Donnerstag, 26. Mai 2011

Allen Stanford Investors Sue His Accounting Firm

RAS indicted May 26, 2011

Nearly two years after Texas financier Allen Stanford was indicted in an alleged massive Ponzi scheme, investors have just filed a $10 billion proposed class action suit against his auditor-the giant accounting firm BDO.

The suit-filed Thursday in federal court in Dallas-says BDO did not only aid and abet the $7 billion dollar fraud...it was a "co-conspirator."
Indicted financier R. Allen Stanford, accused of leading a $7 billion investment fraud scheme.
"BDO's cozy relationship with the Stanford Financial Group was steeped in conflicts of interest and required ongoing deceptive and duplicitous manipulation of the facts to allow the Ponzi scheme's exponential growth for over a decade," the complaint says. "The result of this deception is the loss of thousands of investors' life savings."

BDO not only audited Stanford's U.S. operations, it also did critical work in Antigua, where the alleged fraud was based.

Before his indictment in 2009, Stanford told CNBC about a task force he put together-including a "major accounting firm" to rewrite Antigua's banking laws.

"Back in the early '90s, I was asked by the then-government if I would put together a civilian team of professionals, which I got," Stanford said. "Ex-FBI, ex-DEA, an ex-U.S. Attorney…a major accounting firm and others to come up with a strong, if not the strongest platform for international banking."

Authorities and investors say that platform paved the way for the fraud. Stanford has denied wrongdoing. He faces a trial currently scheduled for September 12 on 14 criminal counts.

BDO has not had a chance to respond to the suit, but for months it has been fighting a civil subpoena for documents filed by the court-appointed receiver in the SEC's lawsuit against Stanford.

In a court filing in April, BDO attorneys said the firm "has no clue as to what it may have done wrong." The filing called the subpoena "a fishing expedition."

Stanford's 30-thousand investors have so far recovered just pennies on the dollar.

PLAINTIFFS' ORIGINAL CLASS ACTION COMPLAINT

X. ACTUAL DAMAGES
113. Plaintiffs and the First Class have suffered the loss of at least $7.2 billion that was proximately caused by the wrongful conduct of BDO as described herein. Plaintiffs and the Second Class have suffered the loss of approximately $3.5 billion that was proximately caused by the wrongful conduct of BDO as described herein. BDO is jointly and severally liable to Plaintiffs and both Classes for the injuries caused by the Stanford Financial Group, including SGC, STC, SFIS, and SIBL, under Texas common law of joint and several liability, as well as under the Texas Securities Act.

Read the complete CLASS ACTION COMPLAINT here!


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Dienstag, 24. Mai 2011

SEC could owe millions over lease deal

May 24, 2011
By: Sarah N. Lynch

* SEC in legal dispute with building owner
* Agency signed lease, then Congress did not provide funds
* Kotz calls for disciplinary action against employees
* SEC says it is working to fix the problems
* Rep. Neugebauer says SEC should be ashamed


WASHINGTON, May 24 (Reuters) - The U.S. Securities and Exchange Commission faces a $94 million claim after it backed out of a bungled deal to lease office space in Washington, D.C.

SEC Inspector General David Kotz said in a report issued publicly on Tuesday that the SEC made numerous mistakes in securing roughly 900,000 square feet of space in the newly renovated "Constitution Center" building on 7th St SW.

The SEC signed the 10-year, $556.8 million leasing deal last year after it anticipated it would need room for additional employees to implement the Dodd-Frank financial oversight law.

The agency was later forced to renege on the deal after Congress did not provide the expected funding. Roughly 600,000 square feet will now be used by other federal regulators, but the SEC has been unable to sublease the remaining space.

The SEC's leasing woes have been of great interest to lawmakers, and the report could provide ammunition to some Republicans seeking to deny extra money for the SEC to implement Dodd-Frank.

In his report, Kotz depicts SEC staff as desperately rushing to secure the rental space at Constitution Center, an opulent 10-story building complete with Jerusalem limestone floors, marble walls and a floor-to-ceiling glass wall.

SEC Chairman Mary Schapiro preferred to obtain office space closer to the SEC headquarters, Kotz said in his report. But agency staff convinced her the SEC urgently needed to sign a lease to accommodate the new employees that would be hired under Dodd-Frank and that the SEC had already run out of options for other locations.

