Montag, 5. Oktober 2009

Receiver Goes after Law Firms

October 5, 2009
By Hazra C Medica
Court-appointed receiver Ralph Janvey has turned the spotlight on two law firms. The Miami Herald reported over the weekend that Janvey, who has been working with federal agents, is now pressing for more information directly from Stanford's lawyers.

The receiver has made a request for legal files provided to R Allen Stanford by Greenberg Traurig and another firm, Hunton & Williams. The Herald listed this latest move by Janvey as "one of the most aggressive moves waged by the receiver to search for assets from Stanford's far-flung banking network".

While Greenberg Traurig is not under criminal investigation, the firm is facing a legal review of its actions in Antigua. Ross Gaffney, a former FBI agent who investigated Stanford, was quoted as saying: "I'm sure one of the things they will look at is what did Greenberg Traurig know, and when did they know it, and did they have any liability?"

According to the article, Greenberg Traurig's effort to assist Stanford in 1998 was but one move in a series which saw the Florida law firm rescuing Stanford from crisis and propelling his business interests. The Herald sought interviews with five lawyers who represented Stanford while working for the firm. Two of the five declined to comment, but assured that they were simply providing legal support and were not aware of any illegal schemes by Stanford.

The article spoke of a "money pipeline" between Miami and Antigua which Greenberg lawyers helped Stanford create. It went on to describe Stanford's creation of a trust office in downtown Miami which could move millions overseas without reporting anything to the government.

According to the article, "The unusual arrangement -- created over the objections of Florida's chief banking lawyer -- let Stanford open the office without submitting to fraud checks or money-laundering requirements. Over the next decade, the Miami center sold millions in Stanford's key investments -- certificates of deposit -- the checks stuffed in pouches and sent in jets to Antigua."

The article also chronicled the changes in Antigua's banking system and Stanford's effort to "keep the pipeline alive". The US Treasury, the article explained, was considering blacklisting all of Antigua's offshore institutions because of money laundering and fraud. In response, Stanford met with then prime minister, Lester Bird and agreed to pay out of his own pocket for a task force to rewrite the banking laws.

This task force, the article said, which included Greenberg lawyer Carlos Loumiet, met in Miami and St John's to examine ways to avoid a shutdown of the banks. According to the article, the 1998 legislation gave birth to a new regulatory agency - with Stanford on board - which would give protection to the investor from regulators for the next decade.

The Herald pointed to a particular incident which highlighted the power Stanford gained in Antigua by owning the largest bank. It spoke of the new regulatory agency requesting all of the island's secret offshore banking records. The head regulator, Althea Crick, refused. The agency waited until Crick had left for the day before seizing the filing cabinets containing the records and taking them to another building.

According to the story, the February 1999 takeover was approved by the new regulatory board, including an advisor to Bird, Errol Cort. The Herald rebutted statements which suggested that the takeover "was not done under the cover of darkness". According to the article, records show that Cort was a director of Stanford Trust Company and one of Stanford's Antigua lawyers.

International pressure from US and British authorities would later force Stanford to step down from his position and Antigua officials agreed to change the laws crafted by the task force. However, according to the article, "the momentum was in motion to help Stanford's bank for years to follow."

It noted, "With the new regulatory agency enforcing new banking rules, most of the 56 offshore banks on the island were eliminated, swatting away much of his competition." It also explained that court records show that Stanford's own bank was fabricating financial reports at the same time he was taking over the regulatory agency.

With millions of dollars coming into the Antiguan bank, Stanford switched to Hunton & Williams, after Loumiet joined the firm in 2001. In 2002, regulator Crick was replaced by Leroy King, who has been accused of taking more than $200,000 in bribes.

Loumiet and Hunton & Williams have agreed to turn over records of legal work for Stanford's US companies to Janvey. But they are fighting to keep secret the details of Stanford's businesses in Antigua and other foreign countries.

A spokeswoman for Hunton & Williams, Eleanor Kerlow, was quoted as saying: "There are legal issues regarding jurisdiction and client privilege that must be resolved before we proceed further."

According to the Herald, it is anticipated that Houston Judge David Godbey will decide whether the firm must meet Janvey's demands. Kristie Blumenschein, an attorney with the receiver's firm, has indicated that they are ready to fight for the records. According to Blumenschein, Janvey will not only search for assets, but the actions of the lawyers, dating to the 1990s, will also be under review.

It is being suggested that Janvey can demand lawyers be coerced into testifying about what they knew, since any conversations they had with Stanford about his ongoing crises are not protected by attorney-client privilege.

