FORT WORTH -- Julie Preuitt is into NASCAR, stopping con men and doing what she believes is right -- even when it meant flushing her career down the SEC commode.
She was an SEC branch chief examining securities brokers and dealers when a routine look at a company put her on high alert. Preuitt believed her staff had found a scam: An off-shore bank was offering CDs with payoffs that were, to her thinking, "absolutely ludicrous."
It should have been a Tom Clancy moment. But in the Fort Worth regional office of the Securities and Exchange Commission where Preuitt worked, leaders regarded the case as what they called a "goat screw." They passed on orders to kill it.
Snap a picture: It's June 2009. The SEC announces bad news for a Texas billionaire. He's being sued, accusing of running a Ponzi scheme that any aspiring Bernie Madoff could appreciate. Singled out for hard work on the case was the Fort Worth office. Plaudits went to many, including two high-ranking Fort Worth officials.
What the picture doesn't show: The lawsuit against R. Allen Stanford came 12 years and about $7 billion too late.
And the praise didn't go to Preuitt, who first raised concerns in 1997. Instead, two people who pushed Preuitt aside enjoyed the acclaim. That is, until it began biting them on the ankles.
Soon after the announcement, the SEC's watchdog, the inspector general, began getting complaints that the office had not diligently pursued a probe until the SEC came under fire for failing to spot Madoff's Ponzi scheme.
Now, a starkly different image of the Fort Worth office is emerging from the watchdog report, government documents obtained by the Star-Telegram, and interviews with current and former staff members.
They show a troubled organization where senior managers for years resisted efforts to pursue complex cases in favor of the quick and easy that could run up its stats -- and they badly botched the Stanford case in its early years.
"The commission is very interested in a 'fraud of the day.' And [Stanford] wasn't ever the fraud of the day," Preuitt told the inspector general.
Stanford steadfastly maintains he did nothing wrong.
While Preuitt and the examination staff repeatedly flagged the Stanford companies as a Ponzi scheme, enforcement attorneys wouldn't budge. They ignored tips, largely disregarded state and federal concerns, and tried to fob off the matter to a private, less powerful financial regulator. The enforcement staff failed twice to read examiners' reports on Stanford.
All the while, investor losses swelled, the watchdog report says.
While the Fort Worth office was once gun-shy, SEC officials say those failings have largely been resolved since leadership changed and investigative powers were streamlined. They also say that the matter was complex, entangled in international law and a criminal investigation by the Justice Department, among other obstacles.
"I would say the public has every reason to be confident in both the performance and productivity of that office," said Robert Khuzami, head of the SEC's enforcement division in Washington
"To the extent that there are personnel or other issues, those will be dealt with appropriately," he said. But "the performance of the office has been overwhelmingly positive."
Less focus is now placed on competing with other SEC offices' statistics for the number of cases closed, an SEC document says.
And Rose Romero, a former assistant U.S. prosecutor who now leads the Fort Worth office, said it is operating at its peak in spotting and stopping fraud, even though it has limited resources and a broad region.
"I think right now our staff is probably the best qualified staff that this office has probably ever seen," she said.
The office has rolled out some solid cases. Last year, it halted what it called frauds of $31 million, $24 million and $8.4 million, among others in Texas. An investigator even used Google to root out fraud at a major company.
Yet Romero and Kimberly Garber, who beat out Preuitt to become associate district administrator for examinations, are criticized by current and former staff members as being even more concerned with style over substance. When Preuitt opposed their decision to conduct quick-hit examination reviews, the office divided into two camps.
And Romero and Garber struck back, according to the inspector general.
Some staff members, speaking on the condition of anonymity, said they have no confidence in senior leadership. In Fort Worth, the office's strength had historically been in people like Preuitt, who were impolitic, willing to speak their minds and push co-workers and the D.C. bureaucracy to get things done. Management instead wants "tools to do away with people who have a dissenting opinion," one employee said.
And a lingering issue is how Romero has depicted the Stanford investigation. Testimony she gave to a U.S. Senate committee conflicts with records of her own office.
Apparent red flags
To its earliest investors, Stanford International Bank must have looked like some West Indies gold mine. The Antigua bank offered CDs paying interest rates markedly higher than those of U.S. banks. The Stanford Group Co., which registered with the SEC as a broker-dealer and investment adviser in 1995, was paid high referral fees for selling the CDs.
As early as the mid-1990s, the Texas State Securities Board passed along a tip to the SEC about Robert Allen Stanford's companies.
"We actually found problems with Stanford," said Texas Securities Commissioner Denise Voigt Crawford.
By 1997, the Stanford companies caught Preuitt's attention. She wondered how the bank had gained nearly $307 million in deposits in a couple of years.
The watchdog report on Stanford details dogged efforts by Preuitt and the examination staff over ensuring years to find answers and prod enforcement to take action.
The first examination found apparent red flags. Preuitt concluded that the CDs were fraudulent. The staff labeled it a "Possible Ponzi scheme." The examination report was forwarded to enforcement, where it sat for eight months.
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