May 25, 2012
You had Lloyd Blankfein of Goldman Sachs and Jon Corzine of MF Global on the hot seat. Then Jamie Dimon of JP Morgan. More recently, the folks at NASDAQ, Morgan Stanley, and Facebook have been squirming. Dubious ethical practices. Failed trades. Rumors of double dealing. The tongues of Wall Street and Main Street were set wagging, along with the accusatory fingers of Congress and the regulatory community.
But now, a respite for some in the spotlight - if not, for some, a cynical and comical aside. A former high-level Securities and Exchange Commission director gets called out for alleged ethical lapses by both the Department of Justice and the SEC. And it's not the first time that the SEC has suffered such a public black eye. Probably not the last. You had the 2010 pornography mess. You had the 2011 issue of theSEC's former General Counsel's possible conflict of interest arising from the Madoff fraud. There was the whole fiasco of the SEC's leasing expensive office space without proper authorization. Sadly, it's getting to the point where we need a scorecard to keep track of the bad guys and which team they're on.
A High Flyer Stumbles
In anticipation of the institution of public administrative proceedings against him by the Securities and Exchange Commission ("SEC"), without admitting or denying the finding, Spencer C. Barasch submitted an Offer of Settlement (the "Offer"), which the SEC accepted. Barasch consented consented to the entry of an Order Instituting Administrative Proceedings Pursuant to Section 4C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions("Order"). In the Matter of Spencer C. Barasch,Respondent (Order / '34 Act Release No. 67060 / Admin Proc. No. 3-14891, May 24, 2012).
At the SEC
Once upon a time, Barasch, age 54, licensed to practice law in the District of Columbia and the State of Texas, was the Associate District Director for Enforcement in the SEC's Fort Worth District Office ("FWDO") from June 1998 until April 2005. Between 1998 and 2003, Barasch participated personally and substantially in several decisions relating to the SEC's response to allegations that various entities associated with Robert Allen Stanford, including Stanford Group Company ("SGC"), had violated the federal securities laws in connection with the sale of Stanford International Bank ("SIB") purported "certificates of deposit."
SIDE BAR: On March 6, 2012, Robert Allen Stanford was convicted on 13 out of 14 counts of fraud in connection with a $7 billion international scam that went undetected for nearly twenty years.
Getting back to Barasch, he left the SEC and joined a private law firm in 2005. This is how the SEC bid farewell to their colleague:
SPENCER BARASCH, HEAD OF ENFORCEMENT FOR THE SEC'S FORT WORTH OFFICE, TO LEAVE THE COMMISSION
FOR IMMEDIATE RELEASE
Washington, D.C., March 9, 2005 - The SEC announced today that Spencer C. Barasch will leave the Commission in April to become a partner in the Dallas office of the law firm of Andrews Kurth LLP. For the past seven years, as the senior enforcement official in the Commission's Fort Worth Office, Barasch has led the Commission's enforcement program in a four state area of the Southwest. Before that, he held various other positions in the Commission, including Assistant Director in the Commission's Southeast Office in Miami, Fla.
As the enforcement head in the Fort Worth Office, Barasch, 47, directed a number of high profile SEC enforcement investigations and litigation in several areas of the securities industry. Among the more noteworthy enforcement actions he oversaw were:
- major financial fraud cases involving Royal Dutch Shell, Halliburton, TV Azteca, and the Fleming Companies;\
- regulatory cases against AIM, Southwest Securities, First Command and HD Vest;
- significant insider trading cases involving the securities of Hispanic Broadcasting Corp., AmeriCredit and Carreker Corp; and
- more than 50 emergency enforcement actions involving securities scams targeting inexperienced investors, recovering close to one billion dollars for investors.
Harold F. Degenhardt, head of the Commission's Fort Worth Office, said, "Spencer Barasch has been central to Fort Worth's significant enforcement accomplishments. The ascendancy of its enforcement program is in no small part due to his efforts. We lose, however, more than just an outstanding professional, wholly committed to the Commission's mission, we lose a friend …he will be missed."