Visit the Stanford International Victims Group - SIVG official forum

Freitag, 2. Oktober 2009

Finra Missed Chances to Catch Stanford and Madoff

David Kotz October 2, 2009
By Joshua Gallu, David Scheer and Ian Katz

The Financial Industry Regulatory Authority didn't fully probe transactions at Bernard Madoff's firm and repeatedly failed to investigate tips about R. Allen Stanford's alleged $7 billion fraud, an internal report found.
David Kotz.
Employees at the U.S. brokerage industry's main regulator must more aggressively exercise their authority, and escalate suspicions of serious fraud to senior managers or special investigators, according to the report released today. Finra said it will create an Office of Fraud Detection and Market Intelligence to ensure that investigators with expertise in fraud detection can respond rapidly.

The report shows regulatory lapses linked to Madoff's record Ponzi scheme weren't confined to the Securities and Exchange Commission, which has been faulted by its own internal watchdog for inadequately pursuing tips over 16 years. In Stanford's case, Finra also received "credible information" from at least five sources, including the SEC, according to the internal report.

"As regulators, we owe it to investors -- especially those harmed by recent scandals -- to develop a better, more comprehensive, response to fraud," Finra Chief Executive Officer Richard Ketchum said in a statement. "I am committed to taking the lessons from the report's findings to make Finra even stronger."

SEC Chairman Mary Schapiro led Finra and its predecessor NASD from 2006 until taking over the SEC in January this year. During that time, the brokerage regulator conducted some examinations of Madoff's firm and fined Stanford Group Co. The SEC oversees Finra and approves its rules.

Jurisdictional Limits

In a series of reports this year, SEC Inspector General H. David Kotz has faulted his agency's oversight of Madoff and examined its attempts to investigate Stanford. In the Stanford case, he concluded the SEC was hampered by jurisdictional limits and Stanford's refusal to cooperate.

Kotz found that the SEC never fully investigated at least six tips on Madoff since 1992 while he was building a $65 billion Ponzi scheme. While there is no evidence that Finra received similar whistleblower complaints, its examiners did uncover several facts worthy of inquiry that, "with the benefit of hindsight, should have been pursued," the Finra report said.

In 2005, the SEC sent a five-page letter to Finra about Stanford. The letter said his certificates of deposit "appear too good to be true" and that his firm had aggressive sales tactics commonly associated with fraudulent schemes.


According to the report, Finra's lead examiner "thought the letter signaled that the SEC had taken over the CD case" when it was actually meant to refer the investigation to Finra. In light of the misinterpretation, the examiner "did not do all he could have done on the CD issue."

In 2006, Finra examiners noticed Madoff was making payments to Cohmad Securities Corp., according to the report. Had examiners sought more documents, they might have realized that the fees were for steering clients to Madoff's investment advisory business. Such a discovery "may not have uncovered the Ponzi scheme, but it would have undermined the Madoff firm's longstanding representations" that it didn't have customer accounts, the report said.

In 2007, Finra staff uncovered commissions from a London affiliate that criminal investigators have linked to money laundering, according to the report. If examiners had fully scrutinized the transactions, they may have fueled suspicions and prompted a broader investigation, it said.

Anonymous Letter

In 2003, Finra received an anonymous letter calling Stanford's business a "massive Ponzi scheme that will destroy the life savings of many." The letter was not seen by the organization's enforcement staff until six years later after an analyst determined Stanford's CDs were not securities and therefore outside of Finra's jurisdiction, the report said. The analyst referred the letter to the SEC.

"By more aggressively using its authority, Finra could have obtained evidence of wrongdoing much earlier than it did," the report said.

If examiners had fully pursued information that Stanford's customers were selling securities to purchase CDs based on his allegedly false advertising, they might have found sufficient evidence of fraud, the report said.

On at least two occasions, Finra handled complaints from former Stanford employees who claimed they had been fired after refusing to sell CDs without conducting due diligence. One said Stanford was soliciting unsophisticated investors in Latin America and that the value of his bank's assets were "well below" his obligations to clients, indicating he was running a Ponzi scheme. Finra didn't follow up on the allegations, the report said.

150-Year Sentence

Madoff, 71, is serving a 150-year prison sentence after pleading guilty to a fraud that federal investigators said dated to at least the 1980s. Cohmad, which was sued by the SEC in June, has denied wrongdoing.

Stanford, 59, faces 21 fraud and conspiracy counts linked to what the SEC has called a "massive" scheme to defraud investors through the sale of bogus CDs by Antigua-based Stanford International Bank. He denies wrongdoing and remains in a Texas jail awaiting trial.

The report was prepared by a special panel formed to review Finra's examination program, particularly the Madoff Ponzi scheme and Stanford's alleged fraud. It was led by Charles Bowsher, U.S. comptroller general from 1981 to 1996. Other members included Harvey Goldschmid, a former SEC commissioner; Joel Seligman, president of the University of Rochester; and Ellyn Brown, Maryland's securities commissioner from 1987 to 1992.

Finra, funded by Wall Street firms and overseen by the SEC, writes rules for and polices almost 4,800 brokerages. Its board includes representatives of the financial industry along with former regulators and academics.

Visit the Stanford International Victims Group - SIVG official forum