Dienstag, 28. September 2010

Did SEC Hide Botched Stanford Probe? I.G. Says Timing Is "Suspicious"

September 28, 2010
By Phil Trupp
In the style of "Mad" magazine, it's the season of con vs. con at the Securities and Exchange Commission -- only no one's laughing.

Word on the inside is that the Commission covered up -- or at least ignored -- an investigation of billionaire R. Allen Stanford, who is awaiting trial in a Texas jail on 21 criminal charges that his Antiguan bank allegedly sold questionable certificates of deposit with "improbably high" interest rates and was running a Ponzi scheme at the same time.

"They didn't call him 'Agile Allen' for nothing," according to a source familiar with the case.

The SEC apparently wasn't nearly so agile.

A report by SEC Inspector General H. David Kotz claims the SEC was aware Stanford was running a $7 billion Ponzi scheme as far back as 1997, but waited until late 2005 to step in. The Commission filed civil charges in the case in February 2009.

Kotz noted that the Commission filed civil fraud charges against Goldman Sachs last April, on the same day it released his report critical of the Stanford investigation. The timing of the Goldman filing is "suspicious," said Kotz, who went on to suggest that the Goldman charges diverted attention from the report of the botched Stanford probe.

The inspector general said the timing of the two actions in April "strains credulity." Kotz made his suspicions public at a September 22 congressional hearing on the Stanford investigation before Senate Banking Committee.

Republican sources in Washington claimed the SEC made Goldman the poster boy for greed as a cover for the Stanford investigative foul up. These sources also suspect Goldman was sued to help boost support for the new regulatory reforms governing Wall Street's occasionally bad behavior.

Though SEC denies the Goldman announcement was a cover-up of the Stanford probe, Kotz wondered out loud if in fact the timing might have been politically motivated.

Republican speculation aside, Mr. Kotz told the committee that top officials at the SEC's Fort Worth office were "being judged on the numbers of cases they brought, so-called 'stats'," the obvious and easy cases. "Complex cases were disfavored," Mr. Kotz explained, because they were not "slam dunks." Mr. Allen's case is a rat's nest of allegations including, but hardly limited to, the purchase of a Caribbean island. In other words, it didn't add up as a "stat" or "quick hit" case.

Robert Khuzami, director of SEC's Enforcement Division, and Carlo di Florio, director of the Office of Compliance Inspections and Examinations, said they are moving to implement the reforms demanded by Mr. Kotz.

Mr. Khuzami said he was alerting what he called "rank and file" SEC inspectors that quick hits do not drive enforcement. He said the divisions are now coordinating their efforts and stepping up the pace.

So what does it take to make the SEC do the right thing? Among the suggestions by Mr. Khuzami and Mr. di Florio is to expand training programs and modernize the management structure. In addition, they added, it's time to place "seasoned investigative attorneys back on the front lines and improve examiners' risk management techniques." No one on the Senate panel bothered to ask where these "seasoned attorneys" have been hiding.

The Kotz report landed on SEC Commissioner Mary Schapiro's desk in March. The Senate hearing gave the lawmakers a chance to vent their dissatisfaction with the Commission, but it's anyone's guess if substance will come out of the Senate probe. Last year, for example, the House Financial Services Committee held hearings on the $336 billion auction rate securities scandal, but no legislation or regulations followed. When Rep. Barney Frank (D-MA) was asked about this failure, he replied, "The ('08) meltdown got in the way." It now remains to be seen if the Senate Committee can find a clear path to financial reform of the SEC's enforcement process.

The hearing produced notable contradictions. Sen. Richard Shelby (R-Ala), the committee's ranking republican, said the Bernard Madoff $65 billion Ponzi scheme had caught the SEC flatfooted though at least one part of the Commission had been aware of the Stanford case for years. Sen. Shelby was obviously unaware that there had been warnings about Madoff as far back as the late 1990s.

"I believe this should mark the beginning of our review of this troublesome episode," Sen. Shelby said, referring to Mr. Stanford. "We need to know exactly why evidence of this fraud was not more thoroughly pursued."

He added that Mr. Khuzami had brought to light "a colossal failure of the SEC."

Observers wondered why Sen. Shelby was so outraged. "Is he living on another planet?" asked one source. "Is this the first time it crossed his mind that the SEC is maybe a little slow off the mark?"

Another open question: Why was no one fired because of the incompetent handling of the Stanford affair? It seemed a rhetorical question, given that no one was fired in the wake of the Madoff scandal, which was a much larger fraud. Lawmakers also expressed concern that the head of the Fort Worth division later offered to defend Mr. Stanford before the Senate committee.

"It takes time for a culture to change," Mr. Kotz said. "It takes time to trickle down the line."

