More On The Stanford Fraud Case

HOUSTON -- The former finance chief for jailed Texas financier R. Allen Stanford said his boss created a business empire where blood oaths were taken to secure loyalty, bribes were paid from a secret Swiss bank account and investor profits were more fiction than financial genius.

New details about how Stanford allegedly bilked investors out of $7 billion were made public Thursday after James M. Davis, Stanford's former chief financial officer, became the first person to plead guilty in the case.

Davis pleaded guilty in Houston federal court to three counts: conspiracy to commit mail, wire and securities fraud; mail fraud; and conspiracy to obstruct a Securities and Exchange Commission investigation. The plea is part of a deal Davis, who has been helping prosecutors, made with the Justice Department in exchange for a possible reduced sentence.

His plea came hours after Stanford was taken from the privately run prison where he is being held outside Houston to a local hospital with an irregular heartbeat and high pulse. Stanford had been set to appear in the same courtroom for a hearing on whether he can get a new attorney. U.S. Marshals spokesman Alfredo Perez said Stanford was undergoing tests at the hospital but declined to give more details.

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Davis, 60, only made a brief statement after his hearing.

"I did wrong. I'm sorry. I apologize. I take responsibility for my actions," he told reporters outside the courthouse.

But Davis' 23-page plea agreement provided new details of how Stanford's business began; how he, Stanford and others manufactured profits; and how panic set in as they tried to hold off federal investigators who were closing in on their scheme.

Stanford, Davis and other executives of the now defunct Houston-based Stanford Financial Group are accused of orchestrating a massive Ponzi scheme by advising clients to invest more than $7 billion in certificates of deposit from the Stanford International Bank in the Caribbean island of Antigua.

Investors were promised their investments were safe and were scrutinized by Antigua's bank regulator and an independent auditor.

Stanford claimed higher rates of return on his CDS than those offered by commercial banks in the U.S. and consistent double-digit returns on his bank's investment portfolio.

But Davis said in the court documents that the bank's balance sheets were made up and the work of "reverse engineering."

"Stanford was insistent that (the bank) appear to show a profit each year. Stanford and Davis would collaborate to select a false revenue number ... Stanford, Davis (and other conspirators) would then use the 'budgeted' numbers to develop falsely inflated revenue numbers which would be claimed as the 'actual' revenue numbers to generate the desired Return on Investment," according to the plea agreement.

Asked why Davis defrauded investors for years, David Finn, his attorney, said it was greed.

To protect his scheme, Stanford paid more than $200,000 in bribes, as well as $8,000 for two tickets to the Super Bowl in Houston in 2004, to Leroy King, the former chief executive officer of Antigua's Financial Services Regulatory Commission or FSRC.

King has also been indicted with Stanford and is awaiting extradition to the United States.

Davis said Stanford secured King's loyalty in a most unusual way.

"Sometime in 2003, Stanford performed a 'blood oath' brotherhood ceremony with King and another employee of the FSRC ... This brotherhood oath was undertaken in order to extract an agreement from both King and the other FSRC employee that they, in exchange for regular cash bribe payments, would ensure that the Antiguan bank regulators would not 'kill the business' of" the bank," according to the plea agreement.

Stanford had Davis get the bribe money from a secret Swiss bank account that was funded by investors' money. The account was also used to make bribes to the bank's outside auditor.

When the U.S. Securities and Exchange Commission began investigating Stanford's bank and contacted King by letter in 2005 and 2006 about its probe, Stanford and others in his company helped King write false and misleading response letters.

"King appeared very stressed. King related that he had again been contacted by the SEC. King asked Davis if 'we were going to make it?' which meant whether the fraud they had been engaged in was going to be exposed. Davis informed King that he thought they were going to be OK," according to the plea agreement.

By mid-2008, Stanford, Davis and other conspirators were "desperately seeking a fraudulent mechanism whereby they could artificially inflate (the bank's) assets" and hide that Stanford had used $2 billion of investor money to make loans to himself, said the plea agreement.

They came up with a bogus real estate deal that falsely inflated a $65 million real estate sale in Antigua into a $3.2 billion bank asset.