Just a few days after President Barack Obama signed the Dodd-Frank bill into law, the SEC was preparing to ink a deal on the lease even though there was no guarantee they would have the funds to do it.

DEEPLY FLAWED

Kotz said the SEC's Office of Administrative Services conducted a "deeply flawed and unsound analysis," including a 300 percent expansion projection over 10 years.

"We found OAS grossly overestimated the amount of space needed... and used these groundless and unsupportable figures to justify the SEC committing to an expenditure of $556,811,589 over 10 years," said his report dated May 16.

SEC spokesman John Nester said the agency is reviewing the report, and is moving forward to implement its recommendations to improve the leasing process. He also said the agency believes the owner of the building gave up its claim on the SEC once other tenants were secured.

Kotz said the agency may have violated numerous rules and regulations governing the procurement and budgeting process, including a failure to have a competitive process, a lack of review, and even the backdating of key documents.

"SEC leadership should be ashamed of themselves," said Representative Randy Neugebauer, a Republican from Texas.

"The OIG report speaks for itself - the agency that holds the private sector to high standards have made a mess of their own internal operations and have wasted taxpayers' money in the process," said Neugebauer in a statement.

Another report, issued by Kotz last year and reported by Reuters earlier on Tuesday, found the agency wasted $1 million when it acquired data storage technology through a no-bid contract that failed to work as intended.

OTHER PROBLEMS

In the leasing report, Kotz cited numerous other problems with leased office space over the years. In 2005, for example, the agency disclosed it had $48 million in unbudgeted costs due to improvements at the SEC's current headquarters.

The SEC was granted independent leasing authority from Congress in 1990 to improve efficiency, but it was not until 2009 that the agency established an office for leasing matters.

"The report portrays the SEC's leasing operation as incompetent in just about every way," said Senator Charles Grassley, a Republican from Iowa.

David Nassif Associates, the owner of the building, has demanded roughly $94 million in damages from the SEC. The company's managing general partner did not respond to an emailed request for comment.

Kotz recommended disciplinary action against the main employees involved in the leasing project, including Sharon Sheehan, the associate executive director of the Office of Administrative Services. The name of a second employee recommended for disciplinary action was redacted.

Kotz also raised serious concerns about the conduct of former SEC Executive Director Diego Ruiz. Ruiz served as the agency's executive director from August 2006 until his departure in April.

Ruiz, who announced in February that he was leaving the SEC, declined to comment on Kotz's report.

Sheehan did not reply to an email from Reuters. SEC spokesman John Nester said she would have no comment beyond his statement.

"When it became apparent that the SEC would not be receiving funding for FY 2011 to support the necessary additional staff, the leasing office worked with the landlord to swiftly identify two self-funded agencies that were able to take the majority of the space allotted to the SEC," Nester said.

Even before the report was issued, the SEC hired a new chief operating officer who is required to approve leasing decisions, Nester said.


Source: http://sivg.org/article/SEC_should_be_ashamed.html


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Samstag, 14. Mai 2011

Former S.E.C. Official Said to Be Subject of Criminal Inquiry

Indicted RAS May 14, 2011
By EDWARD WYATT

WASHINGTON -- A former Securities and Exchange Commission enforcement official who has been accused of repeatedly blocking efforts to investigate R. Allen Stanford, the Houston financier charged with running a $7 billion Ponzi scheme, is the subject of a federal criminal inquiry for having done legal work for Mr. Stanford after leaving the S.E.C., government officials said Friday.

Andrew Harrer/Bloomberg News
H. David Kotz, the S.E.C. inspector general, left, and Robert Khuzami, director of enforcement.
The former official, Spencer C. Barasch, is now a private-sector lawyer in Texas. He has represented clients dealing with the agency, including a defendant charged last month with financial fraud by the S.E.C. in federal court in Dallas.

Those disclosures came Friday at a Congressional hearing into the S.E.C.'s failures to stop the Stanford Ponzi scheme.

Mr. Barasch led the enforcement bureau in the S.E.C.'s Fort Worth office and played "a significant role" in numerous decisions by the office not to investigate Mr. Stanford despite repeated accusations of fraudulent behavior, according to a report the S.E.C.'s inspector general released last year.

After leaving the agency, Mr. Barasch did legal work for Mr. Stanford despite being told multiple times by the S.E.C.'s ethics office that it was improper, S.E.C. officials said at the hearing. Mr. Stanford was eventually charged with fraud and is scheduled for trial later this year. He has denied the charges.