Stephen Cutler, Director of the SEC's Enforcement Division, stated, "Spence's dedication to the work of the Commission has been second to no one. He is the consummate enforcement lawyer: smart, tough, fair and tireless. I will miss him and so will the Commission."
Barasch said, "I cannot imagine a more rewarding professional experience than having the privilege and honor to represent and protect the investing public as a staff member of the Commission. I am especially proud of the extraordinary accomplishments of my colleagues in the Commission's Fort Worth office, who, through their terrific talent, dedication and zeal, have established a reputation for excellence that is an inspiration to me and others throughout the Commission. I have been extremely fortunate to work with so many exceptional colleagues throughout the Commission, and will greatly miss them and the important work that the Commission performs. "
Barasch received a number of awards during his tenure with the Commission, including the Irving M. Pollack Award for his dedication to public service and the SEC, and his fairness and compassion in dealing with the public and the staff.
Before joining the Commission staff in 1987, Barasch was Associate General Counsel for the Oklahoma Department of Securities. Barasch received his J.D. from the University of Tulsa in 1984, and his A.B. from Duke University in 1980.
An Ethical Question
As is often the case with folks who come and go from government service, Barasch contacted the SEC's Ethics Office in 2005 to inquire as to whether he could ethically represent SGC regarding an inquiry that was ongoing by the FWDO - again, you remember, that's the same office where Barasch was an Associate District Director for Enforcement from 1998 until April 2005; and, just to jog your memory, that's the same office that had been looking into the SGC SIB Stanford affairs. Not surprisingly, the Ethics Office informed Barasch that he was permanently barred from working for SGC on the specific matter at issue.
Frankly, that answer seemed pretty obvious to me but, hey, at least the guy asked. As the Ethics Office explained, Barasch had participated in the same or substantially similar matter during his tenure at the SEC and, well, sorry, but we can't overlook those disqualifying conflicts. The former SEC director gets some credit for at least asking. Now he knows that the door is closed. Time to prospect for other clients.
The Nuance of "NO"
Notwithstanding his status as a lawyer and the Q&A that occurred between him and the SEC's Ethics Office, Barasch apparently accepted a retainer in the fall of 2006 from SGC and billed the client for about 12 hours of legal service including travel time.
On or about October 26, 2006, the SEC entered a formal order of investigation relating to SGC's possible violation of the federal securities laws in connection with the sale of SIB's CDs.
After learning that the SEC went formal with SGC, on or about November 27, 2006, the winner of the SEC's Irving M. Pollack Award for dedication to public service and the SEC communicated with FWDO staff with the intent to influence them, according to the SEC's Order. Moreover, the SEC alleged that Barasch attempted to obtain information from FWDO staff about the investigation of SGC.
Apparently troubled by the efforts of the former associate assistant director for the FWDO, an office attorney questioned whether Barasch could represent SGC. Good for you! Hey, give that lawyer the next Irving M. Pollack Award. In any event, Barasch purportedly tried to convince the skeptical lawyer that Barasch's involvement with the SGC matter while he was still employed at the SEC was minimal. Barasch explained that he could represent SGC before the SEC. Admirably, the staff lawyer seems to have, somewhat politely but apparently firmly, suggested that Barasch contact the SEC's Ethics Office
Going back to the well, Barasch again contacted the Ethics Office and was again told that he was permanently barred from working on the SGC matters at issue. Barasch billed no further time on the matter.
