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The Derailment of the SEC – Part IV

New allegations that a former SEC official lied to federal investigators; the unlikely source is his own law partner.
June 5, 2014, 5:57pm

Spencer Barasch in Houson in 2002, three years before he left the SEC. Photo by James Nielsen/AFP/Getty Images

A law partner of a former Securities and Exchange Commission official, Spencer C. Barasch, gave testimony in a civil lawsuit recently that directly contradicts Barasch’s own testimony to federal authorities as to how he came to represent financier R. Allen Stanford, who is currently in prison for defrauding investors in a $7 billion Ponzi scheme.


If the testimony of Dennis Ryan, Barasch’s law partner, is correct, that would mean that Barasch gave false and misleading testimony to authorities in 2010 when Barasch was under criminal investigation by the United States Department of Justice relating to his legal work for Stanford.

As a partner at the Houston law firm of Andrews Kurth, Barasch represented Stanford before the SEC in 2006, despite having previously overseen decisions while at the agency as to whether to investigate Stanford. Federal law prohibits former SEC officials from representing an individual as a private attorney if, while in government, he or she played a substantial or material role in overseeing said individual’s actions.

In 2010, while under investigation by the Justice Department and SEC for violating federal conflict-of-interest laws, Barasch claimed to have completely forgotten everything about work he did whileat the SEC that in any way related to Stanford. Without evidence to disprove Barasch’s claim, the Justice Department in 2012 closed its criminal investigation of him and instead allowed Barasch to pay a $50,000 fine to settle far less serious civil charges.

But the testimony of Ryan, a partner of Barasch’s at the firm Andrews Kurth, given on May 21 in a civil lawsuit, indicates that the Justice Department and SEC did not know that Barasch may have lied to them in 2010. Ryan directly contradicted Barasch’s previous account that he had no memory of work he did at the SEC that was related to Stanford, when Barasch later agreed to take on Stanford as a client for Andrews Kurth. Ryan testified that, during discussions with Barasch in 2005, Barasch openly expressed to him reservations about representing Stanford because of his previous work at the SEC regarding the financier—telling Ryan that any representation of Stanford might be illegal. Ryan also testified that Barasch expressed these same concerns with the general counsel of Stanford’s bank, Mauricio Alvarado, during a conference call with Ryan and Alvarado in the summer of 2005.


When presented with the new information in this story, current and former government officials involved in the earlier investigations of Barasch and Stanford said that the Justice Department and SEC should reopen their investigation of Barasch, or open a new one to examine whether he possibly made false statements to federal investigators or engaged in obstruction of justice.

In addition to the settlement to pay $50,000 to settle the civil charges with the Justice Department, in May 2012 the SEC also banned Barasch from practicing before the Commission for a year for allegedly violating the same laws and engaging in “improper professional conduct.” In settling matters with both the Justice Department and SEC, Barasch was not required to admit any wrongdoing.

Barasch was questioned on March 2, 2010, by then SEC Inspector General David Kotz, who was in the midst of conducting a broader investigation into why the SEC had failed to charge Stanford until 12 years after agency examiners first uncovered evidence that Stanford was running a massive Ponzi scheme. As for the Justice Department, they did not independently question Barasch but, rather, relied on his previous statements to the SEC in closing out their own investigation. Besides that, the Justice Department never formally questioned Ryan in any substantive way when it settled with Barasch, according to sources close to both cases. Barasch’s testimony that he did not recall working on Stanford matters while at the SEC—the veracity of which is in further doubt because of Ryan’s testimony—was central to the Justice Department’s decision to close its criminal investigation of Barasch and the SEC’s decision not to seek harsher punishment, according to sources close to both investigations.


Stanford’s Ponzi scheme was the second-largest in American history; only Bernard Madoff stole more. In many ways, however, Stanford’s malfeasance was much more complex and has arguably done more lasting damage to his victims and the financial system as we know it. Madoff defrauded investors of more than $19 billion but still had billions in his accounts when he was caught. Madoff’s victims have received some $10 billion in compensation recovered by a bankruptcy trustee. But Stanford's victims have recevied virtually nothing. The sum Stanford pilfered—$7 billion—remains lost and unrecovered in an intricate web of lies, bribery, and international banking scams. When he was finally indicted and his banks and brokerage houses were closed down, Stanford had almost no money left in his personal coffers.

