Assistant U.S. Attorney William Stellmach made that claim today while questioning the adviser, Michelle Chambliess, on the first day of testimony at the federal courthouse in Houston.
Chambliess said she was one of Stanford’s first hires in 1987, at Guardian International Investment Services, a U.S.- based sibling of Stanford’s Montserrat-based Guardian International Bank Ltd. Guardian was the precursor to Stanford International Bank Ltd., the Antiguan entity at the heart of Stanford’s alleged $7 billion fraud.
Stanford told her he’d obtained insurance for the bank from a carrier called British Insurance Fund Ltd., which appeared to be an independent U.K.-based company.
“Did he ever tell you it was a shell company he had set up?” Stellmach asked.
“No,” Chambliess replied.
‘Any Difference’
“Would that have made any difference to you?” he asked.
“Absolutely,” she said. “Then there wouldn’t be insurance.”
The Guardian bank later moved to Antigua, where it was renamed. Stanford is charged with wire fraud and mail fraud, crimes that carry maximum sentences of 20 years in prison, as well as obstruction of an SEC investigation. U.S. District Judge David Hittner has said the trial may last about six weeks.
Stanford, 61, told the jury yesterday he isn’t guilty. Today, wearing a double-breasted navy suit and a light blue shirt, he occasionally pursed his lips and shook his head as he watched his ex-employees testify against him.
The bank’s offshore location made it a tax haven for depositors and removed it from U.S. regulatory oversight and the backing of the Federal Deposit Insurance Corp., Chambliess testified. Its money-market accounts and certificates of deposit offered higher rates of return than those of banks required to comply with U.S. reserve regulations and tax laws, she said.
Fired in 2002
The financial adviser said she was fired in 2002, after working for Stanford for almost 15 years, when she lost her three largest clients and her CD sales dropped. By that time, she said, she had already started circulating her resume because Stanford had told her to “do whatever you need to do” to land a client.
That advice left her “flabbergasted,” she testified.
Chambliess told the court she learned that Stanford and some of his businesses borrowed money from the bank from a disclosure in Stanford’s 1996 annual report. She said she was surprised by the loans, as Stanford had promised investors and employees that the bank didn’t make commercial loans and invested solely in high-grade liquid assets.
The document said the financier personally borrowed $13.5 million while two affiliated companies borrowed an additional $11 million. When she asked about the loans, Chambliess said Stanford replied that he’d guaranteed the loans with his own liquid assets “and there was no risk” it wouldn’t be repaid.
Annual Report
The ex-employee said a disclosure in the company’s 1998 annual report indicated Stanford repaid the personal loan in full, along with $480,000 interest.
She said there were no subsequent disclosures of lending to Stanford or any of his companies and that financial advisers weren’t told Stanford continued to invest depositor funds in outside ventures ranging from regional airlines to newspapers.
Employees believed “the bank’s money stayed at the bank” in the conservative, highly liquid portfolio advertised to investors, Chambliess testified.
Under questioning by defense lawyer Ali Fazel, Chambliess said the Caribbean bank was subject to different international accounting standards than what U.S. companies are required to follow.
Under the international rules, Fazel said, the bank didn’t need to disclose its loans to Stanford and his companies.
Key Theme
Fazel revisited a key defense theme with Chambliess, that none of Stanford’s investors lost money until U.S. regulators seized his operations and destroyed their value.
“Was there anybody who did not get paid their money when the CDs were due?” Fazel asked Chambliess.
“Not while I was there,” she replied.
Leonel Mejia, who Stanford hired to head a captive advertising and marketing business called Idea Advertising in 1988, testified he was asked by James Davis, chief financial officer of the securities brokerage Stanford Group Co., to alter the coverage dates of an expired copy of a British Insurance Fund document.
Mejia said he declined to do so because he believed he was tampering with a legal document. Davis asked Mejia if he’d make the changes with permission from the owner of the British insurer. When he agreed, Davis and Stanford showed him papers indicating Stanford owned the insurance company, Mejia said.
CD Rates
Mejia, an El Salvador native, also testified that Stanford purposely set his bank CD rates two to four percentage points higher than U.S. rates to attract investors willing to forgo FDIC insurance on their deposits to get a better return.
“He said that people were willing to risk their money for 2 percent, they’re greedy,” Mejia said. “It was not very respectful to his clients, in my opinion.”
Mejia also testified that Stanford and Davis changed numbers in the bank’s 1988 annual report using a handheld calculator. The bank’s auditor in Antigua signed off on the revised numbers by fax 15 minutes later.
“It took me more time to do my checkbook,” Mejia said of the auditor’s rapid approval. “I thought that was quick.”
Questioned by Fazel, Mejia said he didn’t know if Stanford and Davis were consulting with the auditor and accountants in another room when they changed the annual report numbers.
“You’re speculating and guessing about everything, aren’t you,” Fazel asked Mejia. While disagreeing with that assertion, Mejia conceded that his knowledge of Stanford’s financial empire was limited.
The case is U.S. v. Stanford, 09-cr-342, U.S. District Court, Southern District of Texas (Houston).
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