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Stanford Ponzi Scheme: Lessons for Protecting Investors from the Next Securities Fraud

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Stanford Ponzi Scheme: Lessons for Protecting Investors from the Next Securities Fraud THE STANFORD PONZI SCHEME: LESSONS FOR PROTECTING INVESTORS FROM THE NEXT SECURITIES FRAUD HEARING BEFORE THE SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS OF THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED TWELFTH CONGRESS FIRST SESSION MAY 13, 2011 Printed for the use of the Committee on Financial Services Serial No. 112–30 ( U.S. GOVERNMENT PRINTING OFFICE 66–868 PDF WASHINGTON : 2011 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate Nov 24 2008 17:24 Aug 25, 2011 Jkt 066868 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 K:\DOCS\66868.TXT TERRIE HOUSE COMMITTEE ON FINANCIAL SERVICES SPENCER BACHUS, Alabama, Chairman JEB HENSARLING, Texas, Vice Chairman BARNEY FRANK, Massachusetts, Ranking PETER T. KING, New York Member EDWARD R. ROYCE, California MAXINE WATERS, California FRANK D. LUCAS, Oklahoma CAROLYN B. MALONEY, New York RON PAUL, Texas LUIS V. GUTIERREZ, Illinois DONALD A. MANZULLO, Illinois NYDIA M. VELA´ ZQUEZ, New York WALTER B. JONES, North Carolina MELVIN L. WATT, North Carolina JUDY BIGGERT, Illinois GARY L. ACKERMAN, New York GARY G. MILLER, California BRAD SHERMAN, California SHELLEY MOORE CAPITO, West Virginia GREGORY W. MEEKS, New York SCOTT GARRETT, New Jersey MICHAEL E. CAPUANO, Massachusetts RANDY NEUGEBAUER, Texas RUBE´ N HINOJOSA, Texas PATRICK T. MCHENRY, North Carolina WM. LACY CLAY, Missouri JOHN CAMPBELL, California CAROLYN MCCARTHY, New York MICHELE BACHMANN, Minnesota JOE BACA, California THADDEUS G. McCOTTER, Michigan STEPHEN F. LYNCH, Massachusetts KEVIN McCARTHY, California BRAD MILLER, North Carolina STEVAN PEARCE, New Mexico DAVID SCOTT, Georgia BILL POSEY, Florida AL GREEN, Texas MICHAEL G. FITZPATRICK, Pennsylvania EMANUEL CLEAVER, Missouri LYNN A. WESTMORELAND, Georgia GWEN MOORE, Wisconsin BLAINE LUETKEMEYER, Missouri KEITH ELLISON, Minnesota BILL HUIZENGA, Michigan ED PERLMUTTER, Colorado SEAN P. DUFFY, Wisconsin JOE DONNELLY, Indiana NAN A. S. HAYWORTH, New York ANDRE´ CARSON, Indiana JAMES B. RENACCI, Ohio JAMES A. HIMES, Connecticut ROBERT HURT, Virginia GARY C. PETERS, Michigan ROBERT J. DOLD, Illinois JOHN C. CARNEY, JR., Delaware DAVID SCHWEIKERT, Arizona MICHAEL G. GRIMM, New York FRANCISCO ‘‘QUICO’’ CANSECO, Texas STEVE STIVERS, Ohio STEPHEN LEE FINCHER, Tennessee LARRY C. LAVENDER, Chief of Staff (II) VerDate Nov 24 2008 17:24 Aug 25, 2011 Jkt 066868 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 K:\DOCS\66868.TXT TERRIE SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS RANDY NEUGEBAUER, Texas, Chairman MICHAEL G. FITZPATRICK, Pennsylvania, MICHAEL E. CAPUANO, Massachusetts, Vice Chairman Ranking Member PETER T. KING, New York STEPHEN F. LYNCH, Massachusetts MICHELE BACHMANN, Minnesota MAXINE WATERS, California STEVAN PEARCE, New Mexico JOE BACA, California BILL POSEY, Florida BRAD MILLER, North Carolina NAN A. S. HAYWORTH, New York KEITH ELLISON, Minnesota JAMES B. RENACCI, Ohio JAMES A. HIMES, Connecticut FRANCISCO ‘‘QUICO’’ CANSECO, Texas JOHN C. CARNEY, JR., Delaware STEPHEN LEE FINCHER, Tennessee (III) VerDate Nov 24 2008 17:24 Aug 25, 2011 Jkt 066868 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 K:\DOCS\66868.TXT TERRIE VerDate Nov 24 2008 17:24 Aug 25, 2011 Jkt 066868 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 K:\DOCS\66868.TXT TERRIE C O N T E N T S Page Hearing held on: May 13, 2011 ..................................................................................................... 1 Appendix: May 13, 2011 ..................................................................................................... 49 WITNESSES FRIDAY, MAY 13, 2011 di Florio, Carlo, Director, Office of Compliance Inspections and Examinations, U.S. Securities and Exchange Commission (SEC) ............................................ 9 Kauffman, Stan, victim, Stanford Financial Group Ponzi scheme ...................... 32 Ketchum, Richard G., Chairman and CEO, Financial Industry Regulatory Authority (FINRA) ............................................................................................... 11 Robert Khuzami, Director, Division of Enforcement, U.S. Securities and Ex- change Commission (SEC), accompanied by Michael Conley, Deputy Solic- itor, SEC ............................................................................................................... 8 Kotz, H. David, Inspector General, Office of the Inspector General, U.S. Securities and Exchange Commission (SEC) ..................................................... 6 Preuitt, Julie, Assistant Regional Director, U.S. Securities and Exchange Commission, Fort Worth Regional Office ........................................................... 