Mr. Barasch's law firm said he had not acted unethically or violated any laws.

Members of the House Financial Services Committee's oversight and investigations subcommittee expressed shock that Mr. Barasch, who the inspector general said had blocked efforts to pursue Mr. Stanford at least six times over seven years, continued to practice securities law before the commission.

The S.E.C. can, after an administrative proceeding, bar lawyers from practicing before the commission should it find sufficient wrongdoing. The commission declined on Friday to say whether such a proceeding was under way.

"This is not even defensible," Representative Randy Neugebauer, Republican of Texas and head of the House subcommittee, said at the conclusion of the hearing.

"It is extremely disturbing that we had a culture in agencies that demand high levels of disclosure and integrity, that within that very agency there wasn't a similar amount of integrity," Mr. Neugebauer said. "It's inexcusable."

H. David Kotz, the S.E.C. inspector general, and Robert Khuzami, the director of the division of enforcement, told the House panel on Friday that Mr. Barasch had become the subject of a criminal investigation by the Federal Bureau of Investigation and the Justice Department after Mr. Kotz's report was issued in March 2010.

The S.E.C. also referred Mr. Barasch to the ethics boards of the bar associations in Texas and Washington, Mr. Khuzami said at the hearing.

Mr. Barasch did not respond to a request for comment. Robert V. Jewell, the managing partner of Andrews Kurth, the Texas law firm where Mr. Barasch is the leader of the corporate governance and securities enforcement team, said in a statement that he believed that Mr. Barasch "did not violate conflicts of interest."

"Spencer Barasch served the S.E.C. with honor, integrity and distinction," the statement said. "We disagree with the characterization of Mr. Barasch's involvement put forth by the inspector general in his report last year in regard to the Stanford Financial Group matter. We believe he acted properly during his contacts with the Stanford Financial Group and the Securities and Exchange Commission."

He continued: "We continue to stand by Spencer Barasch; he is and will remain a valued member of the Andrews Kurth team, where he provides our clients with the highest possible quality of advice and counsel."

Asked by Mr. Neugebauer at the hearing whether he thought Mr. Barasch had engaged in unethical behavior, Mr. Khuzami, the enforcement chief, said yes. "Clearly the rules prohibited him from representing Mr. Stanford," Mr. Khuzami said. "So my personal conclusion would be certainly the evidence appears to be the case."

Rule 102(e) of the S.E.C.'s rules of practice says that the commission can bar a lawyer who is found "to be lacking in character or integrity or to have engaged in unethical or improper professional conduct."

But such a finding requires a formal hearing, and the S.E.C. has not initiated a hearing on Mr. Barasch, said John Nester, an S.E.C. spokesman. Mr. Nester declined to comment on whether "any enforcement investigation, including one that might result in an administrative enforcement proceeding against an attorney, is ongoing."

The Congressional hearing once again brought to light problems that the S.E.C., like many government agencies, faces with the "revolving door" of people who go back and forth between government and the private sector.

On Friday, the Project on Government Oversight, a watchdog group, released a study showing that between 2006 and 2010, 219 former S.E.C. employees filed 789 postemployment statements indicating their intent to represent an outside client before the S.E.C.

"The revolving door to high-paying jobs representing Wall Street can undermine the integrity of the S.E.C.," said Michael Smallberg, the investigator for the oversight watchdog group who created the database. "It's not a stretch for the public to wonder whether the promise of future employment affects how S.E.C. regulators treat certain firms."

The study, which used documents obtained from the S.E.C. under the Freedom of Information Act, also found that some former employees had filed the statements within days of leaving the commission. One employee's filing came within two days of leaving; another former employee filed at least 20 statements.

Mr. Nester said the S.E.C. had "a rigorous program to help departing employees meet not just the letter, but also the spirit of the law" on conflicts of interest after they leave the agency.

The Government Accountability Office is conducting a review of post-employment rules, he said, which the S.E.C. is assisting.

Source: http://sivg.org/article/SEC_criminal_inquiry.html

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SEC employee testifies she paid a price for protest

May 14, 2011
By David S. Hilzenrath
An SEC employee who fought for years to get the agency to stop an alleged massive Ponzi scheme told a House panel that she "paid a heavy price" for protesting her boss's weak approach to exposing such scams.

