WASHINGTON (AP) -- Senators pressed the Securities and Exchange Commission's chief enforcement official Wednesday to explain why the agency has yet to demote or fire staffers who waited 12 years to bring charges against an alleged major Ponzi scheme.
The SEC inspector general found that the agency knew since 1997 that R. Allen Stanford was likely operating a Ponzi scheme. But it didn't charge the billionaire until February 2009. The charges came a few months after the massive pyramid scheme of financier Bernard Madoff surfaced.
Also at a Senate hearing, the SEC inspector general called "suspicious" the timing of the agency's filing civil fraud charges in April against Goldman Sachs & Co. in connection with sales of mortgage-related investments.
The inspector general, David Kotz, has been investigating the timing of the Goldman suit. He said Wednesday his office has been looking at whether it was tied to other factors, such as passage of the financial overhaul law, or to dampen the negative effect of his report on the SEC's handling of the Stanford case -- which was released the same day.
The timing of the Goldman suit "is certainly something worth looking into," Kotz testified. "I can't give you a conclusion right now, because we're still looking at it. But I would certainly say it's suspicious."
The SEC has said the April 16 filing of charges was unrelated to any other factors. In July, Goldman agreed in a settlement with the SEC to pay $550 million, the largest against a Wall Street firm in SEC history.
In his investigation of the Stanford matter, Kotz found that SEC enforcement officials discouraged cases that couldn't be resolved quickly.
Senate Banking Committee Chairman Christopher Dodd, D-Conn., noted that no one at the SEC has been fired or demoted for the excessive delay. Other senators on the panel asked SEC Enforcement Director Robert Khuzami for an answer during the hearing on the issue.
Khuzami told the panel that the disciplinary process is under way.
That prompted Sen. Jim Bunning, R-Ky., to say: "That's 13 years. You haven't had enough chance to accumulate evidence?"
Khuzami responded that the details of the SEC's failure in the case only have been known since the inspector general's report was issued in April.
Khuzami also said the agency has toughened its efforts to shut down financial misconduct since the past failures. He said the SEC will use the new powers it gained under the financial overhaul law enacted in July to amplify enforcement efforts. Among other things, the law authorizes creation of a whistleblower program at the SEC.
Khuzami said the SEC is working to provide "maximum recovery" to investors hurt in Stanford's alleged $7 billion fraud.
Kotz also found that the former head of enforcement in the SEC's Fort Worth, Texas office, who helped quash investigations of Stanford, later represented the billionaire as a private lawyer. Kotz indicated at the hearing that he has referred the matter to the Justice Department for possible criminal prosecution in connection with statements the official made to SEC ethics officers.
The official briefly represented Stanford in 2006 before being told by the SEC ethics office that it was improper for him to do so, Kotz testified.
Kotz said the reforms in the SEC's enforcement and inspections operations that Khuzami outlined may not have yet taken hold at the lower levels of the agency.
"I think that the intention is there," he said. "I think it takes time for a culture to be changed."
Stanford has been in federal prison since his indictment in June 2009 on criminal charges that his international banking business was really a pyramid scheme. He is disputing the charges. He faces a life sentence if convicted.
Kotz's office has also found that the agency bungled five investigations into Madoff's business between June 1992 and December 2008. Madoff's fraud, which could be the biggest Ponzi scheme in history, destroyed thousands of people's life savings, wrecked charities and jolted investor confidence during the worst days of the financial crisis.