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Tidal Waves of Ponzi Scheme Greenbacks Washed Over the Antiguan Government

The former most senior banking regulator of the Caribbean island nation of Antigua, Leroy King has recently had preliminary discussions with US authorities about accepting a plea agreement for taking bribes to turn a blind eye to and cover up since...

by Murray Waas
May 21 2014, 9:43pm

A private security guard blocks entrance to a branch of the Bank of Antigua in February 2009, after Antigua's prime minister, Baldwin Spencer, urged people not to panic over a US fraud probe involving Texas billionaire R. Allen Stanford. Photo via Getty Images

The former most senior banking regulator of the Caribbean island nation of Antigua, Leroy King—who was indicted in the US in June 2009 for taking bribes to turn a blind eye to and cover up since-jailed Houston financier R. Allen Stanford’s $7 billion Ponzi scheme—has recently had preliminary discussions with US authorities about accepting a plea agreement in the case, according to people familiar with the matter.

King may be able to provide heretofore unknown but crucial new information about the role of two former Securities and Exchange Commission attorneys, Thomas Sjoblom and Spencer C. Barasch, who after their time at the SEC represented Stanford as private attorneys before the agency, according to the aforementioned sources. King allegedly falsified certified reports in Antigua that Stanford’s bank was solvent and sent phony audits to the SEC to deceive US regulatory authorities.

Besides turning a blind eye to the Ponzi scheme that Stanford masterminded via his offshore bank in Antigua, King allegedly tipped off Stanford on occasions when the SEC sought information from Antiguan authorities about Stanford’s financial activities in the island nation. On two occasions, according to allegations made in federal court by the United States Department of Justice in September 2009, King allegedly provided Stanford with confidential letters that the SEC had previously sent to King in an attempt to investigate Stanford International Bank’s business in Antigua.

A confidential federal law enforcement memo suggests that there is strong circumstantial evidence that Sjoblom—and to a lesser extent Barasch—were aware of the arrangement whereby King provided them with the sensitive inside information from inside the SEC. The same memo indicates that investigators were also said to be interested in whether Sjoblom or Barasch knowingly exploited inside information in their legal defense of Stanford before the SEC. Both Barasch and Sjoblom declined to comment for this story.

In June 2009, King, the administrator and chief executive officer of Antigua’s Financial Services Regulatory Commission, was indicted by the Justice Department on charges of accepting bribes to protect the Stanford Ponzi scheme and supply Stanford with confidential information about the SEC’s investigation. Stanford paid the bribes, in part by depositing money for King regularly in a Swiss bank account, according to the indictment of King.

One of the former SEC officials, Thomas Sjoblom, was previously investigated by the US Department of Justice in relation to his private legal work for Stanford. Two former top aides to Stanford, who pled guilty and became government witnesses against Stanford and others, alleged to federal authorities that Sjoblom had suborned the perjury of one of them to help Stanford conceal his Ponzi scheme, the Justice Department claimed in papers filed in federal court in Houston.

As I first reported for Reuters in 2010, the Justice Department investigated Sjoblom for obstruction of justice, witness tampering, and conspiracy. They even considered charging him with these offenses. Extraordinarily, Sjoblom offered to testify against Stanford—his own client—if Sjoblom was not charged himself.

Quoting from my piece for Reuters:

People with firsthand knowledge of the matter say that Sjoblom had offered the Justice Department his testimony against Stanford in exchange for a grant of immunity from prosecution for himself—an offer rejected by the Justice Department. Prosecutors demanded a formal acknowledgment by Sjoblom of his own alleged criminal participation in an attempt by Stanford to derail investigations by the SEC, according to people involved in the discussions…

Ordinarily, attorneys are precluded from being witnesses against former clients because of the attorney-client privilege.

But under a legal doctrine known as the crime-fraud exception, an attorney can tell what he knows if his client has sought advice that would abet the commission of that fraud or some other criminal act—or, in rare instances, if the attorney himself aided a crime. The crime or fraud disclosed or discussed must also then occur for the attorney to be able to testify. If Sjoblom had testified against Stanford, he would have been one of the most prominent attorneys to turn against such a client.

Sources have since told me that career federal prosecutors later advocated for criminally charging Sjoblom. Yet at the time they were overruled by the head of the Justice Department’s criminal division, Lanny Breuer.

