A former top attorney for the Securities and Exchange Commission in Fort Worth quashed numerous investigations of accused swindler R. Allen Stanford and then, within weeks of leaving the agency, sought to defend the one-time billionaire, according to an internal review.
Spencer Barasch, the former head of enforcement for the SEC in Fort Worth, and now a private lawyer in Dallas, “repeatedly attempted to represent Stanford in connection with the investigation he had blocked for seven years,” an inquiry by the SEC inspector general found.
The blistering 159-page report said that SEC examiners in Fort Worth suspected Stanford was running a massive Ponzi scheme as early as 1997, yet no enforcement action was taken because of “repeated decisions by Barasch to quash the matter.”
Stanford, a graduate of Eastern Hills High School in Fort Worth, was accused last year in a federal indictment of bilking $7 billion from investors in an elaborate scheme involving his bank on the Caribbean island of Antigua. Stanford’s influence was so great there, he was once knighted and called Sir Allen Stanford. The Antiguan government has since rescinded the honor.
From a suite of offices in downtown Fort Worth, the SEC investigates investment fraud in Texas and throughout much of the southern United States. Stanford fell under the Fort Worth office's jurisdiction because he operated an office in Houston.
An SEC investigation was launched “immediately” after Barasch left the agency in April 2005, the inquiry by the agency’s independent watchdog said.
The report said that barely two months later, in June 2005, Barasch asked the SEC for permission to defend Stanford. The agency determined it was a conflict of interest. He asked two more times and got the same answer, the report said.
Asked in the inspector general’s review why he continued to request to represent Stanford, Barasch said his motivation was financial.
“Every lawyer in Texas and beyond is going to get rich over this case, OK?” Barasch is quoted as saying. “And I hated being on the sidelines.”
The inspector general report portrayed the SEC’s Fort Worth office as divided -- split between examiners who repeatedly pressed for action in the Stanford case, and Barasch and his enforcement branch.
The report said there were a number of red flags that should have sparked an immediate investigation.
For example, in October 2003, the SEC received a letter from a Stanford insider, who wrote: “Stanford Financial is the subject of a lingering corporate fraud scandal perpetuated as a ‘massive Ponzi scheme’ that will destroy the life savings of many, damage the reputation of all associated parties, ridicule securities and banking authorities, and shame the United States of America.”
The whistleblower went on to detail how the alleged scheme worked, duping investors with the promise of “unbelievable returns.”
But SEC examiners had already suspected it for years.
When a 1998 inquiry was closed without any action taken, an SEC supervisor of a group of examiners said she felt “shock and disbelief and this incredible feeling of failure and great disappointment,” the report said.
The report did not suggest Barasch knew Stanford while he worked at the SEC and that it was Stanford himself who encouraged an associate to hire Barasch after he left the agency.
“This guy looks good and probably knows everyone at the Fort Worth office. Good job,” Stanford wrote on June 11, 2005, just two months after Barasch left the SEC, the report said.
When Barasch first informed Stanford’s associates that he could not work with them because the SEC considered it a conflict of interest, Stanford fired off an email to his associate.
“This is bs and I want to know why the SEC would/could conflict him out,” Stanford wrote on July 2, 2005, according to the inquiry.
In 2006, Barasch went to work for Stanford despite the previous finding that he had a conflict, flying to Miami for a meeting with a Stanford associate, the report said.
In an e-mail, Barasch asked another Stanford attorney for the name of an SEC official who had contacted him, the report said.
“Maybe somebody I know well and can call for info,” Barasch wrote. He quit the case when the SEC again told him he was violating federal ethics rules, the report said.
The agency ended up dropping the probe because staffers believed the case was “too difficult, novel and not the type of case favored by the commission,” the report said.
The SEC later re-started its investigation when it came under fire for ignoring warning signs about Bernard Madoff’s fraudulent financial empire, which unraveled in December 2008. The FBI had also opened a criminal investigation into Stanford -- more than ten years after examiners in the SEC’s Fort Worth office first concluded his companies were engaged in fraud, the report said.
Barasch, 52, now a partner with the law firm Andrews Kurth, could not be reached for comment.
The firm’s managing partner, Bob Jewell, defended Barasch in a written statement.
“Spencer Barasch served the SEC with honor, integrity and distinction,” Jewell said. “We believe he acted property during his contacts with the Stanford Financial Group and the Securities and Exchange Commission. He did not violate conflicts of interest.”
When Barasch left the SEC, the commission praised his 17 years of service.
At the time, Stephen Cutler, the director of the SEC’s enforcement division, called him “the consummate enforcement lawyer: smart, tough, fair and tireless.”