May 13, 2011
Former S.E.C. Official Said to Be Subject of Criminal Inquiry
By EDWARD WYATT, NY TIMES

WASHINGTON — A former Securities and Exchange Commission enforcement official who has been accused of repeatedly blocking efforts to investigate R. Allen Stanford, the Houston financier charged with running a $7 billion Ponzi scheme, is the subject of a federal criminal inquiry for having done legal work for Mr. Stanford after leaving the S.E.C., government officials said Friday.

R. Allen Stanford
The former official, Spencer C. Barasch, is now a private-sector lawyer in Texas. He has represented clients dealing with the agency, including a defendant charged last month with financial fraud by the S.E.C. in federal court in Dallas.

Those disclosures came Friday at a Congressional hearing into the S.E.C.’s failures to stop the Stanford Ponzi scheme.

Mr. Barasch led the enforcement bureau in the S.E.C.’s Fort Worth office and played “a significant role” in numerous decisions by the office not to investigate Mr. Stanford despite repeated accusations of fraudulent behavior, according to a report the S.E.C.’s inspector general released last year.

After leaving the agency, Mr. Barasch did legal work for Mr. Stanford despite being told multiple times by the S.E.C.’s ethics office that it was improper, S.E.C. officials said at the hearing. Mr. Stanford was eventually charged with fraud and is scheduled for trial later this year. He has denied the charges.

Mr. Barasch’s law firm said he had not acted unethically or violated any laws.

Members of the House Financial Services Committee’s oversight and investigations subcommittee expressed shock that Mr. Barasch, who the inspector general said had blocked efforts to pursue Mr. Stanford at least six times over seven years, continued to practice securities law before the commission.

The S.E.C. can, after an administrative proceeding, bar lawyers from practicing before the commission should it find sufficient wrongdoing. The commission declined on Friday to say whether such a proceeding was under way.

“This is not even defensible,” Representative Randy Neugebauer, Republican of Texas and head of the House subcommittee, said at the conclusion of the hearing.

“It is extremely disturbing that we had a culture in agencies that demand high levels of disclosure and integrity, that within that very agency there wasn’t a similar amount of integrity,” Mr. Neugebauer said. “It’s inexcusable.”

H. David Kotz, the S.E.C. inspector general, and Robert Khuzami, the director of the division of enforcement, told the House panel on Friday that Mr. Barasch had become the subject of a criminal investigation by the Federal Bureau of Investigation and the Justice Department after Mr. Kotz’s report was issued in March 2010.

The S.E.C. also referred Mr. Barasch to the ethics boards of the bar associations in Texas and Washington, Mr. Khuzami said at the hearing.

Mr. Barasch did not respond to a request for comment. Robert V. Jewell, the managing partner of Andrews Kurth, the Texas law firm where Mr. Barasch is the leader of the corporate governance and securities enforcement team, said in a statement that he believed that Mr. Barasch “did not violate conflicts of interest.”

“Spencer Barasch served the S.E.C. with honor, integrity and distinction,” the statement said. “We disagree with the characterization of Mr. Barasch’s involvement put forth by the inspector general in his report last year in regard to the Stanford Financial Group matter. We believe he acted properly during his contacts with the Stanford Financial Group and the Securities and Exchange Commission.”

He continued: “We continue to stand by Spencer Barasch; he is and will remain a valued member of the Andrews Kurth team, where he provides our clients with the highest possible quality of advice and counsel.”

Asked by Mr. Neugebauer at the hearing whether he thought Mr. Barasch had engaged in unethical behavior, Mr. Khuzami, the enforcement chief, said yes. “Clearly the rules prohibited him from representing Mr. Stanford,” Mr. Khuzami said. “So my personal conclusion would be certainly the evidence appears to be the case.”

Rule 102(e) of the S.E.C.’s rules of practice says that the commission can bar a lawyer who is found “to be lacking in character or integrity or to have engaged in unethical or improper professional conduct.”

But such a finding requires a formal hearing, and the S.E.C. has not initiated a hearing on Mr. Barasch, said John Nester, an S.E.C. spokesman. Mr. Nester declined to comment on whether “any enforcement investigation, including one that might result in an administrative enforcement proceeding against an attorney, is ongoing.”

The Congressional hearing once again brought to light problems that the S.E.C., like many government agencies, faces with the “revolving door” of people who go back and forth between government and the private sector.

On Friday, the Project on Government Oversight, a watchdog group, released a study showing that between 2006 and 2010, 219 former S.E.C. employees filed 789 post-employment statements indicating their intent to represent an outside client before the S.E.C.

“The revolving door to high-paying jobs representing Wall Street can undermine the integrity of the S.E.C.,” said Michael Smallberg, the investigator for the oversight watchdog group who created the database. “It’s not a stretch for the public to wonder whether the promise of future employment affects how S.E.C. regulators treat certain firms.”

The study, which used documents obtained from the S.E.C. under the Freedom of Information Act, also found that some former employees had filed the statements within days of leaving the commission. One employee’s filing came within two days of leaving; another former employee filed at least 20 statements.

Mr. Nester said the S.E.C. had “a rigorous program to help departing employees meet not just the letter, but also the spirit of the law” on conflicts of interest after they leave the agency.

The Government Accountability Office is conducting a review of post-employment rules, he said, which the S.E.C. is assisting.

