Samstag, 28. Januar 2012

Stanford Told Investors "Lie After Lie" and now he is trying to "game the system"

January 28, 2012
Stanford's lawyer told the panel that the CDs sold by the Stanford bank weren't securities and that Stanford's clients had no say over how their money was invested.

Robert Scardino, one of Stanford's court-appointed lawyers called those CD purchasers "sophisticated investors" whom he said "know what a CD was and what it wasn't."

They also received promotional materials from Stanford's business disclosing that past performance was no guarantee of future success and that an investor could lose the entirety of an investment.

Well, it seems Scardino and defense lawyer Ali Fazel should look at these promotional materials from Stanford's business!
Stanford promotional material
Stanford promotional material
Stanford promotional material
Stanford promotional material
Stanford promotional material
Stanford promotional material
Stanford promotional material
Stanford promotional material
Gregg Costa, the lead federal prosecutor, has said that Mr. Stanford is trying to "game the system."

"You're still pushing that?" Judge Hittner responded incredulously when he heard from the defense lawyers that Mr. Stanford was unable to participate fully in his defense.

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Donnerstag, 26. Januar 2012

Insight: How Allen Stanford kept the SEC at bay

Stanford January 26, 2012
By Murray Waas

For twenty years, R. Allen Stanford allegedly had run a $7 billion Ponzi scheme from his offshore bank on the Caribbean island of Antigua. U.S. authorities had been nosing around Stanford's empire for longer than a decade but hesitated to open a full-blown probe.

As Stanford's trial began this week, one question left unanswered was: How did he keep authorities at bay for so long?
Texas billionaire Allen Stanford is interviewed in Houston in April 20, 2009
A Reuters examination of his case finds that the answer lay in part in the legal advice he obtained from former SEC officials and other ex-regulators and law-enforcement officials.

Among those Stanford sought help from was famed securities lawyer Thomas Sjoblom. Then a partner at the international law firm of Proskauer Rose and chair of its securities practice, Sjoblom also was a former 20-year veteran of the U.S. Securities and Exchange Commission's enforcement division.

What Sjoblom allegedly did next for Stanford has drawn the scrutiny of federal prosecutors. The Justice Department has been investigating Sjoblom for possible obstruction of justice, witness tampering, and conspiracy related to his efforts to persuade the SEC to stand down from its investigation of Stanford, according to people familiar with the probe.

Sjoblom is one of the most senior attorneys ever to be investigated for allegedly crossing the line from legal advocacy on behalf of a client to violating the law. He hasn't been charged, however, and it is possible he never will be.

Stanford went on trial on Monday in federal court in Houston on charges that he defrauded more than 30,000 investors from more than 113 countries, and also obstructed the SEC's investigation of him. Only Bernard Madoff is alleged to have stolen more. Stanford has pleaded not guilty.

Prosecutors are likely, in making the obstruction portion of their case against Stanford, to detail Sjoblom's alleged role in assisting Stanford in that effort. Attorneys began their opening arguments on Tuesday.


People with first-hand knowledge of the matter say that Sjoblom had offered the Justice Department his testimony against Stanford in exchange for a grant of immunity from prosecution for himself - an offer rejected by the Justice Department. Prosecutors demanded a formal acknowledgment by Sjoblom of his own alleged criminal participation in an attempt by Stanford to derail investigations by the SEC, according to people involved in the discussions.

Sjoblom declined to answer questions when reached by telephone as well as inquiries submitted to him by email.

Ordinarily, attorneys are precluded from being witnesses against former clients because of the attorney-client privilege.

But under a legal doctrine known as the crime-fraud exception, an attorney can tell what he knows if his client has sought advice that would abet the commission of that fraud or some other criminal act - or in rare instances, if the attorney himself aided a crime. The crime or fraud disclosed or discussed must also then occur for the attorney to be able to testify. If Sjoblom had testified against Stanford, he would have been one of the most prominent attorneys to turn against such a client.


The trials could cast light on the broader mystery of how the alleged Stanford fraud could have gone on so long even though federal regulators were examining the Texas financier for years. The case has put the SEC and other federal agencies in an embarrassing light, creating fresh fodder for critics of the revolving door between government and the private sector.

