Stanford’s James Davis Declines to Cooperate in SEC Fraud Probe

By Laurel Brubaker Calkins and Laurence Viele Davidson

March 2 (Bloomberg) -- James M. Davis, the second-highest ranking executive at the Stanford Financial Group of companies, refused to cooperate in the U.S. investigation of an alleged $8 billion Ponzi scheme at the firms.

“I hereby assert my privilege against self-incrimination under the Fifth Amendment of the U.S. Constitution and decline to testify or provide an accounting,” Davis said in papers filed Feb. 27 in Dallas federal court as part of a U.S. Securities and Exchange Commission lawsuit. Davis is a director and chief financial officer of both Stanford Financial Group and Stanford International Bank.

The SEC on Feb. 17 sued three Stanford companies founded by Texas financier R. Allen Stanford, as well as Stanford, Davis and Stanford’s Chief Investment Officer Laura Pendergest-Holt. The regulator accused them of misleading investors through the sale of $8 billion in fraudulent certificates of deposit at Antigua- based Stanford International Bank.

Davis and Stanford are accused of orchestrating a “massive Ponzi scheme” that misappropriated at least $1.6 billion in “bogus personal loans” to Allen Stanford and “fabricated the performance of SIB’s investment portfolio” to lure investors to the bank’s high-rate CDs, according to the SEC’s amended complaint.

U.S. District Judge David Godbey in Dallas, who presides over the case, issued a preliminary injunction freezing all corporate and personal assets of Stanford-related companies and the three executives.

Court Hearing

Godbey is scheduled to hold a hearing today in Dallas federal court where regulators have asked to extend the preliminary injunction freezing Stanford assets. Stanford customers have filed motions asking Godbey to modify the injunction to release some investor funds.

Pendergest-Holt and the three corporate entities sued by the SEC all agreed last week not to violate the preliminary injunction, according to court papers. Allen Stanford hasn’t filed any court papers in response to the SEC’s complaint, which gave the defendants until Feb. 27 to provide an accounting of their assets.

In his declaration, Davis said he won’t provide any information or answer questions related to his personal assets or any actions he took regarding any of the Stanford-related entities, including how investors were solicited or how their funds were invested, according to court papers.

Criminal Obstruction

Pendergest-Holt was charged by federal prosecutors Feb. 25 with criminal obstruction of the SEC investigation and was released on $300,000 bond. She has agreed not to dispose of her assets and is under court-ordered electronic monitoring. Dan Cogdell, her lawyer, said his client is innocent. She faces as much as five years in prison of convicted.

Neither Stanford nor Davis has been criminally charged with wrongdoing. Both men couldn’t be immediately reached for comment.

U.S. investigators have located as much as $250 million in assets from the Stanford Financial Group, an FBI agent testified Feb. 27 at a hearing in Pendergest-Holt’s criminal case in Houston federal court.

U.K. investigators located more than 100 million pounds ($143 million) in personal and business accounts related to Stanford, according to a report yesterday on the Financial Mail’s Web site, citing an unidentified person “close to the Serious Fraud Office.”

The case is SEC v. Stanford International Bank, 09-00298, U.S. District Court for the Northern District of Texas (Dallas).

To contact the reporters on this story: Laurel Brubaker Calkins in Houston at laurel@calkins.us.com and; Laurence Viele Davidson in Tupelo, Mississippi, at lviele@bloomberg.net .

Last Updated: March 2, 2009 00:01 EST

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