A just-released Securities and Exchange Commission internal report fails to address several troubling issues about the way the SEC and Department of Justice handled the investigation of accused fraudster Allen Stanford and Stanford International Bank. Among them: why the SEC waited until 2005 to start its inquiry when SEC staff had received warnings about Stanford in 2003 and why the DOJ insists there was no request to halt the SEC investigation of Stanford despite statements from the SEC that there were several requests to hold off.
The report, which FOX Business obtained through the Freedom of Information Act, confirms that the Department of Justice in 2008 asked the SEC to “not pursue any investigative action with respect” to Stanford International Bank or the CDs at the center of the alleged $7.2 billion Ponzi scheme while the DOJ “considered how to launch its own investigation of possible wire fraud and or money laundering activity associated with the CD offerings.”
According to the report, the SEC’s Fort Worth regional office launched its inquiry of Stanford on June 15, 2005, when it sent 140 Stanford investors a detailed questionnaire asking specific questions about Stanford CDs. SEC investigators also requested information from Allen Stanford and SIB, but the report says the investigation “was hindered by jurisdictional issues and Stanford’s lack of cooperation. The [redacted] SIB refused to produce any documents it deemed were bank related citing Antiguan bank secrecy laws and also took the position that the CDs were not securities.”
SEC investigators sought help from the agency’s Office of International Affairs to help resolve the jurisdictional issues. A request was sent from the OIA to the Antiguan Financial Services Regulatory Commission on June 9, 2005, six days before the formal SEC investigation was opened. The report says AFSRC Administrator and Chief Executive Officer Leroy King responded to the OIA letter and “represented that if Stanford were running a Ponzi scheme AFRSC would have detected it.” King was indicted on June 19, 2009, for allegedly accepting bribes from Stanford in order to mislead investigators. King is under house arrest in Antigua and the U.S. Justice Department has requested that he be extradited to the United States to face those charges.
By 2007, two years after starting a formal inquiry, SEC investigators still lacked information to move against SIB and stop the sale of the CDs. The internal report — which has large paragraphs of information removed or redacted from public review — includes an SEC subpoena issued to Allen Stanford on June 5, 2007. The subpoena requests information about, “all e-mails and accompanying attachments sent or received by you [Stanford] relating to SIB or its certificates of deposit.”
The report says investigators failed to get what they wanted because of jurisdictional issues. It wasn’t until April 22, 2008, three years after opening its investigation that SEC investigators made a written criminal referral asking the DOJ’s Fraud section to help.
SEC spokesman John Nester issued a statement about the internal report, saying “the SEC referred its case to the Department of Justice for criminal investigation based on heightened concerns that Stanford might be operating a Ponzi scheme.”
But neither the official statement nor the report mention the 2003 letter from former Stanford employee Leyla Wydler, the original SEC whistleblower who warned Stanford’s company was “the subject of a lingering corporate fraud scandal perpetuated as a massive Ponzi scheme.” Wydler says SEC investigators spoke with her in 2004 about Stanford but the just-released internal report says nothing about those meetings.
Nester says the SEC referred its case to the Department of Justice in April 2008, “based on heightened concerns that Stanford might be operating a Ponzi scheme.” In July 2008, the report says the DOJ told the SEC, “that it preferred that the SEC wait before taking any additional investigative steps. The SEC staff deferred to DOJ’s request in order to avoid compromising DOJ’s investigation.” A source familiar with the matter also confirmed to FOX Business that nobody from the DOJ was interviewed or questioned for the SEC internal report. Wydler, the original SEC whistleblower, calls that ridiculous and says recent statements from the Assistant U.S. Attorney General even more troubling.
On June 19, the same day Allen Stanford was indicted, FOX Business asked Assistant U.S. Attorney General Lanny Breuer about the DOJ request to the SEC to hold off and he stated, “There was no such request. We’ve worked very closely with the SEC…we’ve coordinated with them throughout.”
Breuer’s statement contradicts several references in the SEC report that the DOJ asked the SEC to hold off or stop its investigation.
A DOJ spokesperson told FOX Business, “Each agency makes its own decisions on how to pursue their investigations including decisions regarding timing and implications for other agencies.” Timing seems to be one reason why the SEC moved back on to the case after Bernie Madoff’s Ponzi scheme became public.
The report says the SEC contacted the DOJ after Madoff’s arrest and “expressed its concern about deferring the SEC investigation any longer.”
The DOJ told SEC investigators in light of the revelations about Madoff that it would no longer object to the SEC pursuing its investigation.
The SEC report concludes that the SEC investigation was “hampered by a lack of cooperation on the part of Stanford.” It also found that the SEC stopped its investigation in 2008, “at the DOJ’s request” and jumped back on the case after the Madoff scandal was exposed. The report finds that the SEC met its “obligations to vigorously pursue allegations of wrongdoing in the Stanford matter as the SEC’s decision to halt its Stanford investigation was made in response to a specific request from the DOJ…the SEC’s urgency in the Stanford matter increased significantly once Madoff confessed to a Ponzi scheme.”
In other words, had Bernie Madoff not imploded, Allen Stanford might still be playing cricket in Antigua and selling risky CDs to investors worldwide.
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