And so Ryan’s testimony, if he is telling the truth, is crucial for two reasons, according to people close to the earlier federal investigations of Barasch: First, it would mean that Barasch—the man who at various points was tasked with making sure Stanford was not pilfering the hard-earned income of American people—purposely violated federal conflict-of-interest laws in his representation of Stanford. Second, it would indicate that Barasch’s own account to former SEC Inspector General Kotz was untrue. Barasch’s motive for lying, of course, would have been to conceal that he had knowingly violated the law.


Dan Richman, a professor of law at Columbia University and a former federal prosecutor for the Southern District of New York, told me, “A false statement or obstruction case would require the government to prove that when Barasch said he had forgotten his involvement with Stanford, he was intentionally lying to them.” Richman noted that there is a high threshold to bring such cases to court, because the government has to provide evidence of a motive as to why the person would lie. “Showing someone knowingly lies requires proof or inferences of what was in their head when they made the statement,” Richman said. Barasch had an obvious motive to lie that he had forgotten his Stanford-related work at the SEC, investigators who worked on the early investigations of him say they believe. Any acknowledgement otherwise would be an implicit admission that he knowingly violated the law in his representation of Stanford.

H. David Kotz, then the inspector general of the SEC, testifies before the House Financial Services Committee during a hearing on R. Allen Stanford's $7 billion Ponzi scheme. Photo by Andrew Harrer/Bloomberg via Getty Images

In his testimony, Ryan said that Barasch had expressed reservations about the legality of representing Stanford before the SEC in a conversation in the summer of 2005 and in a subsequent conference call, days later, involving Ryan, Barasch, and Alvarado, then chief counsel of the Stanford International Bank. The importance of that very small bit of Ryan’s testimony may be this: namely, to the minds of investigators who worked on the earlier cases of him, that Barasch indeed remembered his earlier Stanford-related work at the SEC when he agreed to represent Stanford (which would indicate he knowingly violated conflict-of-interest laws), and he may have lied to the SEC inspector general about that.


Even before this disclosure, investigators had found Barasch’s testimony that he did not recall his SEC work on Stanford issues to be implausible, according to several people close to the case. As the chief enforcement officer with the SEC’s Fort Worth branch, Barasch had overseen the agency’s regulation of Stanford’s bank and brokerages.

Examiners with the SEC’s Fort Worth office first warned that it was likely that Stanford was running a “massive Ponzi scheme” in 1998, but Barasch refused to open a formal investigation at that time. Year after year, these same examiners repeated their warnings. Still, Barasch refused to authorize any investigation of Stanford. Indeed, while at the SEC, Barasch quashed no fewer than six investigations of Stanford between 1998 and 2005. Barasch told Kotz that had he shut down those potential investigations because of his office’s limited resources and because his superiors had prioritized other types of cases.

In the 2010 report that followed his broader investigation of the SEC failure to regulate Stanford, Kotz described Barasch as a central figure at the agency in conflicts with examiners and other colleagues over whether or not to institute a large-scale investigation of the Texas billionaire. Kotz concluded in his report that the colleagues described the disputes as the most contentious of their careers and noted they went on for at least seven years.


Yet Barasch claimed in his own testimony to the inspector general that he didn’t recall anything about having been involved with matters regarding Stanford when he considered representing the financier: “I just don’t remember anything,” Barasch told Kotz during his March 2, 2010, deposition.

In his final days at the SEC, when he had already negotiated with and agreed to go to work for Andrews Kurth after his tenure at the agency, Barasch also attended a summit of federal and state regulators in which an SEC examiner gave a presentation about the SEC’s intelligence on Stanford. Not only did Barasch attend that summit—he also took the examiner to task, berating her for continuing to press for an investigation of Stanford, the examiner told the SEC’s inspector general during the course of his investigation. Subsequently, Barasch quashed a potential investigation of Stanford one last time by telling the examiner that he and their mutual boss, who headed the SEC’s Fort Worth office, would not be pursuing the matter.