Breuer had wanted to use Sjoblom as a potential witness to testify against Stanford, fearing that without his testimony the Justice Department would not be able to obtain a conviction of Stanford on certain charges levied against him, according to three federal law enforcement officials. In the end, the prosecutors concluded that Sjoblom would not serve as a credible witness against Barasch, and moreover, according to law enforcement sources, it would be considered unethical to use any possible testimony from Sjoblom in trial. They proved to be correct. On March 6, 2012, without Sjoblom’s testimony, Stanford was handily convicted of 13 felonies and sentenced to 110 years in prison.

Sjoblom, a 20-year veteran of the US Securities and Exchange Commission’s enforcement division, was a partner at the international law firm of Proskauer Rose and chief of its securities practice when he represented Stanford. He has since left the firm to strike out on his own. Sjoblom declined to comment for this story, telling me in a brief telephone conversation: “It’s not something that I would be interested in doing at this time. I am not sure I want to talk about all of this until it is fully resolved.” An attorney representing Sjoblom, Joshua Hochberg, also failed to return phone calls regarding the matter.

The second former SEC regulator who represented Stanford, Spencer C. Barasch, agreed to pay a $50,000 fine for allegedly violating federal ethics laws by representing Stanford after overseeing regulation of Stanford’s US brokerage businesses. For many former federal regulators, including those at the SEC, it is illegal to represent private clients during and after their tenure at the organization if they have “personally and substantially” participated in any matters related to those clients during the course of their government employment. Barasch declined to comment for this story as well.

VICE disclosed in a story posted earlier today that Barasch, in his final days at the SEC, quashed an investigation in early 2005 of a Stanford’s Ponzi scheme—even after securing a lucrative partnership with a law firm of which Stanford was a client. That action raises further questions as to whether Barasch violated additional federal conflict-of-interest laws in addition to those he had previously settled with the Justice Department in early 2012, law enforcement officials and outside legal experts said in interviews. Federal law enforcement sources told me that the Justice Department was unaware of this new information while settling the earlier conflict-of-interest case with Barasch.

Since Leroy King was charged by a federal grand jury in the US in June 2009 for allegedly accepting bribes from Stanford, the former Antiguan regulator has successfully fended off extradition demands from the US. But as the June 12 national election in Antigua nears, the possibility of a new regime coming into power has resulted in a lack of public and governmental sympathy for King, and it is unclear whether he will be able to remain in the country unperturbed much longer. Thus his recent discussions with US authorities regarding potential malfeasance within the SEC and, potentially, other governmental bodies.

King also allegedly served as a spy of sorts for Stanford, secretly tipping him off whenever US investigators sought his agency’s assistance in investigating Stanford, according to court papers filed by the Justice Department in Houston, Texas, in late September 2009: “In June of 2005, King provided to Stanford a confidential letter that King had received from the United States Securities and Exchange Commission in his capacity of administrator and head of the FSRC,” read the court papers. The SEC soon informed King that they had reason to believe Stanford’s bank was engaged in a “possible Ponzi scheme.” Stanford and an executive working for him then “assisted King in drafting a false and misleading response by [the] FSRC to this confidential letter,” prosecutors further alleged.

In the fall of 2006, the SEC intensified its investigation of Stanford and his bank: “On September 25, 2006, King provided to Stanford another confidential letter from the SEC,” prosecutors said in court papers.

Only days later, assert the same court papers, Sjoblom contacted the SEC to defend Stanford, vouch for his character, and declare that the SEC had not properly requested information from Antigua.

On September 29, 2006, just four days after King passed the SEC’s confidential letter to Stanford to tip him off to the impending investigation, Stanford moved to retain Barasch and Andrews Kurth. Stanford ordered two top deputies via email: “The former sec [D]allas lawyer we spoke about in [S]t Croix. Get him on board.”

If King and US authorities are able to broker a plea deal, and King is brought on as a government witness, investigators may finally be able to learn whether Sjoblom or Barasch had prior knowledge that King was providing Stanford the inside law enforcement information—and also whether either of the two attorneys knowingly utilized it in their defense of Stanford in front of the SEC.

But federal law enforcement sources told me that even with a plea deal King would still be required to serve a substantial prison sentence—because of the enormity of the financial fraud he allegedly facilitated. Stanford stole more than $7 billion from more than 30,000 investors in 113 countries. In the annals of American corporate crime, Stanford was second in the amount stolen in a Ponzi scheme only to Bernard Madoff. Without Leroy King’s participation, it is unclear whether Stanford would have gotten away with stealing so much from so many people for so long.

Read part one and two of our investigation of the derailment of the SEC.