Watchdog: SEC Fulfilled Duty in Stanford Case

The Securities and Exchange Commission had been actively investigating the banking business of billionaire R. Allen Stanford for more than three years before Bernard Madoff's Ponzi scheme came to light last December and has fulfilled its duty to pursue alleged wrongdoing by the financier, the agency's inspector general has found.

The SEC's decision to halt its investigation of Stanford in April 2008 came in response to a request by the Justice Department, and the agency didn't breach its obligation, according to a report by the office of Inspector General David Kotz.

The office looked into the matter after receiving complaints that the SEC should have acted more quickly and aggressively to detect and shut down Stanford's alleged $7 billion Ponzi scheme — portrayed by authorities as a major swindle in its own right yet eclipsed by Madoff's sprawling fraud estimated to have cost thousands of investors, foundations and banks worldwide at least $13 billion.

Complaints had come from Rep. Dennis Kucinich, D-Ohio, chairman of a House Oversight subcommittee, who voiced concern in February about what he called the "substantial delay" in the SEC's actions. He told SEC Chairman Mary Schapiro in a letter that the agency's handling of the Stanford investigation "raises serious questions about the (SEC's) dedication to its mission of protecting investors."

The inspector general's report did find that the SEC's "urgency" regarding its Stanford probe "increased significantly" after Madoff confessed to his long-running fraud scheme last December, with the agency telling the DOJ it could no longer wait in deference to the criminal authorities' parallel investigation. Federal prosecutors agreed and the SEC brought charges in February.

Starting in June 2005, the SEC's regional office in Fort Worth conducted an investigation into sales of certificates of deposit by Antigua-based Stanford International Bank, which promised outsized returns. The report also found that the agency's inquiry was "hampered by a lack of cooperation" from Stanford and his attorneys as well as by jurisdictional obstacles and obstruction by regulators in Antigua.