The new inspector general report on the SEC’s handling of the Allen Stanford alleged Ponzi scheme case paints a devastating picture of the agency’s repeated failures to pursue the billionaire banker, despite a widespread belief within the SEC’s Fort Worth office that he was a fraud.
At the center of the story is Spencer Barasch, the chief of enforcement at the SEC’s Fort Worth office, who declined to pursue Stanford multiple times, only to later jump ship to become a partner at a big private law firm where he proceeded to represent none other than “Sir” Allen Stanford.
In fact, the IG found, Barasch was involved in deciding at least four times to close investigations of Stanford Financial or to not pursue findings by SEC investigators that the firm was a fraud.
This former head of Enforcement in Fort Worth was responsible for: (1) in 1998, deciding to close a MUI opened regarding Stanford after the 1997 broker-dealer examination; (2) in 2002, deciding to forward the [redacted] complaint letter to the TSSB and deciding not respond to the [redacted] complaint or investigate the issues it raised; (3) in 2002, deciding not to act on the Examination staff’s referral of Stanford for investigation after its investment adviser examination; (4) in 2003, participation in a decision not to investigate Stanford after receiving [Confidential Source]’s complaint letter comparing Stanford’s operations to the [redacted] fraud;
|(5) in 2003, participating in a decision not to investigate Stanford after receiving the complaint letter from an anonymous insider alleging that Stanford was engaged in a “massive Ponzi scheme”; and (6) in 2005, informing senior Examination staff after a presentation was made on Stanford at a quarterly summit meeting that Stanford was not a matter they planned to investigate.
The OIG investigation found that the former head of Enforcement in Fort Worth’s representation of Stanford appeared to violate state bar rules that prohibit a former government employee from working on matters in which that individual participated as a government employee. Accordingly, we are referring this Report of Investigation to the Commission’s Ethics Counsel for referral to the Office of Bar Counsel for the District of Columbia and the Chief Disciplinary Counsel for the State Bar of Texas, the states in which he is admitted to practice law.
The inspector general David Kotz has referred Barasch to the bars of Washington and Texas, where he is licensed, for potential violation of conflict of interest rules.
In March 2005, Barasch announced he was leaving the SEC after 17 years, with seven of those as the head of the Fort Worth enforcement division, for the international law firm Andrews Kurth. He joined the firm’s securities enforcement team.
A couple months later, Stanford Financial Group executives were looking for representation to help them handle a burgeoning SEC inquiry in to the company. They got wind of Barasch’s new gig and word made its way up to Stanford himself, who said in an email to an underling, “This guy looks good and probably knows everyone at the Fort Worth office. Good job.”
A few days later, Barasch emailed an SEC ethics counsel to get the green light to work for Stanford. “I am not aware of any conflicts and I do not remember any matters pending on Stanford while I was at the Commission,” he wrote.