June 25 (Bloomberg) -- R. Allen Stanford, the Texas financier accused of swindling investors in a $7 billion Ponzi scheme, pleaded not guilty to fraud and was returned to jail after winning the right to be released on bail before trial.

Stanford, 59, in handcuffs and wearing an orange prison- issued jumpsuit, entered his plea today before U.S. Magistrate Judge Frances Stacy in Houston during a bail hearing. Stacy set bail at $500,000 and required Stanford to post a $100,000 cash deposit.

Stanford’s lawyer, Dick DeGuerin, said in an interview that his client will likely remain in custody until at least tomorrow afternoon, because it will take time to gather the cash bond, which Stacy said must be contributed by friends and family and not drawn from Stanford’s funds.

“I think he’ll be very motivated not to flee if he raises the money from friends and relatives,” Stacy told lawyers.

Stanford faces charges of conspiracy, fraud, obstruction and money laundering. He’s accused of deceiving investors about the nature and oversight of certificates of deposit sold through his Antigua-based Stanford International Bank Ltd.

Assistant U.S. Attorney Paul Pelletier told Stacy that prosecutors will appeal her decision granting Stanford’s bail request. The judge put her order releasing Stanford on hold until 4:30 p.m. tomorrow in Houston.

Pelletier said after the six-hour hearing that he will file the appeal tomorrow morning.

Vijay Singh

Stacy required Stanford to have three co-signers on his bond: his father and two wealthy family friends. Golfer Vijay Singh, who wore Stanford Financial emblems at the U.S. Open, had agreed to be one of the financier’s co-signers until his status as a resident alien prevented it.

If Stanford posts bail, Stacy required that he be fitted with a GPS monitoring device and released to the custody of his girlfriend, with whom he has rented a high-rise condominium in Houston. Stanford was ordered confined to the apartment, except for church, medical appointments, meetings with his lawyers and court appearances.

The $36,000 yearly rent on the apartment was prepaid by a Stanford acquaintance, Robert Jones.

Jones, who testified today, moved to Houston with his wife and is friends with Stanford’s adult daughter and her fiancee.

“If Mr. Stanford was going to not face this, he would’ve left prior to coming to Houston,” Jones said.

‘Life’s Work’

After meeting with Stanford several times this year, Jones said he decided the financier was committed to his defense. “It was his life’s work,” Jones said. “He was going to stand and fight if it killed him.”

At today’s hearing, Stanford sat calmly at the defense table once the bond portion of the hearing began. He leaned in often to pass notes or whisper in the ear of Sean Buckley, one of his attorneys, and to look at financial statements the government was offering as evidence against him.

More than two dozen Stanford family members and friends filled the first two rows of the courtroom. Those present included at least three of his children, his fiancee, a past girlfriend, his mother and his visibly ailing father.

Jeffrey Ferguson, a forensic accountant, testified about efforts to trace depositor funds transferred out of Stanford International Bank to other entities.

Stanford Records

DeGuerin objected that Ferguson, who worked from records provided by the court-appointed receiver who took over Stanford’s Houston headquarters, may not have access to the organization’s complete records, as many documents could be located in Antigua or elsewhere.

Stacy allowed the evidence to be presented for the bond hearing, taking into consideration DeGuerin’s objections.

Pelletier asked Ferguson if, after tracing depositor redemptions, investments and other normal banking expenditures, there was “still a $1.186 billion hole that you cannot account for.” Ferguson replied there was.

The prosecutor also asked if the accountant had been able to trace the whereabouts of another $100 million withdrawn from Stanford-controlled bank accounts in December 2008. “Not yet,” Ferguson said.

“I object to the characterization to this as a secret Swiss bank account,” DeGuerin said. “This wasn’t a secret bank account. It was known throughout the upper echelons of the company.”

The lawyer gestured to the packed courtroom, where more than two dozen reporters had crowded in, and claimed the government’s testimony was staged for the media’s benefit.

Potential Jurors

“It’s designed to prejudice Mr. Stanford in the eyes of potential jurors that will hear this case,” DeGuerin said.

Under questioning by DeGuerin, Ferguson declined to characterize the case as a Ponzi scheme.

“I haven’t formulated an opinion on that yet,” Ferguson testified. “I can’t tell you one way or the other” with the records identified so far, he said.

During the hearing, DeGuerin argued that forensic accountants haven’t said the missing funds can’t be traced, only that they haven’t had time to do so with the records they have.

“It’s not missing, it’s accounted for,” DeGuerin told Stacy.

Pelletier responded that the case was less complex than the Ponzi scheme run by New York financier Bernard Madoff, who pleaded guilty in March and faces a prison term of as much as 150 years when he is sentenced June 29.

“This is very simple,” Pelletier said. “Mr. Stanford did not do with their money what he promised.”

Antiguan Arrest

Four other people, including a former Antiguan banking regulator accused of taking bribes from Stanford, were indicted with Stanford.

Leroy King, who was chief administrator of Antigua’s Financial Services Regulatory Commission, is accused by U.S. prosecutors of accepting more than $100,000 in bribes from Stanford to ensure his agency didn’t accurately audit the bank’s financial statements or verify its assets.

Pelletier told Stacy today that King was arrested in Antigua and that prosecutors began extradition proceedings to bring him to the U.S.

The U.S. Securities and Exchange Commission in February sued Stanford, James M. Davis, his chief financial officer, and Laura Pendergest-Holt, his chief investment officer, claiming they operated a “massive” fraud scheme. Pendergest-Holt and Davis also face criminal prosecution.

Pendergest-Holt pleaded not guilty today. Her $300,000 bond was continued.

Davis Cooperating

Davis, who is facing separate criminal conspiracy charges, is cooperating with the investigation, his lawyer, David Finn, said in a phone interview last week.

Gilberto Lopez, 66, Stanford’s chief accounting officer, and Mark Kuhrt, 37, global controller, were also charged in the criminal indictment. They pleaded not guilty today and their $100,000 bonds were continued.

DeGuerin said he will need a year to prepare Stanford’s case for a trial that he anticipates will last six months.

“We’re just barely into it,” DeGuerin told Stacy. “There are records from all over the world. Even the government doesn’t have all the records. This is a massive case.”

As he was led from the courtroom today, Stanford looked around for his fiancee, who was signing court papers.

“Honey, I love you,” he said. “I’ll get my clothes out of the jail tonight so I can come back tomorrow.”

The criminal case is U.S. v. Stanford, H-09-342, U.S. District Court, Southern District of Texas (Houston). The SEC case is SEC v. Stanford International Bank, 3:09-cv-00298-N, U.S. District Court, Northern District of Texas (Dallas).

To contact the reporter on this story: Laurel Brubaker Calkins in Houston federal court at laurel@calkins.us.com.

Last Updated: June 25, 2009 22:02 EDT