A Respected Law Firm Alllegedly Risked Breaking the Law by Representing a Rogue Banker
New evidence about the shady activities of a former SEC official.
R. Allen Stanford—the billionaire fraudster and cricket enthusiast—with some cricket players in 2008. Photo by Brian Smith/Corbis Outline
A former Securities and Exchange Commission official and his law firm sought millions of dollars in new legal business in 2006 from financier R. Allen Stanford—during the same period of time the law firm had agreed to defend Stanford before the SEC, despite warnings from the SEC’s ethics counsel that any such representation would be illegal.
Stanford lavished lucrative legal business on former SEC enforcement officer Spencer C. Barasch and the Houston law firm of Andrews Kurth, where Barasch is a partner, to persuade them to defend him before the SEC. Initially, in 2005, Barasch and Andrews Kurth turned Stanford down when he asked them to represent him before the SEC, telling him that to do so would violate federal conflict-of-interest laws. In 2006, however, Barasch ignored the legal prohibition and agreed to do so anyway.
Confidential Andrews Kurth billing records show that in 2006, while Stanford was pressing Barasch and Andrews Kurth to defend him before the SEC, Stanford hired the law firm to represent him on seven other legal matters, adding an eighth in 2007. In addition, according to a former Andrews Kurth employee, Barasch told his fellow partners that they stood to earn as much as $2 million a year for defending Stanford before the SEC. Previously, Stanford had been only a relatively modest client for the law firm. Barasch and Andrews Kurth declined to comment for this story.
As the former chief enforcement officer of the SEC’s Fort Worth regional office, Barasch had overseen the agency’s monitoring of Stanford’s bank and brokerages. Between 1998 and 2005, Barasch had personally quashed six separate investigations of Stanford, according to government records. Officials at the SEC finally approved its first formal investigation of Stanford exactly one day after Barasch left the agency; examiners whom Barasch had stymied for years acted knowing they might succeed once he was gone. In 2009, the SEC and Justice Department would charge Stanford with masterminding a $7 billion Ponzi scheme, the second-largest in American history.
It was because of Barasch’s Stanford-related work at the SEC that Stanford wanted to hire Barasch so badly, according to interviews and records. Barasch had inside information on what had worked in the past to persuade his colleagues to shut down earlier investigations of Stanford. Barasch even boasted to one of Stanford’s top deputies about his access and influence with former colleagues he might be able to persuade once again, now from the outside, not to investigate the billionaire financier. Stanford was determined to do whatever he could to get Barasch “on board asap,” he wrote in an email to two of his deputies.
The 2006 SEC investigation would go on to reveal that Stanford’s international banking empire was one built on a foundation of financial fraud, deception, and bribery. It would take more than a decade after SEC examiners first uncovered evidence that he was engaged in a Ponzi scheme for Stanford to face criminal charges brought by a federal grand jury and the SEC. Stanford would be convicted by a federal jury in June 2012 and sentenced to a 110-year term in federal prison.
The new information in this story—that Stanford awarded Andrews Kurth with eight new legal representations while trying to persuade them to defend him before the SEC—provides the first explanation of why Barasch and Andrews Kurth would risk violating the law—and the consequences of doing so. A former employee of the firm told me that the prospect of lucrative legal work played a role in persuading some of the firm’s partners to ignore the law, and Andrews Kurth’s billing records, confidential emails, and other documents appear to partially confirm this.
In 2012, Barasch paid a $50,000 fine to settle civil charges brought by the United States Department of Justice that he had violated federal conflict-of-interest laws by representing Stanford at Andrews Kurth. The SEC also banned him for a year from appearing before the commission. Federal law prohibits former SEC officials from representing anyone as a private attorney if they played a substantial or material role in overseeing the individual’s actions while in government. Barasch did not have to admit any wrongdoing when he settled with both the Justice Department and the SEC.
In settling, the Justice Department agreed to close out a far more serious criminal investigation of Barasch, a decision that largely relied on testimony Barasch had given to federal authorities in which he claimed to have totally forgotten that he had done Stanford-related work at the SEC when he agreed to represent the banker before the agency.
