WASHINGTON (Reuters) - Federal criminal authorities are investigating whether a former U.S. securities regulator inappropriately represented alleged fraudster Allen Stanford after he left the agency in 2005.
Spencer Barasch, former head of enforcement for the U.S. Securities and Exchange Commission in Fort Worth, Texas, is being probed by the U.S. Attorney's Office and Federal Bureau of Investigation, SEC enforcement director Robert Khuzami and SEC Inspector General David Kotz told lawmakers on Friday.
The criminal probe follows SEC internal findings that Barasch made numerous requests after he left the SEC to represent Stanford and was turned down each time.
Barasch persisted in his requests even though he directly dealt with Stanford matters while at the SEC and was partly responsible for ignoring repeated red flags SEC examiners raised about Stanford as early as 1997, Kotz found in a 2010 report. He later eventually did provide some legal counsel to Stanford in 2006, the report found.
"The rules clearly prohibited from ... in my view, representing Mr. Stanford," Khuzami told a House Financial Services oversight subcommittee on Friday. "We made a referral to criminal authorities."
In addition, Kotz and Khuzami said they had also referred the matter for investigation to the Texas and Washington, D.C. bars.
Republican lawmakers called the hearing to investigate why it took the SEC so long to probe Stanford, a Texas financier, despite repeated attempts by SEC examiners to bring the matter to the enforcement division's attention.
The agency finally filed civil charges against Stanford in February 2009. Stanford was arrested in June 2009 and criminally charged with fraud in connection with a $7 billion scheme linked to certificates of deposit issued by his Antigua-based banking company. Stanford has denied any wrongdoing.
After leaving the SEC, Barasch became a partner at law firm Andrews Kurth. In response to an inquiry from Reuters earlier this week, Andrews Kurth Managing Partner Bob Jewell said Barasch had not done anything wrong.
"We disagree with the characterization of Mr. Barasch's involvement put forth by the Inspector General in his report last year," he said. "We believe he acted properly during his contacts with the Stanford Financial Group and the Securities and Exchange Commission. He did not violate conflicts of interest."
The testimony about Barasch came on the same day the Project on Government Oversight, a government watchdog group, issued a report about the "revolving door" at the SEC. It found that 219 former officials at the SEC have left since 2006 to help clients with business before the agency.
Federal laws place certain restrictions on many SEC and other government employees once they return to the private sector. In addition to a one-year cooling off period, they are generally prohibited from representing a client before a government agency on any matter in which they were personally and substantially involved.
Some lawmakers say stricter policies are needed.
Republican Randy Neugebauer, the chairman of the panel, claimed Barasch represented a client before the SEC in a legal matter as recently as last Friday.
"One of the things that hopefully comes out of this is there are some tighter rules," he said. "It is obviously very alarming."