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From Madoff to Stanford Ponzi, from SEC to Congress: in dire need of political reforms

By Kaufmann | February 18, 2009 4 Comments »

Sir R. Allen Stanford gets out of his helicopter (AP Photo/Lefteris Pitarakis)

Sir R. Allen Stanford exiting his helicopter (AP Photo/Lefteris Pitarakis)

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.

Topics: Corruption, financial crisis, Public-Private Linkages, Rule of Law, Transparency | | 4 Comments

4 Responses to “From Madoff to Stanford Ponzi, from SEC to Congress: in dire need of political reforms”

  1. Don the libertarian Democrat Says:
    February 18th, 2009 at 5:06 pm

    I’m predicting a Ponzi Bubble. It seems that you can run one of these schemes for years without anyone being able to figure out if it’s a Ponzi Scheme or genius investing. All you need to worry about is how to evade eventual capture. In the meantime, you can live the High Life.

    Let me ask you: Has anyone ever been caught right after starting a Ponzi Scheme?

  2. Kaufmann Says:
    February 20th, 2009 at 12:15 pm

    Don, we will see about your Ponzi bubble prediction, but no question about the ability of these Ponzis to get away with it for a long long time. Even take Stanford right now, after his Ponzi scheme has been unmasked, a manhunt to find him was mounted. Well, he has been found, in Virginia. And as of right now, still free, he has not been charged of any crime… http://www.portfolio.com/views/blogs/market-movers/2009/02/19/stanford-found-not-arrested

    I suspect that by construction it is almost impossible to cath a Ponzi scheme when it is starting, not only because they are naturally difficult to detect, but also because it takes a couple (or more) of ‘investing’-payoff iterations for it to be a real Ponzi…

  3. Dear Kitty. Some blog :: Stanford financial scandal in the USA :: February :: 2009 Says:
    February 28th, 2009 at 3:12 pm

    [...] accused Texas billionaire Allen Stanford, his college roommate and three of their companies of carrying out a “massive Ponzi scheme” over at least a decade and misappropriating at least $1.6 billion of investors’ [...]

  4. Jacqui Porth Says:
    June 15th, 2009 at 2:50 pm

    Corruption certainly is the topic of the day — nearly everyday. It is good to focus on it in all of its many manifestations across time and distance.

    You just might be intererested in reading more about “Stamping Out Corruption” on America.gov’s web site.

    See:
    http://www.america.gov/stamping_out_corruption.html

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