In prepared testimony Friday, Julie Preuitt, a longtime employee in the Securities and Exchange Commission's Fort Worth office, said she was given a letter of reprimand and in 2008 was reassigned to report to a regional director "who would at times go weeks or even months intentionally avoiding any contact with me."

She said she interpreted her transfer as an effort to drive her out of the agency, and she argued that the move was "part of a cultural problem" that continues to undermine the SEC's effectiveness.

Preuitt was called to testify before the oversight panel of the House Financial Services Committee on the SEC's failure to stop Robert Allen Stanford's alleged $7.2 billion Ponzi scheme. The SEC's bungling of the Stanford case and the alleged retaliation against Preuitt were the subject of news stories and SEC inspector general reports almost a year ago. House Republicans revisited the subject Friday against the backdrop of a largely partisan battle over how much funding the agency should receive.

Democrats have generally argued that the agency needs a substantial budget increase to prevent more big financial frauds and crises like the 2008 meltdown that left the nation's economy reeling.

Some Republicans have countered that the agency's past failures render it undeserving of such a funding boost. They have invoked such embarrassments as the SEC's failure to stop Bernard L. Madoff's Ponzi scheme and a scandal in which agency employees were viewing pornography at work.

The SEC didn't need a bigger budget or more regulations to stop Stanford's alleged scam, said Rep. Randy Neugebauer (R-Tex.), chairman of the oversight and investigations subcommittee. The problem was that "people just didn't do their job," he said.

Preuitt reviewed the Stanford Group in 1997 and concluded that its stated financial returns were "absolutely ludicrous," SEC inspector general H. David Kotz said in testimony Friday.

In the years that followed, SEC examiners repeatedly pressed the agency to investigate, but the SEC enforcement staff made little if any meaningful effort to do so, Kotz said. Senior officials in Fort Worth thought they were being judged on the number of cases they brought, and they discouraged work on cases that were not quick hits or or slam dunks, Kotz said.Despite Preuitt's pleas, the SEC did not take enforcement action against Stanford until 2009. Kotz credited the SEC with acting on lessons learned from the Stanford case. But he said the SEC acted improperly when it punished Preuitt for opposing what she considered a flawed policy.

In fall 2007, one of Preuitt's superiors announced a new type of brokerage examination, "which would consist of interviewing a few senior personnel at brokerage firms over the course of a half day while reviewing limited, if any documentation," Preuitt said in written testimony. She said she objected because the plan was "nothing short of a subversion of the core mission."

Preuitt was reprimanded, and so was another SEC official who complained about the way Preuitt was treated, Preuitt said.

The inspector general recommended that the SEC consider disciplining officials for punishing the two. Preuitt said she is unaware of any disciplinary action, and she has not been restored to her former position. Committee member Rep. Bill Posey (R-Fla.) asked SEC officials: "Have we canonized Julie Preuitt yet? . . . She should probably be running the agency."

Carlo di Florio, who heads the SEC examination program, said Preuitt showed the kind of determination the agency encourages. He said the agency is working to give her new responsibilities.

Rep. Michael E. Capuano (D-Mass.) objected to any implication that the Stanford story is an argument for loosening regulation.

The attitude that the markets will police themselves and "that somehow regulation is not necessary . . . is just wrong," Capuano said. 



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SEC says decision near on Stanford coverage

May 14, 2011
By Stewart M. Powell - Washington Bureau
Investors want insurance on their losses.
Possible federal brokerage insurance in the Stanford case.


WASHINGTON — Investors in R. Allen Stanford's alleged $7 billion Ponzi scheme should know "within the next few weeks" whether they will be able to collect federal brokerage insurance to cover some of their losses, senior officials with the Securities and Exchange Commission told Congress on Friday.

Pressed by members of Congress on a timetable for a long-awaited decision, SEC enforcement director Robert Khuzami and SEC inspections chief Carlo di Florio told the House Financial Services Committee's oversight panel that a decision is near. "Commission staff has devoted substantial time and effort to analyzing the issues surrounding a potential Securities Investor Protection Act liquidation of Stanford Group Company," the officials told the panel chaired by Rep. Randy Neugebaur, RLubbock.

"The staff is finalizing its investigation and review of the relevant facts relating to the Stanford case, and we anticipate that the Commission will make a determination regarding these issues in the near future."

