the e-mail is redacted - had contacted someone at the Federal Reserve, whose name is also redacted.
The SEC staffers conclude there is nothing they can do about the development, which leads Assistant Regional Director Preuitt to
write, "I love this stuff. We all are confident that there is illegal activity but no easy way to prove. Before I retire, the
Commission will be trying to explain why it did nothing. Until it falls apart all we can do is flag it every few years." The
e-mail is dated October 25, 2004.
By then, officials in Fort Worth had been looking into issues at Stanford Financial for years. In 1997, examiners found evidence
of "possible misrepresentation and misapplication of customer funds," according to one of the newly released documents. The
report noted that Stanford himself had made a $19 million cash contribution to the company in 1996, and "We are concerned that
the cash contribution may have come from funds invested by customers in (Stanford International Bank)."
The report was referred to the Enforcement Division, which ultimately chose not to pursue the matter. Among those who made the
decision: regional enforcement chief Spencer Barasch.
The SEC released the Inspector General's report - minus the exhibits - on April 16, the same day the Commission announced a
high-profile fraud suit against Goldman Sachs. That triggered charges the SEC was trying to bury the report amid the publicity
surrounding the Goldman Sachs case, but a subsequent report by the Inspector General found no evidence of that.
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