The Robert Allen Stanford alleged Ponzi scheme and its impact on middle class investors still isn’t getting the media attention it deserves. Last week, a blistering report on the incompetence of the Securities and Exchange Commission was buried by the Goldman Sachs fraud charges; both were released Friday.
The Inspector General for the SEC issued a detailed 159-page report, dated March 31, concluding that the agency’s Fort Worth office knew the Texas businessman was operating a Ponzi scheme in 1997. The Stanford Victims Coalition, a group that represents former Stanford investors, was quick to accuse the agency of trying to “minimize the revelation of the truth” by releasing the IG’s report on the same day it announced fraud charges against investment bank Goldman Sachs.
The IG’s report was requested by Republican U.S. Sen. David Vitter.
Among the most damning findings was the warning issued by a retiring assistant district administrator for the Fort Worth examination program in 1997 to the branch chief: “Keep an eye on these people [Stanford] because it looks like a Ponzi scheme to me, and some day it’s going to blow up.”
It was not the examiners, but rather the enforcement division, that dropped the ball. Fort Worth examiners repeatedly conducted examinations of Stanford in 1997, 1998, 2002 and 2004, concluding each time that Stanford’s CDs were likely a Ponzi scheme. “The only significant difference in the Examination group’s findings over the years was that the potential fraud grew exponentially, from $250 million to $1.5 billion,” according to the report. However, “no meaningful effort was made by Enforcement to investigate the potential fraud or to bring an action to attempt to stop it until late 2005.”
The report also noted that the former head of the SEC’s enforcement office in Fort Worth impeded investigations into Stanford’s operations for years. Spencer Barasch repeatedly decided “to quash the matter,” the report reads. Later, when the SEC began investigating, “Barasch repeatedly attempted to represent Stanford in connection with the investigation he had blocked for seven years.” Barasch is now a partner at the law firm Andrews Kurth LLP. Andrews Kurth managing partner Bob Jewell said Barasch did not violate any ethics laws and will remain with the firm, Dow Jones reported. However, because Barasch’s representation of Stanford appears to have violated state bar rules that prohibit a former government employee from working on matters in which he participated as a government employee, Inspector General H. David Kotz referred the findings of his investigation to the SEC’s ethics counsel for referral to the bar counsel offices in the two states Barasch is admitted to practice law.
Additionally, the IG noted that SEC enforcement officials also ignored a number of warnings from insiders at Stanford’s operations. The report notes that a letter was forwarded to the SEC in October 2003 by the National Association of Securities Dealers warning that Stanford’s businesses “WILL DESTROY THE LIFE SAVINGS OF MANY.”
After the initial red flags, it would be another eight years, 2005, before a serious effort to expose the alleged fraud was launched. And another several years before the SEC stopped it. In February 2009 the SEC shut down Stanford’s operations.
It is estimated that about $1 billion was invested in the CDs in Louisiana. The flamboyant Texas billionaire remains in jail facing charges of operating a $7 billion Ponzi scheme.
In the conclusion of the report, the IG noted:
We found that senior Fort Worth officials perceived that they were being judged on the numbers of cases they brought, so-called “stats,” and
communicated to the Enforcement staff that novel or complex cases were disfavored. As a result, cases like Stanford, which were not considered “quick-hit” or “slam-dunk” cases, were not encouraged.
The OIG’s findings during this investigation raise significant concerns about how decisions were made within the SEC’s Division of Enforcement with regard to the Stanford matter. We are providing this Report of Investigation (“ROI”) to the Chairman of the SEC with the recommendation that the Chairman carefully review its findings and share with Enforcement management the portions of this ROI that relate to the performance failures by those employees who still work at the SEC, so that appropriate action (which may include performance-based action, if applicable) is taken, on an employee-by-employee basis, to ensure that future decisions about when to open an investigation and when to recommend that the Commission take action are made in a more appropriate manner.
Read the IG’s full report here.
MAY 17 Here's a column from James Gill, this time in the Advocate. Gill, who has jumped ship from the Picayune, writes about the absurdity of dueling polls in this post. The numbers are so wildly different, it is obvious that both sides are "cooking the books," he writes. In particular, he looks at Sen. Mary Landrieu, and how her recent actions in DC have been received by those polled. Gill's acerbic, amusing prose is a welcome addition to a paper so conservative as to be occasionally lacking in personality.
MAY 17 Blogger Tom Aswell continues delivering bombshells about the state education department and Gov. Jindal's education "reform" efforts. In this post, he reports that students in the Shreveport area have been signed up for a charter school without their knowledge or consent. Most interesting to Aswell is how this Texas-based charter (with ties to GOP types) got the personal student information it has, if the students didn't give it.
MAY 17 This post by JR Ball in the Baton Rouge Business Report is an interesting tongue-in-cheek look at recent Baton Rouge economic development efforts. Among the items he examines is the idea that gaining a Costco makes BR a "world-class city." (Really? All you need is a different brand of Sam's? MK!) This effort, and other recent ones, are all built on the taxpayer's back, with tax zones, tax incentives and tax rebates, Ball writes.
MAY 17 Blogger CB Forgotston is critical of the legislature's reliance on a revenue-estimating committee's decision to include projected tax amnesty income in this year's forecast. That's a problem, CB posts, because the deadline for these people to pay their taxes is June 30, 2014. So when do you think these people who haven't paid taxes in years are going to pay their taxes? Surely not before June 30, and that means the money won't be there for this year's budget, he argues.
MAY 17 Here's an interesting blog out of California by a Hollywood writer, attorney and academic named Brian Alan Lane. He blogs about higher ed, and was a whistle-blower in a scandal over false credentials. In this post, he takes aim at LSU's new top dog, King Alexander. It's convoluted and a little confusing, but it sure makes Alexander a lot more interesting than he was yesterday.
MAY 17 Blogger Robert Mann writes about the LSU Board's refusal to allow Dr. Fred Cerise to testify before the legislature about Gov. Jindal's plan to close down all the state's charity hospitals and dump the poor on the private system. It's hard to imagine anyone more qualified than Cerise to testify about that, so why would anyone try to prevent him doing so? Mann thinks it is because the powers that be aren't interested in hearing any truth about the plan.
MAY 17 This post on the Louisiana Sinkhole Bugle, a blog that notes developments in the Bayou Corne and Jefferson Island salt domes, talks about a proposed expansion of the salt dome storage under Lake Peigneur in Iberia Parish. Residents are working against it for several reasons, including two biggies: the sinkhole disaster in Bayou Corne and the continuing, unexplained bubbling on the surface of the Lake.
MAY 17 NOLA police arrested more people Thursday accused of either being involved in the Mother's Day shooting or hiding the suspect afterward, this Gambit story reports. The NOLA police chief said he suspects the whole thing was gang-related and throws out a challenge to the gangs: he's got informants now, he says, and he knows a lot more than the gangs want him to know. The people who live in the neighborhoods terrorized by gangs are ready to talk, he says.
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