The Securities Investor Protection Corporation has helped an estimated 739,000 investors recover $109.3 billion in assets over the last 40 years, according to the agency. The brokerage insurance, however, does not cover every investor or every investment.

Nature of investment
The agency so far has opposed covering victims of Stanford's alleged investment fraud because of the nature of the investments. The SEC, however, is "taking the concerns of the Stanford Victims Coalition members, and all other Stanford victims, very seriously, and the staff is investigating closely their status" under federal law, the SEC officials assured the committee.

Rep. Michael McCaul, R-Austin, who joined the committee for the hearing, joined other members who endorsed having the SEC authorize brokerage insurance coverage for Stanford's victims.

McCaul, saying constituents of his in the Houston-to-Austin corridor had been hurt by Stanford's alleged fraud, urged lawmakers to "do what we can to help investors and victims recover what they can" through brokerage insurance.

Victims of Bernard Madoff's alleged Ponzi scheme had been qualified to benefit from the coverage, McCaul said. "Stanford's investors should be covered like Madoff's investors," said McCaul, a former federal prosecutor and deputy attorney general of Texas. "We need to work to see that this gets done."

Stanford has pleaded innocent to fraud and other charges in connection with what SEC investigators labeled a "massive Ponzi scheme." Stanford, 61, a fifth generation Texan, remains in federal custody awaiting trial, currently set for September.

'Insult added to injury'
Winning brokerage insurance coverage could cover 80 percent of his losses of about $500,000, retired Philadelphia science teacher Stan Kauffman told the House panel. But so far, authorities have ruled that investors such as Kauffman do not qualify for insurance coverage designed to protect investors from thefts by a broker dealer. The officials contend many of Stanford's investors are ineligible for coverage because they bought certificates of deposit rather than stocks.

"The insult added to injury here is the reality we've been victimized a second time as the SEC has seemingly gone out of its way to not order the protection we feel we legally qualify for," Kauffman told the panel. "We are being told our money was stolen the wrong way." 



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Freitag, 13. Mai 2011

SEC to Release Finding on Stanford Clients' SIPC Eligibility

May 13, 2011
By Joshua Gallu
The U.S. Securities and Exchange Commission, faulted for missing R. Allen Stanford's alleged $7 billion fraud, said it will decide "in the near future" whether victims should receive federal insurance payments.

The SEC has devoted "substantial time and effort" to determine whether the Securities Investor Protection Corp. erred in denying investors coverage, SEC enforcement director Robert Khuzami and inspections chief Carlo di Florio said today at a House Financial Services Committee hearing in Washington.

Stanford, 61, was indicted in June 2009 on 21 criminal charges claiming he misled clients about the safety and oversight of certificates of deposit issued by his Antiguabased Bank. Investors, lawmakers and the SEC's inspector general have accused the agency and the Financial Industry Regulatory Authority of ignoring warnings about Stanford years before he was arrested.

"It's a tragedy that the investors have to pay the price of the SEC and Finra's failures," Representative Francisco Canseco, a Texas Republican, said at the hearing. Finra, the industry-funded brokerage regulator, oversaw the Stanford unit that sold the CDs.

Stephen Harbeck, the president of the Securities Investor Protection Corp., said in an August 2009 letter that Stanford investors weren't eligible for insurance payments because the government-sponsored regulator doesn't protect people who are sold worthless securities. SIPC, which was chartered to guard investors against broker theft or brokerage failure, is overseen by the SEC.

'Wrong Way'
"We're being told our money was stolen the wrong way," Stanford Kauffman, who invested in the alleged fraud, said in testimony at the hearing. "Stanford stole our savings, but the SEC and Finra held the door wide open."

Missing Stanford's alleged fraud wasn't a matter of faulty regulations so much as a failure to enforce existing statutes, Finra chairman and chief executive officer Richard Ketchum told lawmakers today.

Julie Preuitt, an SEC employee who worked on an examination of Stanford's business in 1997, said she had been rebuffed by supervisors after flagging possible fraud and pushing for a more thorough investigation.

Preuitt, now an assistant regional director in the SEC's regional office in Fort Worth, Texas, told the panel she was also reprimanded by management after complaining about changes to the examination program in 2007.

"I paid a heavy price for complaining," Preuitt said. "I was not only ignored, but was actively rebuffed in my attempts to perform at a fully functioning level."