Stanford, Reuters has found, paid at least eight former senior U.S. and foreign regulators and law-enforcement officials for legal advice or investigative services.

Among the former government figures who worked for Stanford is Spencer C. Barasch, who headed the enforcement division of the SEC's office in Ft. Worth, Texas.

Barasch agreed this month to pay a $50,000 fine for allegedly violating federal ethics laws by representing Stanford after overseeing regulation of Stanford's U.S. brokerage businesses. It is illegal for many former federal regulators, including those at the SEC, to represent private clients if they have "personally and substantially" participated in any matters related to those clients during the course of their government employment.

Examiners at the SEC had suspected as early as 1997 that Stanford was engaged in a Ponzi scheme and felt the SEC should investigate. But year after year, until 2005, their warnings and calls for investigation were ignored by higher-ups.


In January 2009, the SEC was seeking the sworn testimony of both Stanford and James Davis, the chief financial officer for Stanford International Bank. Davis, Stanford's top deputy, has since pled guilty to securities-fraud and mail-fraud charges and has become a government witness against Stanford and others.

Stanford sought to delay and wear down regulators and investigators, Davis and other witnesses told the government, according to a 2009 plea agreement between Davis and federal prosecutors filed in federal court in Houston.

In 1997, 1998, 2002, 2004, and 2005, according to internal agency records seen by Reuters, examiners for the SEC recommended that the agency investigate Stanford. In three of those instances, Barasch, at the time an SEC official in Ft. Worth, personally overruled the examiners' recommendations, according to those records. Those decisions helped the Ponzi scheme to continue unabated for several additional years, costing investors additional billions of dollars, according to a report by the SEC's Inspector General.

Barasch told the SEC Inspector General that he made those decisions because he was not sure the SEC had the statutory authority or jurisdiction to investigate. He blamed his superiors and a broader culture within the SEC for pressuring the staff not to pursue complex and difficult cases, according to the Inspector General report.

In his final days at the SEC in 2005, Barasch overruled examiners one last time on a request to investigate Stanford, according to the Inspector General report and interviews with SEC officials. The SEC's formal investigation of Stanford began exactly one day after Barasch left the agency.

Barasch referred questions to his lawyer; his attorney didn't respond to requests for comment.


"This misconduct highlights the dangers of a 'revolving door' environment between the SEC and the private securities law bar," outgoing SEC Inspector General H. David Kotz said in statement about the Barasch case.

The Justice Department's agreement with Barasch was reported by Reuters earlier this month. The SEC, which has the authority to bar professionals from practicing before the agency, has not announced any disciplinary action.

The SEC is also preparing a separate civil case against another former regulator, Bernerd Young, who worked as a compliance officer for Stanford's bank, said a person familiar with the matter. Before he worked for Stanford, from 1999 to 2003, Young was a district director of the Dallas office of the National Association of Securities Dealers, which was then the brokerage industry's self-regulator. Regulation of the industry has since been taken on by a successor agency, the Financial Industry Regulatory Authority.

Young was notified by the SEC staff last June that they were preparing a civil complaint against him for securities-law and other violations and seeking a lifetime ban on his employment in the securities industry, according to a person who reviewed the SEC's notification to Young. Young hasn't been charged with any wrongdoing.

In November 2007, the Financial Industry Regulatory Authority charged that Stanford had used "misleading, unfair and unbalanced information" and fined him $10,000, but with no admission of guilt. Young was central to decisions by the NASD not to take tougher action against Stanford, according to government officials involved in the matter.

Randle Henderson, an attorney for Young, said Young had "done absolutely nothing wrong" and that he and Young had been cooperating with SEC investigators. If an enforcement action was brought, Henderson said, he and his client would engaged in a "full and complete and aggressive defense" of the allegations.


Sjoblom began work for Stanford as early as 2005, as the SEC began a formal investigation. Barasch began representing Stanford in September 2006.

Barasch's successor at the SEC had reversed course and given a green light for the SEC to investigate. Stanford believed that hiring former SEC officials was the best course to thwart the agency, according to emails written by Stanford to subordinates and later cited by the SEC's Inspector General.

Barasch worked on the case until December 2006, dropping out after SEC ethics officers warned him that any further involvement would violate a federal law.

