Stanford Conviction Re-Emphasizes Regulatory Questions

Report says SEC missed earlier opportunities to investigate Allen Stanford ... Over a meal at a New Orleans restaurant last summer, a former top official at the Securities and Exchange Commission's enforcement office was asked why the agency hadn't opened a full investigation of Allen Stanford's investment firm back in the late 1990s, when agency employees first suspected he was operating a Ponzi scheme. Julie Preuitt, an employee at the enforcement office, said her former supervisor, Spencer Barasch, now a private attorney, replied that he asked a representative of Stanford's firm about the allegations and was told "there wasn't" anything to the charges. "So, he was satisfied with that and decided not to pursue it further," Preuitt told the commission's inspector general. – Times Picayune

Dominant Social Theme: Financial regulators have been reformed and will do better henceforth.

Free-Market Analysis: One of the areas that we've often commented on is the inability of regulatory democracy to work as advertised. Now (if reports are to be believed) it turns out that Allen Stanford was running a Ponzi scheme with about US$7 billion of customer assets.

It also turns out that SEC officials had doubts about Stanford's operation as long as 15 years ago.

We can see from the article excerpted above that when these doubts surfaced, the reaction was to question a "representative" of Stanford's firm about them and then take his denials at face value.

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