This Houston Chronicle story from last week contains an interesting interview with a pair of ex-employees, who describe how their complaints about compliance problems were blown off by supervisors, leading them to bolt with their clients more than a year ago.
“Callers have said ‘thank you, thank you and thank you very much,’ ’’ D. Mark Tidwell said Wednesday. Tidwell and Charles “Charlie’’ Rawl left the company in late 2007 and took many of their clients with them, largely pulling them out of the Stanford financial products the federal government froze as part of a fraud investigation.
Tidwell and Rawl allege in a lawsuit filed in January 2008 that they were forced to resign from Stanford because they did not want to engage in business practices they thought improper — some of which also were alleged in Tuesday’s civil fraud claim by the Securities and Exchange Commission.
“I saw a pattern of management making decisions for the wrong reasons, not focusing on what was best for the client,” said Rawl, 49, of Katy, who worked at UBS before he was recruited by Stanford in 2005. “I saw an environment of noncompliance. Things that were brought up were not fixed.”
Among the red flags:
In 2005, the pair said, holders of certificates of deposit in Stanford’s offshore bank started receiving letters from the SEC questioning the investors about the marketing of the CDs.
Tidwell and Rawl said the company offered bonuses and other incentives for pushing those CDs to customers.
In 2006 they started noticing that a mutual fund called Stanford Allocation Strategy was advertising better performance than clients were seeing.
Also that year they were told to scrub their files, removing handwritten notes and other items, they said. And they noticed that the company’s trust company in Baton Rouge was not filing certain required federal documents.
The paper quotes Rawls as saying that supervisors told him to “let sleeping dogs lie.” Their exit late last year led to legal claims and counterclaims.
Stanford sued the pair, alleging they were fired and owed Stanford more than $500,000 in unpaid promissory notes. Tidwell and Rawl countersued Stanford, saying they were forced to quit because of improper behavior at the company. The lawsuits are now in arbitration.
The video accompanying the story is worth watching, too.
Dean Starkman Dean Starkman runs The Audit, CJR’s business section, and is the author of The Watchdog That Didn’t Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014). Follow Dean on Twitter: @deanstarkman.