Inspector General Blasts SEC for Repeated Inaction on Stanford Scam


The Securities and Exchange Commission was aware beginning in 1997 that R. Allen Stanford was probably operating a Ponzi scheme -- but took eight years to do anything about it because "complex" investigations were discouraged by the agency, according to a federal watchdog report made public today.

During those eight years, the alleged scheme grew from $250 million to $7 billion.

Focus on Quantity

The SEC Inspector General's scathing, 159-page report reveals that over the better part of a decade, the SEC's Fort Worth, Tex., office conducted four investigations and found that in each case, the company's certificate of deposits couldn't be legitimate and were likely fraudulent -- a Ponzi scheme or a similar scam. The four probes were conducted in 1997, 1998, 2002 and 2004.

Top investigators in the office told the Inspector General that a formal probe of such a "novel" and "complex" case was discouraged by the agency, the report states. Instead, the focus was on the number of cases. The office's director even said he was "bullet proof" because of the large case load.

"As a result, cases like Stanford, which were not considered 'quick-hit' or 'slam-dunk' cases, were not encouraged," the report states.

Revolving Door

The report also finds that "the former head of enforcement in Fort Worth, who played a significant role in multiple decisions over the years to quash investigations of Stanford," worked for the disgraced financier after leaving the agency. He "sought to represent Stanford on three separate occasions after he left the Commission, and in fact represented Stanford briefly in 2006," according to the report.

The Inspector General faults the office's decision not to open a formal investigation into Stanford's firm. That move, according to the report, would have discouraged numerous investors from handing their money over to the Texas financier.

Stanford is accused of running a massive Ponzi scheme and faces 21 federal criminal charges. He was charged in February, 2009. He has pleaded not guilty to charges of conspiracy, fraud and obstruction of justice, and is in jail without bond.

All Better?

SEC Chairman Mary L. Schapiro offered a statement today about the report, saying much has changed in the agency during the last six years.

She added: "We will carefully analyze the report and implement any additional reforms as necessary for effective investor protection."