Barasch claimed in his testimony that he could not remember any of the above when he negotiated with Stanford to represent him before the SEC. “I have no recollection of that,” Barasch testified during his deposition to the SEC’s inspector general.

Stanford first attempted to retain Barasch to represent him before the SEC in June 2005, less than three months after had Barasch left the agency. Ironically, Stanford’s needing an attorney was not unrelated to Barasch’s departure. Examiners at the SEC’s Fort Worth office had prepared yet another memorandum for Barasch, recommending a formal investigation of Stanford. But after having been rebuked by Barasch at the summit, the examiners held off on opening their investigation of Stanford until Barasch was preparing to leave the agency. The investigation of Stanford began exactly one day after he left.


The SEC’s ethics counsel, Rick Connor, told Barasch that he faced a lifetime ban of representing Stanford before the SEC because of his earlier involvement at the SEC with so many Stanford-related matters, according to agency records. Connor bluntly warned Barasch that any representation by Barasch of Stanford before the SEC would be illegal.

In 2006 the SEC intensified its investigation of Stanford. This time, however, Barasch readily agreed to represent Stanford—possibly ignoring both federal conflict-of-interest laws and the SEC ethics counsel’s warning from a year earlier.

Ryan said in his recent sworn testimony that he was first contacted by Alvarado about Barasch’s and Andrews Kurth’s representing Stanford and his bank before the SEC in 2005. In preparation for the two of them talking further to Alvarado, Ryan and Barasch spoke first among themselves, Ryan testified, and Barasch himself said he might not be able to do the legal work because of federal conflict-of-interest laws.

“I think—I think at that time he [Barasch] may have mentioned to me the federal statutes and regulations that may have prohibited him from working on it,” Ryan testified, “but we agreed that we needed to talk to Mr. Alvarado before we could… make any call on that.”

A short time later, Ryan and Barasch had a conference call with Alvarado—the call that Ryan referenced in his testimony last week: “Mr. Barasch told Mr. Alvarado that, you know, he would love to help him—he would love to help him, but that Spence was under the—under the federal prescription [sic] statute and, regulation-wise about dealing with matters, that he—or representing clients in matters that had been before the commission while he was there, and he would have to seek clearance from the ethics office of the SEC on that.”


Days later, on June 20, 2005, Barasch emailed the SEC’s ethics counsel, Rick Connor, seeking permission to represent Stanford before the SEC. In the email, Barasch claimed: “I am not aware of any conflicts and I do not remember any matters pending on Stanford while I was at the [C]ommission.”

Barasch’s letter was, of course, disingenuous. He had been intimately involved with Stanford matters for seven years. He had quashed numerous investigations, referred information regarding Stanford to other agencies, and sparred with the examiners in his office. Less than three months earlier, Barasch had attended a summit where he rebuffed examiners from the Fort Worth office after they made their presentation about Stanford.

Connor, however, did not rely on Barasch’s word alone. He emailed many of Barasch’s former colleagues in the SEC’s Fort Worth office, seeking their input. More than one remembered the recent summit and other instances of Barasch’s involvement with Stanford-related matters. Connor then informed Barasch that if he would face a lifetime ban of representing Stanford before the commission if he chose to take him on as a client.

Kotz testifies at a Senate Banking Committee hearing on the agency's probe of financier R. Allen Stanford's alleged Ponzi scheme.

During his deposition before then SEC Inspector General Kotz, Barasch said he could not recall anything about considering defending Stanford in 2005.


When Barasch was shown documents about his conversations with Alvarado and his interactions with Connor, he said, “Yeah. Yeah. Obviously this happened. I just don’t remember this.” At another point, Barasch said, “’05—I have no recollection whatsoever, but I can’t remember what would have prompted me to think that I might work on something related to Stanford in ’05… I’m certain, 98 percent certain, that the call from Mauricio was ’06.”

