By Kaufmann | February 18, 2009 4 Comments »
Another Ponzi scheme has allegedly been uncovered now, led by the Texas Financier R. A. Stanford, who may have swindled about 50,000 investors out of US $8 billion, or so. The Feds have raided his house of cards but were having a hard time finding him.
At US $50 billion, Madoff may have stood out because of the sheer magnitude of his scam. But obviously he is not alone in large Ponzi schemes, not even within the US. As global financial conditions have continued to deteriorate, the nakedness of those emperors without clothes is starkly exposed…
But like the case of Madoff, this case also raises questions about whether ‘the SEC was asleep at the switch’ in this case as well. Evidently allegations of fraud (and possible drug money laundering) have been made against Stanford over the past decade. Yet the SEC took belated action very recently only after two former employees filed a lawsuit in civil court.
And again, like Madoff and other instances of ‘capture,’ this case raises questions about the links between financiers and Washington politicians. Did money in politics play a role in this case as well? It is alleged that Stanford and his companies (based in the Caribbean island of Antigua…) spent over US $7 million on campaign contributions and lobbying efforts to loosen regulation of offshore banks. In Congress, the main political recipients of such largesse cut across party lines, and at least one of them may have taken a paid trip to Antigua to be entertained by Stanford.
Sheila Krumholz of the Center for Responsive Politics argues that the investigation of Stanford should include his links with members of Congress: “Surely there has to be a part of the investigation to look at what was done in Congress and whether the money that was spent to lobby and make political contributions played any role in all of this”.
This is another illustration of the fact that technical regulatory fixes will not suffice, because it begs the role of ‘money in politics’ and of ‘legal corruption.’ A serious reform agenda ought to transcend narrow technical aspects and also encompass political dimensions, particularly regarding political finance, lobbying, conflict of interest and capture.