U.S. News

SEC Says It Acted Properly in Stanford Probe

Scott Cohn

The Securities and Exchange Commission and the Justice Department are defending their investigations of the alleged $8 billion Stanford Financial fraud. This, following an investigation by the SEC's Inspector General — first reported by CNBC — that concluded the SEC "effectively halted" its investigation last year at the Justice Department's request.


In a written statement, SEC spokesman John Nester said that while the Justice Department pursued its criminal investigation last spring, "the SEC continued to talk with witnesses and review documents and other evidence" it had gathered in its own probe, which began in 2005.

While the SEC has always claimed its investigation has been active since 2005, the agency acknowledged it enlisted the Justice Department's help last April after Stanford's offshore bank's "repeated refusal of SEC requests for documents."

"As the DOJ prepared to proceed," Nester's statement continues, "the SEC ensured that its ongoing activities did not interfere with DOJ's criminal investigation."

The Justice Department, which was not interviewed by the SEC Inspector General's office, says in a statement, "Each agency...makes its own decisions on how to pursue their investigations, including decisions regarding timing and implications for other agencies." The statement says the Justice Department "worked dilligently and cooperatively with the SEC to investigate the case."

A group representing Stanford's 28,000 alleged victims has repeatedly claimed the Justice Department ordered the SEC to "stand down" in its investigation, effectively delaying action in the case as unsuspecting investors continued to invest with Stanford.

The Inspector General's report says, however, that the SEC continued working with the two original whistleblowers in the case, Mark Tidwell and Charles Rawl, while the Justice Department proceeded with its criminal investigation.

After the Bernard Madoff Ponzi scheme came to light in December, however, SEC staffers "felt an increased sense of urgency regarding any investigations of possible Ponzi schemes." At that point, the report says, the SEC expressed its concern to the Justice Department about deferring any longer, and the Justice Department agreed to allow the SEC to proceed.

Two months later, on February 16, the SEC filed suit against Stanford, effectively shutting the company down. The Justice Department followed four months later — on June 18 — with a sweeping indictment against CEO Allen Stanford, several executives, and the chief financial regulator in Antigua, where Stanford's offshore bank was based.