In a victory for federal regulators, an administrative judge has found three former executives who worked for Allen Stanford's now-defunct brokerage liable for fraud and said they should banned from the industry.
The ruling comes more than a year after Stanford was sentenced to 110 years in prison for bilking investors through a Ponzi scheme with fraudulent certificates of deposit issued by Stanford International Bank, his bank in Antigua.
In her ruling, Securities and Exchange Commission Judge Carol Fox Foelak described as "egregious" the conduct of former Stanford Group Co. chief compliance officer Bernerd Young, former president Daniel Bogar and Jason Green, a former head of the private client group.
Foelak also ordered the three executives to pay fines and forfeit ill-gotten profits.
The SEC's case against the three executives did not allege they actually knew about Stanford's Ponzi scheme.
Instead, it hinged on whether they sufficiently ensured that marketing materials and other disclosures were adequate for investors.
All three executives have vigorously denied any wrongdoing.
Young, who was previously a regulator with the group now known as the Financial Industry Regulatory Authority, told Reuters in the summer of 2012 that he took due diligence steps including reviewing quarterly financial statements and reading annual reports about the bank.
But he said in the exclusive interview that Antiguan privacy laws kept him from seeing more details about the investment portfolio, so he relied on the bank's compliance experts.
"If there is such a thing as a...perfect scam, this was the perfect scam," Young told Reuters last year.
Foelak ordered Young, Bogar and Green to each pay a $260,000 civil penalty.
In addition, Young was ordered to return roughly $592,000 plus interest. Bogar was ordered to forfeit about $1.5 million, and Green must pay $2.6 million.
Lawyers for both Young and Bogar said they were disappointed in the judge's ruling and are still considering their options.
If they decide to appeal, the case would first go before the full five-member SEC.
"Mr. Young...is deeply troubled by the initial decision's disturbing implications for the securities compliance industry and the newer and more Draconian standards that compliance officers may be facing," said Randle Henderson, Young's attorney.
"The decision demonstrates the real danger to compliance officers relying upon advice of independent outside counsel, fully licensed and qualified accounting firms and the audited financial opinions they issue, and the sovereign financial regulatory agencies of foreign countries."
Thomas Taylor, a lawyer for Bogar, said that while he felt his client got a "full and fair hearing," he disagreed with her outcome profoundly.
An attorney for Green could not be immediately reached.
Friday's ruling by the administrative judge marked the second big trial victory for the SEC in one week.
On Thursday, a jury in New York found former Goldman Sachs Group Inc. vice president Fabrice Tourre liable for federal securities law violations for his role in a complex mortgage deal that cost investors $1 billion when it failed.
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