On January 21, 2009, Stanford, his deputy Davis and other senior executives of the Stanford International Bank met Sjoblom in an aircraft hangar in Miami, Florida, to devise a strategy for fending off the SEC, according to the Davis plea agreement entered in Houston federal court.

Stanford, a bulky man with a thick mustache, paced nervously in the aircraft hangar, according to an account one of the attendees gave to federal investigators. In contrast, Sjoblom appeared calm and collected as they discussed their next move, the attendee told federal investigators.

The group allegedly agreed on a strategy: Sjoblom would go to the SEC and tell officials that both Stanford and Davis knew very little about the business they ran. Instead, he would tell them, two other, lower-ranking executives of the Stanford International Bank understood much better how the bank invested customers' money. He would then propose that they testify in place of Stanford and Davis, according to the plea filed in federal court in Houston.


Sjoblom knew that these assertions were false, and was also by then aware that Stanford had engaged in a massive financial fraud, according to the Davis plea. Still, Sjoblom moved forward with the effort to obstruct the SEC investigation, the Justice Department alleged in the Davis plea.

Early the next morning, on Jan 22, 2009, Sjoblom met in Houston with attorneys for the SEC, according to the Davis plea. There, Sjoblom told the SEC staff that Stanford and Davis did not "micro-manage" clients' portfolios. Taking Sjoblom's word, the SEC agreed to delay the testimony of Stanford and Davis, according to the plea filed in Houston federal court.

The Justice Department has since alleged that Sjoblom's actions constituted an obstruction of their investigation. Based in part on information given them by Davis, federal prosecutors alleged that Sjoblom continued trying to prevent the SEC from learning the truth even after Sjoblom learned about Stanford's massive fraud.

After convincing the SEC to forego Stanford's and Davis's testimony, Sjoblom allegedly helped prepare Laura Pendergest-Holt, Stanford International's chief investment officer, to testify in their absence, according to the Davis plea and an indictment against Pendergest-Holt in federal court in Houston.

Prosecutors allege that in reality, Stanford and Davis were the only two Stanford executives intimately familiar with the finances of the company. Pendergest-Holt only learned the full extent of the fraud around the same time that Sjoblom did, when the two were preparing her to testify before the SEC, federal prosecutors assert. Pendergest-Holt and Sjoblom learned then that the firm was insolvent and most of its financial claims fictional, prosecutors allege in the Pendergest-Holt indictment and the Davis plea.

On February 5, Stanford admitted to Davis and Sjoblom that his bank's "assets and financial health had been misrepresented to investors, and were overstated," according to Davis's plea agreement with prosecutors.


Instead of dropping Stanford as a client and setting the record straight with the SEC, Sjoblom went back to Davis and Stanford with an offer, Davis told the FBI, according to a person familiar with the case. Sjoblom told the pair that they both faced serious criminal jeopardy and asked each to pay him a retainer of $2 million to represent them personally, for a total of $4 million, this person said. That money would have been in addition to what Stanford's firm had already paid Sjoblom's firm. It is not clear whether the additional money was paid.

On February 10, Pendergest-Holt gave testimony to SEC officials. That morning, Davis admitted in his guilty plea, he phoned Pendergest-Holt and encouraged her to lie to "continue to obstruct the SEC investigation," according to the Davis plea agreement.

During her testimony, Pendergest-Holt said she knew little about the assets the SEC wanted to know about. All during her testimony, Sjoblom sat at her side, as five attorneys from the SEC's enforcement division fired away questions.

A federal grand jury later indicted her on obstruction of justice and conspiracy charges related to her allegedly false testimony. She is currently awaiting trial. Her lawyer declined to comment.

The indictment of Pendergest-Holt also implicated Sjoblom. "Holt, Attorney A and others would make false and misleading statements to the SEC staff attorneys in order to persuade them to delay" Stanford's testimony while Pendergest-Holt would "provide false testimony," the indictment alleged.

Days after Pendergest-Holt's testimony, on February 14, Sjoblom resigned as a lawyer for Stanford and wrote to the SEC: "I disaffirm all prior oral and written representations made by me and my associates to the SEC staff."