Federal Conflict of Interest Case
On January 13, 2012, Barasch and the U.S. Attorney's Office for the Northern District of Texas entered into a settlement agreement resolving federal conflict of interest allegations arising from Barasch's representation of SFG. Barasch agreed to pay the maximum civil fine of $50,000for a violation of 18 USC § 207 : RESTRICTIONS ON FORMER OFFICERS, EMPLOYEES, AND ELECTED OFFICIALS OF THE EXECUTIVE AND LEGISLATIVE BRANCHES, which, in pertinent part, prohibits any former "officer or employee . . . of the executive branch of the United States . . . after the termination of his or her service or employment with the United States" from "knowingly mak[ing], with the intent to influence, any communication to or appearance before any officer or employee of any . . . agency . . . on behalf of any other person . . ., in connection with a particular matter-"
(A) in which the United States . . . is a party or has a direct and substantial interest,
(B) in which the person participated personally and substantially as such officer or employee, and
(C) which involved a specific party or specific parties at the time of such participation.
The Department of Justice Press Release on Barasch's settlement notes, in part:
Barasch has denied any allegations of wrongdoing.
In assessing the settlement agreement, U.S. Attorney Bales announced that: "We are committed to ensuring that former federal government attorneys and employees adhere to the rigorous ethical standards imposed upon them by law. In this instance, the SEC ethics program worked and Barasch's misguided attempt to represent Stanford Financial Group had no lasting consequence. Even so, there must be zero tolerance for ethical missteps. Today's settlement agreement demonstrates that we will hold those that shirk their professional responsibilities accountable for their conduct."
The SEC Takes A Shot
The SEC separately found that Barasch's conduct was prohibited by 18 U.S.C. § 207, thus constituting "improper professional conduct" under Commission Rule of Practice 102:Appearance and Practice Before the Commission (e)(1)(ii):
(e) Suspension and Disbarment.
(1) Generally. The Commission may censure a person or deny,
temporarily or permanently, the privilege of appearing or practicing before it
in any way to any person who is found by the Commission after notice and
opportunity for hearing in the matter:
(ii) to be lacking in character or integrity or to have engaged
in unethical or improper professional conduct;
In view of the foregoing factual findings and the $50,000 civil fine paid in the DOJ settlement, the SEC deemed it appropriate to impose the sanction agreed to in Respondent's Offer:
A. Respondent is denied the privilege of appearing or practicing before the Commission as an attorney for ONE YEAR from the date of the Order.
B. After one year from the date of the Order, Respondent may request that the Commission consider his application to resume appearing and practicing before the Commission as an attorney. The application should be sent to the attention of the Office of the General Counsel.
C. In support of such an application, Respondent must provide a certificate of good standing from each state bar where Respondent is a member.
D. In support of such an application, Respondent must also submit an affidavit truthfully stating, under penalty of perjury:
1. that Respondent has complied with the Order;
2. that Respondent:
a. is not currently suspended or disbarred as an attorney by a court of the United States (or any agency of the United States) or the bar or court of any state, territory, district, commonwealth, or possession; and
b. since the entry of the Order, has not been suspended as an attorney for an offense involving moral turpitude by a court of the United States (or any agency of the United States) or the bar or court of any state, territory, district, commonwealth, or possession, except for any suspension concerning the conduct that was the basis for the Order;
3. that Respondent, since the entry of the Order, has not been convicted of a felony or misdemeanor involving moral turpitude as set forth in Rule 102(e)(2) of the Commission's Rules of Practice; and
4. that Respondent, since the entry of the Order:
a. has not been found by the Commission or a court of the United States to have committed a violation of the federal securities laws, except for any finding concerning the conduct that was the basis for the Order;
b. has not been charged by the Commission or the United States with a violation of the federal securities laws, except for any charge concerning the conduct that was the basis for the Order;
c. has not been found by a court of the United States or any state, territory, district, commonwealth, or possession, or any bar thereof, with having committed an offense involving moral turpitude, except for any finding concerning the conduct that was the basis for the Order; and
d. has not been charged by the United States or any state, territory, district, commonwealth, or possession, or any bar thereof, with having committed an offense involving moral turpitude, except for any charge concerning the conduct that was the basis for the Order.