Disciplinary Action
SEC Inspector General H. David Kotz urged in a report last year that the SEC consider taking disciplinary action against two managers in the Fort Worth office who punished Preuitt.

That hasn't happened, Preuitt said.

"The commission has failed to discipline anyone, 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," Preuitt said.

Stanford, who has denied the allegations against him, has been in federal custody since 2009 while awaiting trial. He is being held in a hospital at the Butner Federal Correctional Complex in North Carolina where he is receiving treatment for a prescription drug dependency developed while in prison. 



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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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FBI probing ex-SEC official on Stanford matter

May 13, 2011
By Sarah N. Lynch
WASHINGTON, (Reuters) - Federal criminal authorities are investigating whether a former U.S. securities regulator inappropriately represented alleged fraudster Allen Stanford after he left the agency in 2005.

Spencer Barasch, former head of enforcement for the U.S. Securities and Exchange Commission in Fort Worth, Texas, is being probed by the U.S. Attorney's Office and Federal Bureau of Investigation, SEC enforcement director Robert Khuzami and SEC.

Inspector General David Kotz told lawmakers Friday.

The criminal probe follows SEC internal findings that Barasch made numerous requests after he left the SEC to represent Stanford and was turned down each time.

Barasch persisted in his requests even though he directly dealt with Stanford matters while at the SEC and was partly responsible for ignoring repeated red flags SEC examiners raised about Stanford as early as 1997, Kotz found in a 2010 report. He later eventually did provide some legal counsel to Stanford in 2006, the report found.

"The rules clearly prohibited [Barasch] from ... in my view, representing Mr. Stanford," Khuzami told a House Financial Services oversight subcommittee Friday. "We made a referral to criminal authorities."

In addition, Kotz and Khuzami said they had also referred the matter for investigation to the Texas and Washington, D.C. bars.

Republican lawmakers called the hearing to investigate why it took the SEC so long to probe Stanford, a Texas financier, despite repeated attempts by SEC examiners to bring the matter to the enforcement division's attention.

The agency finally filed civil charges against Stanford in February 2009. Stanford was arrested in June 2009 and criminally charged with fraud in connection with a $7 billion scheme linked to certificates of deposit issued by his Antigua-based banking company. Stanford has denied any wrongdoing.

REVOLVING DOOR
After leaving the SEC, Barasch became a partner at law firm Andrews Kurth. In response to an inquiry from Reuters earlier this week, Andrews Kurth Managing Partner Bob Jewell said Barasch had not done anything wrong.

"We disagree with the characterization of Mr. Barasch's involvement put forth by the Inspector General in his report last year," he said. "We believe he acted properly during his contacts with the Stanford Financial Group and the Securities and Exchange Commission. He did not violate conflicts of interest."

The testimony about Barasch came on the same day the Project on Government Oversight, a government watchdog group, issued a report about the "revolving door" at the SEC. It found that 219 former officials at the SEC have left since 2006 to help clients with business before the agency.

Federal laws place certain restrictions on many SEC and other government employees once they return to the private sector. In addition to a one-year cooling off period, they are generally prohibited from representing a client before a government agency on any matter in which they were personally and substantially involved.

Some lawmakers say stricter policies are needed.

Republican Randy Neugebauer, the chairman of the panel, claimed Barasch represented a client before the SEC in a legal matter as recently as last Friday.

"One of the things that hopefully comes out of this is there are some tighter rules," he said. "It is obviously very alarming." 



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Ketchum on monitoring Stanford: Finra could have done better

Ketchum May 13, 2011
By Dan Jamieson

Financial Industry Regulatory Authority Inc. chief executive Richard Ketchum issued a mea culpa today for Finra's failure to uncover R. Allen Stanford's alleged $8 billion Ponzi scheme.

"Finra clearly could have done better and we deeply regret we did not," Mr. Ketchum said today in prepared testimony to the House Financial Services Committee's Subcommittee on Oversight and Investigations.

Mr. Ketchum recapped the findings of a September 2009 Finra review of its missteps in the case.
Finra boss, Richard Ketchum (Bloomberg News)
That internal review found that in 2005, Finra's Dallas office curtailed an investigation of Stanford, which had been prompted by an SEC referral letter.

Finra enforcement staff weren't sure whether they had jurisdiction over Stanford's offshore CDs, Mr. Ketchum said.

The Securities and Exchange Commission, though, is perhaps more to blame for missing the alleged Stanford fraud.

