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My Take on Why the SEC Did Not Pursue Allen Stanford

Posted by Larry Doyle on April 20, 2010 4:19 PM |

Why did the SEC charge Goldman Sachs with fraud last Friday and not another day? Little doubt the SEC was trying to deflect attention from the scathing review of the SEC in its Investigation of Stanford Financial debacle. How bad is it? Well, let’s review a letter embedded in the SEC OIG’s review of the Stanford Alleged Ponzi Scheme,

Below please find a referral from NASD concerning Stanford Financial Group
Id. at 1. The letter stated:

The Stanford Financial Group [SFG] of Houston, Texas has
been selling to people of the United States and of Latin
America, offshore certificates of deposit issued by Stanford
International Bank, a wholly owned unregulated subsidiary.
With the mask of a regulated US Corporation and by
association with Wall Street giant Bear Stearns, investors
are led to believe these CD’s are absolutely safe
investments. Not withstanding this promise, investor
proceeds are being directed into speculative investments
like stocks, options, futures, currencies, real estate, and
unsecured loans.

For the past seventeen years or so, Stanford International
Bank has reported to clients in perfect format and
beautifully printed material of the highest quality,
consistent high returns on the bank’s portfolio, with never a
down year, regardless of the volatile nature of the
investments. …

The questionable activities of the bank have been covered
up by an apparent clean operation of a US Broker-Dealer
affiliate with offices in Houston, Miami, and other cities
that clears through Bear Stearns Securities Corporation.
Registered Representatives of the firm, as well as many
unregistered representatives that office within the B-D, are
unreasonably pressured into selling the CD’s. Solicitation
of these high risk offshore securities occurs from the
United States and investors are misled about the true nature
of the securities.

The offshore bank has never been audited by a large
reputable accounting firm, and Stanford has never shown
verifiable portfolio appraisals. The bank’s portfolio is
invested primarily in high risk securities, which is not
congruent with the nature of safe CD investments promised
to clients.

Unbelievable returns of the portfolio, non verifiable
portfolio appraisals, non prudent investment strategies,
information from insiders, and lavish expense management
styles, suggest the portfolio is deeply underwater. If true,
returns and expenses are being paid out of clients’ monies
and by the size of the portfolio this would be one of the
largest Ponzi Schemes ever discovered.

This letter is being written by an insider who does not wish
to remain silent, but also fears for his own personal safety
and that of his family. The issue is being referred for
investigation to the proper authorities, related parties, and
persons whose mission is to inform the general public. The
key point to focus on is the real market value of Stanford
International Bank’s investment portfolio, which is
believed to be significantly below the bank’s obligations to
clients. Overlooking these issues and not thoroughly
investigating them is becoming an accomplice to any

September 1, 2003 Letter to the NASD Complaint Center

This letter was sent in late 2003 but the fact is the SEC started to detect real irregularities within Stanford’s operations beginning in 1998. Even at that time, allegations of fraud and a Ponzi scheme were running strong. These allegations continued for the next decade before Stanford was seized and shut down in early 2009. How could the SEC bungle this situation for so long?

I believe there is a lot more to this Stanford fiasco than meets the eye. While I am not an apologist for the SEC, recall that the BBC broke a story one year ago hinting that Stanford was actually being used as an informer by our government to infiltrate the Central American drug trade. Under the cover of government protection, Stanford ran his scheme in order to attract drug money and allow the Feds the opportunity to track the drug trade.

In the process of this activity, I actually believe Allen Stanford ran an operation that was largely a fraud mixed in with parts of an otherwise reputable broker-dealer, all under the protection of Uncle Sam. Who else ran a criminal operation while being protected by the Feds? The man who currently occupies a spot on the FBI’s Top Ten Most Wanted List, that is James “Whitey” Bulger.

I drew this comparison last May and I ask it again today, “Allen Stanford and Whitey Bulger, Two Peas in a Pod?” Bulger operated his Irish Mob, otherwise known as the Winter Hill Gang, in Boston while ratting out the Italiam Mafia to the Feds.

Do I have proof of this Stanford cover? Nope, but I think this BBC storyline deserves further exploration as there are currently too many dead ends, black holes, and stop signs in the midst of this Stanford debacle to think that there is not something even more nefarious going on behind the scenes.

Did the U. S. government actually fail to protect Stanford investors in the pursuit of big game in the Latin American drug trade? Personally, I believe they did.


  • Rifleman

    Here’s my boy,

    James Joseph Bulger
    Aliases: Tom Baxter, Thomas F. Baxter, Mark Shapeton, Tom Harris, Tom Marshall, Jimmy
    Report a Tip

    Wanted For:
    Boston , MA
    Boston , MA
    Possible Location(s):
    Boston , MA
    Southern States , USA

    Latest Airing:
    July 26 2008
    November 17 2007

    Tips On Whitey Bulger Still Rolling In
    Fugitive Boston mobster James “Whitey” Bulger turns 80 years old on September 3, 2009 – and the tips continue to flow into the AMW hotline and to the FBI. Many leads over the past year have pointed to Florida — but none has panned out. Now, the FBI is releasing new sketches of what James “Whitey” Bulger may look like now. The two new age-enhanced composites include one of how the elusive fugiitve may look with hair implants.

  • Stu

    The SEC is small fish. You are being distracted. The essence of this engineered crisis is to push the world toward global governance. Check out the IMF’s proposal for a global bank tax? Within the BBC article is this nugget:

    “Insurers, hedge funds and other financial institutions must also pay the taxes, the IMF argues, despite them being less implicated in the recent crisis.”