Former SEC Investigator (and Ethics Follies Speaker!) May Have Shielded R. Allen Stanford’s Ponzi Scheme
Posted on 05/03/2010 by Lee Cusenbary
LINK
See Ethics Follies Blog
Is Spencer Barasch the man who single-handedly let alleged Ponzi schemer R. Allen Stanford off the hook three times, costing investors more than $7 billion? Yikes!

Mr. Barasch gave a humous talk at Ethics Follies 2008 about business ethics right here in the River City. I guess Ethics Follies was even more in touch with current ethics issues than it even realized! Who would have guessed that a guest speaker at Ethics Follies could be responsible for a $7 Billion dollar Ponzi scheme?

Or is he an honest Dallas defense attorney unfairly blamed for the failings of a government regulator? Yeah…I have no idea. He seemed like a nice guy when he was at the Empire Theatre and he understood ethics issues which relate to SEC investigations.

The Securities and Exchange Commission’s Inspector General has issued a 151-page report that says he was the former. It skewers Barasch, former head of the SEC’s enforcement efforts at its Fort Worth office, as a poster child for an agency critics say missed one of the biggest investor scams of our generation. Mr. Barasch and his law firm deny his culpability.

Here’s an interesting quote from the Executive Summary of the SEC Inspector General’s Report of Investigation on the Allen Stanford debacle:

“Finally, the OIG investigation revealed that the former head of Enforcement in Fort Worth, who played a significant role in numerous decisions by the Fort Worth office to deny investigations of Stanford, sought to represent Stanford on three separate occasions after he left the SEC, and represented Stanford briefly in 2006 before he was informed by the SEC Ethics Office that it was improper to do so.

This former head of Enforcement in Fort Worth was responsible for: (1) in 1998, deciding to close a MUI opened regarding Stanford after the 1997 broker-dealer examination; (2) in 2002, deciding to forward the (redacted) complaint letter to the TSSB and deciding not respond to the (redacted) complaint or investigate the issues it raised; (3) in 2002, deciding not to act on the Examination staff’s referral of Stanford for investigation after its investment adviser examination; (4) in 2003, participation in a decision not to investigate Stanford after receiving (Confidential Source)‘s complaint letter comparing Stanford’s operations to the (redacted) fraud; (5) in 2003, participating in a decision not to investigate Stanford after receiving the complaint letter from an anonymous insider alleging that Stanford was engaged in a “massive Ponzi scheme;” and (6) in 2005, informing senior Examination staff after a presentation was made on Stanford at a quarterly summit meeting that Stanford was not a matter they planned to investigate.

Yet, in June 2005, a mere two months after leaving the SEC, this former head of the Enforcement in Fort Worth e-mailed the SEC Ethics Office that he had been “approached about representing (Stanford) . . . in connection with (what appears to be) a preliminary inquiry by the Fort Worth office.” He further stated, “I am not aware of any conflicts and I do not remember any matters pending on Stanford while I was at the commission.”

After the SEC Ethics Office denied his request in June 2005, in September 2006, Stanford retained this former head of Enforcement in Fort Worth to assist with inquiries Stanford was receiving from regulatory authorities, including the SEC. He met with Stanford Financial Group’s General Counsel in Stanford’s Miami office and billed Stanford for his time. Following the meeting, he billed 6.5 hours to Stanford on October 4, 2006, for, inter alia, “review[ing] documentation received from company about SEC and NASD inquiries.” On October 12, 2006, he billed Stanford 0.7 hours for a “(t)elephone conference with (Stanford Financial Group's General Counsel) regarding status of SEC and NASD matters.” In late November 2006, he called his former subordinate, the Assistant Director who was working on the Stanford matter in Fort Worth, who asked him during the conversation, “(C)an you work on this?” and who in fact told him, “I’m not sure you’re able to work on this.” Near the time of this call, he belatedly sought permission from the SEC’s Ethics Office to represent Stanford. The SEC Ethics office replied that he could not represent Stanford for the same reasons given a year earlier and he discontinued his representation.

In February 2009, immediately after the SEC sued Stanford, this same former head of Enforcement in Fort Worth contacted the SEC Ethics Office a third time about representing Stanford in connection with the SEC matter – this time to defend Stanford against the lawsuit filed by the SEC. An SEC Ethics official testified that he could not recall another occasion in which a former SEC employee contacted his office on three separate occasions trying to represent a client in the same matter. After the SEC Ethics Office informed him for a third time that he could not represent Stanford, the former head of Enforcement in Fort Worth became upset with the decision, arguing that the matter pending in 2009 “was new and was different and unrelated to the matter that had occurred before he left.” When asked why he was so insistent on representing Stanford, he replied, “Every lawyer in Texas and beyond is going to get rich over this case. Okay? And I hated being on the sidelines.”

The OIG investigation found that the former head of Enforcement in Fort Worth’s representation of Stanford appeared to violate state bar rules that prohibit a former government employee from working on matters in which that individual participated as a government employee. Accordingly, we are referring this Report of Investigation to the Commission’s Ethics Counsel for referral to the Office of Bar Counsel for the District of Columbia and the Chief Disciplinary Counsel for the State Bar of Texas, the states in which he is admitted to practice law.”

About Lee CusenbaryLee Cusenbary is the General Counsel at Mission Pharmacal Company in San Antonio, Texas. He is also the creator of Ethics Follies®, a musical ethics conference produced each year by the South/Central Texas Chapter of the Association of Corporate Counsel. Learn more about business and legal ethics at www.ethicsfollies.com.