Stanford Investors Sue SEC for Losses in Alleged Swindle

	March 25, 2011 The U.S. Securities and Exchange Commission was sued by eight of indicted financier R. Allen Stanford's investors, who claim regulators' negligence and misconduct caused their losses. The investors, in a lawsuit filed yesterday in federal court in Dallas, said regulators should have investigated Stanford earlier and detected what the agency later concluded was a "massive" Ponzi scheme. The SEC's inspector general, in a report issued last year, faulted the agency's Fort Worth, Texas, office and some of its employees for failing to take action against Stanford sooner. "But for the negligent acts and omissions, misconduct and breaches of duty by Spencer Barasch, a former SEC regional enforcement director, the negligent supervision of Barasch by his SEC supervisors, and other inexcusable acts of negligence by SEC employees, the plaintiffs would not have made, and lost, their investments," according to the complaint filed by the investors' lawyer, Edward Gonzales III in Baton Rouge, Louisiana.
Indicted financier R. Allen Stanford, accused of leading a $7 billion investment fraud scheme, arrives for a hearing at the Bob Casey Federal Courthouse in Houston on Jan. 6, 2011. Photographer: F. Carter Smith/Bloomberg
U.S. securities regulators seized Stanford's operations in February 2009 on suspicion of fraud. Investors who bought certificates of deposit at the financier's Antigua-based Stanford International Bank Ltd. lost more than $7 billion, according to a lawsuit filed by the SEC. Barasch, who left the SEC's Fort Worth office in 2005 and is now a lawyer in private practice, didn't immediately return a call to his Dallas law firm today. Kevin Callahan, an SEC spokesman, declined comment on the lawsuit. Stanford, 61, who is in jail awaiting trial on criminal charges, has denied any wrongdoing. Most of the eight investors who filed the lawsuit live in southern Louisiana, where Stanford had a large trust operation. They claim combined losses of more than $18.7 million, according to their complaint. The SEC failed to conduct a meaningful probe of Stanford until 2005 even though examiners suspected him of operating a Ponzi scheme eight years earlier, SEC Inspector General H. David Kotz wrote in an internal report in April. The agency's Forth Worth office conducted four reviews of Houston-based Stanford Financial Group Co. starting in 1997 and determined after each one that Stanford's purported returns on certificates of deposit were highly unlikely, Kotz said in the report. Ethics Office Kotz also said in the report that Barasch, after he left the SEC, tried to represent Stanford on three separate occasions, until the agency's ethics office blocked it. Barasch told Kotz's investigators that he felt it wasn't necessary for his office to act against Stanford because he had informed other regulatory agencies about the potential fraud, according to the report. Kotz said he found no evidence of such referrals in his investigation. Kotz's report singled out Barasch as having "played a significant role in multiple decisions over the years to quash investigations of Stanford," Gonzales said in the complaint. "Through its negligent actions and inactions, the SEC caused Stanford's scheme to continue and expand, eventually resulting in billions in losses by investors," Gonzales said. The case is Robert Dartez LLC v. U.S., 3:11-cv-00602, U.S. District Court, Northern District of Texas (Dallas). The criminal case is U.S. v. Stanford, 09-cr-00342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank, 09-cv-00298, U.S. District Court, Northern District of Texas (Dallas). Source.

Related article:
KLS complaint against the U.S. Government/SEC

FINAL JUDGMENT

The Court has granted Defendant's motion to dismiss for lack of subject matter jurisdiction. Accordingly, it is ordered that Plaintiffs' claims are dismissed without prejudice for lack of subject matter jurisdiction. Court costs are taxed against Plaintiffs. All relief not expressly granted is denied. This is a final judgment.

Signed November 14, 2011.
/s/ David C. Godbey
David C. Godbey
United States District Judge

Read the complete Order by David C. Godbey here.

