Constitutional Law

IG Says SEC Largely Ignored Likely Allen Stanford Ponzi Scheme for a Decade


Although the Securities and Exchange Commission suspected as early as 1997 that R. Allen Stanford was running a Ponzi scheme, and its examiners concluded four times between 1997 and 2004 that his businesses were fraudulent, the federal regulatory watchdog didn’t pursue Stanford seriously until around the time that Bernard Madoff’s wrongdoing came to light in December 2008, says SEC Inspector General David Kotz in a report.

It places part of the blame for the situation on an institutional culture that encouraged “quick hit” and “slam dunk” cases rather than more complex investigations that the alleged Stanford fraud would have required. However, the report also singles out Spencer Barasch, who formerly headed the SEC’s Fort Worth, Texas, enforcement office, and accuses him of, as the Wall Street Journal (sub. req.). puts it, “repeatedly quashing Stanford probes and then trying to represent Mr. Stanford as a lawyer in private practice.”

However, the report also says an examination by Kotz’s office found no connection between the reluctance of Fort Worth enforcement attorneys to investigate Stanford and “any improper professional, social or financial relationship on the part of any former or current SEC employee,” reports the Associated Press.

Barasch, who is now a partner of Andrews Kurth, couldn’t be reached for comment by the newspaper, but the firm’s managing partner, Bob Jewell, says Barasch acted appropriately.

As detailed in earlier ABAJournal.com posts, Stanford is now in jail awaiting trial in federal court in Houston on charges related to an estimated $7 billion fraud he allegedly operated in connection with his international banking empire. He has said he did nothing wrong.

A link to the 159-page report is provided by the Wall Street Journal Law Blog.

Additional coverage:

World Newser (ABC News): “Watchdog Blasts SEC’s Handling of Stanford Ponzi Scheme”

Bloomberg: “SEC slow to follow clues in alleged $7-billion Ponzi scheme”

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