The SEC’s five commissioners are scheduled to vote Jan. 12 on whether to authorize the enforcement actions, which target brokers and senior executives at Stanford’s Houston-based brokerage, the people said, speaking on condition of anonymity because the matter isn’t public. The vote by the commissioners could still be delayed or tabled, the people said.
The actions, which seek to bar the executives and brokers from working in the industry and claw back sales commissions, come almost three years after the SEC sued Stanford and a federal grand jury indicted him on 21 criminal counts alleging he used his U.S. brokerage to sell bogus certificates of deposits for his Antigua-based bank.
The SEC lawyers claim the employees ignored red flags signaling that they were selling fraudulent products, such as above-market returns promised on the CDs and outsized commissions to the brokers who sold them, one of the people said.
The investigators are treating the cases as a legal test of whether they can sanction brokers for failing to conduct due diligence on in-house products, the people said. If successful, the cases could be replicated against more ex-Stanford brokers over time, said the person.
Former NASD Official
One of the former Stanford employees whose actions were reviewed by investigators was Bernerd Young, the former regulator who later became Stanford’s chief compliance officer. Young received a notice in June 2010 from SEC investigators that they planned to recommend an enforcement action against him for his role in the Stanford matter, according to his broker records.
Young became the top compliance official at Stanford’s brokerage in 2006 after having worked for nearly two decades at the National Association of Securities Dealers, which later became the Financial Industry Regulatory Authority, the brokerage industry’s self-regulator. He headed the NASD’s Dallas office from 1999 to 2003, Finra said in a 2009 report. Young now works at Magnolia, Texas-based MGL Consulting LLC.
“If the Commission authorizes the Staff to bring a formal action against Bernie, it will be met with a fierce and aggressive defense,” Melinda G. LeGaye, founder and president of MGL Consulting, said in a statement today. The SEC staff “has repeatedly changed its focus in an attempt to secure Commission authorization to bring a formal action against him.”
Young “has continued to cooperate and provide documentation and detailed explanations to not only refute the Staff’s allegations but also to assist in their understanding of events while Bernie was at Stanford Financial Group,” LeGaye said.
Randle Henderson, an attorney for Young, said in a phone interview that he didn’t know whether the SEC was considering sanctions against Young. He said he has submitted multiple briefs to the SEC in defense of his client.
Stanford, 61, has denied the fraud allegations and last month requested that his Jan. 23 trial date be delayed by three months after his expert witnesses quit because they weren’t being paid. He is being held without bail. Stanford’s former accountants and heads of finance and investment also face criminal and civil claims.
The SEC has been reviewing the case for more than two years as Stanford customers and lawmakers criticized investigators for not catching the alleged scheme sooner. The SEC’s inspector general said the agency didn’t conduct a meaningful probe of Stanford’s business until 2005, even though examiners suspected fraud eight years earlier.