Years before federal regulators shut down billionaire Allen Stanford's businesses in a massive fraud case, agents strongly suspected that he was running a Ponzi scheme but waited nearly a decade before seriously investigating his troubled banking empire, an internal report found.
In a report released Friday, federal auditors blamed the Securities and Exchange Commission — including powerful industry influences — for the long delay in investigating the network of companies now blamed for one of the largest frauds in U.S. history.
"The SEC''s Fort Worth office was aware since 1997 that Robert Allen Stanford was likely operating a Ponzi scheme,'' said the SEC's Inspector General's Office, adding that "no meaningful effort was made by enforcement to investigate.''
Like the case of convicted swindler Bernard Madoff, the scathing report offers yet another reminder of the breakdowns in regulatory oversight that allowed a major fraud scheme to flourish for years.
Suspicious of the glowing returns on Stanford investments, the SEC began four inquiries into his brokerages starting in 1997, but agents were never able to convince supervisors to launch a full investigation until 2006, the report said.
One of the reasons: agency leaders didn't feel there were enough U.S. investors in the 1990s to justify a major probe.
The report also said SEC supervisors were more interested in quicker turn-around cases — not the kind of examinations needed to look into a complex entity like Stanford's, the report said.
"As a result, cases like Stanford, which were not considered 'quick hit' or 'slam dunk' cases, were not encouraged,'' auditors said.
Miami attorney Bowman Brown said he was troubled by the agency's indecision to probe Stanford at a time he was opening dozens of brokerages in the United States.
"A lot of people were hurt very badly by this,'' said Brown, who represents numerous burned Stanford investors. "It was such a serious oversight. Even a cursory examination would have led anyone to conclude it was fraudulent.''
Stanford, 60, who was indicted last year in the $7 billion fraud case, is accused of fleecing more than 21,000 people, mostly through the sale of his prized investment: certificates of deposit issued by his banking headquarters in Antigua and then sold at his brokerages.
Auditors said Stanford, charged with stealing billions for personal luxuries like private jets and mansions, drew the attention of SEC agents over the years because he was touting double-digit returns on his CDs when other banks were offering far less. SEC agents began looking at his companies in 1998, 2002 and 2004, but then dropped their efforts.
Auditors raised questions in their report about a former chief of enforcement in Fort Worth who helped quash the inquiries, and later went to work for the banker in 2006 before he was told by the agency to stop because "it was improper to do so.''
The IG's office said it did not believe anything "improper'' took place, but several critics say they were troubled by the revelation.
"The scariest part of the report is that the problem was at a higher level,'' said Scott Silver, a Coral Springs attorney representing several investors. "The examiners on the ground'' wanted to move forward, but "the higher up the food chain, the more the incompetence grew.''
Brown said the report "has got to send a strong message to Congress that these kinds of frauds have far greater impact on just those who were direct investors. That it has shaken confidence in the country's entire regulatory system.''
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