A recent story I wrote for VICE, however, raises questions as to whether Barasch had lied to federal investigators in a successful effort to escape criminal charges. The story disclosed that Dennis Ryan, a partner of Barasch’s at Andrews Kurth, testified last month in a civil lawsuit that Barasch had openly expressed reservations about representing Stanford in 2005. Ryan testified that Barasch had told him that any representation of Stanford might be illegal because of the Stanford-related work he had overseen at the SEC. Ryan also gave testimony alleging that Barasch had expressed much of the same concerns only days later, in a conference call with him and Mauricio Alvarado, the general counsel of Stanford’s now defunct bank. Current and former federal investigators who were involved in the earlier investigations of Barasch and Stanford told me that they believe this new information should lead the Justice Department and SEC to reopen their investigation of Barasch, or open a new one.
Stanford today is one of the most notorious financial criminals of our era, but back when Andrews Kurth wanted him as a client, he was a respected international banker, financier, and billionaire. Rumors would percolate up from time to time that he was involved in a Ponzi scheme or money laundering, but they would always fade away. Former employees, disgruntled investors, and whistle-blowers were silenced through a concerted campaign of intimidation. Stanford also spent millions of dollars on lobbyists and made campaign contributions to buy influence with US politicians in order to kill legislation that would lead to stricter regulation of offshore banks like his own.
Stanford ran his Ponzi scheme through his Stanford International Bank, located in the Caribbean island nation of Antigua, far away from prying US regulators and disgruntled investors, where he paid bribes to the country’s top banking regulator and other senior officials. But Stanford sold the majority of his phony securities from his US brokerages, headquartered in Houston.
Stanford was a “potential gold mine,” a former Andrews Kurth employee told me. “Every law firm in Houston wanted him as a client. AK [Andrews Kurth] really wanted in.” This same person rhetorically asked and then answered their own question: “Why would a lawyer so brazenly violate the law? You were going to make millions of dollars.”
Stanford first attempted to retain Barasch to represent him before the SEC in June 2005, less than three months after Barasch had left the agency. But according to agency records, the SEC’s then ethics counsel, Rick Connor, told Barasch that he faced a lifetime ban on representing Stanford before the SEC because of his earlier involvement at the SEC with so many Stanford-related matters. Connor bluntly warned Barasch that any representation by Barasch of Stanford before the SEC would be illegal.
After Ryan and Barasch informed Stanford and Alvarado that they could not represent Stanford’s bank before the SEC, Stanford—a man rarely denied any privilege whatsoever—angrily emailed Alvarado on July 2, 2005: “This is bs and I want to know why the SEC would/could conflict him out.”
But Ryan and Barasch weren’t done. They seized on the opportunity of locking in Stanford as a client for other business.
Twelve days later, on July 14, 2005, Ryan and Barasch emailed each other about their prospects.
“Have you been out of town?” Ryan asked Barasch.
Barasch emailed back, describing what he was up to, before commenting: “We need to follow up with Stanford Group. Let me know when you are heading to Houston so we can put on a full-court press.”
Ryan responded a short time later: “Yes. Every time I turn on ESPN I see Stanford Financial’s commercial.”
On October 18, 2005, Ryan emailed Barasch to schedule a phone call with Alvarado to discuss the prospect of new legal business from Stanford: “Does the evening of Monday, November 14 work for you? If so, let’s call Maricio this afternoon.”
People fill out paperwork in the lobby of Stanford Financial Group's offices in Houston, Texas, on February 17, 2009, the same day Stanford was charged with massive financial fraud. Photo by Craig Hartley/Bloomberg via Getty Images
Examiners with the SEC’s Fort Worth office first warned that Stanford was likely running a massive Ponzi scheme in 1998, but Barasch refused to open a formal investigation at that time. Year after year, the examiners came back with more dire warnings; each time Barasch overruled their judgments and refused to authorize any probe of Stanford. Barasch told the SEC’s inspector general that he closed down these investigations because he did not believe the SEC had proper jurisdiction to investigate and it would be difficult to obtain the necessary records from overseas.
As I recently reported for VICE, the last time Barasch quashed an investigation of Stanford was in 2005, during his final days at the SEC—when he had already agreed to join Andrews Kurth as an equity partner. Federal law enforcement authorities and outside legal experts told me that Barasch almost certainly violated federal conflict-of-interest laws in that instance as well, because Barasch stopped the probe of Stanford while he was going to work for a law firm of which Stanford was a client.
Federal conflict-of-interest law prohibits a government employee from participating “personally and substantially” in an official capacity in any “particular matter” that would have a direct and predictable effect on the employee’s financial interests or on the financial interests of a “person or organization with whom he is negotiating or has any arrangement concerning prospective employment.”
The law enforcement officials involved in earlier probes of Stanford and Barasch told me that this new potential violation of federal conflict-of-interest laws was far more serious than those aired in the 2012 investigation that Barasch paid a $50,000 fine to settle.