The following exchange occurred between Kotz and Barasch, according to transcripts of the investigation’s line of questioning:

Q (Kotz): But even at that time when you talked to Rick Connor in 2006, did you say, “Here is what I had—here were my connections or involvement with Stanford while I was—”

A (Barasch): I didn’t remember. I just didn’t remember anything.

Q: You didn’t mention the ’98 MUI or the 2002 matter? [MUI stands for matter under investigation—a preliminary investigation by the SEC that may or may not lead to a more serious formal investigation.]

A: Maybe I said—you know, maybe there was something back in 1998 or in 2005 and ’6. I just can’t say I would have mentioned something from 1998.

Q: But you don’t remember mentioning the 2002…?

A: Quite frankly, until you sent it all to me, I didn’t remember really any of that.

The reason that Stanford and Alvarado were so anxious in 2006 to have Barasch represent the financier was because the SEC’s pursuit of Stanford had intensified after Barasch left the agency, according to Stanford’s own records and information the Justice Department filed in federal court in Houston in 2009.


Stanford ran his Ponzi scheme from his bank located on the Caribbean island nation of Antigua—far away from the prying eyes of US regulators and disgruntled investors and former employees. Stanford also allegedly paid bribes to Antigua’s then top banking regulator, Leroy King. A federal grand jury in the US indicted King in June 2009 for accepting bribes from Stanford to help him conceal his Ponzi scheme. As first reported by VICE last month, King, who has fought extradition, has had preliminary discussions with US authorities about accepting a plea-bargain agreement.

In 2006, King received confidential correspondence and information from the SEC that it was investigating Stanford and seeking any information the Antiguan authorities had about Stanford’s bank. The Justice Department’s indictment of King alleged that, after receiving the sensitive information from the SEC, King immediately contacted Stanford and leaked the correspondence.

Days after King passed the SEC’s letter along to Stanford, he became even more determined to have Barasch defend him. On September 29, 2006, he emailed James Davis, his chief financial officer, and Alvarado: “The former sec [D]allas lawyer we spoke about in [S]t [C]roix. Get him on board asap.”

Alvarado emailed back an hour later: “I have already spoken to Spencer Barasch. I have scheduled a meeting for next Tuesday in Miami in the afternoon.”

Barasch emailed Alvarado later that same day: “Thanks for the call this morning—I look forward to the opportunity to be of service to Stanford going forward. I will await instructions about where and when to meet in Miami on [T]uesday…”


On October 3, 2006, Barasch and Alvarado met and discussed the SEC investigation at Stanford’s Miami offices, according to Andrews Kurth billing records. These same billing records indicate that Barasch billed Stanford on October 2, 2006, for “[t]ravel to Miami for meeting with client” and to “review publicly available company information to prepare for [their] meeting.” Additionally,on October 3, Barasch billed Stanford for “prepare for meeting with Mauricio Alverado [sic] and attend meeting in Stanford's Miami offices.” On October 4, Barasch billed Stanford for his “return to Dallas from Miami” and to “review documentation received from company about SEC and NASD inquiries.” On October 12, Barasch billed Stanford for a “telephone conference with Mauricio Alverado [sic] regarding status of SEC and NASD matters; review draft letter to NASD,” and the following day he billed for a “Complete review of NASD letter and email comments to client.”

Other confidential records indicate that Barasch planned to travel to Antigua to meet Stanford himself.

Despite all this, Barasch testified to the SEC’s inspector general that he had done no real legal work for Stanford. When shown documentation related to his work for Stanford, Barasch answered: “Yeah, I don’t remember this, but whatever it is I can tell you nothing ever happened. I never represented them. I never did anything. My recollection is, every time I talk to Rick Connor, the answer was no. I couldn’t do it. So I didn’t do it, and that was that!”