In the meantime, the investing public will just have to wait on trickle-down ethics to kick in before trust is restored.

Visit the Stanford International Victims Group - SIVG official forum http://sivg.org/forum/

Mittwoch, 22. September 2010

Senators probe inaction against Stanford

September 22, 2010
By MENGFEI CHEN Copyright 2010 Houston Chronicle
Angry senators grilled top officials of the Securities and Exchange Commission on Wednesday, citing the agency's delays in taking action against accused swindler R. Allen Stanford despite repeated red flags about his financial firm's operations.

Lawmakers sharply questioned Rose Romero, the director of the SEC's Fort Worth regional office, and Robert Khuzami, the agency's national enforcement director, about a report from the agency's independent inspector general.

It found that the Fort Worth compliance office decided at least four times not to act on findings by SEC staffers that Stanford appeared to be operating a Ponzi scheme.

The inspector general's report concluded that Fort Worth SEC officials harbored suspicions that Stanford was acting illegally as early as 1997, two years after his company's broker-dealer arm, Stanford Group Co., registered with the SEC.

Over the next eight years, the compliance branch of the Fort Worth office conducted four separate examinations of Stanford's investments and reported each time that the high returns and low volatility were "highly unlikely" and inconsistent with a "legitimate" fund.

All four times, Fort Worth's enforcement team chose not to act on the findings. The enforcement team first opened a formal investigation into Stanford's company in 2005.

The SEC filed a civil fraud suit in February 2009 against Stanford and his companies, which were placed in receivership. A federal grand jury handed down the criminal indictments four months later.

Sen. Vitter asked Rose Romero why it took so long for the SEC to do something about the "suspected" fraud, one of her answers given was that "we did not think there were any American investors so it really did not concern us".

Victim's comment:
That answer showed me that they did not - and do not - care about any victims from outside of the US... disgusting attitude. The SEC admitted that they were negligent, they admitted that they did not show Due Diligence and yet we are still not able to seek legal redress from them. The whole situation stinks.

Stanford Group Co., was registered with the SEC and the main task of SEC is to safeguard ANY investment of Stanford Group. Of course if they were not racist or if they were "really working" instead of watching porns, then this Ponzi Scheme wouldn't affect thousands of innocent persons.

Visit the Stanford International Victims Group - SIVG official forum http://sivg.org/forum/

Federal authorities are considering whether to prosecute a former securities regulator in Fort Worth who repeatedly quashed investigations of R. Allen

September 22, 2010
Federal authorities are considering whether to prosecute a former securities regulator in Fort Worth who repeatedly quashed investigations of R. Allen Stanford's offshore banking empire.

Securities and Exchange Commission Inspector General David Kotz reported earlier this year that Spencer C. Barasch had "a significant role" in decisions not to formally investigate Stanford, who the SEC has since accused of running an $8 billion Ponzi scheme.

Kotz told lawmakers Wednesday that his office has "had discussions with criminal authorities about whether there would be any criminal action arising because of that."

Kotz's report, issued earlier this year, also said that Barasch later represented Stanford despite ethics laws against doing so.

Under questioning from Sen. Jim Bunning, R-Ky., Kotz said he'd learned the SEC would ask the State Bar of Texas to investigate Barasch for disciplinary violations.

"If you don't get the Justice Department involved in this, shame on you as the inspector general," Bunning said. "That, to me, is criminal negligence. And the sooner they get him before a U.S. court, the better I will like it."

Officials at Barasch's law firm, Andrews Kurth, couldn't immediately be reached for comment.

Kotz delivered his testimony during a hearing of the Senate Banking Committee that examined how the SEC's Fort Worth office missed several opportunities to stop Stanford's alleged scheme before it grew larger.

SEC officials said they would implement all of Kotz's recommendations, including increasing coordination between the SEC's examiners and enforcement staff.

The inspector general's report said that SEC examiners in Fort Worth suspected as early as 1997 that Stanford was probably operating a massive Ponzi scheme through certificates of deposit marketed to Americans and investors in other countries.

However, the Fort Worth enforcement staff didn't formally investigate those concerns until 2006, by which time the amount invested in Stanford's CDs had grown much larger.

In Feb. 2009, the SEC accused Stanford and three of his firms of fraud and other securities violations for operating a "massive Ponzi scheme" estimated at $8 billion. The Justice Department also has filed criminal charges against an Antiguan banking regulator who allegedly conspired with Stanford to obstruct SEC investigations over the years.

Rose Romero, the director of the SEC's Fort Worth division, told lawmakers Wednesday that the SEC has notified other Stanford executives and financial advisers "that we intend to recommend fraud charges against them."

Visit the Stanford International Victims Group - SIVG official forum http://sivg.org/forum/