With the fallout from the goings-on at the Stanford Financial Group, a clear and worrying pattern is emerging. Allen Stanford and Bernard Madoff are the first two big frauds that have come out of this meltdown and they won't be the last. Furthermore, both cases raise questions about how investors could be so gullible and how the regulators ignored all the warning signs. That's right, in both cases the Securities and Exchange Commission was asleep at the wheel.
The Houston Chronicle's Loren Steffy looks at the patchwork of lies that took investors in. But the bottom line is that investors were expecting massive returns, twice the normal rate for certificates of deposit, for very little risk. That's fantasy land stuff.
But why were regulators ignoring it? As far back as 2003, one of his brokers Charles J. Hazlett was raising questions about those certificates of deposit. Hazlett was seen as a rising a star in that empire. When he was asked for details about the investments, no one at the bank would give him even basic information. So when he called a meeting with a top officer of the bank to ask how the investments worked. Instead of answers, he got an ultimatum: you resign or we sack you.
The other eerie part about this is that the company did not have detailed balance sheets and was using a small and little known audit firm. Let's not forget that Madoff also used an obscure audit firm, a process that helped him keep a lid on his fraud.
All this leaves one asking some obvious questions. How many other fraudulent schemes are there taking in gullible investors? And how many other fraudsters are operating right in front of the SEC?
no comment untill now