By Laurel Brubaker Calkins and Andrew Harris - Jan 26, 2012
R. Allen Stanford, standing trial on allegations he led a $7 billion investment fraud, appeared in an October 2008 video shown to his jury decrying “damn greed” on Wall Street as the financial crisis deepened.
“People are stupid, they’re greedy, they’re lazy, they don’t stick to their core values,” he told a gathering of Stanford Financial Group Co. executives in Miami. “We’re different.”
In the video, shown today in Houston federal court, the financier told his audience that the company was “$5.5 billion more liquid than it should have been.” Four months later, U.S. regulators sued Stanford claiming his businesses were missing billions of dollars in investor money. He was indicted in June 2009.
Charged with mail fraud, wire fraud and obstructing a U.S. Securities and Exchange Commission probe, Stanford, 61, told jurors earlier this week that he isn’t guilty. He faces as long as 20 years in prison if convicted on the most serious charges.
U.S. District Judge David Hittner, who is overseeing Stanford’s case, said the trial, which began Jan. 23, could last six weeks.
Earlier today, the former president of Stanford Group Co.’s private client group testified about a monthly newsletter Stanford drafted for his investors and sent to him for his input in December 2008, the month that New York money manager Bernard Madoff confessed to the biggest Ponzi scheme in U.S. history.
‘Exposure’ to Madoff
“We want our depositors to know that SIBL had no direct or indirect exposure to any of Madoff’s investments” or to subprime debt,’’ said Jason Green, read from the newsletter.
Green also read to the jury the text of an e-mail message he sent to Stanford and to Stanford’s chief financial officer, Jim Davis, less than a week before the SEC filed suit and put him out of business. Davis is the Stanford finance chief who has pleaded guilty to the scheme and is expected to testify against Stanford.
In the e-mail, Green urged the men to hire a major accounting firm as the Stanford business auditor, replacing a sole practitioner in Antigua, to publish a validation of its asset values by their custodians, and to hold a conference call or town meeting with Stanford investors to provide transparency in the “trust-but-verify” post-Madoff era.
‘Antiguan Madoff’
Green in that e-mail referenced news articles accusing “Sir Allen of being the Antiguan Madoff,” adding that he and other managers believed that absent taking the steps he’d outlined, “We would not have a business to defend.”
Asked by prosecutor William Stellmach whether Stanford responded, Green said, “The silence was deafening. No.”
Earlier today, Green testified that Stanford structured commissions at his securities brokerage to reward members of his sales force who sold the most certificates of deposit issued by his Antigua bank.
Those CDs are at the heart of U.S. government charges that Stanford orchestrated an investment fraud scheme.
Brokers who had quarterly sales of at least $1 million in CDs in excess of any funds clients withdrew during the period earned bonuses and commissions twice as big as those paid to employees who didn’t, Green said. Those who fell short of that target were dropped to the lowest compensation rate.
‘Reward Growth’
“You’d only get 50 percent of what you’d make,” Green testified today. He said he understood Stanford designed the compensation system “to reward growth” in CD sales, an objective the financier often emphasized in capital letters in company memos.
Dressed in a charcoal-gray suit and blue shirt, Stanford watched and took notes as Green, a former top aide, answered the prosecutor’s questions and read from documents shared with the jury.
Green told jurors that while he hasn’t been criminally charged for his role in the alleged scheme, he has been sued by former brokerage clients on claims of negligence for recommending the CDs.
Green said the receiver appointed in a lawsuit filed against Stanford by the U.S. Securities and Exchange Commission also sued him, seeking to recover those bonuses and commissions he earned selling the CDs.
‘Taking Some Risk’
“I’m taking some risk in testifying, but I feel that it’s the right thing to do,” Green said under questioning by Stellmach. “That’s why I’m here.”
Stanford first began selling his Caribbean bank CDs to U.S. citizens around the time Green joined the company in 1996. Previously, the CDs were only sold to non-American citizens to limit the Antiguan bank’s exposure to U.S. regulations and oversight, Green said.
Stanford’s CDs paid as much as 4.5 percentage points higher interest than comparable CDs issued by American banks, Green said, based on what employees were told were consistent double- digit earnings by the bank’s “globally diversified portfolio.”
“The bank was earning on average a 6 percent spread on what it was paying clients and earning, so they could afford to pay the clients a higher rate,” the one-time branch manager testified. Advisers were told the bank’s portfolio consisted largely of marketable securities that could be converted to cash “very quickly; that was one of the big selling points of the bank in terms of mitigating risk” to investors’ money, he said.
13 Years
Green said that during his 13 years at Stanford’s company, about 3 percent of the bank’s investment portfolio was managed by analysts in Stanford’s office in Memphis, Tennessee, while the rest was handled by a team of European money managers.
Prosecutors accuse Stanford of skimming more than $1 billion in investor deposits to fund a lavish lifestyle and support a wide array of real estate developments and unrelated companies ranging from regional airlines to newspapers.
The financier is also accused of deceiving employees and investors about the extent to which he personally managed the bank’s investment portfolio. The government claims Stanford and the company’s finance chief managed about 90 percent of the bank’s funds, which prosecutors told jurors Stanford treated “like a personal piggybank.”
Green testified that he would have been concerned to learn that Laura Pendergest Holt, the firm’s chief investment officer, wasn’t overseeing all of Stanford’s investment portfolio as he’s been told by “Mr. Stanford, Mr. Davis, everyone that was affiliated with the bank that was in a position to know.”
“You wanted to know that somebody was managing the managers,” Green said. Pendergest Holt told him “maybe two or three days before the FBI and the receiver shut us down” that she managed just a fraction of the bank’s portfolio.
Regional Teams
Stanford organized brokers into regional teams that competed to sell the most CDs every quarter. Team names ranged from the Miami Money Machine for Stanford’s top producers in South Florida to the Aztec Eagles for his Mexican operation. Prosecutors showed jurors a scorecard that Green said showed sales by these “superstars” were as much as $323 million in 2006, which was 110 percent of their goal.
Green said Stanford clearly ran the company, in his opinion. He recalled an instance where Stanford heatedly objected to a decision made by Davis.
“‘I don’t know who Jim Davis thinks he is,’” Green said he remembered Stanford shouting. “‘This is my company.’ I know that he talked to Mr. Davis about it, and I’m sure he gave him an earful. Mr. Davis wasn’t very nice to me for some time” after the incident.
The criminal case is U.S. v. Stanford, 09-cr-342, U.S. District Court, Southern District of Texas (Houston). The SEC case against Stanford is Securities and Exchange Commission v. Stanford International Bank, 09-cv-298, U.S. District Court, Northern District of Texas (Dallas).
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