By January 2009, the SEC had served subpoenas to Davis, Stanford and other executives about the bank's CD investments.

In February, Davis, Stanford, company lawyers and other executives met in Miami to discuss testimony that Chief Investment Officer Laura Pendergest-Holt and another executive would give to the SEC. At that meeting, Davis revealed that 80 percent of the bank's investment portfolio was made up of grossly overvalued real estate and of $1.6 billion in loans to Stanford, meaning the bank was insolvent.

Stanford at first said the bank had more assets and liabilities but later in private "acknowledged that (the bank's) assets and financial health had been misrepresented to investors and were overstated in (the bank's) financials," according to the plea agreement.

Davis faces up to 30 years in prison when he is sentenced. While a sentencing date of Nov. 20 was set, Finn said he believes that will be delayed.

As part of his plea agreement, Davis was also ordered to forfeit $1 billion in proceeds he made from his illegal actions, although there's little hope Davis can ever retrieve the funds.

Finn said authorities have seized all his client's assets and Davis, who had made between $5 million and $6 million in the last decade, is broke and now doing manual labor on a relative's farm in Michigan, making $10 an hour.

Hittner postponed a hearing scheduled for Thursday in which he would hear arguments about Stanford's legal representation. DeGuerin has asked for permission to quit the case because he doesn't have assurances he will be paid.

Stanford was considered one of the richest men in the U.S. with an estimated net worth of more than $2 billion. But he claims he is now penniless.

Stanford, along with three former company executives, have pleaded not guilty to various charges, including wire and mail fraud, in a 21-count indictment issued June 18. Stanford has been jailed without bond since then, considered a flight risk by Hittner.

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Close To $7 Billion Still Missing In Stanford Bak Scandal

Stanford Receiver Seeks Clawback of Investor Funds (Update1)
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By Laurel Brubaker Calkins and Andrew M. Harris

July 17 (Bloomberg) -- Ralph Janvey, the receiver for companies run by accused con man R. Allen Stanford, sued five investors seeking the return, or so-called clawback, of millions of dollars from some of the Texas financier’s investors.

Janvey filed papers this week in federal court in Dallas that seeks to recover more than $3 million in proceeds he says they received from certificates of deposit purchased from Antigua-based Stanford International Bank. Janvey didn’t accuse the investors of having done anything wrong.

“In fraud cases such as this, where investors’ funds are commingled, all defrauded persons are similarly situated with respect to those who perpetrated the scheme and are to be treated equally with respect to the ultimate distribution” of any money recovered from Stanford’s estate, Janvey’s lawyer Kevin Sadler said in the complaints, which were filed in Dallas federal court.

The U.S. Securities and Exchange Commission and federal prosecutors accuse Stanford, several of his top executives and three of his companies of running a “massive” Ponzi scheme that offered investors “improbable if not impossible” returns by repaying early depositors with funds taken from later depositors.

Janvey’s lawsuit cited a U.S. Supreme Court ruling in the original Ponzi case that found “equality is equity” when dealing with “equally innocent victims.”

“Allowing some innocent investors,” such as the five being sued in this clawback action, “to keep proceeds from the fraudulent scheme when other investors received none, would violate this principle,” Sadler said.

Janvey said he’s identified roughly $1 billion in cash and equivalents in Stanford bank accounts and roughly $650 million in the financier’s private-equity portfolio, which will be far short of what’s needed to repay holders of $7.2 billion in open certificates of deposit at the Antiguan bank.

Stanford has denied all wrongdoing and is fighting criminal charges that could imprison him for life, if he’s convicted. He is in jail in the Houston area awaiting trial.

The case is SEC v. Stanford International Bank, 3:09-cv- 00298-N, U.S. District Court, Northern District of Texas (Dallas). The criminal case is U.S. v. Stanford, H-09-342, in the U.S. District Court, Southern District of Texas (Houston). The investor clawbacks case is Janvey v. Jim Letsos, 3:09-cv- 01329-P, U.S. District Court, Northern District of Texas (Dallas).

To contact the reporters on this story: Laurel Brubaker Calkins in Houston at laurel@calkins.us.com; Andrew M. Harris in Chicago at aharris16@bloomberg.net.

