Jun 30, 2013 06:51 Investors plan appeal of Stanford lawsuit dismissal Investors plan appeal of Stanford lawsuit dismissal Rejected suit argues SEC was negligent by not investigating BY JOE GYAN JR.| Advocate staff writer June 30, 2013 Comments A federal appeals court will be asked to reverse a Baton Rouge federal judge’s dismissal of a lawsuit that claims the Securities and Exchange Commission and a former official knew of Robert Allen Stanford’s $7 billion fraud scheme but failed to investigate and stop it, an attorney for some victims said Friday. The suit, filed in July by seven Baton Rouge residents and firms, was thrown out June 21 by U.S. District Judge Shelly Dick at the request of the federal government, which argued the SEC enjoys complete discretion in deciding what matters to investigate. The suit alleges that Spencer Barasch, a former SEC regional enforcement director in Fort Worth, Texas, was negligent and engaged in deliberate misconduct in failing to investigate the scheme before investors suffered losses. The suit contends Barasch knew of the Stanford scheme but refused to probe it, allowing the continued defrauding of investors. In his written ruling, Dick called Barasch’s alleged conduct “disturbing” but said the law supports the government’s position that there was no statute, regulation or policy that required Barasch to make an enforcement referral to either the National Association of Securities Dealers or the Texas State Securities Board. “While the court sympathizes with the losses suffered by the plaintiffs in this matter, plaintiffs have failed to identify any mandatory obligations violated by SEC employees in the performance of their discretionary duties,” the judge wrote. Ed Gonzales, an attorney for the seven Baton Rouge residents and firms who filed suit in federal district court in Baton Rouge, said an appeal will be filed at the 5th U.S. Circuit Court of Appeals in New Orleans. Those plaintiffs say they lost roughly $3.5 million to the scheme. Dick’s ruling described the suit’s plaintiffs as victims of a Ponzi scheme who lost their investments in Stanford International Bank Ltd. The suit alleges the SEC knew in 1997 that Stanford was operating a fraudulent scheme and failed to stop him until February 2009. Robert Stanford, 63, of Houston, is serving a 110-year prison sentence for a fraud conviction that followed estimated worldwide losses of approximately $7 billion. About $1 billion of those losses were from about 1,000 investors in the Baton Rouge, Lafayette and Covington areas, according to estimates by state Sen. Bodi White, R-Central, and Baton Rouge attorney Phil Preis, who represents numerous Stanford victims in another lawsuit. 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. There are more than 20,000 Stanford victims across more than 100 countries.