Stanford’s aggressive efforts to retain Barasch to defend him before the SEC underscore the importance of these conflict-of-interest laws, said John P. Freeman, a professor emeritus at the University of South Carolina School of Law who has taught legal ethics for more than 30 years. According to Freeman, “Barasch was so valuable to Stanford for the same reasons his representation of the billionaire was so damaging to the public interest.
“A fair inference for people to make is that Barasch was effective in selling Stanford’s story at the SEC. He was an advocate for shutting down investigations of Stanford while in the government,” Freeman said. “Upon leaving the government, Barasch was then well armed with the knowledge of who the decision makers are, which way they lean, what arguments will resonate with them… He is going to know which buttons to push. He knows what their biases are. He knows this information from the inside.”
Freeman sees Barasch’s conduct as a textbook study illustrating why conflict-of-interest laws are crucial to the regulation of the financial industry, how their violation causes harm to the public interest, and why the government should enforce them more aggressively.
“If you are working for the government, you are working for the people,” he said. “You should be keeping an eye out for the best interest of the people—not currying favor with those who might offer you employment down the road. You should not be developing a nest of inside information that becomes a commodity to someone not entitled to it.”
The Stanford Financial Group headquarters in Houston in 2006. Photo by Craig Hartley/Bloomberg News
In 2006, as the SEC sharply intensified its pursuit of Stanford, the billionaire bribed Antigua’s then chief banking regulator, Leroy King, to turn a blind eye to Stanford’s illegal activities, the Justice Department alleged in an indictment it brought against King in 2009. When the SEC wrote to King in 2006 seeking his assistance in its probe of Stanford, King instead leaked the confidential correspondence to Stanford.
Stanford now felt endangered like never before, according to leaked documents and interviews, and he was more determined than ever to have Barasch and Andrews Kurth in his corner. “The former sec [D]allas lawyer we spoke about in [S]t [C]roix. Get him on board asap,” Stanford emailed Alvarado and James Davis, the chief financial officer of the Stanford International Bank, on September 29, 2006.
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.”
And Barasch in turn 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…”
By agreeing to defend Stanford, Barasch was simply ignoring federal conflict-of-interest laws and the SEC’s admonitions to him a year earlier that he faced a lifetime ban on representing Stanford.
Setting the stage for persuading Andrews Kurth and Barasch to represent him before the SEC, Stanford hired the firm to represent him in three new legal matters in March 2005, according to Andrews Kurth’s confidential billing records. In August 2006, Stanford retained the firm for two more matters, and that September he added two more. In late September, Barasch finally gave in and began doing legal work for Stanford to defend him from the SEC.
The former Andrews Kurth employee who cooperated for this article told me that the new income eventually persuaded Barasch and perhaps others at the firm to sidestep the law: “They like the billable hours. They wanted to keep that money flowing. Stanford clearly knew which buttons to push.”
A short time after speaking with Alvarado, Barasch flew to Miami to meet with him. He also scheduled a trip to Antigua to meet with Stanford and began to bill Stanford for his legal work.
Barasch’s representation of Stanford would be short-lived, however. When he called two former colleagues seeking information about the status of the case, one of them questioned the propriety and legality of Barasch’s representing Stanford before the agency, according to internal SEC records and interviews. The second former colleague Barasch spoke to told the SEC’s ethics counsel, Connor, what Barasch was up to, and Connor sternly warned Barasch for the second time in two years that such a representation would be illegal. Barasch resigned from the case.
Though Andrews Kurth never made the $2 million a year for defending Stanford before the SEC that Barasch had allegedly bragged about, the firm profited mightily from its eight other legal representations of Stanford.
Andrews Kurth by “no means got rich off Stanford,” the former Andrews Kurth employee told me, “but they did quite well. In fact, really, really well.”
Asked by the SEC inspector general in 2010 why he had been so determined to represent Stanford, Barasch candidly responded, “Every lawyer in Texas and beyond is going to get rich over this case. OK? And I hated being on the sidelines.”
Editing by Rocco Castoro, Harry Cheadle, and Rory Tolan
- Investigative Journalism
- Vice Blog
- shady dealings
- Financial fraud
- spencer barasch
- R. Allen Stanford
- Andrews Kurth
- The Derailment of the SEC
- Murray Waas
- Stanford International Bank
- Ponzi schemes
- legal ethics
- people who should probably be in jail? Just sayin'
- federal conflict-of-interest laws