Federal prosecutors are looking to Pendergest-Holt to see if she corroborates Davis' testimony regarding Sjoblom, and will then decide whether to charge Sjoblom, according to sources close to the case. (editing by Martin Howell and Michael Williams)

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Mittwoch, 18. Januar 2012

Trial Set for Financier Accused in Decades-Long Ponzi Scheme

Stanford January 18, 2012

A federal judge ruled on Wednesday that R. Allen Stanford, the Texas financier accused of defrauding thousands of investors in a $7 billion Ponzi scheme, will go on trial next week, nearly three years after his arrest.

At the hearing, Mr. Stanford's lawyers said he would testify at the trial, giving him an opportunity to describe how he was beaten so seriously by a fellow inmate while in custody in Texas that his memory and ability to prepare for trial was impaired.

United States District Judge David Hittner in recent weeks ruled against motions by Mr. Stanford's lawyers that their client was not mentally competent to stand trial and that the trial should be postponed because they had not had enough time to prepare a defense.

"My finding still remains that he is competent and ready to go," Judge Hittner said Wednesday.
Three years after his arrest, R. Allen Stanford will face a jury.
Defense lawyers for Mr. Stanford argued again this week that they needed a delay in the trial. They said that they needed more time to study possible testimony from expert witnesses on accounting procedures and that one of their contract workers involved in document preparation needed cancer surgery and would be unavailable to work for at least several weeks.

Mr. Stanford, 61, pleaded not guilty to a revised 14-count indictment charging him with defrauding nearly 30,000 investors from 113 countries in a Ponzi scheme involving bogus high-interest certificates of deposit at the Stanford International Bank, which is based on the Caribbean island of Antigua. At the hearing Mr. Stanford, who wore a green prison suit, appeared relaxed while talking with his lawyers. He closed his eyes at times while listening to the lawyers review the procedures for the trial, to start Monday.

Mr. Stanford and three other senior executives of the Stanford Financial Group are accused of lying about the growth of bank assets in investor reports, diverting more than $1.6 billion into personal loans to Mr. Stanford and engaging in wire and mail fraud and conspiracy to obstruct a Securities and Exchange Commission investigation.

According to prosecutors, Mr. Stanford skimmed money from investor funds to live lavishly, with mansions and yachts, essentially converting Antigua into a private playground.

What began as a financial scandal second only to the Bernard L. Madoff pyramid scheme that unfolded as financial markets collapsed in 2008 has devolved into a messy, slow-moving soap opera. Mr. Stanford has been represented since his arrest in 2009 by about a dozen lawyers, many of whom have either quit or were fired for various reasons. Even his current legal team has tried to resign.

Once estimated to have had a personal fortune of more than $2 billion, Mr. Stanford is now considered an indigent defendant deserving of a taxpayer-financed defense since all his assets are frozen by court order.

Mr. Stanford's latest team of four court-appointed lawyers filed a motion last week to leave the case, explaining that they did not have sufficient resources or time to organize a proper defense. They also said their efforts had been held back when contractors preparing documents for the defense quit at the end of last year because they had not been paid for several months.

The lawyers had argued that they should be given three more months to prepare. Judge Hittner repeatedly rejected the bid, arguing that the defense team had had more than a year to prepare. Meanwhile, the contractors have returned to work after an appellate court ordered them to do so and granted them some back pay.

During a break at the hearing, Ali R. Fazel, a defense lawyer, said he was disappointed with the judge's decision that the trial would begin on Monday.

At the hearing, defense lawyers gave some clues about their strategy. They said investors had received payments from their Stanford bank certificates of deposit on schedule until the S.E.C. sued the Stanford Financial Group. Mr. Stanford has long argued that the federal government was responsible for a run on his firm's assets. Robert A. Scardino Jr., another defense lawyer, said, "We fully intend for Mr. Stanford to take the stand."

Mr. Stanford was declared incompetent to stand trial last January because he had become addicted to anti-anxiety medication prescribed to him while in detention in a federal facility outside of Houston. Psychiatrists said the drug, prescribed after he had a fight with a fellow inmate over use of a telephone, probably contributed to fits of delirium.

Psychiatrists who testified for the prosecution and defense last year suggested that Mr. Stanford had become mentally incapacitated because of depression, possible brain injury suffered in the fight and addiction to medication prescribed after the beating.

