Allen Stanford’s trial on allegations that he led a $7 billion fraud scheme will begin in January 2011 in Houston federal court, U.S. District Judge David Hittner ruled.
Stanford’s lawyer, Kent Schaffer, had asked Hittner not to begin the trial until the summer of 2011. He said if defense lawyers have to proceed without resources provided by Stanford’s insurance policies, it could take as long as two and a half years to properly prepare for trial.
“The criminal case is going to get underway and it’s going to go on schedule,” Hittner said. “That is a solid date.”
Hittner convened a hearing over a request by Stanford and his co-defendants for a preliminary injunction forcing Lloyd’s of London to advance them defense costs. Lloyd’s lawyer called Stanford and his three co-defendants to testify at today’s hearing to the truth of facts alleged in the indictment, the regulatory case complaint and the receiver’s forensic report into Stanford’s financial services empire.
Each of the defendants declined to take the stand, through his criminal attorney, on the basis of the constitutional right against self incrimination.
Hittner questioned why Lloyd’s would ask the defendants about the alleged criminal acts under oath, since they have already pleaded innocent.
“If they plead the fifth, we get an inference that the answer would be favorable to us,” said Barry Chasnoff, a lawyer for Lloyd’s, referring to the Fifth Amendment to the U.S. Constitution.
Waiting for Ruling
Stanford must wait to learn if Hittner will order Lloyd’s to fund his defense, under directors and officers policies which Chasnoff said are worth about $100 million. Hittner allowed Lloyd’s and the Stanford defendants to present evidence and argument on whether the underwriters may refuse to pay the defense lawyers.
Hittner today deferred ruling on a request by Stanford and three co-defendants for an injunction barring the underwriters from voiding the insurance because a colleague who pleaded guilty said there was criminal activity at Stanford Financial Group Co.
The Stanford defendants, whose assets have been frozen by a court order in a related case, say they can’t afford lawyers without the Lloyd’s proceeds.
Stanford and the other executives in June were indicted by a U.S. grand jury on charges they ran a Ponzi scheme based on the sale of certificates of deposit through Antigua-based Stanford International Bank Ltd.
Prosecution
Stanford deceived investors about the nature of the investments and their oversight, while using money taken from later depositors to repay earlier ones, prosecutors said.
The financier, along with Chief Investment Officer Laura Pendergest-Holt and two other company officials, have denied the allegations.
Stanford appeared today in court in wearing green prison clothing and a salt-and-pepper beard. He was not in leg irons and guards loosened one handcuff during the hearing. Stanford did not speak to but glanced often at family members packed into the first row of the gallery. Spectators included his mother and father, his fiancé, his adult daughter, and a former girlfriend and her two children with Stanford.
Stanford Financial Group Chief Financial Officer James M. Davis in August pleaded guilty to three felony counts. Based on admissions in his plea agreement, attorneys for Lloyd’s last month told Hittner they were no longer obligated to pay for the legal defense of the remaining executives.
Felony Counts
Stanford faces 21 felony counts as well as parallel civil claims by the U.S. Securities and Exchange Commission, which sued him in Dallas and obtained a court order there freezing his assets.
While a criminal defendant who lacks money for a lawyer may have an attorney appointed by the court, there is no such provision for civil lawsuits. The loss of Lloyd’s coverage could leave Stanford without the ability to pay for counsel in the SEC case.
The court, not the insurer, should decide whether one defendant’s guilty plea can invalidate coverage for them all, attorneys for the executives have argued in court filings.
“Underwriters unilaterally have acted as both the judge and jury by concluding that their insureds are guilty and thus not entitled to the contractual protections afforded by the policies -- including the right to have their defense funded by the very policies purchased to provide such protection,” Lee H. Shidlofsky, a lawyer for the executives, said in a Dec. 14 court filing.
Economic Risk
“While plaintiffs’ constitutional rights and ability to defend themselves are in danger, the risk for underwriters is strictly economic,” said the attorney, a partner at Visser Shidlofsky LLP in Austin, Texas.
Lloyd’s countered that it was within its rights to exclude coverage for criminal activities.
“The D&O policy makes clear that underwriters did not intend to insure a criminal enterprise,” Neel Lane, a lawyer for Lloyd’s, said in Dec. 15 filing.
Today Shidlofsky said that if Lloyd’s doesn’t pay the legal fees, “it’s going to fall on the taxpayers. That is a significant chunk of change to saddle taxpayers with.”
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