Friday 3 February 2012

Allen Stanford Conspired in Investment Fraud, Former CFO Davis Testifies

By Laurel Brubaker Calkins and Andrew Harris - Feb 2, 2012

James Davis, the former Stanford Financial Group Co. finance chief, testified as a government witness that R. Allen Stanford, the company founder, conspired with him in an investment fraud.

Davis, 63, pleaded guilty to three felony charges in August 2009 and agreed to cooperate with prosecutors. He testified today against his former boss and Baylor University roommate at Stanford's criminal trial in federal court in Houston.

Assistant U.S. Attorney William Stellmach asked Davis if he committed any crimes at Houston-based Stanford Financial Group.

"Yes, sir, I did," he replied.

Stanford, 61, is accused of leading a $7 billion investment fraud scheme. He maintains he's not guilty of the 14 criminal counts he's charged with. They include mail fraud, wire fraud and obstructing a U.S. Securities and Exchange Commission investigation.

Jury selection before District Judge David Hittner began on Jan. 23. Lawyers for both sides delivered opening statements to the jury the next day.

Stanford's lawyers have argued that while their client was the public face of the organization, he was misled about its financial health by Davis and other executives.

Davis pleaded guilty to conspiring to commit mail and wire fraud, mail fraud and conspiring to obstruct the SEC probe. He told the jury today he faces as long as 30 years imprisonment.

"My obligation is to tell the truth," Davis said of his plea deal with prosecutors.

30-Year Relationship
Dressed in a dark suit and a silver tie, Davis testified in a quaking voice about his association of more than 30 years with Stanford. The financier leaned forward at the defense table and stared at his former colleague.

Davis testified that he lied about financial statements of Stanford International Bank Ltd., the Antigua-based financial institution prosecutors say sold fraudulent certificates of deposit to investors.

"I lied about overstating the value of these investments, and I lied about the nature of these investments," he said.

"Who conspired with you to commit those crimes?" Stellmach asked.

"Mr. Allen Stanford and others," Davis said.

Stellmach asked why Davis agreed to lie about overseeing the bank's professional money managers, who weren't under his supervision.

'I Was Greedy'
"I wanted to please Mr. Stanford," he said, his voice choked. "I was proud, embarrassed. I was a coward."

Also, he said, "I was greedy."
He described Stanford's management style as that of a "charismatic dictator."

"In his charismatic way, he controlled by money, flattery, intimidation and fear," Davis said. "He used to say it is much better to be feared as a leader than loved -- get better results."

Davis said he was well paid while working for Stanford. He also said the financier at one point refused to speak with him for three months.

Stanford once invited him for a ride in his new Mercedes Benz, he said.

"We went 170 miles per hour down the freeway," Davis said. "Scared me to death. He paid well, flattered you, instilled intimidation and fear."

'Short Hop'
Davis told the court he realized the enterprise was engaged in fraud as early as 1991 when Stanford asked him to fly to London for the sole purpose of faxing proof of insurance to a wealthy investor.

The coverage had been issued by British Insurance Fund Ltd., which Davis said he then learned was a company created by Stanford to furnish insurance to the Antiguan bank.

Its U.K. office consisted of a 10-foot-square cubicle in an London administrative services suite, furnished with a desk, chair and fax machine, Davis said, recalling his journey to fax the document from the otherwise empty office and then return to Houston.

Stanford "told me he hated to ask me to go for such a short hop but it was necessary," Davis said. "After that, I knew it was a fraud."

In early 1992, Davis said he began having frequent conversations with Stanford about where the bank's assets were, because there was a gap between what was owed depositors and the amount in the investment portfolio.

'Close That Hole'
"Mr. Stanford told me that there was value there and the bank was going to grow and dwarf this small amount that was so- called missing," Davis testified. Stanford said his plan was to rapidly increase CD sales and "grow out of the hole."

"Brother, it's going to work, we're going to grow this bank, and close that hole," Davis said Stanford reassured him.

Davis said that during these conversations he took to shuffling across the floor with his wrists clasped in front of him, mimicking someone in handcuffs and shackles. "I wanted him to know that what we're doing is going to have consequences, and those aren't good consequences," Davis said.

Stanford would sometimes laugh off his finance chief's concerns, telling him, "I'll tell them you were on the books and I was out building my companies,'" Davis told jurors. "I'll just blame it all on you.'"

Stellmach asked why he didn't leave when his "years of suspicions" that the bank was engaged in fraud were confirmed.

'I Believed'
"I believed in Mr. Stanford - wrongfully so, regrettably so, God forgive me so," Davis replied. "But I continued to stay there and lie with him."

Davis said he never even told his wife that he knew the bank was engaged in fraud.

By the time U.S. securities regulators seized the bank in February 2009, Davis said he was earning more than $900,000 in yearly base salary, with an additional $850,000 in personal loans Stanford had approved from the bank.

Davis also said Stanford, after moving his bank from Montserrat to neighboring Antigua, took a "blood oath" with that island's top banking regulator, Leroy King, to "codify" an agreement to shield the bank from scrutiny.

"Mr. Stanford said they actually cut themselves and had a blood oath," Davis testified.

After the remark, Stanford raised his eyebrows, looked down at his notes and shook his head.

Davis also said Stanford made large contributions to both political parties in Antigua and loaned the island's government $40 million. Antigua hasn't yet repaid the debt, he said.

The case is U.S. v. Stanford, 4:09-cr-00342, U.S. District Court, Southern District of Texas (Houston).

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