By Calvin Palmer
Several executives involved in Texan billionaire Allen Stanford’s alleged $7 billion Ponzi scheme will face fraud charges, the Senate Banking Committee was told today.
“We have notified several former Stanford executives that we intend to recommend fraud charges against them,” Rose Romero, director of the Securities and Exchange Commission’s Fort Worth office told US lawmakers. “These persons include former high level executives and financial advisors.”
Stanford, a flamboyant Texan billionaire, has already pleaded not guilty to 21 counts of fraud, money laundering and obstruction. A trial date has not yet been set for him.
The Justice Department has also filed a raft of charges against former Stanford employees, including James Davis, the former chief financial officer of Houston-based Stanford Financial Group, who pleaded guilty last month to counts including fraud.
The company’s chief investment officer, Laura Pendergest-Holt, accountants Mark Kuhrt and Gilberto Lopez, and Leroy King, head of Antigua’s financial services regulatory commission, also face charges.
They are accused of helping Stanford run a massive Ponzi scheme involving the sale of $7.2 billion of Certificates of Deposit.
Romero and other senior SEC officials offered apologies today for failing to detect the massive fraud despite multiple warnings.
“We deeply regret that the SEC failed to act more quickly to limit the tragic investor losses suffered by Stanford’s victims,” said Robert Khuzami, director of the SEC’s Enforcement Division.
The SEC inspector general found that the agency knew since 1997 that R. Allen Stanford was likely operating an alleged Ponzi scheme. But it didn’t charge the billionaire until February 2009. The charges came a few months after the massive pyramid scheme of financier Bernard Madoff surfaced.
SEC enforcement officials discouraged cases that couldn’t be resolved quickly, the inspector general found.
Senate Banking Committee Chairman Christopher Dodd, D-Conn., asked SEC Enforcement Director Robert Khuzami why no one at the SEC has been fired or demoted for the excessive delay. Other senators on the panel also wanted an answer during the hearing on the issue.
“We seem to have an instance in which one side of the agency was screaming that there was a fire, and the other side said that the fire was too hard to put out,” Dodd said.
Khuzami told the panel that the disciplinary process is under way.
He told the committee the details of the SEC’s failure in the case only have been known since the inspector general’s report was issued in April.
Khuzami also said the agency has toughened its efforts to shut down financial misconduct since the past failures.
He said the SEC is working to provide “maximum recovery” to investors hurt in Stanford’s alleged $7 billion fraud.
Inspector General David Kotz also found that the former head of enforcement in the SEC’s Fort Worth office, who helped quash investigations of Stanford, later represented the billionaire as a private lawyer.
The official briefly represented Stanford in 2006 before being told by the SEC ethics office that it was improper for him to do so.
Kotz indicated he has referred the matter to the Justice Department for possible criminal prosecution in connection with statements he made to SEC ethics officers.
He also said the official’s representing Stanford appeared to violate Texas’s rules for lawyers.
Kotz said the reforms in the SEC’s enforcement and inspections operations that Khuzami outlined may not have yet taken hold at the lower levels of the agency.
“I think that the intention is there,” he said. “I think it takes time for a culture to be changed.”
Kotz’s office has also found that the agency bungled five investigations into Madoff’s business between June 1992 and December 2008. Madoff’s fraud, which could be the biggest Ponzi scheme in history, destroyed thousands of people’s life savings, wrecked charities and jolted investor confidence during the worst days of the financial crisis.