At one point, an SEC official laments in an e-mail, “Before I retire, the Commission will be trying to explain why it did nothing.” The e-mail from Fort Worth, Texas, Regional Office Assistant Director Julie Preuitt was written in 2004. The agency did not move in on Stanford until 2009.
The documents are exhibits in a scathing report issued in March by SEC Inspector General H. David Kotz. His investigation found SEC staffers were aware of potential problems at the Stanford Financial Group as far back as 1997, but that the SEC’s Enforcement Division repeatedly declined to take action. The agency released the exhibits Tuesday after repeated requests by CNBC under the Freedom of Information Act.
Kotz’s investigation also found the SEC’s former enforcement chief in Fort Worth, Spencer Barasch, repeatedly sought to represent Stanford after leaving the agency, even after being told by the SEC’s ethics office that he could not.
The exhibits show Allen Stanford himself pushed for Barasch’s hiring. With SEC investigators bearing down on the company in 2006, Stanford wrote in an e-mail to Chief Financial Officer James Davis and General Counsel Mauricio Alvarado, “The former SEC Dallas lawyer we spoke about in St. Croix. Get him on board asap.”
SEC officials blocked Barasch from representing Stanford, but the documents show Barasch billed Stanford for work done in 2006. He sought to represent Stanford again after the SEC lawsuit in 2009, but officials again ruled he had a conflict of interest. According to a transcript released Tuesday, Kotz asked Barasch about the 2009 request, and Barasch replied, “Every lawyer in Texas and beyond is going to get rich over this case. Okay? And I hated being on the sidelines.”
Barasch, who has not been charged with wrongdoing, has not responded to previous requests for a comment about any role he may have played in the Stanford affair.
The documents show Allen Stanford’s attempts to exert his influence may have extended beyond the SEC. In a 2004 e-mail exchange with the subject “Stanford – Call to Federal Reserve,” SEC officials contemplate the fact that someone at Stanford – the name in the e-mail is redacted – had contacted someone at the Federal Reserve, whose name is also redacted.
The SEC staffers conclude there is nothing they can do about the development, which leads Assistant Regional Director Preuitt to write, “I love this stuff. We all are confident that there is illegal activity but no easy way to prove. Before I retire, the Commission will be trying to explain why it did nothing. Until it falls apart all we can do is flag it every few years.” The e-mail is dated October 25, 2004.
By then, officials in Fort Worth had been looking into issues at Stanford Financial for years. In 1997, examiners found evidence of “possible misrepresentation and misapplication of customer funds,” according to one of the newly released documents. The report noted that Stanford himself had made a $19 million cash contribution to the company in 1996, and “We are concerned that the cash contribution may have come from funds invested by customers in (Stanford International Bank).”
The report was referred to the Enforcement Division, which ultimately chose not to pursue the matter. Among those who made the decision: regional enforcement chief Spencer Barasch.
The SEC released the Inspector General’s report – minus the exhibits – on April 16, the same day the Commission announced a high-profile fraud suit against Goldman Sachs. That triggered charges the SEC was trying to bury the report amid the publicity surrounding the Goldman Sachs case, but a subsequent report by the Inspector General found no evidence of that.