WASHINGTON-Bernerd Young has waited more than two years for a final decision from US securities regulators about whether he will be charged over his role as compliance officer at the brokerage owned by convicted Ponzi schemer Allen Stanford. In those two years, Young says his life has been put on hold as the cloud of the Securities and Exchange Commission probe has overshadowed his attempts to move on professionally.
MGL Consulting, where he is currently chief executive officer, has lost 20 per cent of its clients, filed for bankruptcy and had regulators kill the firm's expansion plans-Stanford's US$7 billion Ponzi scheme in 2009, Young and his attorney told Reuters they believe the SEC's stalling has unfairly denied him his right to due process. "Professionally, (it's like) wearing the stigma of the red S on your chest," Young said.
Allen Stanford was sentenced in June to 110 years in prison for bilking investors with fraudulent certificates of deposit issued by his Stanford International Bank in Antigua. Since then, the SEC has continued to build cases against four executives and at least three lower-level financial advisers who worked for Allen Stanford's US brokerage, Stanford Group Co, according to public records and people familiar with the matter.
But legal disagreements among SEC officials and recusals by some of the commissioners have fueled delays that have left both the potential defendants and the victims of Stanford's Ponzi scheme in limbo. The SEC has postponed a vote on the cases multiple times, even though it has been 25 months since Young first received a "Wells notice," which indicates the SEC plans to recommend charges and gives the defendant the chance to rebut them.
The 2010 Dodd-Frank law gave the SEC six months to make a final decision after sending a Wells notice, but SEC lawyers can seek extensions, which they have done in Young's case. Prior to Dodd-Frank, there were no specific time limits. The provision was included in the law to speed up SEC cases that could otherwise drag on for years. "Their behavior is reprehensible," said Young's attorney Randle Henderson, referring to the SEC commissioners.
SEC spokesman John Nester declined to comment on the investigation, but said: "As a general matter, recusals prevent even the appearance of partiality in Commission deliberations, and to suggest they delay cases sounds like wishful thinking." Victims of Allen Stanford's Ponzi scheme also expressed frustration with the delay, but for a different reason.
They argue that former Stanford employees could dupe new investors. "There are other investors who continue to be exposed to a lack of protection because of inadequate enforcement by the SEC," said Angela Shaw, founder of the Stanford Victims Coalition. "They should have immediately taken these guys' licenses." MGL Consulting formed a compliance partnership in July 2009 with Complinet, a unit of Thomson Reuters.
Disagreements, delays
Of the four executives, Young is perhaps the most well-known because he was previously a regulator with the Dallas office of the National Association of Securities Dealers (NASD), or what is now the Financial Industry Regulatory Authority (FINRA). At the time he worked there, SEC Chairman Mary Schapiro and Democratic Commissioner Elisse Walter were high-ranking officials at NASD.
According to Young's attorney and documents reviewed by Reuters, the two were involved in a decision to remove Young from his position at NASD in 2003. Both have since recused themselves on Young's case, leaving only three commissioners to make a decision. Delays were later exacerbated after one commissioner departed in August 2011, and was not replaced until November.
Lawyers have also disagreed over how much due diligence the potential defendants should have conducted before selling the CDs, and whether lower-level financial advisers could be liable if they relied on senior management.
Reuters
