Compliancex

If the allegations are correct, R. Allen Stanford managed to run a $7 billion Ponzi scheme for twenty years without being formally investigated.

Even more incredulous is that authorities were suspicious of Stanford for more than a decade but somehow managed not to launch a full investigation, a decision that ultimately cost defrauded investors billions of dollars.

How could something like this happen?

With Stanford’s trial now in process in Houston, Reuters examined the role of two key people in Stanford’s business, Thomas Sjoblom and Spencer C. Barasch, both of whom advised the financier and also had a history at the SEC, possibly playing roles in keeping the SEC at bay.

Barasch was the head of enforcement at the SEC when according to the SEC Inspector General’s report via Reuters, he “personally overruled” several recommendations by his staff for an investigation into Stanford — in 1997, 1998, 2002, 2004 and 2005. It was not until he left the position that his successor then opened the probe. Barasch’s intentions in thwarting investigations are open to debate but nonetheless, it helped Stanford get by.

In 2006, in an effort to possibly derail an SEC investigation, Stanford actually hired Barasch to advise him directly for a brief period, an action which landed Barasch as the subject of an ethics case, which he recently settled for a $50,000 fine.

Sjoblom, also a former SEC employee with twenty years in the enforcement division, was a partner at bigwig Proskauer Rose LLP when he advised Stanford.

According to Stanford Financial CFO James Davis who plead guilty to securities fraud and is now a government witness, upon Sjoblom’s discovery that the company’s finances were works of fiction, he came up with the strategy of reporting to the SEC that the firm’s money was managed by lower-level executives, and not by Davis or Stanford.

When Chief Investment Officer Laura Pendergrest-Holt was then called to testify before the SEC instead of Davis and Stanford, Sjoblom sat by her side. Days after, per Reuters, Sjoblom resigned from representing the firm, submitting this note to the SEC: “I disaffirm all prior oral and written representations made by me and my associates to the SEC staff.” He subsequently resigned from Proskauer.

Sjoblom declined to comment to Reuters, so the above allegations are all implications from Davis’ plea deal, and although Sjoblom is still the subject of investigation, he has not been charged.

Barasch and his attorney also declined comment to Reuters.

Stanford’s trial is currently on-going in Texas.

Daryn Strauss is a contributing writer for CompliancEX and Wall Street Job Report. She is a 2012 Writers Guild Award Nominee, Outstanding Achievement in Writing Original New Media and is the Creative Director & Founder, Digital Chick TV (www.digitalchicktv.com), Writer/Director/Executive Producer of Downsized (www.downsizedthewebseries.com), www.darynstrauss.com
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