Investors Sue SEC, Claiming It Failed to Stop Ponzi Scheme

Investors who lost $18 million in indicted financier R. Allen Stanford's Ponzi scheme have sued the U.S. Securities and Exchange Commission (SEC), claiming it wouldn't have happened if the SEC had done its job. 

The investors said the SEC should have been more diligent and recognized Stanford's scheme much earlier. The SEC's inspector general faulted the agency in a report last year.

U.S. securities regulators seized Stanford’s operations in February 2009 but by then investors who bought certificates of deposit at the financier’s Antigua-based Stanford International Bank Ltd. lost more than $7 billion, according to a lawsuit filed by the SEC.

After the SEC sued Stanford, a Texas federal court found that the Stanford had been conducting a Ponzi scheme, paying dividends to early investors with funds brought in from later investors.

The SEC's inspector general later found that the SEC's Fort Worth office had been aware since 1997 that Stanford was likely operating a Ponzi scheme, finding that it was “highly unlikely” that the returns Stanford claimed to achieve could have been generated legitimately, but “merely watched the alleged fraud grow and failed to take any action to stop it,” allowing the scheme to operate for ten more years.

“But for the negligent acts and omissions, misconduct and breaches of duty by [SEC officials], the plaintiffs would not have made, and lost, their investments,” according to the complaint filed by the investors’ lawyer, Edward Gonzales III in Baton Rouge, Louisiana.

Stanford is in jail awaiting trial on criminal charges.