Accusing The SEC of negligent supervision and failure to act, a number of Stanford investors have filed a putative class action seeking damages from the Commission. In Anderson v. United States, the plaintiffs submitted an amended complaint to the U.S. District Court for the Middle District of Louisiana earlier this month. They are bringing their securities case under the Federal Tort Claims Act.
They contend that the losses they sustained in Stanford’s $7 billion Ponzi scam occurred because the SEC was negligent in supervising Spencer Barasch, who is the former enforcement director of the SEC’s Forth Worth Regional Office. They also are arguing that there was enough information available about R. Allen Stanford for the SEC to merit bringing an enforcement action or a referral to other agencies. The investors believe that an alleged failure to act by Barasch and the SEC let Stanford’s Ponzi scheme go undetected for years. They especially blame Barasch.
According to an April 2010 report by the Commission’s Office of the Inspector General, although the SEC’s Dallas office was aware as far back as 1997 that Stanford was running a Ponzi scam, it was unable to persuade the SEC’s Enforcement Division to investigate the scheme. The report also concluded that Barasch played a key part in a number of decisions to squelch the possible probes against Stanford.
After Barasch left the SEC, he represented Stanford on more than one occasion until 2006 when the SEC Office of Ethics told him that this was not appropriate. Earlier this year, he settled US Department of Justice civil charges over this alleged conflict of interest restrictions violation by paying a $50,000 penalty and consenting to a yearlong ban from SEC practice. (He did not, however, admit or deny wrongdoing.)
Now, the investor plaintiffs want the government to compensate them for their losses: Reuel Anderson is seeking $1,295,481.37, Timothy Ricketts wants $353,216.31, and Gary Greene is asking for his $443,302.09. The plaintiffs believe their class action securities complaint represents approximately 2,000 members.
This class action case comes more than a year after another group of plaintiff investors brought a similar securities lawsuit in the U.S. District Court for the Northern District of Texas. In Robert Juan Dartez LLC v. United States the plaintiffs sought to hold the government liable for losses they sustained in Stanford’s Ponzi scam. The district court, however, dismissed the case without prejudice due to lack of subject matter jurisdiction in that it found that the plaintiffs’ claims landed in the discretionary function exception of the Federal Tort Claims Act.
Approximately 30,000 investors bought fraudulent CD’s from Stanford International Bank in Antigua. That’s a lot of customers getting hurt financially by one scam.
Stanford Investors Sue SEC Over Losses, Citing Negligent Supervision, Failure to Act, Bloomberg BNA, July 16, 2012
Anderson v. United States (PDF)
Robert Juan Dartez LLC v. United States
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