More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
Allen Stanford was convicted Tuesday of running a $7 billion Ponzi scheme. Stanford was found guilty on 13 counts of a 14-count criminal indictment, including fraud, conspiracy and obstructing an investigation by the U.S. Securities and Exchange Commission. He was found not guilty on one count of wire fraud. The charges carry a possible prison sentence of nearly 20 years.
“It was a vindication for the U.S. government, which closed down Stanford's financial empire in February 2009 but had failed for years to address signs that the business was built on air,” according to a Reuters report. “The Stanford case was the biggest investment fraud since Bernard Madoff's.”
Reuters said that Stanford, 61, was led out of the courtroom after the verdict, he touched his fist to his heart and looked at the bench where his mother and two daughters sat. He has been jailed since his June 2009 arrest.
"We're disappointed in the outcome," said Stanford's defense attorney Ali Fazel. "We do expect an appeal." He said he expects sentencing in several months.
Stanford, who was head of the now defunct Stanford Financial Group, based in Houston, was charged on Feb. 17, 2009, by the SEC with fraud and other violations of U.S. securities laws for his $7 billion Ponzi scheme that involved supposedly “safe” certificates of deposit. His personal fortune was once valued at $2.2 billion.
Andrew Stoltmann, of Stoltmann Law Offices in Chicago specializes in investment fraud, and cites several “red flags” that were “missed or ignored” by the SEC.
First was the fact Stanford’s businesses were inspected and investigated several times, starting in 2004 by the National Association of Securities Dealers, the brokerage industry’s self-policing group, which is now FINRA. “NASD’s scrutiny resulted in several disciplinary actions: the regulator fined his brokerage company four times, with penalties totaling $70,000, for violations that included misleading investors in sales materials about the risks of the CDs,” Stoltmann says.
Then there was a 2006 lawsuit by former employees alleging that Stanford’s company was running a Ponzi scheme. An SEC Office of inspector general's report later found that the SEC’s Fort Worth, Texas, office was aware since 1997 that Stanford was likely operating a Ponzi scheme, Stoltmann says.
Stanford’s company also lacked capital. In June 2007, Stoltmann says, “a finding by regulators stated that Stanford’s company lacked enough capital to function properly as a securities brokerage firm. The company paid $20,000 to settle charges by the NASD without admitting or denying them.”
Mike Patton, an AdvisorOne blogger and president of Integrity Wealth Management, an RIA firm in Baton Rouge, La., said, "This closes one chapter in the ongoing saga of one of the most egregious con men of modern times. Still in limbo, however, is the reimbursement for those who were duped by the charismatic ex-billionaire. While the SEC brandishes swords with SIPC over the matter, those who invested in the once 'highly touted CD' are forced to wait, while the political machinery crawls along."