Ex-SEC attorney Barasch settles DOJ case

Fri Jan 13, 2012 2:30pm EST

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(Reuters) - Former Securities and Exchange Commission attorney Spencer Barasch agreed to pay a $50,000 fine to resolve civil and criminal claims that he inappropriately represented alleged Ponzi schemer Allen Stanford.

The U.S. Department of Justice accused Barasch, former head of enforcement at the SEC's Fort Worth, Texas, office, of representing Stanford Financial Group even though he had worked on the case while at the agency.

Under the settlement, signed in December but released on Friday, Barasch did not admit to the Justice Department allegations and offered his own set of facts. But he agreed to pay the fine in order to resolve the case.

The $50,000 penalty is the largest allowed under the law, the government said.

Barasch had hoped to also settle a separate SEC action by agreeing to a six-month bar from practicing before the commission.

But in a closed-door meeting Thursday, SEC commissioners unanimously rejected Barasch's settlement offer amid concerns that it was too lenient, people familiar with the matter told Reuters on Friday.

In a statement, Barasch's lawyer, Paul Coggins, said Barasch "served the SEC and his country with integrity and distinction." He said Barasch disputes any suggestion that he "compromised his honor or ethics."

Barasch entered into the settlement to "avoid the expense and uncertainty of protracted litigation," Coggins said.

When asked about the future of the SEC case, Coggins said: "We are happy to have reached an agreement with the Justice Department and look forward to resolving our issue with the SEC."

A spokesman for the SEC declined comment. Representatives of Barasch's current law firm, Andrews Kurth, and the State Bar of Texas did not respond to requests for comment. Wallace "Gene" Shipp, the Bar Counsel in Washington, D.C., declined to comment, saying the law prohibits him from commenting on even the existence of an investigation.

The settlement comes as federal prosecutors prepare for a criminal trial of Stanford, who is accused of running a $7.2 billion Ponzi scheme and deceiving thousands of investors into buying certificates of deposit from his Antiguan bank.

Earlier this week Stanford's lawyers asked to withdraw from the case, throwing the status of the trial into doubt.

SPECIAL TREATMENT

The SEC commissioners rejected the settlement offer for several reasons, said people who spoke anonymously because the matter is not public.

Some commissioners expressed concern that the ban was too short. Others worried that, under the proposed settlement, Barasch would receive special treatment to be readmitted to practice before the SEC.

Barasch had sought automatic readmission, these people said, in order to avoid the lengthy review process most barred lawyers undergo to appear again before the commission.

In his letter for readmission, Barasch would also have to certify that he was no longer under disciplinary or investigative action by the bar -- a statement he might not be able to make due to a possible investigation by the Washington, D.C. bar.

Jim Cox, a professor at Duke University School of Law, said the SEC's rejection of the settlement is not surprising given recent criticism the SEC has faced on the leniency of its settlements against big financial firms such as Citigroup. He added that in this case, the SEC did not want to be viewed as going too easy on a former staffer.

"The SEC routinely bans people ... for one year, three years, and sometimes even indefinitely," he said. "My guess is this could have easily been played as a sweetheart if they had agreed to it."

COMPETING ACCOUNTS

Barasch's settlement, negotiated with the federal prosecutor's office in the Eastern District of Texas on behalf of the Northern District, resolves a long-running probe into whether he broke federal conflict-of-interest laws in seeking to work for Stanford.

The investigation stems from a report from the SEC's inspector general, David Kotz, who uncovered evidence in 2010 of Barasch's potential conflicts in the Stanford case.

"Today's action sends a strong message that former federal officials cannot abuse the public trust by attempting to profit personally from matters on which they worked as government servants before joining the private sector," Kotz said in a statement.

While the Barasch case is resolved, the settlement offers two competing sets of facts on what happened.

From the government's perspective, Barasch repeatedly thwarted inquiries into Stanford while at the SEC.

In 1998, for example, prosecutors said, Barasch directed a preliminary investigation into Stanford to be closed.

Then in 2002 and 2003, they said, he declined a referral from the SEC's examination staff and determined an investigation should not be opened.

But according to Barasch's version, he referred the Stanford matter to other agencies based on "pressure from his superiors in Washington" to devote the office's resources to fraud other than Ponzi schemes.

He never "personally and/or substantially" participated in the SEC's investigation of Stanford, he said.

The dispute over what exactly happened continued after Barasch left the SEC.

About two months after he left the agency in 2005, the Justice Department said, the SEC verbally informed him he could not represent Stanford because he participated "personally and substantially" in the matter while at the SEC and that the ban was for life.

But Barasch represented Stanford's firm for just under three months in 2006, the government said. In November of that year, he even appeared before the SEC on behalf of Stanford, it said.

Barasch specifically denied he had been told he was permanently barred from representing Stanford, and said he only had a phone call with the SEC on November 27, 2006, in order to determine whether he could work on the case.

Barasch sent Stanford an invoice on December 18 of that year for $6,587.93, but did not disclose what services he billed for.

(Reporting By Aruna Viswanatha and Sarah N. Lynch; editing by John Wallace and Gerald E. McCormick)

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