Last Updated: July 17, 2009 15:29 EDT

Another Side of the Robert Allen Stanford Case

Antigua sued by Stanford 'victims'
By Sheila McNulty in Houston and Stacy-Marie Ishmael in,New York
Published: July 14 2009 03:00 | Last updated: July 14 2009 03:00
A group of plaintiffs identifying themselves as "victims" of Sir Allen Stanford's alleged $7bn Ponzi scheme yesterday filed a $24bn lawsuit against the government of Antigua, where the bank at the epicentre of the alleged fraud was based.

The complaint, filed in federal court in Houston, alleges that the government of the twin-island nation "became a full partner in [the] fraud".

The US government has accused Sir Allen of defrauding investors through so-called certificates of deposits issued by Stanford International Bank, based in the Antiguan capital of St John's.

Sir Allen has extensive business and personal ties to the island, of which he is a citizen.

"Antigua worked tirelessly to protect and nurture Stanford's criminal enterprise and, in return, eagerly accepted its share of criminally procured funds," attorneys for the plaintiffs claimed in the filing.

"Stanford stuffed Antigua's coffers - and its officials' pockets - with money stolen from unsuspecting customers throughout the United States, Canada, Central America, South America and elsewhere."

This month, US officials accused Leroy King, a former top Antiguan financial regulator, of accepting thousands of dollars in bribes and of turning a blind eye to the alleged fraud.

Mr King is currently under house arrest in Antigua, while Sir Allen, who has denied all the allegations against him, is in custody pending trial.

Representatives of the Antiguan government could not be reached for comment.

Another defendant in the Stanford case - James Davis, former chief financial officer of Stanford Financial Group - yesterday pleaded not guilty to criminal charges related to the alleged fraud at the group.

However, his lawyer, David Finn, confirmed that Mr Davis planned to enter a formal guilty plea within two weeks in a deal with the authorities.

Under US law, victims must be notified of any deal before it can be accepted by the courts.

"This thing was smoke and mirrors and duct tape for at least the last 15 years," Mr Finn said.

Mr Davis, the second-highest ranking executive at the group, has been charged with conspiracy and fraud.

He remained subdued throughout the proceedings and spoke softly in the small and tightly packed court room.

Mr Finn told the court Mr Davis had co-operated with prosecutors for several months, meeting last week alone with the Federal Bureau of Investigation, Internal Revenue Service, the Department of Justice and the Securities and Exchange Commission.

Mr Davis was released on a $500,000 bond, requiring a $5,000 cash deposit. He had to surrender his passport.

Mr Davis, 60, waived his right to a grand jury hearing to decide whether there was probable cause to bring the charges against him, signalling his plans to co-operate with prosecutors.

Sir Allen Stanford has been charged on 21 counts including fraud and obstruction to which he has pleaded not guilty.

www.ft.com/stanford

Copyright The Financial Times Limited 2009

Houston's US District Courts Where Facism Is Alive And Well

Robert Allen Stanford is being held without bail because he was considered a flight risk by US District Judge David Hittner. In all other major white collar fraud cases, the defendants have been granted bail. If we look objectively at people who have been able to escape a major Federal indictment and got to another country and live successfully, two names comes to mind in recent history; Osama Bin Laden and Kobe Alexander who now resides in Namibia. Kobe is free and lives in a luxury home. His wife sleeps with him every night. He eats good and belongs to the country club. But he is also a prisoner who cannot leave this dessert kingdom or he will be arrested by the US. One Bulgarian on bail broke free from his electronic monitoring system and disappeared for now. Several other high-profile white collar criminals made attempts at escape and were caught quickly.

Robert Allen Stanford knew he was in trouble way back in December, 2008. He had six aircraft at his disposal then including corporate jets. He had $100 million US in a Swiss bank account. He had a second passport. He could have easily vanished. Instead he stayed right in the US. When the Securities and Exchange Commission lawsuit was filed and he was served by the FBI with the suit, he surrendered his passport without prompting. He made several attempts to surrender to authorities before his actual arrest.

