SEC Overlooked Stanford Fraud in 2003

Former employee warned agency, others of 'Ponzi scheme'

By Matt Cantor, Newser Staff

Posted Feb 27, 2009 9:49 AM CST

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SEC Overlooked Stanford Fraud in 2003 — Investigators from the U.S. Marshals office walk out of the offices of Stanford Financial Group and head to their other office building in the Galleria, Tuesday, Feb. 17, 2009, in Houston. (AP Photo/Houston Chronicle, Steve Campbell)

A former employee of Sir Allen Stanford warned the SEC in 2003 of an “illegal Ponzi scheme” involving his firms, but regulators brushed off the allegations, the Financial Times reports. The whistleblower also told another regulatory body that one of Stanford’s companies was “engaged in a Ponzi scheme to defraud its clients,” but regulators didn’t come down on the alleged $8 billion fraud until last week.

Leyla Basagoitia alerted authorities at what is now the Financial Industry Regulatory Authority to several issues recently highlighted by the SEC, including missing oversight and a pledge of high returns that didn’t match market realities. Stanford denied the allegations, regulators dismissed them, and Basagoitia was ordered to pay Stanford $107,782 in damages in return for a loan. Authorities’ inaction adds to concerns over a delayed response to Ponzi allegations surrounding Bernie Madoff.
(More Robert Allen Stanford stories.)

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