The investigations against Allen Stanford started early 2009 February 17 2009, he was charged by the U.S. Securities and Exchange Commission (SEC) with fraud and multiple violations of U.S. securities laws, which led to his arrest by the FBI on June 18, 2009, accused of $7 billion fraud.
However, a possibility has surfaced that the SEC’s Fort Worth office had information about his fraudulent schemes for longer than a decade before they cracked the whip on him. An internal report by federal auditors has stated this possibility.
According to a statement by the SEC’s Inspector General David Kotz’s office, it is possible that the information was available since 1997 and the SEC was swayed by strong industry lobbies for delaying the investigation. The returns on the Stanford investments were unreasonably high as compared to similar investments made by others and noticing this, the SEC had started four inquiries, none leading to full-fledged investigations. It is possible that the supervisors did not feel the need to investigate, as there were not enough American investors invested with Allen’s schemes at that time.
Federal auditors have also questioned the possible involvement of Spencer Barasch, a former chief of enforcement at the Fort Worth office, who helped in quashing the inquiries and even worked for Stanford later. However, the report did not find any improper professional, social or financial relationship between any former or current SEC employee and the Stanford office that might have motivated them to delay the investigation.
Further, as the investigation would have been long and complex, it is possible that the SEC ignored the suspicious indicators completely. To reduce its burden, the SEC sometimes tends to ignore the more complicated frauds, leading to even larger scams.
Bowman Brown, a Miami based lawyer, who represented many investors who suffered losses because of the Stanford fraud, said that he was disturbed by the SEC’s refusal to investigate in spite of people getting hurt. The agents were honest and stated often that the problem has to be investigated. However, the upper echelon of the SEC refused to do so. He also said that these frauds will shatter the trust of people in the regulatory system and it is important to reform the system as a priority.
This is not the first time that the regulators have ignored a possible fraud. The same happened in case of Bernard Madoff who was eventually convicted of running the biggest Ponzi scheme in the US history.