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Investors Sue Government, Former SEC Official over Stanford Losses

March 25, 2011 (The Dallas Morning News) Nine Louisiana investors who lost nearly $19 million combined to Allen Stanford have sued the government for negligence, arguing the Securities and Exchange Commission failed to stop the Texas financier's alleged fraud.

The suit targets former Fort Worth SEC enforcement director Spencer Barasch, who was accused in an SEC audit of failing several times to act on evidence that Stanford, currently imprisoned and awaiting criminal trial, was running a multibillion-dollar Ponzi scheme.

The suit, which was filed in Dallas federal court Thursday, piggybacks on the SEC's own internal investigation that cited numerous times that Barasch could have brought action against Stanford based on preliminary investigations into the certificate-of-deposit business.

Barasch declined to bring action against Houston-based Stanford several times and ignored evidence of mounting fraud, the SEC's Office of Inspector General concluded last year.

Barasch told colleagues he had referred Stanford-related letters and inquiries to other agencies, when the report concluded that he had not.

He also allegedly told a colleague at a dinner in New Orleans that Stanford wasn't worth investigating based simply on a conversation he had with Stanford's own attorney, according to the report.

The SEC's audit staff had received letters of complaint about Stanford's practices and was suspicious of Stanford's fast-growing deposits as early as 1997. The SEC finally sued Stanford in 2009 and the Department of Justice brought criminal charges against him last year.

The alleged fraud is estimated to have cost investors as much as $8 billion.

Barasch left the SEC in 2005, and managed to do some work for Stanford before the SEC stopped it. Barasch sought three times to represent Stanford but was denied each time by regulators; the SEC filed a complaint against Barasch with the State Bar of Texas.

"Every lawyer in Texas and beyond is going to get rich over this case. Okay? And I hated being on the sidelines," Barasch wrote in an email regarding his interest in representing Stanford.

A spokeswoman for Andrews Kurth LLP, where Barasch is a partner, declined Friday to comment on the suit. SEC spokesman Kevin Callahan also declined comment Friday.

Under the Federal Tort Claims Act that the suit is brought under, people can sue individual government employees to show damage from their negligence.

The Fort Worth regional office has seen its share of criticism. Staffers told the inspector general that Barasch and office head Harold Degenhardt avoided tough enforcement cases in order to pump up success rates for the office. Barasch cited the difficulty of pursuing a case against Stanford as one of the reasons action wasn't brought, the report said.

Rose Romero, who succeeded Degenhardt in running the office of about 100 lawyers and staffers, said this month that she would leave for private practice. No successor has been named.

One of the Fort Worth office's prominent SEC trial lawyers, Phillip Offill, is serving an 8-year federal prison sentence for his role in pump-and-dump stock schemes. Offill and Barasch were acquaintances and worked together in Oklahoma.

Copyright (c) 2011, The Dallas Morning News

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