Seven Baton Rouge residents and firms are suing the federal government for negligence and misconduct they say caused their loss of approximately $3.5 million to the massive Ponzi scheme operated by Houston entrepreneur Robert Allen Stanford.
“You can’t sue the government simply for making mistakes,” attorney Edward J. Gonzales III said late Tuesday. Gonzales, along with attorney C. Frank Holthaus, filed the suit in federal district court in Baton Rouge. The case is assigned to Chief U.S. District Judge Brian A. Jackson.
“You can sue the government for negligence and deliberate misconduct,” Gonzales added.
Stanford is serving a 110-year prison term for his conviction this year on charges that he used a Ponzi scheme to swindle $7 billion from approximately 25,000 investors in the United States and more than 100 other countries.
A Ponzi scheme is a fake investment program. Illegal operators skim most of the money provided by people who believe they are investors. Early investors receive dividends that actually are small portions of their personal funds and those of later investors. Stanford’s Ponzi scheme attracted investment money for his Stanford International Bank on the Caribbean island of Antigua.
The plaintiffs in the Baton Rouge case are Reuel Anderson, Gary Greene, Timothy Ricketts, Kim Guillot, Kahne Guillot, Anderson Family Company LLC and June Anderson Testamentary Q Trust.
They allege that the Securities and Exchange Commission knew in 1997 that Stanford was operating a fraudulent scheme and failed to stop him until February 2009.
The plaintiffs, who are seeking class-action status for their case, target most of their blame at one former official at the SEC’s regional office in Fort Worth.
They contend they would not have invested with Stanford, “but for the negligence and deliberate misconduct by Spencer Barasch, a former SEC regional enforcement director, and the negligent supervision of Barasch by his SEC supervisors.”
Barasch could not be located for comment late Friday.
John J. Nester, a spokesman for the SEC in Washington, D.C., declined to comment on the suit.
In Baton Rouge, plaintiffs quote a 2010 report by the SEC’s Office of Inspector General, which said “the SEC’s Fort Worth office … had been aware since 1997 … that Stanford likely was operating a Ponzi scheme.”
Between 1997 and 2005, the SEC’s examination group looked at Stanford’s operations four times and concluded the bank program could not have been legitimate, the plaintiff allege.
The Baton Rouge residents also allege that Barasch ended one SEC probe in 1998 by falsely reporting that he had referred the Stanford matter to the National Association of Securities Dealers for investigation. And they allege that Barasch ended another SEC query in 2002 by falsely reporting that he had referred those questions to the Texas State Securities Board for investigation.
“These referrals were not made, with the effect that Stanford escaped scrutiny by other agencies for years, thus facilitating Stanford’s scheme to defraud,” the Baton Rouge residents allege.
“Two months after leaving the SEC, Barasch revealed that he had been negotiating for direct employment with Stanford,” the suit adds. “He has been sanctioned for that particular misconduct.”