Turk File

Turk File May 2010

by Leslie Turk

The Robert Allen Stanford alleged Ponzi scheme and its impact on middle class investors still isn't getting the media attention it deserves. On April 16, a blistering report on the abysmal failure of the Securities and Exchange Commission was buried by the Goldman Sachs fraud charges; both were released the same day. In the Stanford matter, 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."

"It appears that the real story today is that the SEC decided to release the report on the same day they sued Goldman Sachs," says Stanford investor Troy Lillie of Maurice, a member of the Stanford Victims Coalition and the Louisiana Stanford Victims Group. "[It's] obvious they are trying to downplay the negative [Stanford IG report] and playing up the positive for them [Goldman Sachs]."

The in-depth IG's report was requested by Republican U.S. Sen. David Vitter. "There were four examinations in 1997, 1998, 2002 and 2004, and in each case examiners concluded that Stanford's CDs were likely a Ponzi scheme. Yet the SEC did absolutely nothing while Stanford fleeced investors for roughly $8 billion," says Vitter, who at press time was preparing to meet with Inspector General David Kotz, who authored the report. "What is clear from the report is that the debt the SEC owes the Stanford victims is enormous."

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, 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 and charged the company with running a an $8 billion Ponzi scheme.
It is estimated that about $1 billion was invested in the CDs in Louisiana. The flamboyant Texas billionaire remains in jail facing multiple fraud charges related to the company's selling of CDs that promised interest rates substantially above those offered by legitimate banks.
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."
Access the IG's full report at www.sec.gov/news/studies/2010/oig-526.pdf.

New Orleans Saints linebacker Scott Shanle has signed on as the spokesman for Courtesy Automotive Group's Cadillac dealership, which recently relocated from Johnston Street to Ambassador Caffery Parkway. Courtesy Automotive Group owner Don Hargroder purchased Schoeffler Cadillac early last year.

One of the Saints' leading tacklers for the past two years, Shanle was an integral part of the Saints' Super Bowl victory. On Saturday, April 17, the standout linebacker was at the dealership, located between Academy and the Mall of Acadiana, signing autographs.

The Cadillac dealership is on the site that originally housed Saturn of Lafayette and most recently housed Courtesy Mazda. Last month Acadiana Business reported Courtesy's sale of Mazda to Adrian Vega; that dealership is now Acadiana Mazda.

Compiled and edited by Leslie Turk; e-mail her at [email protected]