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Two years ago, Spencer C. Barasch, a former high-ranking Securities and Exchange Commission official based in Fort Worth, Texas, paid a $50,000 fine to settle civil charges brought against him by the United States Department of Justice for allegedly violating federal conflict-of-interest laws. The Department of Justice had alleged that Barasch, as a private attorney, had represented R. Allen Stanford, a Houston-based financier who was later found to have masterminded a $7 billion Ponzi scheme. Barasch had done so even though he'd played a central role at the SEC for years in overruling colleagues who wanted to investigate Stanford’s massive fraud. 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.
In part because of that episode, Barasch, rightfully or wrongfully, has served as an example for critics of the SEC who say that it—and the US government as a whole—has done too little to hold accountable those financial institutions responsible for the 2008 financial crisis and other corporate wrongdoers. James Kidney, a respected trial attorney for the SEC, recently drew attention when he asserted in his retirement speech that the agency’s pervasive “revolving door” has led to a paucity of enforcement actions against seemingly untouchable Wall Street executives. More than two dozen current and former SEC officials that I have interviewed about these matters largely agree with Kidney on the takeaway: Quite simply, American investors can no longer expect the protection they once did, and powerful Wall Street executives who have violated the law will continue to go unchecked.
A three-month investigation by VICE has uncovered evidence of numerous similar instances of misconduct and potential violations of federal conflict-of-interest regulations and law by Barasch since he left the SEC. And while Barasch’s legal representation of Stanford might have been the single most consequential and egregious example of such misconduct, the new information shows that Barasch’s actions in representing Stanford were hardly an anomaly. The new disclosures serve as further ammunition for those who argue that the SEC has been tepid in its enforcement of such regulations and its punishment of those who would violate them.
The SEC examiners weren’t able to persuade their superiors to investigate Stanford until 2005—exactly one day after Barasch left the agency to become a partner at Andrews Kurth. By then, investors in the US and overseas had lost additional billions of dollars. When Stanford was eventually arrested and charged, in March 2009, he had stolen more than $7 billion—the second largest Ponzi scheme in American history. Only Bernard Madoff stole more.