On 24 occasions, Barasch answered questions from the inspector general by saying he could not recall any details regarding his work for Stanford. He told Kotz, variously, that he had “no recollection of any specifics”; “I don’t remember seeing it, but I might have”; “I don’t recall have any recollection of this”; and “I don’t happen to independently recall this. No.”

In sharp contrast, Barasch provided the inspector general with expansive answers—rich with detail and colorful anecdotes—as to why, regardless of the documents sitting before him that presented evidence to the contrary, he had decided against doing any legal work for Stanford:

So ’06 came around, and I got the call from Mauricio, and so he said, “Come out and I’ll introduce you to everybody, and I’ll tell you what this about.” And I flew to Miami, and it was incredibly embarrassing!

First of all, there was not one person here for me to be with. Nobody was there, and Mauricio wasn’t even here. I came into the office, and I finally got a secretary, and she said, “Mauricio pulled out his back, and he’s in incredible pain and apologizes, but, you know, he’ll try to get over there.” I know I just sat there in the lobby, and Mauricio finally comes in, apologized profusely, and late in the day. I just sit in the waiting room for like an hour. And he just limped horribly, and he had a flight somewhere the next day. Paris or something, or he had to go to the doctor for his back. So we sat for 15 minutes, and all he did was handed me a stack of Stanford promotional documents, the stuff that’s kind of in the lobby.


Barasch added, “I billed him for the trip! I felt horrible. I mean it wasn’t my fault, but I felt horrible because nothing was done.”

But two people who told me they have direct and independent information regarding the matter said that Barasch, in direct contradiction of his statements to the federal authorities, gave specific and detailed advice to Stanford and Alvarado. If the accounts of these two individuals are correct, that would mean that Barasch gave misleading and false testimony to the SEC inspector general on a second crucial issue—whether he in fact performed any legal work whatsoever for Stanford, and the nature of that work.

Contemporaneous records from inside Andrews Kurth and from Stanford’s confidential files appear to corroborate in part the accounts of the two people who say that Barasch, contrary to his statements to then SEC Inspector General Kotz, provided legal advice to Stanford.

The advice that these two people say that Barasch gave Alvarado and Stanford was extremely valuable: Barasch told them that if they simply stonewalled the SEC and refused to provide records from Antigua, the SEC would likely just give up because it was difficult to secure such records from institutions overseas and there was no bureaucratic or political will within the SEC to do so. Barasch said he knew this to be the case, specifically because he had closed out investigations of Stanford for just that reason while he was the agency’s chief enforcement officer in Fort Worth.


According to the two sources mentioned above, at one point Barasch had specifically told Stanford’s aides that while he was at the SEC, examiners had attempted to investigate Stanford in 1998.

A photo of Lodis B. Stanford, grandfather of R. Allen Stanford, appears on a book provided to investors by the company. Photo by Dennis Brack/Bloomberg via Getty Images

Back then, Stanford was represented by Wayne Secore, also a former SEC official. Secore, who would not comment for this story, was a former administrator of the SEC’s Forth Worth regional office and had supervised Barasch earlier in his career. SEC records confirm that Secore had represented Stanford, that Stanford did withhold records, and that Secore and Barasch had interacted and likely met to discuss the case.

In explaining in his deposition to the inspector general as to why he shut down one of the several potential investigations of Stanford that had been brought to his attention while at the SEC, Barasch said he did so because it was so difficult for the SEC to get records from overseas: “At one point I called our office of international affairs. It was very, very hard to get the Commission in those days to be aggressive. It’s different after [convicted financial fraud mastermind Bernard] Madoff. OK? It’s a different world. But to push the envelope… I called them, and I said, ‘Hey, we’ve got this situation. How hard of it would be to get information in Antigua?’ Almost impossible. OK… It’s an Antiguan bank. Forget about it. Impossible!”


In any case, while Barasch was representing Stanford or, according to his account, billing him and not doing much of anything, Stanford sent a letter to the SEC and a second to the NASD (National Association of Securities Dealers), a securities-industry regulatory organization, saying he would not provide records from Antigua to either. Andrews Kurth billing records indicate that Barasch billed Stanford for reviewing the letters before they were sent. Email correspondence between Stanford and another lawyer working for Stanford appears to indicate that Barasch was involved.

