Responding to complaints that the SEC did not act quickly enough to shut down Stanford's alleged $7 billion fraud, the SEC watchdog found that the agency did not breach its obligations to vigorously pursue the case.
In February, the SEC charged Stanford and three of his companies with fraudulently selling billions of dollars in certificates of deposit with improbably high interest rates.
The charges came about two months after it was revealed that Bernard Madoff orchestrated a multibillion dollar Ponzi scheme in which earlier investors were paid with money from newer investors. The SEC has been chastised for missing Madoff's fraud.
Inspector General David Kotz, who has issued damning reports on the SEC, said the agency's investigation was also hurt by a lack of cooperation from Stanford's counsel, certain jurisdictional obstacles and several individuals at Antigua's Financial Services Regulatory Commission.
After April 2008, when SEC staff referred their concern that Stanford might be running a Ponzi scheme out of Antigua to the Department of Justice, the SEC effectively halted its investigation at the justice department's request, the report said.
But right after Madoff's Ponzi fraud was revealed in December 2008, the Stanford probe became more urgent for the SEC, the report said.
The SEC said: As the DOJ prepared to proceed, the SEC ensured that its ongoing activities did not interfere with DOJ's criminal investigation of Stanford International Bank's CD offerings.
In consultation with DOJ, the SEC continued to talk with witnesses and review documents and other evidence already in its possession, agency spokesman John Nester said in a statement.
Senator David Vitter, who made the request to the agency's inspector general, said it is clear that there was some sort of stand down order issued by the DOJ.
Vitter said the SEC did continue to investigate the Stanford group until it was told by the FBI that the SEC's probe might compromise the preliminary FBI investigation.
Kotz is due to release a report on how the agency mishandled the Madoff case in August.