Securities Regulation

Why Didn't SEC Move Faster in Stanford Case, Law Prof Wonders


What did the feds know about the operations of R. Allen Stanford, and when did the feds know it?

That is essentially the question on the mind of law professor Peter Henning of Wayne State University. Writing in the DealBook blog of the New York Times today, he ponders parallels between the conduct of the U.S. Securities and Exchange Commission in Stanford’s case and in that of Bernard Madoff, and wonders whether the agency is doing enough to protect investors in such situations.

While Madoff’s alleged $50 billion Ponzi scheme blasted into the news late last year with criminal charges, the SEC civil litigation against Stanford in a claimed $8 billion fraud has been a slow-motion train wreck, Henning says. In both cases, though, it appears that the SEC performed routine checks, years earlier, addressing relatively minor matters while alleged massive wrongdoing went unnoticed.

“It is natural to wonder how fraud of this magnitude could pass unnoticed while the regulators were looking at other parts of the business,” he writes. “Was this a case of focusing on the weeds while missing a giant forest?”

Additional coverage:

Associated Press: “SEC probed Stanford companies; red flags abounded”

ABAJournal.com: “SEC Looked Into Stanford CDs in 2005; Why Didn’t Feds Act Sooner in $8B Case?”

ABAJournal.com: “Madoff Made No Trades for Perhaps 13 Years, Trustee Says”

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