Over the last year, Mr. Stanford has undergone evaluation and drug rehabilitation. He was declared competent in December to stand trial, though his lawyers say he has not had enough time to review thousands of documents to participate in his defense.

Mr. Stanford says he cannot recall events that happened before the fight. But prosecutors and doctors at the North Carolina facility say Mr. Stanford has been faking memory loss. Gregg Costa, the lead federal prosecutor, has said that Mr. Stanford is trying to "game the system."

As the trial proceeds, the leading witness for the prosecution will be James M. Davis, the former chief financial officer of the Stanford Financial Group, who has pleaded guilty to fraud and conspiracy charges. In a plea agreement, Mr. Davis said Mr. Stanford ordered him to report false revenue and false investment portfolio balances to banking regulators as far back as 1988.

Mr. Davis and the two other former Stanford executives who have been charged in orchestrating the Ponzi scheme face separate proceedings. The prosecution and other lawyers involved in the case said the trial should last at least three weeks.

His lawyers continued to contend on Wednesday that he is not competent to stand trial.

"You're still pushing that?" Judge Hittner responded incredulously when he heard from the defense lawyers that Mr. Stanford was unable to participate fully in his defense.

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Dienstag, 17. Januar 2012

Fate of 7,000 Stanford Ponzi Investors Hangs on Rare SEC Lawsuit

By Robert Schmidt & Joshua Gallu
For 40 years, the U.S. Securities and Exchange Commission and the congressionally chartered group that protects against broker theft have worked in tandem to reimburse people whose accounts are pilfered.

Now the SEC and the Securities Investor Protection Corp., or SIPC, are about to face off in a bitter court fight that may determine how future fraud victims are covered, raise broker fees that support SIPC and cast doubt on the SEC's political independence.

The dispute centers on whether more than 7,000 brokerage customers who invested in the alleged $7 billion Ponzi scheme run by R. Allen Stanford are entitled to have their losses covered by SIPC.

SIPC, a nonprofit corporation funded by the brokerage industry, says the Stanford investments don't fit into the confines of the federal law that governs who's eligible for the payouts. Investors and their advocates in Congress say SIPC is deliberately taking a narrow view of the law to protect brokers from higher assessments.

The SEC's commissioners, who have oversight of SIPC, ultimately sided with the investors. In June, the agency ordered SIPC to start a process that could grant up to $500,000 per client -- the same maximum amount it offers in any case. After SIPC balked, the SEC for the first time sued the group in federal court in Washington.

Dollars and Principles

As the two prepare for a Jan. 24 court date, SIPC has come out swinging, hiring two prominent law firms and an ex-federal judge who's been on the short list for a Republican Supreme Court nomination. In legal briefs, it accuses the SEC of ceding to pressure from Congress to flout the letter of the law, and argues that the agency's position jeopardizes investor payouts in other cases, including for clients of Bernard Madoff and MF Global Holdings Ltd. (MFGLQ)

"The dollars are such and the principles are such that we have to take it seriously," said Stephen Harbeck, who has worked at SIPC for 36 years and is now its president.

Harbeck said the group would probably have to spend most if not all of the $1.5 billion in its fund and possibly have to borrow more from the Treasury if the court orders it into the Stanford case.

The case "challenges the entire nature of the relationship between the SEC and SIPC," he added. "I'm quite sure it's not for the better."

High-Interest CDs

SIPC may be best known for its logo, which dues-paying brokerage firms put on their marketing materials to show customers they're protected. While investors may regard the label as equivalent to the guarantee that the Federal Deposit Insurance Corp. gives to bank accounts, SIPC doesn't run a general insurance fund or cover investment losses. Under the Securities Investor Protection Act, it's supposed to aid investors when their securities or cash are stolen or go missing.

Stanford, who's in prison awaiting trial, allegedly used his brokerage to entice investors to buy high-interest certificates of deposits via his private Stanford International Bank Ltd. in Antigua. Instead, according to prosecutors, much of the money was used to support Stanford's businesses and lifestyle.

