The U.S. Securities and Exchange Commission suspected that the Texas-based Stanford Financial Group was a massive Ponzi scheme eight years before it took any action to shut the company down, according to a shocking 151-page report released last week by the agency’s inspector general. Click here to download a 159-page pdf of the report.
From 1997 to 2005, the SEC ignored tip-offs from Stanford Financial Group insiders, numerous complaints, and four separate examinations conducted by its own employees which concluded that the Stanford Financial Group was likely a front for a fraudulent investment scheme. It wasn’t until 2005 that the SEC’s Fort Worth office launched a formal investigation of the firm.
According to the SEC’s internal tracking system, a six-day examination of the Stanford Group conducted in 1997 determined that the firm was a “possible ponzi scheme.” At the time, SEC examiners said that the high Certificate of Deposits (CDs) return rates promised by Stanford were “absolutely ludicrous” and that Stanford was “possibly stealing from investors.”
By 2003, the SEC had conducted three more examinations of the Stanford Group, all of which “concluded the Stanford fraud was ongoing and growing significantly, but no meaningful effort was made to obtain evidence related to the Ponzi scheme,” according to the inspector general’s report.
A 2003 letter sent to the SEC by an anonymous Stanford insider warned that the Stanford group was a “massive ponzi scheme” that would eventually “destroy the life savings of many; damage the reputation of all associated parties, ridicule securities and banking authorities, and shame the United States of America.”
An SEC enforcement branch chief said the agency decided not to expend the resources necessary to investige the Stanford Financial Group, because there was no guarantee it would work out in the SEC’s favor. “[R]ather than spend a lot of resources on something that could end up being something that we could not bring, the decision was made…to not go forward at the time,” the employee wrote in 2003.
In early 2009, R. Allen Stanford’s now-defunct Stanford Financial Group was raided by federal authorities after it was discovered to be a $7 billion ponzi scheme, one of the largest swindles of its type in American history.
The probe of the SEC’s handling of the Stanford case was released at a time of great turmoil for the agency. Last week it was reported that multiple high-level SEC employees were regularly accessing internet porn while at the office. The SEC also recently filed a lawsuit against Goldman Sachs, accusing the investment banking powerhouse of fraudulenting exploiting the 2008 financial collapse for profit.
The SEC’s failure to act allowed Stanford to build a network of influence on Capitol Hill. Stanford funded a non-profit called the Inter-American Economic Council, which sponsored trips to the Caribbean, by House members of both parties.
On March 19, NLPC filed a Complaint with the House Ethics Committee asking for an investigation into Stanford’s relationship with Rep. Gregory Meeks (D-NY).
The Miami Herald reported in December that former Stanford employees alleged that Stanford asked Meeks in 2006 to help retaliate against a former Stanford executive named Gonzalo Tirado in Venezuela who was attempting to blow the whistle on Stanford fraud. Stanford allegedly asked Meeks to contact Venezuelan strongman Hugo Chavez. One month after Stanford made the request, Meeks flew to Venezuela to meet with Chavez. Stanford wanted Chavez to go after whistleblower Tirado, who was indicted a year later.
Alana Goodman is NLPC’s Capitol Hill Reporter.