Report Rips SEC, Partner in Bungled Probe of $8 Billion Scam

It has been a very bad year for the Securities and Exchange Commission, and it got even worse Friday with the release of a report from the agency’s inspector general’s office which concludes the SEC bungled its investigation into Allen Stanford’s alleged $8 billion Ponzi scheme. The 159-page report, available here, says that on four occasions starting in 1997, examiners in the SEC’s Fort Worth, Texas, offices recommended the agency investigate Stanford for what some examiners characterized as an obvious fraud, according to Reuters. More interesting from our perspective is the report’s recommendation that an Andrews Kurth partner face possible sanctions for doing legal work on Stanford’s behalf just months after leaving the same SEC office that was investigating Stanford for possible fraud. 

The report lays much of the blame on Spencer Barasch, a former assistant director of the SEC’s Forth Worth enforcement office and now a partner at Andrews Kurth. (Barasch did not respond to a message seeking comment.) Other SEC employees who wanted to pursue Stanford told the inspector general that Barasch and Harold Degenhardt, another top SEC official in Fort Worth who left in 2005 for a job at Fulbright & Jaworski, preferred smaller cases that were easier to prove and resolve quickly. The Stanford case would take a lot of time, and the two men made their lack of interest in it clear, the report states. “[Degenhardt] came from a big law firm, and he quickly decided the way to impress people was to come up with lots of numbers,” one SEC staffer told the inspector general’s office. “And [Barasch], of course, was part of that.” Degenhardt was at Gibson, Dunn & Crutcher before joining the SEC, according to his current firm bio, which remains on Fulbright’s Web page even though the firm claims Degenhardt retired in 2007. The firm’s Web site lists him as a special consultant.