So R. Allen Stanford, the former head of the Houston-based Stanford Financial Group, is officially a criminal. Prosecutors say he oversaw a $7 billion pyramid scheme and a Houston jury found him guilty of 13 counts, including wire and mail fraud and obstructing a federal regulatory investigation. Stanford, 61, faces as long as 20 years in prison for each fraud count.
No thanks to the Securities and Exchange Commission, the regulator in charge of overseeing operations precisely like Stanford's. As happened with the case of Bernie Madoff, Stanford was connected, so the SEC turned a blind eye.
The phenomenon known as the "revolving door" is widely acknowledged as a challenge to our democracy. It is also a challenge to the integrity of our financial markets. The revolving door at the SEC is gold plated and features prominent corporate sponsorships. And it should concern investors of every type, especially small investors. Why should individual investors trust they are getting due protection when evidence of regulator corruption is all around them?
The story here isn't Stanford. The story is the SEC.
This January, a Reuters report asked "How did [Stanford] keep authorities at bay for so long?"
Answer: "In part... the legal advice he obtained from former SEC officials and other ex-regulators and law-enforcement officials."
Take Spencer C. Barasch. He headed the enforcement division of the SEC's regional office which oversaw Stanford's operations. On three separate occasions, Barasch personally overruled SEC examiners recommending that the agency investigate Stanford. Then he went on to work for him. Interesting career path.
Barasch recently agreed to pay a $50,000 fine for allegedly violating federal ethics laws by representing Stanford after overseeing regulation of Stanford's U.S. brokerage businesses. No jail time. We throw people in jail for inadvertently stealing sandwiches in this country, but apparently abusing the public trust to abet a large scale fraud just isn't that big a deal.
Another former government figure whose reputation has been tarnished by the Stanford affair is Thomas Sjoblom, a former 20-year veteran of the U.S. Securities and Exchange Commission's enforcement division. Sjoblom left the SEC to work for Stanford as a partner at the international law firm of Proskauer Rose. It is important to note that Sjoblom has not been charged with any crimes (yet) and is presumed innocent, but Reuters reported he is being investigated "for possible obstruction of justice, witness tampering, and conspiracy related to his efforts to persuade the SEC to stand down from its investigation of Stanford."
Last Spring, a study issued by the Project on Government Oversight concluded, that, among other things outgoing SEC employees routinely go directly to work for clients with business before the SEC. It also found that former SEC employees contacted SEC staff on behalf of private clients regarding issues that they had responsibility over during their public office.
In January of 2010, the SEC's own Inspector General identified cases in which the revolving door appeared to be a factor in staving off SEC enforcement actions and other types of SEC oversight, including the Stanford Ponzi scheme.
An empirical study published by Stavros Gadinis of Boalt Hall at University of California, Berkeley found "several significant and systematic biases in the SEC's enforcement patterns" and found indirect evidence to support the thesis that "post-agency employment at higher salaries may operate as a quid pro quo in return for favorable regulatory treatment."
Protecting investors like those who lost money to Stanford is the reason the SEC exists in the first place. Instead, SEC staff were profiting from the relationship. That is a go-to-jail-for-a-long-time crime, not a "$50k-and-on-your-way" sort of thing.
Allen Stanford's pyramid scheme is only a window into the real story -- that the primary regulator for the most important financial system in the world has been substantially captured by select interests. Folks, this is a problem that we as a society need to focus on.
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So far, the government has collected about 2 cents on the dollar. And most criminals have paid less than the cost of a speeding ticket.
In 2005, after a Government Accountability Office report concluded criminals faced few consequences for not repaying the government, the Justice Department asked Congress to give prosecutors more power to collect. In particular, prosecutors sought the ability to freeze assets at the beginning of cases to ensure money didn't disappear. The Republican Congress didn't act on the measure.
That drop in enforcement touched everything from stock-trading schemes and corporate wrongdoing to fraud aimed at individual consumers, according to the records. From the fiscal years 2003 to 2008, the number of federal corporate fraud cases plunged 55%; securities fraud charges dropped 17%; and bankruptcy fraud cases fell by 44%.
Those figures are consistent with separate reports from the office that oversees federal courts. In 2009, the recession unraveled nearly four times as many investment scams as fell apart in 2008, with "Ponzi" becoming a buzzword again. Tens of thousands of investors watched more than $16.5 billion disappear like smoke in 2009.
In all, more than 150 fraud schemes collapsed in 2009, compared to about 40 in 2008. The financial meltdown resulted in the exposure of numerous fraudulent schemes that otherwise might have gone undetected for a longer period of time.
"There's no doubt that if we got started two years ago, we would have gotten a lot more of these guys. Because we didn't, there are people who are going to get away with it," said Sen. Ted Kaufman, D-Del. "We should never have left ourselves naked when it comes to financial fraud."
http://www.usatoday.com/news/washington/2009-12-15-prosecute-fraud_N.htm
Standford & Madoff are just two huge, blatant example of the SEC's failure to do it's job.
And Obama main campaign contributions were those "Savvy Businessmen" he grovels to.
The whole system is rotten and will be until we get public financing of all political campaigns.
Bank are audited, as are a portion of ordinary taxpayers. Why would you not keep a watchful eye on organizations that are entrusted with tremendous amounts of other people's money? A pyramid scheme is phoney from top to bottom. How deep would you have to probe before you caught the smell; and how many investors would be spared becoming victims?
As for the big disciplinary $50K fine, any info on what Stanford (or the SEC) was providing to Barasch as yearly compensation?
For this democracy to work, or any democracy under the sun, we the people must understand that there are inescapable conflicts in our society, where some people will and have been doing all they can to screw all their fellow human beings. And therefore it is the government’s job to act as the collective proxy for we the people in combatting against these public enemies.
Therefore we must tax them hard, and then use the money to pay public servants with high wages and then empower them to be our guardians against the criminals behind every Ponzi scheme, every corporate scandal, and every market collapse.
It is therefore our collective duty to educate ourselves in believing that every human being must not do others harm, no matter how wealthy or destitute, how privileged or disadvantaged we are in our life. Laws and regulations protect everyone in our society, and only those who intent to cheat and steal and murder would lie and lure the marginally greedy masses to vote away their true interests and rights.
I am personally not religious, but the devil do seems to live among the wealthy, doesn’t it. There are in fact recent studies that privileged and wealthy people consistently cheat and steal more on simple morality tests than the rest of the population. No surprise there, isn’t it.
http://articles.businessinsider.com/2009-10-16/wall_street/30075134_1_goldman-sachs-coo-bloomberg