The SEC has devoted “substantial time and effort” to determine whether the Securities Investor Protection Corp. erred in denying investors coverage, SEC enforcement director Robert Khuzami and inspections chief Carlo di Florio said today at a House Financial Services Committee hearing in Washington.
Stanford, 61, was indicted in June 2009 on 21 criminal charges claiming he misled clients about the safety and oversight of certificates of deposit issued by his Antiguabased Bank. Investors, lawmakers and the SEC’s inspector general have accused the agency and the Financial Industry Regulatory Authority of ignoring warnings about Stanford years before he was arrested.
“It’s a tragedy that the investors have to pay the price of the SEC and Finra’s failures,” Representative Francisco Canseco, a Texas Republican, said at the hearing. Finra, the industry-funded brokerage regulator, oversaw the Stanford unit that sold the CDs.
Stephen Harbeck, the president of the Securities Investor Protection Corp., said in an August 2009 letter that Stanford investors weren’t eligible for insurance payments because the government-sponsored regulator doesn’t protect people who are sold worthless securities. SIPC, which was chartered to guard investors against broker theft or brokerage failure, is overseen by the SEC.
“We’re being told our money was stolen the wrong way,” Stanford Kauffman, who invested in the alleged fraud, said in testimony at the hearing. “Stanford stole our savings, but the SEC and Finra held the door wide open.”
Missing Stanford’s alleged fraud wasn’t a matter of faulty regulations so much as a failure to enforce existing statutes, Finra chairman and chief executive officer Richard Ketchum told lawmakers today.
Julie Preuitt, an SEC employee who worked on an examination of Stanford’s business in 1997, said she had been rebuffed by supervisors after flagging possible fraud and pushing for a more thorough investigation.
Preuitt, now an assistant regional director in the SEC’s regional office in Fort Worth, Texas, told the panel she was also reprimanded by management after complaining about changes to the examination program in 2007.
“I paid a heavy price for complaining,” Preuitt said. “I was not only ignored, but was actively rebuffed in my attempts to perform at a fully functioning level.”
SEC Inspector General H. David Kotz urged in a report last year that the SEC consider taking disciplinary action against two managers in the Fort Worth office who punished Preuitt.
That hasn’t happened, Preuitt said.
“The commission has failed to discipline anyone, at least not visibly, nor has there been any effort made to restore me to a position with similar duties and responsibilities to the one held before,” Preuitt said.
Stanford, who has denied the allegations against him, has been in federal custody since 2009 while awaiting trial. He is being held in a hospital at the Butner Federal Correctional Complex in North Carolina where he is receiving treatment for a prescription drug dependency developed while in prison.