Blamed over Stanford, SEC's Texas office plots comeback

FORT WORTH Fri Jul 20, 2012 3:20am EDT

1 of 11. (L-R) Associate Regional Director and Enforcement Director David Peavler, Regional Director David Woodcock and Associate Regional Director for Examinations Marshall Gandy pose at the Fort Worth Regional Office of the Security Exchange Commission in Fort Worth, Texas June 28, 2012. Picture taken June 28, 2012. To match Feature SEC-FORTWORTH/

Credit: Reuters/Mike Stone

FORT WORTH (Reuters) - Convicted Texas financier Allen Stanford haunted the U.S. Securities and Exchange Commission's Fort Worth office long after he was arrested in June 2009.

The office was battered by scathing criticism from Congress and within the agency for allegedly missing or ignoring clues for years that Stanford was running a $7 billion Ponzi scheme.

But in the past year the office has undergone a sort of corporate turnaround, with new leadership, a more inventive approach to policing market players, and a patched-up relationship with the SEC's headquarters in Washington.

The Fort Worth office has also been entrusted with two of the agency's biggest investigations that former insiders say are the type of probes often run out of the SEC in New York or Washington.

The office is taking the lead on investigations into allegations of misconduct at Wal-Mart Stores Inc and Chesapeake Energy Corp, according to public filings and people familiar with the matter.

The probes are heating up, with lawyers from the SEC Fort Worth office making document demands for the past several weeks on Chesapeake and its chief executive as part of an inquiry into special financial perks, one person familiar with the investigation said.

Overseeing the Fort Worth office revival is David Woodcock, a defense attorney from Austin who had never previously worked for the SEC or any other government agency.

Woodcock, with distinguished silver hair at only 43, had no ties to the Stanford scandal but he quickly learned when he took the helm of the Fort Worth office in September 2011 that its reputation was synonymous with the swindler.

In his first speech before a group of financial executives, four of the five questions were about Stanford, and how the agency goes about investigating a Ponzi scheme.

"They ... weren't just asking an academic question. There was something heartfelt in what they were asking," Woodcock, who most recently worked as a litigation partner at Vinson & Elkins, said in an interview. "I was not expecting it."

THE STANFORD STORY

Allen Stanford was charged by the SEC in February 2009, and arrested four months later for his role in bilking investors out of billions through certificates of deposit from his bank in Antigua that were sold to investors in the United States and Latin America.

In June this year, Stanford was sentenced to 110 years in jail. The SEC's civil action against Stanford is still pending.

A scathing 2010 report by the SEC's inspector general found that examiners from the Fort Worth office had suspected as early as 1997 that Stanford was running a fraud, but the agency did not launch an inquiry into the matter until late 2005.

Even then, it took almost four more years to bring charges. To add insult to injury, the SEC's former Fort Worth enforcement director, Spencer Barasch, then tried to represent Stanford despite being told by the SEC's ethics office that such a move was improper.

The 2010 inspector general report, which accused the office of being more concerned with racking up case numbers rather than tackling complex matters, was the subject of relentless media reports and multiple congressional hearings.

The SEC's Fort Worth office was left reeling.

"These are people who have dedicated all or large parts of their professional lives to public service and to protecting investors and pursuing those who break the law," said SEC enforcement director Robert Khuzami in an interview.

"When that doesn't happen as it should, or where there is even the perception that an investigation was not handled properly, it is a significant event for them."

With morale at a low point, top leaders at Fort Worth, including its director at the time, Rose Romero, left to take jobs in the private sector. Even though Romero and other officials were responsible for getting the Stanford case filed, the stigma of the inspector general's report had left a cloud over the office that some believe overshadowed their work.

It has taken a few years, but employees say the office is reenergized and is seen as a place that can advance a career.

In addition to Woodcock, the SEC in March brought back Marshall Gandy, a former SEC trial and enforcement lawyer who recently worked for the Dallas office of the Financial Industry Regulatory Authority, an industry-funded self-regulatory group for brokerages. He heads up the Fort Worth's examinations unit.

Gandy said that when he left his FINRA job, people asked if he was "crazy" to return to the SEC where "things are a mess."

But he said his 100-mile-a-day roundtrip commute from Richardson, Texas, is more than worth it. "It took me less than a week to realize they're wrong. Things are not a mess over here at all," he said.

The office is trying to think differently about policing markets, having hired in the past year a geophysicist who is helping examiners root out misleading oil and natural gas claims in securities offerings, such as whether or not there is a chance of finding oil in certain drilling locations.

It also has filed complex cases in the past year, including one that is still being litigated against Life Partners for allegedly failing to tell investors that the company was underestimating life expectancies used to price its life settlement products.

COWBOY STREAK

The 110 employees of the SEC in Fort Worth are housed in three floors of a non-descript office building, some four miles from the Stockyards, the historic livestock market.

Their jurisdiction includes Texas, Kansas, Oklahoma and Arkansas, and covers public company giants including AT&T, Dell, Exxon-Mobil.

For many years, the office had a reputation for having a bit of a cowboy streak to it.

It was considered more informal and approachable than other SEC offices, with assistant directors in the office routinely distributing their cell phone numbers to defense lawyers.

As Woodcock arrived, the office started to think more like a lawyer whose client is the commission, said Michael King, an assistant regional director in Fort Worth who also works in the enforcement division's unit that specializes in bribery cases.

"We are more focused on identifying and investigating cases that advance the commission's overall enforcement program," he said.

King, who was among the lawyers in the office who helped ultimately bring a case against Stanford, is handling both the Wal-Mart and the Chesapeake probes, according to people familiar with the matter.

Both are complex cases. Wal-Mart is facing allegations that its top executives covered up widespread bribery involving its Mexico operations, while Chesapeake is under scrutiny for a controversial program that granted Chief Executive Aubrey McClendon a share in each of the natural gas producer's wells.

David Peavler, the enforcement director for the office, said employees have "moved on" from the Stanford scandal and adopted a greater intensity in the enforcement division.

Defense lawyers who practice before the SEC say they too have noticed that the office has changed, though some say this change has caused Fort Worth to lose its compromising streak, making it tougher for defendants.

"They had adopted the whole useful Texan mentality of just getting things done," said Brent Baker, an attorney at Clyde Snow & Sessions who worked at the SEC for more than 10 years. "You could reach real-world solutions, they could be flexible."

"Now they just seem to be following the message out of Washington: ‘We are tough cops on the beat,' which is frankly a problem in all the regional offices because it is terribly inefficient and rarely is in the investor's best interest," Baker said.

(Reporting By Aruna Viswanatha and Sarah N. Lynch; Editing by Tim Dobbyn)

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