Stanford Employees Yelled “Ponzi Scheme!” 3 Years Ago


More details are emerging about early warnings of the alleged Stanford fraud.  The SEC isn’t looking any better.

WSJ: Scattered complaints about Mr. Stanford’s financial practices began reaching U.S. regulators in 2001, according to records of the Financial Industry Regulatory Authority, Wall Street’s self-policing body, and Finra’s predecessor body. Finra didn’t take action until April 2007, when it issued the first of four fines totaling $70,000….

In 2005, two Venezuelans alleged in U.S. District Court in Florida that Stanford International Bank “knowingly aided and abetted … a classic Ponzi scheme” targeting current and former residents of Venezuela. The case was settled out of court by the bank.

In 2006, former Stanford employee Lawrence J. DeMaria filed suit against Stanford in Florida state court. He alleged that the firm “was operating a ‘Ponzi’ or pyramid scheme, taking new money to its offshore bank, laundering the money and using the money to finance its growing brokerage business, which did not have any profits of its own.” The suit was settled, said Mr. DeMaria’s lawyer, who declined to comment further.

Problems began to intensify for Stanford International Bank at the end of 2007 when two top executives, Mark Tidwell and Charles Rawl, quit the bank due to concerns that Stanford was falsifying returns and lying to investors, according to sworn court statements in federal court in Dallas. In early 2008, they filed suit in Texas state court against Stanford, alleging fraud.

It was only after Madoff, apparently, that the SEC kicked its investigation into high gear, presumably in fear of further embarrassment. (And it was only after “Ponzi” reports hit the press that the regulator filed charges).

Everything’s obvious in hindsight, and the SEC says that there were jurisdictional problems here.  But still...   Multiple former employees were alleging fraud and the bank was managing billions.  Isn’t that enough to kick the investigation up to high-priority?  “Jurisdictional” problems?  For a company doing business in the U.S.?