SEC Missing Stanford Fraud Not Excused by Law
May 10, 2011
The U.S. Securities and Exchange Commission’s delay in cracking down on R. Allen Stanford’s alleged Ponzi scheme isn’t
excused by a law that protects regulators’ discretionary decisions, Stanford’s investors claim.
While U.S. law may shield the agency from poor policy choices, it doesn’t protect against allegations of official misconduct and abuse of office, lawyers for the investors said today in a court filing in federal court in Dallas.
Eight Stanford investors sued the SEC in March on claims that Spencer Barasch -- the former head of the SEC’s Fort Worth- Dallas office -- allowed Stanford’s alleged fraud to flourish for years by repeatedly blocking investigations into the financier’s operations.
This case "is about misconduct, and has nothing to do with disgruntled citizens second-guessing SEC 'policy judgments'," Edward Gonzales, the investors’ lawyer, said in today’s filing. "It is discretion that may be abused, not one’s office."
The SEC seized Stanford’s operations in February 2009 on suspicion of fraud. Four months later, prosecutors indicted Stanford and three of his top officers for running what they claim was a $7 billion Ponzi scheme built on bogus certificates of deposit at Antigua-based Stanford International Bank Ltd.
Stanford Denies Wrongdoing
Stanford, who denies all wrongdoing, has been imprisoned as a flight risk until he can be tried.
Last month, the government asked a Dallas judge to throw out the investors’ lawsuit, which seeks to force the SEC to cover their losses on Stanford CDs.
The investors based much of their complaint on a 2010 report by the SEC’s inspector general, who faulted Barasch for declining to act on agency recommendations to investigate Stanford for years. The report also criticized Barasch for trying to act as Stanford’s lawyer after he left the agency in 2005.
"The unethical conduct of Spencer Barasch and negligent supervision by his superiors both make the government liable here," Gonzales said in the filing.
Barasch, who isn’t personally sued by the investors, has denied acting improperly before or after leaving the SEC. Ashley Nelly, a spokeswoman for Andrews Kurth LLP, the law firm where Barasch now works, didn’t immediately return a call seeking comment on today’s filing.
Kevin Callahan, SEC spokesman, didn’t immediately return a call or e-mail after regular business hours.
The case is Robert Juan Dartez LLC v. United States, 3:11- cv-0602, U.S. District Court, Northern District of Texas (Dallas).
The criminal case is U.S. v. Stanford, 09-cr-342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank, 09-cv-298, U.S. District Court, Northern District of Texas (Dallas).
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