29 Rawl, Charles W., former employee, Stanford Financial Group, and Stanford Financial Group whistleblower ........................................................................... 31 APPENDIX Prepared statements: Harper, Hon. Gregg .......................................................................................... 50 Luetkemeyer, Hon. Blaine ............................................................................... 52 di Florio, Carlo .................................................................................................. 54 Kauffman, Stan ................................................................................................ 70 Ketchum, Richard G. ........................................................................................ 78 Robert Khuzami ................................................................................................ 54 Kotz, H. David .................................................................................................. 86 Preuitt, Julie ..................................................................................................... 105 Rawl, Charles W. .............................................................................................. 112 ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD Cassidy, Hon. Bill: Statements from constituents who have been affected by the Stanford Ponzi scheme ................................................................................................. 118 Harper, Hon. Gregg: Statements from constituents who have been affected by the Stanford Ponzi scheme ................................................................................................. 199 (V) VerDate Nov 24 2008 17:24 Aug 25, 2011 Jkt 066868 PO 00000 Frm 00005 Fmt 5904 Sfmt 5904 K:\DOCS\66868.TXT TERRIE VerDate Nov 24 2008 17:24 Aug 25, 2011 Jkt 066868 PO 00000 Frm 00006 Fmt 5904 Sfmt 5904 K:\DOCS\66868.TXT TERRIE THE STANFORD PONZI SCHEME: LESSONS FOR PROTECTING INVESTORS FROM THE NEXT SECURITIES FRAUD Friday, May 13, 2011 U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. The subcommittee met, pursuant to notice, at 11:22 a.m., in room 2128, Rayburn House Office Building, Hon. Randy Neugebauer [chairman of the subcommittee] presiding. Members present: Representatives Neugebauer, Fitzpatrick, Pearce, Posey, Hayworth, Canseco; and Capuano. Ex officio present: Representative Bachus. Also present: Representatives Harper, McCaul, and Cassidy. Chairman NEUGEBAUER. Good morning. The committee will come to order. I would like to thank everyone for being here today. I know that we have a number of visitors in the gallery today, and we appreciate you being here; we just would remind folks who are in the gallery that you are an observation team only and that we would ask not to have any placards or any verbal shows of sup- port for or against the testimony. This is a very important hearing on a very important issue. We want to have plenty of time for members to give this panel appro- priate questions. We want to hear from the panelists, as well. We want to remind everyone, particularly the members who are here, that you can submit an opening statement for the record, and that will be made a part of the permanent record. We have four Members who are not currently on the sub- committee or on the committee who have asked to join us today. And so I ask unanimous consent that Mr. McCaul, Mr. Cassidy, Mr. Harper, and Ms. Schwartz be a part of the panel today. What I am going to do here is, I am going to have one Member who is going to make a brief statement and then going to submit his questions for the record. And so, I am going to go ahead and yield 2 minutes to the gentleman from Texas, Mr. McCaul, for a statement. Mr. MCCAUL. Thank you, Mr. Chairman. Thank you for holding this hearing today and allowing me to participate. (1) VerDate Nov 24 2008 17:24 Aug 25, 2011 Jkt 066868 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\66868.TXT TERRIE 2 Many of my constituents were hurt by the fraud committed by the Stanford Group, and I am pleased to see that Congress is in- vestigating the reasons why this fraud was allowed to continue for so long after the SEC received initial warnings that something was wrong. In addition to learning from past mistakes and correcting them to prevent another case like this, we must also do what we can to help the investors and the victims in this case recover what they can. I believe, as in the Madoff Ponzi scheme, that the Stanford in- vestors should be covered by the SIPC, and I would like to work with this committee and the SEC to see that this gets done. Unfortunately, due to my flight schedule, I will not be able to stay for the entire hearing.
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