A separate March 2010 report from the SEC's inspector general found that the SEC’s Fort Worth branch was aware since 1997 that Mr. Stanford was possibly operating a Ponzi scheme.

Despite numerous exams of the Stanford firm that raised a number of red flags, SEC enforcement staff in Fort Worth refused to investigate.

SEC enforcement staff believed that "novel or complex cases were disfavored" by the agency's management, said David Kotz, the SEC inspector general, in testimony today.

Stanford, 61, was indicted in June 2009 on 21 criminal charges claiming he misled clients about the safety and oversight of certificates of deposit issued by his Antiguabased Bank. Investors, lawmakers and the SEC's inspector general have accused the agency and the Finra of ignoring warnings about Stanford years before he was arrested.

"It's a tragedy that the investors have to pay the price of the SEC and Finra's failures," Representative Francisco Canseco, a Texas Republican, said at the hearing.

Julie Preuitt, an SEC employee who worked on an examination of Stanford's business in 1997, said she had been rebuffed by supervisors after flagging possible fraud and pushing for a more thorough investigation.

Ms. Preuitt, now an assistant regional director in the SEC's regional office in Fort Worth, Texas, told the panel she was also reprimanded by management after complaining about changes to the examination program in 2007.

"I paid a heavy price for complaining," Ms. Preuitt said. "I was not only ignored, but was actively rebuffed in my attempts to perform at a fully functioning level."

Stanford, who has denied the allegations against him, has been in federal custody since 2009 while awaiting trial. He is being held in a hospital at the Butner Federal Correctional Complex in North Carolina, where he is receiving treatment for a prescription drug dependency developed while in prison.

Stephen Harbeck, the president of the Securities Investor Protection Corp., said in an August 2009 letter that Stanford investors weren't eligible for insurance payments because the government-sponsored regulator doesn't protect people who are sold worthless securities. SIPC, which was chartered to guard investors against broker theft or brokerage failure, is overseen by the SEC.

"We're being told our money was stolen the wrong way," Stanford Kauffman, who invested in the alleged fraud, said in testimony at the hearing. "Stanford stole our savings, but the SEC and Finra held the door wide open."

Source: http://sivg.org/article/Ketchum_Finra.html


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Dienstag, 10. Mai 2011

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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Donnerstag, 5. Mai 2011

New Allen Stanford Indictment Unlikely to End Delays

May 5, 2011
A federal grand jury in Houston has returned a new, 14-count indictment against alleged fraudster Allen Stanford, who was already accused in 2009 of running a $7 billion Ponzi scheme. But the new charges are unlikely to move the case closer to a trial.

Stanford was initially charged along with three former executives and the former top banking regulator in Antigua, the home of Stanford's offshore bank. But the co-defendants' cases were separated from Stanford's last year. The new indictment charges Stanford alone.

As in the earlier case, he is accused of conspiracy, wire fraud, mail fraud, obstruction of an SEC investigation and conspiracy to commit money laundering.

The new indictment removes two counts of wire fraud and five counts of mail fraud, and Stanford is no longer accused of conspiracy to commit securities fraud. Still, Stanford faces up to 250 years in prison.

A Justice Department spokeswoman declined to comment, citing a court-imposed gag order in the case.

While the new indictment sharpens the focus on Stanford as a lone defendant, it is unclear whether it will do much to advance a case that has been hopelessly stalled for months.

Stanford's original trial, scheduled for January, was postponed indefinitely after he became addicted to prescription drugs while in federal custody and a judge ruled him incompetent. Because of that, he is also unable to answer the new charges against him and will not attend an arraignment scheduled for May 19. Stanford's court-appointed defense attorney, Ali Fazel, says that as a matter of law, Stanford cannot enter a plea.

"He has been found incompetent," Fazel said. "We are on standby."

The fate of Stanford's initial co-defendants—former chief investment officer Laura Pendergest-Holt, former accounting executives Mark Kuhrt and Gilbert Lopez, and former Antiguan banking regulator Leroy King—also remains unclear. Pendergest-Holt, Kuhrt and Lopez have all pleaded not guilty. King, who holds dual citizenship in the U.S. and Antigua, has been fighting extradition to the U.S.

Fazel notes that as a matter of law, the judge in the case could put the co-defendants on trial at any time, but instead has chosen to delay their cases until after Stanford's trial, which has been postponed indefinitely.