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How the SEC really treats "Whistleblowers"

March 24, 2011
By Charles W. Rawl

Dear Senator Grassley:

Madoff whistleblower Harry Markopolos' book, They Wouldn't Listen, describes his experience of trying to get the SEC to see a multi-billion dollar Ponzi scheme growing by leaps and bounds each year right before their eyes. Three years ago, my business partner, Mark Tidwell, and I "blew the whistle" on the Stanford Financial Group's (Stanford's) multi-billion dollar Ponzi scheme growing by leaps and bounds each year right before the SEC's eyes. "They" DID listen to us, and used our evidence and testimony to support a civil lawsuit against Stanford and take a global network of companies into receivership on February 17, 2009.

Unfortunately, Mark Tidwell and I have had a very one-sided relationship with the SEC, and the Commission's failed promise of protection in return for cooperation and assistance in their case sends a message to the entire financial industry that being an SEC whistleblower is a dangerous and absurdly misguided endeavor.

Given the record of failure by the SEC and FINRA to adequately regulate the financial sector, it is critically important that whistleblowers be protected and compensated for delivering crucial information to authorities to help stop predatory and criminal enterprises like Stanford. Law-abiding citizens like Mark and I should be able to trust and depend on the SEC's assurances of protection. Instead, we have become the perfect examples of why NOT to blow the whistle.

Mark and I were promised protection when we risked our careers, our reputations and even our families' security to blow the whistle on Stanford. The SEC's promises have been broken in a very blatant manner and I firmly believe that when our story becomes public, it will be counter-productive to the admirable efforts of our nation's leaders like you who encourage citizens to do the right thing and come forward to report fraudulent conduct in corporate America.

I am writing you because of your long-term advocacy for whistleblowers and I am confident you will be appalled to learn some of the shocking details of my experience as a Stanford whistleblower. As the SEC is in the rule-making process for its recently expanded whistleblower program, I feel it is very important Congress truly understands the Commission's CURRENT treatment of whistleblowers so that appropriate legislative support is in place to force the SEC to comply with some very critical provisions to protect whistleblowers.

Source.

Stanford: What's the hold up? http://sivg.org/article/SEC_Whistleblowers.html

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Letter to the Chronicle’s Editor Regarding the SEC’s Failure to Protect the Stanford Group’s Victims

Letters to the editor
HOUSTON CHRONICLE
March 15, 2011

Agencies failed

It has been more than two years since 1,290 Texans lost their life savings in the R. Allen Stanford debacle. Many of the victims were teachers, nurses and firefighters, and these losses reflect most, if not all, of the retirement funds they accumulated over many years of hard work. These Texans relied on the Securities Exchange Commission (SEC) to uphold its federal mandate to protect investors, and despite numerous warnings about Stanford Financial over several years, the SEC failed to act on behalf of investors.

In 2010, SEC Inspector General David Kotz revealed the SEC was aware as early as 1997 that Stanford investors’ funds were in jeopardy of being stolen. It wasn’t until 2004 — seven years after the SEC first became aware of problems at Stanford — that it opened an official investigation. By the time the SEC took action in this case, it was too late for the Stanford victims who had lost virtually everything.

To make matters worse, the Stanford investors were customers of Stanford Group Co. (SGC), a broker-dealer that was a member of the Securities Investor Protection Corp.(SIPC). SIPC allowed SGC to use its seal for brochures, promotional materials and correspondence to give investors additional confidence. “Member SIPC” was adorned on its correspondences to investors, yet to date SIPC, which is under SEC authority, has refused to provide any remedy for Stanford victims. Customers of the Stanford broker dealer have been denied coverage, despite previous cases where investors in similar situations were covered. Skip Swingle, a victim of SGC, aptly warned, “I don’t think it’s just Stanford victims that should be concerned about what’s going on, but everybody.”

On Monday I sent a letter to SEC Chairman Mary Schapiro asking again for an expedited review of this issue. No one can restore all that these victims lost. We cannot replace the trust that was violated, nor can we say that this fraud won’t happen again. What the SEC and SIPC can and should do is live up to the mandate of encouraging investment by establishing customer confidence. If they do not, brokerage firms across the country might reconsider the placement of the SIPC seal, and investors will see it as a symbol of caution, not protection.

— U.S. REP. JOHN CULBERSON,
7th Congressional District of Texas

Source.

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