Harbeck has said that SIPC shouldn't get involved because investors received actual CDs after the brokerage passed their money to a bank. What happened after that isn't under SIPC's purview because the Stanford account holders have possession of their securities, he told a court-appointed receiver in 2009. SIPC covers theft but not fraud, he said.

Letters from Lawmakers

The SEC's staff initially agreed. So did David Becker, the SEC's general counsel at the time, according to an inspector general's report. As the commissioners mulled the matter, more than 50 lawmakers signed letters asking SEC Chairman Mary Schapiro to explain why constituents weren't getting aid while SIPC was helping a court-appointed receiver recover billions of dollars for victims of Madoff's fraud.

Schapiro and other commissioners rejected the staff's analysis and ordered it redone, according to five people with knowledge of the matter. The SEC commissioners eventually decided that there was no true separation between Stanford's bank and the brokerage firm. Customers who made investments with the bank, the SEC said, were effectively depositing money with the brokerage and should get SIPC coverage.

Angela Shaw, who founded the Stanford Victims' Coalition after her family lost $4.6 million in the alleged fraud, said there was no reason for clients to think they weren't backstopped by the fund.

Settlement Rejected

SIPC "helped Stanford defraud investors, period," said Shaw, who said that about 7,800 of 20,000 Stanford investors used the brokerage. "They slapped that logo on everything to create an illusion of protection."

After the SEC ordered the payout, SIPC privately offered to settle the matter with the agency for about $250,000 per customer, according to two people familiar with the legal negotiations. The SEC's five commissioners voted to reject the deal, the people said.

SEC spokesman John Nester said SIPC's accusation that the agency was responding to pressure from Congress was "inaccurate" and said "the commission's decision was based on the facts and the law."

He declined to comment on the settlement talks. "We have had a long, positive relationship with SIPC that we intend to continue," Nester said.

SIPC's Harbeck also declined to discuss the settlement offer. He said that "at the staff level" relations with the SEC still "are really good."

SEC Criticized

The larger Stanford case has been a lingering embarrassment for the SEC, which has come under criticism from investors and lawmakers for failing to uncover Ponzi schemes. The agency's inspector general's office determined that the SEC failed to conduct a meaningful investigation of Stanford Financial Group until 2005 even though its examiners suspected the firm of engaging in fraud eight years earlier.

Stanford was accused by the SEC in February 2009 of running a "massive, ongoing fraud," and was later indicted on criminal charges. He has denied all wrongdoing.

The SEC, led by its chief litigator Matthew Martens, has taken a narrow tack in the SIPC case. In court papers, the agency says it has full authority over SIPC and asks the judge to enforce its order.

SIPC's legal team at Kirkland & Ellis LLP -- which includes former U.S. appellate judge Michael McConnell, mentioned as a possible Supreme Court nominee during the George W. Bush administration -- argues that the court shouldn't just rule on the order but determine whether the Stanford investors are covered by SIPC. The group's board has also retained law firm Covington & Burling LLP.

"Wrongheaded Notion"

"The SEC's position is predicated on the wrongheaded notion that it has the legal authority to compel SIPC to take whatever action the SEC says it must take," SIPC said in a Dec. 27 court filing.

SIPC's attorneys also noted that the investor fund first declined to get involved in the Stanford case in August 2009 -- a decision that wasn't challenged by the SEC for almost two years.

"The SEC expressed no disagreement with SIPC until June 2011, when a United States senator announced a hold on two nominees to become SEC commissioners while the SEC considered this issue -- and the commission abruptly flipped its position on SIPC and Stanford the next day," SIPC wrote in its filing.

Increased Dues

The Securities Industry and Financial Markets Association, a Washington-based trade association for the brokerage industry, has also weighed in, estimating in an analysis it released last August that its firms' dues to SIPC would more than double if the protection was extended the way the SEC wants.

Brokers currently pay one-quarter of 1 percent of their net operating revenues from their securities businesses in an annual SIPC assessment.

"While we are very sympathetic for any loss incurred by victims of the Stanford Financial fraud, SIPC as created by Congress in 1970 was never enabled to provide coverage as proposed by the SEC in this case," said Andrew DeSouza, a Sifma spokesman. "An unprecedented expansion of SIPC protection to investment fraud losses is something Congress never intended."