"The other defendants are free on bond and have had months to study the charges," Fazel said. Citing the judge's gag order, however, Fazel to speculate on why the co-defendants are being allowed to wait for trial.

"Make of that what you will," he said.

The new indictment comes at a time when investors and others touched by the Stanford scandal have been turning up the heat on the authorities in hopes of moving the case along. The delays have confounded efforts by a court-appointed receiver to recover assets for Stanford's alleged victims, because most of the missing funds are believed to be in overseas accounts. Without a guilty verdict and a forfeiture order, the funds are off limits to U.S. authorities, meaning investors are likely to see just pennies on the dollar.

The receiver, Dallas attorney Ralph Janvey, has instead been focusing his efforts in the U.S. Janvey has filed dozens of so-called "clawback" claims, including against dozens of former Stanford employees and investment advisors. One such claim targets two advisors widely credited with helping authorities make their case against Stanford: Charles Rawl and Mark Tidwell of Houston.

The two sued Stanford in 2007, saying they left the company due to rampant fraud, which the company denied. Rawl and Tidwell say they brought their evidence to the SEC, which sued Stanford in 2009. (Read about other whistleblower cases and how the SEC rewards tipsters here.)

Rawl, who has not spoken publicly about the case in two years, told CNBC exclusively this week that he and Tidwell contacted the SEC seeking help with the suit by the receiver, but were told they are on their own.

"The SEC attorneys informed us that, you know, We've got your back guys, you're good with us," Rawl said. But apparently that goodwill only went so far. Rawl said they were told, "We like you, you're our guys, but we don't control the receiver. There's nothing we can do to help you."

An SEC spokesman did not respond to CNBC's request for a comment.

Secrets of the Knight: The Allen Stanford Story Rawl believes the government is intentionally dragging its feet because authorities took so long to move in on Stanford. A 2010 SEC Inspector General's report found the agency was aware of issues at Stanford as far back as 1997. Rawl alleges the delays in Stanford's criminal case are part of what he calls a cover-up.

"The further that people dig, the more embarrassment on the government's part," Rawl said. "I think certain people hope it just fades away."
Transcript of the Scott Cohen report where he talks about government conspiracy
An amazing twist in the case of Allen Stanford. Two years after the scandal, government's prosecution has ground to a halt. Scott Cohn has been investigating. "It is impossible to nail down, to run down all of the conspiracy theorys that attended this case, but the longer this draws out, the longer the theory have to run. This case is on hold because somehow, while in custody, he became addicted to prescription drugs. That means 28,000 investors are in limbo and so wonder if authorities really care.

(One of the whistleblowers) Charlie Wall worked for two years in Stanford's palatial Houston headquarters. He still finds it hard to come back here".

CW: "It makes my heart race. makes me nervous. and -- i'd like to go".

He left Stanford in 2007, claiming the company was writhe with fraud. Never wanted to be a whistleblower, "but that's what we've been deemed". He claims the government is deliberately delaying the case as part of a cover up.

SC: "What is the government covering up"?

CW: "Their own embarrassment."

"There is plenty to be embarrassed about at the S.E.C., where an internal report knew about issues about Stanford as far back as 1987, but didn't act until 12 years later. Despite reforms at the S.E.C., that report would come up in a trial, but the longer the trial is delayed, the more conspiracy theorys gain steam. Even before stanford's indictment, there was speculation he was a government informant, which we asked him about in 2009.

Allen Stanford: "You talking about the cia?"

SC: "you tell me."

AS: "I'm not going to talk about that".

"What about antigua? Stanford helped write the banking regulations there, so why did the state department supply thousands of dollars worth of computer equipment to antigua's banking regulator in 2001? As part of the audit, it was part of a drug enforcement program. Charlie just wonders if the truth will ever come out.

CW: "In a certain way, seems like Stanford's still winning".

Neither the justice department nor the S.E.C. is commenting. The S.E.C.'s hands are tied. As far as the criminal case goes, the justice department has four prosecutors on the case, but much of the work is effectively come to a halt because the main defendant is in rehab. For the 28,000 investors, that is a huge problem because a vast majority of the money is in offshore accounts, so without a guilty verdict, authorities can't touch the money and investors here are stuck with pennies on the dollar. It's in marked contrast to the madoff case. now, the Stanford losses are right up there with the madoff ones." 



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