More On Legal & Compliancefrom The Advisor's Professional Library
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
Allen Stanford was convicted Tuesday of running a $7 billion Ponzi scheme. Stanford was found guilty on 13 counts of a 14-count criminal indictment, including fraud, conspiracy and obstructing an investigation by the U.S. Securities and Exchange Commission. He was found not guilty on one count of wire fraud. The charges carry a possible prison sentence of nearly 20 years.
“It was a vindication for the U.S. government, which closed down Stanford's financial empire in February 2009 but had failed for years to address signs that the business was built on air,” according to a Reuters report. “The Stanford case was the biggest investment fraud since Bernard Madoff's.”
Reuters said that Stanford, 61, was led out of the courtroom after the verdict, he touched his fist to his heart and looked at the bench where his mother and two daughters sat. He has been jailed since his June 2009 arrest.
"We're disappointed in the outcome," said Stanford's defense attorney Ali Fazel. "We do expect an appeal." He said he expects sentencing in several months.
Stanford, who was head of the now defunct Stanford Financial Group, based in Houston, was charged on Feb. 17, 2009, by the SEC with fraud and other violations of U.S. securities laws for his $7 billion Ponzi scheme that involved supposedly “safe” certificates of deposit. His personal fortune was once valued at $2.2 billion.
Andrew Stoltmann, of Stoltmann Law Offices in Chicago specializes in investment fraud, and cites several “red flags” that were “missed or ignored” by the SEC.
First was the fact Stanford’s businesses were inspected and investigated several times, starting in 2004 by the National Association of Securities Dealers, the brokerage industry’s self-policing group, which is now FINRA. “NASD’s scrutiny resulted in several disciplinary actions: the regulator fined his brokerage company four times, with penalties totaling $70,000, for violations that included misleading investors in sales materials about the risks of the CDs,” Stoltmann says.
Then there was a 2006 lawsuit by former employees alleging that Stanford’s company was running a Ponzi scheme. An SEC Office of inspector general's report later found that the SEC’s Fort Worth, Texas, office was aware since 1997 that Stanford was likely operating a Ponzi scheme, Stoltmann says.
Stanford’s company also lacked capital. In June 2007, Stoltmann says, “a finding by regulators stated that Stanford’s company lacked enough capital to function properly as a securities brokerage firm. The company paid $20,000 to settle charges by the NASD without admitting or denying them.”
Mike Patton, an AdvisorOne blogger and president of Integrity Wealth Management, an RIA firm in Baton Rouge, La., said, "This closes one chapter in the ongoing saga of one of the most egregious con men of modern times. Still in limbo, however, is the reimbursement for those who were duped by the charismatic ex-billionaire. While the SEC brandishes swords with SIPC over the matter, those who invested in the once 'highly touted CD' are forced to wait, while the political machinery crawls along."