Posted in: Greedy Brokers |
Allen Stanford is the latest major philanthropist to be charged with operating a Ponzi scheme. In early 2009, US authorities shut down Stanford Financial Group, then later arrested Stanford and charged him with fraud, conspiracy, and obstruction of justice.
The SEC now claims some 28,000 investors lost approximately $8 billion due to phony CD’s issued by Stanford Financial Group.
What is truly alarming is that FINRA caught word of Stanford’s fraudulent behavior as early in 2003, but did not follow up on the claim. A former Stanford advisor, Leyla Wydler, told FINRA that her employers pressured advisers to sell their clients CD’s issued by Stanford.
According to a Forbes.com article from this week, Wydler was terminated from Stanford in 2002, after she refused to sell CD’s to clients she had discovered to be faulty and unprotected. She related the same information to the SEC in 2004, and was similarly dismissed.
CNBC.com reported that Wydler’s allegations in 2003 were ignored, according to FINRA Executive Vice President Daniel Sibears, because of FINRA’s internal policy involving complaints:
“FINRA is now acknowledging that her allegations of fraud were never passed on to investigators by the FINRA arbitration panel. Sibears’ testimony said that prior to this year, FINRA procedure was to review fraud claims in arbitrations involving customers, but not those that involved employment disputes like Leyla Wydler’s”
Basically, FINRA are saying that Wydler’s claims to FINRA were ignored because she was an industry insider. Both FINRA and the SEC also now admit they were slow to investigate Stanford because, unsurprisingly, he would not cooperate with authorities regarding his secretive business practices.
As I had mentioned on my blog last year, Bernie Madoff used both his influence and knowledge of the system to fly under the SEC’s radar—even though the federal regulatory agency had received allegations against Madoff as early as 1999.
Wall Street simply cannot be counted on to regulate themselves. By ignoring the warning signs, and the complaints worthy of their attention, the self-regulatory agencies that govern brokers – the SEC, NASD and FINRA – have proven to be ill equipped to deal even with the worst, most blatant offenders.
Wydler received a standing ovation from 400 hundred former Stanford investors when she testified in to the SEC in Baton Rouge this week. Many of the former investors, who also spoke at the hearing, said FINRA were too slow catching Stanford’s alleged fraud.
You can read Wydler’s full testimony here: http://www.theind.com/content/view/4823/95/
