How many lessons may be drawn from Tuesday's federal conviction of R. Allen Stanford, the man behind a $7 billion Ponzi scheme that stretched from the "greed is good" Eighties to the "bubble, bubble, toil and trouble" Aughts?
Nine Acadiana people filed a related lawsuit. They reported losing amounts ranging from $52,000 that once belonged to a Breaux Bridge woman to $4.8 million thrown in by an Opelousas man and the $7.2 million from a Lafayette man. The average loss reported by the plaintiffs was $2.3 million. Lesson 1: The rich may be different from you and me, but that doesn't necessarily mean they're smarter with their money.
Stanford ran his con game for two decades — about the length of the prison sentence he's expected to get — and became one of the country's richest men, living it up on yachts and private jets. Lesson 2: Crime seems to pay for a while sometimes.
But the biggest lesson, and the hardest to learn, is what happens when those whose duty it is to protect the public from thieves and grifters get too cozy with those they're supposed to be watching. In the 1980s and 1990s, when everything seemed to be going our way all the time, we could afford the fiction that regulators and the regulated are partners in the long march to perpetual prosperity. In the Stanford case, and in the near-meltdown of the financial system in 2008-09, we learned something different and should act accordingly.
The federal lawsuit was filed in Texas. In it, the Acadiana people alleged more than $19 million in losses to Stanford's Ponzi scheme. They blame — and named as a defendant — the Securities and Exchange Commission and one of its former lapdog-watchdogs, Spencer Barasch.
How, you may ask, could a Ponzi scheme grow so big for so many years without attracting attention from the feds? The plaintiffs have a theory about that.
Their lawsuit notes that Barasch was once the top man in enforcement for the SEC's Fort Worth office. Barasch, an attorney, was said in an inspector general's report to have tried on several occasions to represent Stanford, and actually served as counsel for a Stanford company for a short time in 2006 before the agency's ethics officials said he had to stop.
So it shouldn't be a big surprise that Barasch didn't exactly go after Stanford like a Saints linebacker eager to collect a bounty.
But, by the standards for regulatory zeal being set at the same time, the Stanford case wasn't unusual. The SEC was one of several federal agencies accused of being asleep while mortgage companies and investment banks conspired to package trillions in subprime mortgages into bonds with inflated ratings. Eventually, the housing bubble, like Stanford's Ponzi scheme, was crushed by its own weight. Unlike Stanford, the top executives at the financial institutions that pushed the world to the brink of financial disaster, erasing trillions in wealth and millions jobs, don't seem to be in danger of going to prison.
If we're going to have regulators, with their thick rulebooks and mounds of red tape, we should get some of the benefits of regulations, too.
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