By Laurel Brubaker Calkins
Feb. 17 (Bloomberg) --
R. Allen Stanford left daily operating decisions to his finance chief, who volunteered to "lay himself off" for a $650,000 lump-sum pay out as regulators were closing in on the company in February 2009, a former manager testified.
"We were in the midst of a crisis, and I told him it would look strange if we lay off our global CFO," Joan Stack, former global human resources manager at Stanford Financial Group, said she told finance chief James M.
Davis. "He was the person I felt made the day-to-day decisions."
Davis replied that he would "stay behind the scenes" and continue running the firm, Stack told jurors yesterday in federal court in Houston at Stanford's criminal fraud trial. In exchange for appearing to step aside, Davis asked for an upfront payment of 65 present of his 2009 salary, she said.
Davis made this proposal "at a very fast-moving time" when "cash flow problems" were causing Stanford's firm to cancel 2008 year-end bonuses and lay off half its employees, Stack testified. "We were trying to get to a point where costs would be reduced to the point the organization would survive," Stack said.
Stanford Memo
Stack told jurors that a Stanford memo to employees, sent several days before the U.S. Securities and Exchange Commission seized the company on suspicion of fraud, was done partly at her request. Prosecutors told jurors that the message, which tried to reassure staff the offshore bank remained strong, is the basis of one of Stanford's fraud counts.
"I told him, 'People need to hear from you,'" Stack said. "A lot of people were telling him that. He wasn't visible. He wasn't responding. We told him people are scared, and they need to hear from a leader."
At the time the memo was sent, Stack said, Stanford was often absent and difficult to reach.
"Mr. Stanford would be absent for a month, five or six weeks," she said.
"Then suddenly he'd come in and get hyper- focused on some project. Then he'd just disappear for a few more weeks."
Promoting Cricket
Stack said he appeared more focused on promoting cricket and building a high-end island resort than on running his financial services empire.
"He was very excited, almost like a kid at Christmas," when discussing the island resort project, she said.
Stack testified that Davis and Laura Pendergest Holt, Stanford's investment chief, routinely hired unqualified relatives and fellow church members to staff most positions in the Memphis, Tennessee, research division that oversaw the bank's multibillion-dollar investment portfolio.
"They were family members who had no experience in doing what we'd hired them to do," she said.
Earlier witnesses told jurors that Davis hired one of his farm hands to analyse commodities and his preacher to advise the company on Middle Eastern affairs. Holt also invested about $2 million of the bank's portfolio in a hedge fund run by her husband, a former personal trainer.
Broken Laptops
Prosecutors have said Stanford wasn't an absentee boss and kept in close touch electronically with executives while he travelled.
Sohil Merchant, Stanford's former information technology manager, told jurors under prosecutors' questioning that he replaced the financier's personal laptop computer 20 to 30 times from 2005 to 2008. Merchant said the financier broke his personal laptops so regularly that the technology department maintained a standing replacement order.
Assistant U.S. Attorney Gregg Costa asked Merchant if Stanford destroyed his laptop "through physical abuse, such as dropping it in the water, throwing it against a wall." Merchant said that was his understanding. He said he sometimes delivered the replacements on one of Stanford's private jets.
Jurors watched much of a 30-minute promotional video Stanford created to promote his planned ultra-luxury resort, which he called Islands Club.
Giselle James, the Stanford employee who marketed the project, testified the resort was intended for vacationers who could pay a $50 million initiation fee and $15 million in annual dues for access to 30 villas planned for a private island off Antigua's coast.
Islands Club
Jurors, watching the video without any sound, saw footage of Antigua's lush foliage and pristine beaches intermingled with interviews of New York-based architects who had worked on the project and Antiguan celebrities, including several cricket stars. Prosecutors requested that the sound be turned off to avoid improper influence on the jury.
James testified Stanford had constructed yacht-docking facilities, desalinization plants, a private airstrip and hangar, refuelling facilities and other infrastructure to support his luxury resort. James said a marine research facility was also part of the planned development.
"The prosecution said it was just a dream, but this was real bricks and mortar, wasn't it?" Robert Scardino, Stanford's lawyer, asked James.
"I walked there," James testified. "I saw it."
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