Sept. 15 (Bloomberg) -- R. Allen Stanford, the Texas financier accused of running a $7 billion investor fraud, will be represented by the federal public defender’s office in his criminal case because he has no money to hire a lawyer.

Kent Schaffer, a private attorney in Houston who attended today’s hearing at that city’s federal courthouse, said afterward he will work with the public defender’s office on Stanford’s case.

“This case has to get ready for trial,” U.S. District Judge David Hittner said during the proceeding, which lasted less than five minutes. “The man needs an attorney. He’s got an attorney and we need to get ready for trial.”

Stanford, who denies all wrongdoing, was brought to court in shackles from jail, where he is being held until trial on charges he bilked investors in a “massive” Ponzi scheme involving certificates of deposit at Antigua-based Stanford International Bank Ltd. The head of the Stanford Financial Group of companies was ranked the 205th-richest American in 2008 by Forbes magazine, which estimated his net worth at $2 billion.

Regulators and investors have fought attempts to unlock legal defense funds from Stanford’s seized assets, which were frozen by court order on Feb. 17 when the U.S. Securities and Exchange Commission accused him of investor fraud. Stanford is also being denied access to his company’s liability insurance policy, after the court-appointed receiver claimed those funds may be needed to defend Stanford’s companies against lawsuits.

Schaffer, in a phone interview, said he met briefly with Stanford in a holding facility at the Houston federal courthouse after today’s hearing, which he attended at the request of the public defender’s office.

Stanford ‘Agreeable’

Stanford “seems to be agreeable’’ to Schaffer becoming his lawyer, he said, pointing out that the public defender’s office still must officially ask Hittner to appoint him.

“I don’t typically do public defender cases,’’ Schaffer said, noting that he will be able to charge only the public defender rate of $110 per hour, which he said is “less than a fifth’’ of his standard billing rate.

“Sometimes we have to do things without taking money into consideration,’’ he said. “I thought it would be an exciting opportunity, intellectually stimulating, maybe a once in a lifetime opportunity.’’

25 Years’ Experience

Schaffer, 55, is a partner in the Houston law firm Bires & Schaffer. A biography on his firm’s Web site describes him as having more than 25 years of experience in criminal law, including white collar crime, bank fraud, government contract fraud and homicide.

Schaffer said he helped defend billionaire oilman Oscar Wyatt against charges of bribing Iraqi officials in the United Nations oil-for-food scandal and represented the late actress Farrah Fawcett in numerous contract negotiations and is defending her estate against trademark infringement.

Other clients have included one-time Houston Astros baseball player Ken Caminiti, who is deceased, as well as U.S. Congressman Craig Washington and former Enron Broadband Services Inc. executive Kevin Hannon, according to his firm’s Web site.

Marjorie Meyers, head of the federal public defender’s office in Houston, said it has a staff of seven.

During the hearing, Hittner asked Stanford if he had money to hire a lawyer.

‘Insurance Policy’

“I think I have funds in an insurance policy,” said Stanford, who wore an orange jumpsuit to court and looked thinner than his last appearance in late June.

The judge cut him off, saying, “That has not been resolved. I’m talking right at this moment. Do you have sufficient funds at this moment?”

“I don’t have an answer to that,” Stanford said.

Hittner replied, “I’ll take that as a no.”

Stanford’s previous attorney, Dick DeGuerin, has estimated it will cost more than $20 million and take a year to prepare for a trial that could last six months. Stanford faces spending the rest of his life in prison if convicted of the most serious of 21 felony counts against him.

Speaking with reporters after the hearing, DeGuerin said his now-former client had been mistreated by guards while jailed at the Joe Corley Detention Center in Conroe, Texas, outside Houston. Recently, the guards aggressively searched Stanford’s cell, injuring him as they did so, DeGuerin said.

Jeff Carter, a spokesman for the U.S. Marshal’s Service, said the federal agency won’t comment on specific allegations.

Stanford’s Treatment

“I can assure you that we take the well-being of those in our custody seriously and we will review Mr. Stanford’s treatment to ensure it is both fair and consistent with other prisoners” housed at Corley, Carter said in an e-mail.

Stanford’s lawyers repeatedly have urged Hittner and U.S. District Judge David Godbey of Dallas, who is overseeing the SEC case against Stanford, to find a way to pay his defense costs, emphasizing that the financier has a constitutional right to an attorney in the criminal case.

Godbey said he would give Stanford access to some frozen assets if he can prove the funds aren’t tainted. Stanford’s lawyers argued he can’t provide that evidence without compromising his right against self-incrimination, which forces the accused swindler to choose between his constitutional safeguards.

Directors’ Insurance

On Sept. 11, Lloyd’s of London filed papers in the Dallas case, asking Godbey to decide whether Stanford directors’ and officers’ insurance belongs to the receivership estate or is available for as many as 60 former Stanford employees, including Allen Stanford.

The underwriter asked Godbey not to make any ruling, however, on how much coverage any individual defendant can draw from the policy, which may be worth as much as $90 million. Lloyd’s said it doesn’t guarantee any of the Stanford defendants will ultimately be provided legal liability coverage, as the policy allows for certain exclusions.

Schaffer, who was president of the Texas Criminal Defense Lawyers Association from 1998 to 1999, is at least the fourth lawyer enlisted to help Stanford with his criminal case.

DeGuerin, also of Houston, signed on to represent Stanford in April while insisting that he wouldn’t work for free. DeGuerin’s clients include former U.S. House Majority Leader Tom DeLay, U.S. Senator Kay Bailey Hutchinson and real estate heir Robert Durst.

Stanford fired DeGuerin July 31 following a dispute over how the lawyer would be paid.

‘Took His Socks’

“The receiver took everything Stanford had, not just what they claim was tied to the fraud,” the attorney said, “everything down to his socks and underwear, literally.”

Robert Luskin, of Washington’s Patton Boggs LLP, sought to enter the case in early August for the limited purpose of helping Stanford free up funds for a defense team.

Another Houston attorney, Michael Sydow, filed court papers asking to represent Stanford along with Patton Boggs. On Aug. 6, Hittner denied that request without explanation and barred Sydow from having any role in Stanford’s future defense.

DeGuerin said he still believes Stanford has “a winnable case” and said he will be “fine” with the federal public defender’s office in Houston.

“Marjorie Meyers is brilliant, and she’ll have a lot of help,” he added. “They’ll do a hell of a fine job.”

The criminal case is U.S. v. Stanford, 09cr342, Southern District of Texas (Houston). The regulatory case is SEC v. Stanford International Bank Ltd., 09cv298 in the 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: September 15, 2009 20:05 EDT