Senator David Vitter, the Louisiana Republican who refused to allow the vote on the SEC nominees until the agency weighed in on the Stanford case, said in a statement that SIPC's court filings and public comments show "just how desperate they are to divert attention from their untenable position."

Protection Fund

The senator, who has some 1,800 Stanford investors in his state, said that SIPC has "never before in history" ignored an order from the SEC to liquidate a failed brokerage and assess the claims of victims. SIPC is mainly worried that payments to Stanford investors would drain its protection fund, he said.

"Even more disturbing, they've highlighted directly to me concerns that their big firm dues-payers are balking at the prospect of having to replenish the fund after a Stanford payout," Vitter said.

Harbeck said that SIPC's board, which voted 6-0 to reject the SEC's order, includes only two industry representatives and has members appointed by the Treasury and the Federal Reserve.

"The viewpoints of the industry were heard, but were by no means controlling," Harbeck said. "We've looked at this as objectively as we can."

For Related News and Information:
To contact the reporters on this story: Robert Schmidt in Washington at; Joshua Gallu in Washington at
To contact the editor responsible for this story: Lawrence Roberts at

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Dienstag, 10. Januar 2012

SEC Said to Prepare Vote on Cases Against Ex-Stanford Execs

January 10, 2012
By Joshua Gallu
U.S. Securities and Exchange Commission investigators have proposed sanctions against at least five former Stanford Financial Group Co. executives and brokers for their roles in selling investments that fueled R. Allen Stanford's alleged $7 billion Ponzi scheme, according to two people with knowledge of the matter.

The SEC's five commissioners are scheduled to vote Jan. 12 on whether to authorize the enforcement actions, which target brokers and senior executives at Stanford's Houston-based brokerage, the people said, speaking on condition of anonymity because the matter isn't public. The vote by the commissioners could still be delayed or tabled, the people said.

The actions, which seek to bar the executives and brokers from working in the industry and claw back sales commissions, come almost three years after the SEC sued Stanford and a federal grand jury indicted him on 21 criminal counts alleging he used his U.S. brokerage to sell bogus certificates of deposits for his Antigua-based bank.

The SEC lawyers claim the employees ignored red flags signaling that they were selling fraudulent products, such as above-market returns promised on the CDs and outsized commissions to the brokers who sold them, one of the people said.

The investigators are treating the cases as a legal test of whether they can sanction brokers for failing to conduct due diligence on in-house products, the people said. If successful, the cases could be replicated against more ex-Stanford brokers over time, said the person.

Former NASD Official

One of the former Stanford employees whose actions were reviewed by investigators was Bernerd Young, the former regulator who later became Stanford's chief compliance officer. Young received a notice in June 2010 from SEC investigators that they planned to recommend an enforcement action against him for his role in the Stanford matter, according to his broker records.

Young became the top compliance official at Stanford's brokerage in 2006 after having worked for nearly two decades at the National Association of Securities Dealers, which later became the Financial Industry Regulatory Authority, the brokerage industry's self-regulator. He headed the NASD's Dallas office from 1999 to 2003, Finra said in a 2009 report. Young now works at Magnolia, Texas-based MGL Consulting LLC.

"Aggressive Defense"

"If the Commission authorizes the Staff to bring a formal action against Bernie, it will be met with a fierce and aggressive defense," Melinda G. LeGaye, founder and president of MGL Consulting, said in a statement today. The SEC staff "has repeatedly changed its focus in an attempt to secure Commission authorization to bring a formal action against him."

Young "has continued to cooperate and provide documentation and detailed explanations to not only refute the Staff's allegations but also to assist in their understanding of events while Bernie was at Stanford Financial Group," LeGaye said.

Randle Henderson, an attorney for Young, said in a phone interview that he didn't know whether the SEC was considering sanctions against Young. He said he has submitted multiple briefs to the SEC in defense of his client.

Trial Date

Stanford, 61, has denied the fraud allegations and last month requested that his Jan. 23 trial date be delayed by three months after his expert witnesses quit because they weren't being paid. He is being held without bail. Stanford's former accountants and heads of finance and investment also face criminal and civil claims.

The SEC has been reviewing the case for more than two years as Stanford customers and lawmakers criticized investigators for not catching the alleged scheme sooner. The SEC's inspector general said the agency didn't conduct a meaningful probe of Stanford's business until 2005, even though examiners suspected fraud eight years earlier.

