Thursday, June 4, 2009

And I’m perfectly happy to be one of the people alleging that Stanford was a Ponzi, even if Matt isn’t quite there yet.

From Reuters:

Felix Salmon

nonrival, nonexcludable

June 4th, 2009

Does Kroll run a regulator-quashing operation?

Posted by: Felix Salmon
Tags: fraud, regulation

My new colleague Matt Goldstein wonders today why it took so long to nail Allen Stanford:

Bryan Burroughs, in the most recent issue of Vanity Fair, does a good job detailing how just about every US investigative agency was on Stanford’s tail for more than 15 years…

I’m told Houston and New Orleans agents from DEA and IRS even considered running an ABSCAM-style sting on Stanford in 1998… The agencies planned to invite Stanford and some of his cronies to the party to see if he’d be willing to do business with the drug dealers… The sting never happened. It’s not entirely clear why.

Sure, a lot of the difficulty in going after Stanford stemmed from the simple fact that he kept the core of his operation in a tiny country, whose political leaders were all too cozy with the native Texan and dependent on his largess to fuel the nation’s economy. But there probably also was a simple lack of will on the part of the SEC, FBI, DEA and IRS to follow things through, in part because so many of Stanford’s banking customers were Latin Americans.

Or, as Burroughs describes, may be it was the aggressive lobbying by the investigative firm Kroll that tamed the authorities looking into Stanford.

The Kroll connection is fascinating. Here’s Burroughs:

Behind the scenes, Stanford was even more aggressive. as the company grew, he became renowned within law-enforcement circles for aggressive counter-intelligence. Stanford’s security chief was a former head of the FBI’s Miami office. But his greatest asset may have been a top security firm, Kroll associates, whose Miami office worked with Stanford for years. “Stanford was spending millions of dollars a year trying to figure out who was looking at him, and aggressively combating whoever it was,” recalls the former FBI agent. “Kroll was essentially running a propaganda campaign in defense of Stanford’s good name.

Kroll’s role in defending Stanford’s reputation, in both law-enforcement circles and the wider banking community, was an example of a controversial practice known within the private-security world as “reputational self-due diligence,” that is, vouching for a client’s good name… “It is, by all accounts, an exceedingly lucrative business… It is controversial, even inside the firm. Kroll is considered—how to say this nicely—well, they’re willing to take more controversial clients for this type of service.”

Kroll worked for Stanford for over a decade, and if it does turn out that they were running a regulator-quashing operation, this could turn out to be extremely bad for their reputation.

Incidentally, Matt’s still adjusting gingerly to the world of blog: like the careful reporter that he is, he’s still describing Stanford as “the man who allegedly ran an $8 billion Ponzi scheme”. My response to the ritual insertion of the word “allegedly” in such sentences is to say that you can’t be running an alleged Ponzi scheme if there’s no one doing the alleging. And I’m perfectly happy to be one of the people alleging that Stanford was a Ponzi, even if Matt isn’t quite there yet."


I still believe that the best lobbyists for a Ponzi Scheme are the clients, many, if not all, of whom, are wealthy and well connected, with easy access to lawyers. After all, you have to go to these clients and say:

“We’d like to look into your investment, since you’re getting unnaturally high returns.”

The answer might well be:

“You don’t say. Fancy that. That’s what I’m paying this person for!”

Perhaps someone could look into what, if anything, clients said or did, during these years.

- Posted by Don the libertarian Democrat

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