    • Rifleman

      I am being distracted? Glad you have it all figured out.

      Please enlighten how it all plays out from here. Is Armageddon, virtual or otherwise, within 5 years because if so I should go have fun!!

      • Stu

        Armageddon? You are silly. I guess it is more reasonable to believe that this crisis was perpetrated by a few greedy people and incompetent regulators. Glad YOU have it figured out.

  • Bill

    An interesting aspect of this story is the former SEC lawyer Spencer Barasch who headed the enforcement section in the SEC’s Fort Worth office. Barasch repeatedly deep sixed the SEC investigation division’s requests to do something about Stanford. According to the IG’s report, the investigation division deliberately waited until Barasch left the SEC to go into private practice to again submit the matter to enforcement, which then went forward with it. Barasch later requested permission from SEC to waive any conflicts and permit him to represent Stanford, which was denied. Despite the denial, Barasch went ahead and represented him anyway for a time. He ultimately made three requests of SEC to waive any conflict, which is unprecedented. The IG report makes no reference to any contact between Barasch and Stanford during his tenure at the SEC. The IG referred Barasch to the DC bar and the State Bar of Texas regarding alleged violation of conflict of interest rules. After what I read in the IG report, I can definitely say I wouldn’t want the guy representing me. Notwithstanding whatever knowledge he has of securities law, if the report is accurate, I wouldn’t give two cents for his judgment–which is one of the primary factors in engaging a lawyer.

    • LD

      Here is an update in regard to Mr. Barasch.

      Ex-SEC Lawyer Said to Settle Stanford-Linked Case,

      WASHINGTON (Reuters) – Former Securities and Exchange Commission attorney Spencer Barasch is expected to settle Department of Justice civil charges that he inappropriately represented alleged Ponzi schemer Allen Stanford, people familiar with the matter told Reuters.

      Under the terms of the planned settlement, expected to be announced later this week, Barasch will pay a $50,000 fine, these people said, who were not authorized to speak on the case.

      He will also settle a disciplinary action before the SEC under which he is expected to agree to a 6-month ban from practicing before the commission, one of the individuals said.

      The SEC is tentatively scheduled to vote on the matter behind closed doors on Thursday. Barasch is expected to settle the matter without admitting any wrongdoing.

      I thought the SEC was doing away with this charade of not admitting nor denying wrongdoing?

      Barasch, a former head of enforcement for the SEC’s Fort Worth, Texas, office, is now a partner at the law firm Andrews Kurth in Dallas. He has been at the center of a Justice Department probe since at least 2010.

      That year, SEC Inspector General David Kotz released a report that found Barasch played a role in decisions to quash investigations of Stanford while at the SEC, and then later repeatedly tried to get permission to represent Stanford after leaving his SEC post.

      The SEC turned down his request each time, but Barasch persisted and eventually did provide some legal counsel to Stanford in the form of roughly 7 billable hours for travel and for reviewing a document on regulators’ inquiry into Stanford’s business, the report found.

      In a statement issued last year, however, Andrews Kurth’s managing partner Bob Jewell said he did not feel Barasch violated any conflict of interest rules and disagreed with the findings in Kotz’s report.

      Federal conflict of interest laws bar former government employees for life from communicating or making an appearance before the U.S. government under certain conditions, such as being substantially involved in the matter while in government.

      The Justice Department is likely pursuing a civil settlement because a criminal conflict-of-interest case usually requires the prosecutors prove the former employee contacted the government on behalf of the defendant. Kotz’s report did not find evidence of such contact.

      The government can bring civil actions to resolve conflict-of-interest allegations, and issue a penalty of up to $50,000 per violation.

      A lawyer for Barasch, the SEC, and the Justice Department declined comment. Barasch and his law firm, Andrews Kurth, did not respond to repeated requests for comment.

      The settlements come as federal prosecutors prepare for a criminal trial of Stanford, who is accused of running a $7.2 billion Ponzi scheme and deceiving thousands of investors into buying certificates of deposit from his Antiguan bank.

      Stanford was arrested in June 2009 and is being held without bail. He has denied the charges. Jury selection in the case is scheduled on January 23.

      He is also facing civil charges from the SEC over the alleged Ponzi scheme.

      SEC officials disclosed the Justice Department’s probe into Barasch’s conduct last May during a congressional hearing. SEC Enforcement Director Robert Khuzami told lawmakers he felt the conflict-of-interest rules “clearly prohibited” Barasch from representing Stanford.

      Kotz and Khuzami both said they had referred the matter to the criminal authorities as well as the Texas and Washington, D.C. bars.

      Kotz’s report outlined in detail how Barasch attempted on three occasions to represent Stanford despite being told he had a conflict of interest.

      The third time, he pressed the SEC to give him permission on the same day the agency filed its civil suit against Stanford.

      When the inspector general’s office asked Barasch why he was so insistent on representing Stanford, Barasch replied, “Every lawyer in Texas and beyond is going to get rich over this case. Okay? And I hated being on the sidelines,” according to Kotz’s report.

  • George

    Obama Financial Reform = Distraction by Goldman Sachs investigation
    When will enough be enough? How long will those that voted for Obama will admit it was a mistake.
    Don’t you wonder why we have not heard from Barney Frank for such a long time. But the minute the GS inquiry comes up there is Barney. Stand up for what is right and tell your reps. to demand an investigation on Frank, Obama and any other possible politician who benefitted from Fannie Mae and or Freddie Mac or any other financial institution. Do not let those that caused the problem and possibly benefitted get away with this. Do not let them hide behind “financial reform”. We need some reform but we do not need to re-write the book.

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