Extraordinarily, Ryan also testified in his May 21 deposition that Barasch had represented Stanford in 2006 without Ryan’s even knowing anything about it at the time.

Ryan was questioned under oath as part of a legal malpractice case that a real estate firm, Walton Houston Galleria Office LP, has filed in a Harris County, Texas, state court against Andrews Kurth because of alleged faulty legal advice that the firm provided to Walton. Andrews Kurth simultaneously represented both Walton and the Stanford Financial Group in real estate transactions between the two—legal advice that, Walton alleged, was skewed because Andrews Kurth wanted to please Stanford and obtain more legal work from him.

Walton also alleged in its lawsuit that Andrews Kurth—through Barasch—knew that Stanford was running a Ponzi scheme and should have warned Walton of this. The real estate firm alleged that it suffered tens of millions of dollars from its deals with Stanford—losses, it claims, that could have been prevented had Andrews Kurth warned the firm of what it knew about Stanford. Andrews Kurth has denied all of these charges.

Portions of Ryan’s deposition became public during oral pretrial arguments in the case on May 29 but have been previously unreported. Attorneys for both sides declined to comment for this story. The trial is scheduled to begin this next Monday, on June 9.

On October 26, 2006, the SEC issued a formal order of investigation in the Stanford matter. Never before had Stanford faced a more direct threat that he was a fraudster rather than a successful billionaire.

Stanford and Alvarado were eager for any additional inside information—besides what King had told them—about what the SEC was up to regarding their investigation of the Houston billionaire and his massive ongoing fraud.

Stanford and Alvarado asked Barasch and Tom Sjoblom, another former SEC enforcement officer who at the time was representing Stanford, to work together to find out what was going on within the SEC’s investigation of their client. Sjoblom and Barasch emailed back and forth, trying to learn whatever they could, internal correspondence between the two men indicates.

On November 27 Barasch called a former colleague at the Fort Worth office, whom he believed to be working on the Stanford case, to find out whatever he could about the investigation. Barasch then also spoke with Jeffrey Cohen, another former colleague at the SEC office.

Barasch later told the SEC’s inspector general that Cohen had said something to the effect of “Spence, can you work on this?” Barasch added that he recalled Cohen telling him: “I’m not sure you’re able to work on this.” Cohen told the inspector general that he could recall little of the conversation.

Barasch’s contacts with Cohen and his other former SEC colleague to learn information about the investigation of Stanford was one of the reasons that the agency disciplined him in 2012 by banning him from appearing before the Commission for a year. In a civil administrative order, the Commission concluded that Barasch had “knowingly communicated with [Fort Worth] staff with the intent to influence them,” which the Commission charged was a violation of federal conflict-of-interest laws. Barasch had violated the law in two ways, the Commission found: “First, Barasch attempted to obtain information from [Fort Worth] staff about the investigation of [the company]. Second, when one of the [Fort Worth] attorneys, in responding to that call, questioned whether Barasch could represent [Stanford Group], Barasch attempted to [falsely] convince him that Barasch’s involvement with the [Stanford Group] matter while at the Commission was minimal.”

After speaking with Barasch, Cohen emailed several of his colleagues, some of whom questioned the propriety and legality of Barasch’s representing Stanford before the agency, according to internal SEC records. More than one contacted the SEC’s ethics counsel, Connor, who warned Barasch for the second time in two years that any representation of Stanford would be illegal and that Barasch and his law firm should stop. Barasch resigned from the case.

Barasch was asked by Kotz whether when he spoke to Connor he disclosed any of the work he had done at the agency regarding Stanford.

Barasch responded: “I don’t remember. I just didn’t remember anything.”

Additional reporting: Amanda Orr, Kiah Berkeley

Editing: Rocco Castoro, Carl Pisano, Harry Cheadle

Read parts onetwo, and three of our investigation of the derailment of the SEC.