The Federal Courts in Houston are famous for brutal prison sentences and right-wing fascist judges whom Hitler would have been glad to appoint to the Nazi judiciary. What we are seeing is the viciousness of this bureaucracy taken to its zenith. These same judges routinely "rubber stamp" death penalty cases and allow the state of Texas to carry out more executions than any other state in the US. Let us hope that the Fifth Circuit Court of Appeals reverses Judge Hittner and lets Robert Allen Stanford have his constitutional right to a presumption of innocence until proven guilty and bail.

My readers Robert Allen Stanford is being used a s a scapegoat to take attention away from all of the criminals on Wall Street who destroyed the world economy.

US hard line over risk of flight keeps Stanford hands tied
By Stacy-Marie Ishmael and Joanna Chung in New York,,Brooke Masters in London and Sheila McNulty in Houston
Published: July 11 2009 03:00 | Last updated: July 11 2009 03:00

Sir Allen Stanford, who is accused of operating a $7bn Ponzi scheme, has spent the past three weeks handcuffed, shackled and confined to a cell at a detention centre 48 miles north of Houston, Texas.

While awaiting trial on charges ranging from securities fraud to bribery, Sir Allen, sporting a bright orange suit, has only been allowed to speak to visitors - including his attorneys - through a protective glass barrier, under the watchful eyes of prison wardens.

It is a departure from his life as a tycoon, replete with private jets, yachts and wine cellars stocked with rare vintages.

But it is unusual because Sir Allen is a white-collar defendant.

It is routine in some prisons for people awaiting trial on charges involving violent crimes to be held in very restrictive conditions.

But most white-collar defendants have been allowed to remain free pending trial, as were the chiefs of WorldCom, Enron and Tyco.

Unlike most pre-trial detainees, Sir Allen is being kept in custody not because he is considered a danger to the community - a category that would justify physical restrictions - but because a US judge ruled that the businessman, who had many passports and residences around the world, posed a flight risk.

"Stanford has the motive, means and opportunity to leave the United States prior to trial," prosecutors argued in court documents.

They pointed to Sir Allen's "extensive international business and social contacts", his "access to huge sums of money" and the likelihood that, if convicted, he would face extensive prison time.

The closest parallel to Sir Allen's case could be high-stakes espionage cases, in which the defendants are generally highly educated with no history of violence, but are seen as flight risks.

They are traditionally kept behind bars pending trial and have a similar need to meet with their attorneys.

In several cases in the 1990s, the defendants were permitted to meet their attorneys in person without handcuffs.

For Sir Allen, however, this has not so far been the case, according to his attorney, Dick DeGuerin.

He said in court documents filed this week that "draconian" conditions prohibited any "effective and meaningful consultation" with his client.

Mr DeGuerin claimed that the visitation booth at the Joe Corley Detention Center forbade contact with his client and prohibited the passing of documents without the intervention of at least two guards to carry the papers from one side of the booth to the other.

While special arrangements may be made for a "contact visit" in a room with table and chairs, Mr DeGuerin said that he had been allowed only one such visit. Even then, Sir Allen was "shackled hand and foot - and the handcuffs shackled to his waist - thus making his review and signing of papers very difficult".

Lawyers and experts not involved with the case agree that Sir Allen is at a disadvantage in helping prepare his defence.

"Especially in a case like this where you have such complex financial transactions, it essentially becomes the white collar defendant's full-time job to go through documents,'' said Peter Henning, professor at Wayne State University Law School.

The court could yet determine conditions that would permit Sir Allen's release, other lawyers said, including restricting his movements to one county and forcing him to wear an electronic monitoring device.

But Philip Hilder, who represented Enron whistleblower Sherron Watkins, said: "Unfortunately for him, it's a very high-profile case, and the government has taken a hardline stance.''

Coming on the heels of the Madoff fraud, officials are sensitive to the public scrutiny that is likely to accompany Sir Allen's case.

Mr Henning said: "You get one shot at a defendant like this. If he flees, you are never going to get him back.''
Posted by ohomen171 at 7/11/2009 10:23:00 AM 0 comments
Labels: Robert Allen Stanford