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Donnerstag, 5. Januar 2012

2 former Stanford brokers say SEC let them down

January 5, 2012
Charles Rawl and Mark Tidwell
Former Stanford Financial Group brokers Charles Rawl, left, and Mark Tidwell say SEC attorneys promised them legal protection, but the receiver appointed to recover assets in the case sued both of them for hundreds of thousands of dollars. Photo: James Nielsen / © 2011 Houston Chronicle
Former Stanford Financial Group brokers Charles Rawl and Mark Tidwell say they helped regulators build a fraud case by supplying the government with emails, testimony and names of people to question.

They answered questions when Securities and Exchange Commission investigators camped out at the Stanford offices near the Galleria before shutting down the firm in February 2009.

All along, they say, SEC attorneys promised them legal protection to quell their concerns about retaliation by Stanford or being lumped together with anyone implicated in the investigation.

By the end of the year, however, the receiver appointed to recover Stanford's assets sued both brokers for hundreds of thousands of dollars in earnings the receiver claims are related to the sale of Stanford financial products.

"We've been totally shafted by the system," said Rawl, who has testified about his predicament before the House Financial Services Subcommittee on Oversight and Investigations.

The former head of the Houston firm, R. Allen Stanford, is scheduled for trial later this month on charges that he swindled investors who bought CDs issued by Stanford's bank in the Caribbean island nation of Antigua.

Three other former company executives are to be tried later. A Houston federal judge on Thursday denied the latest of several attempts by Stanford's lawyers to delay his trial.

The receiver is suing Rawl for $732,946 and Tidwell for $1.1 million. Neither has anything in writing from the SEC promising protection, though their attorney confirms being told his clients would be protected. An SEC spokeswoman declined to comment.

Kevin Sadler, an attorney for receiver Ralph Janvey, said the receiver was not a party to whatever discussions the brokers may have had with the SEC.

Loss of billions

"Rawl and Tidwell were compensated well for selling CDs that were fraudulent, and they have no legal, equitable or moral right to keep the bonuses and commissions they were paid for selling CDs," he said. "These two brokers still have that money, while thousands of investors have lost billions."

None of the more than 300 former Stanford employees the receiver has sued for about $215 million in CD-related proceeds has returned any of the money made from CD sales, he said.

Other lawyers who deal with receivers noted that receivers are appointed by the court and work for the court, even if regulators suggest them for appointment.

"It would certainly be in the receiver's purview because the receiver has an independent fiduciary duty to look out for the interest of all of the creditors and other parties who may have an interest in that property," said Michael Good, a California bankruptcy attorney.

Unless Rawl and Tidwell have written documentation of an agreement with the receiver, they may not have much of a case, Houston bankruptcy lawyer Wayne Kitchens said.

Witness protection?

It would be unusual for the SEC to offer a witness any protection except from action by the SEC itself, he said.

Rawl and Tidwell say they assumed they would be protected at all levels. They say they risked their jobs by alerting Stanford management about their complaints and taking their concerns to the SEC after resigning from the firm in 2007.

It wasn't until after they filed a lawsuit in state court and news of the Bernard Madoff fraud case broke in 2008 that the SEC sought more information about Stanford, the pair said.

Rawl and Tidwell, who had adjacent offices at Stanford Financial, started their own firm in 2007. But the pending lawsuit makes it difficult to get new business or licensing in other states, they said, and the litigation prompted the Certified Financial Planners Board of Standards to open inquiries into their certifications.

Lawsuits between the pair and Stanford Financial before the firm was shut down also fueled rumors that the two were responsible for the company's downfall.

In litigation that has since been put on hold as the government proceeds with its case against the firm, the pair said they were forced to resign because they didn't want to comply with certain business practices they found alarming. The firm countered with its own suit, calling them disgruntled employees who were fired and owed the company hundreds of thousands in loans that were part of their compensation packages.

"I did exactly what I was supposed to do. I did it without any protection from the law, and I'm the bad guy," Tidwell said. "It's disheartening to know that American citizens are relying on this system to protect them, and they're going to be more than disappointed."

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