The Securities and Exchange Commission had been actively investigating the banking business of billionaire R. Allen Stanford for more than three years before Bernard Madoff's Ponzi scheme came to light last December and has fulfilled its duty to pursue alleged wrongdoing by the financier, the agency's inspector general has found.
The SEC's decision to halt its investigation of Stanford in April 2008 came in response to a request by the Justice Department, and the agency didn't breach its obligation, according to a report by the office of Inspector General David Kotz.
The office looked into the matter after receiving complaints that the SEC should have acted more quickly and aggressively to detect and shut down Stanford's alleged $7 billion Ponzi scheme a major swindle in its own right yet eclipsed by Madoff's sprawling fraud estimated to have cost thousands of investors, foundations and banks worldwide at least $13 billion.
Complaints had come from Rep. Dennis Kucinich, D-Ohio, chairman of a House Oversight subcommittee, who voiced concern in February about what he called the "substantial delay" in the SEC's actions. He told SEC Chairman Mary Schapiro in a letter that the agency's handling of the Stanford investigation "raises serious questions about the (SEC's) dedication to its mission of protecting investors."
The inspector general's report did find that the SEC's "urgency" regarding its Stanford probe "increased significantly" after Madoff confessed to his long-running fraud scheme last December, with the agency telling the DOJ it could no longer wait in deference to the criminal authorities' parallel investigation. Federal prosecutors agreed and the SEC brought charges in February.
Starting in June 2005, the SEC's regional office in Fort Worth conducted an investigation into sales of certificates of deposit by Antigua-based Stanford International Bank, which promised outsized returns. The report also found that the agency's inquiry was "hampered by a lack of cooperation" from Stanford and his attorneys as well as by jurisdictional obstacles and obstruction by regulators in Antigua.
The inspector general's office "did not conclude that the SEC breached its obligations to vigorously pursue allegations of wrongdoing in the Stanford matter," the report said. It is dated June 19 the same day Stanford was indicted and jailed on Justice Department charges that his international banking empire was really a pyramid scheme built on lies, bluster and bribery. In February, the SEC had filed civil fraud charges accusing the brash billionaire, a larger-than-life figure in the Caribbean, of luring investors with promises of improbable high returns on the CDs and other investments.
Stanford is disputing the charges, which in the criminal case could send him to prison for up to 250 years if convicted.
The inspector general's report was made public Tuesday by the SEC, which held it up as vindication of its staff's conduct of the Stanford probe. The agency has been stung by a series of critical assessments by Kotz's office in recent months and blistering congressional criticism over its failure to discover the Madoff fraud despite red flags raised to staff over a decade.
Despite the obstacles of Justice Department precedence and lack of cooperation from Stanford and others, "the SEC ultimately was able to obtain critical evidence that resulted in (its) emergency action in February 2009 to halt the sales of the CDs and seek the return of funds to investors," agency spokesman John Nester said in a statement. "The (SEC) is grateful for the professional expertise and tireless devotion demonstrated by its staff in the Stanford investigation."
Kotz, who has been examining the agency's conduct in the Madoff scandal, is expected to issue a critical report in the coming weeks.
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