The $1.6 billion that indicted financier R. Allen Stanford is accused of skimming from the funds of his investors was actually loaned by his Antiguan bank to start-up entities and other businesses he controlled, a fraud examiner testified.
Forensic accountant Alan Westheimer testified before a U.S. judge in Houston today that Stanford Financial Group Cos. comptroller Mark Kuhrt and chief accountant Gilbert Lopez told him they believed the borrowing should have been publicly disclosed.
“The funds were being passed through as inter-company loans to the entities that were the recipients of the shareholder loans,” Westheimer said. “Within a short period, usually six months, Mr. Stanford would assume those loans and the recipient companies transferred those balances to their underlying capital.”
Westheimer’s testimony came on the second day of a civil trial in a case filed by Stanford and three of his criminal case co-defendants against Lloyd’s of London underwriters who have said reported crimes at the company voids the $100 million in officers and directors insurance they sold to Stanford’s businesses. Westheimer and a second forensic accountant who testified, Mark Berenblut, were witnesses for Lloyd’s.
Stanford is accused by the U.S. of leading a $7 billion investment fraud scheme centered on the sale of certificates of deposit through the Stanford International Bank Ltd. in Antigua. He denies the allegations, which include claims he siphoned the money to fund a lavish lifestyle.
The borrowing companies owed Stanford, and “Stanford owed the bank,” Westheimer told U.S. District Judge Nancy Atlas today. “The funds went to the entities.” Lopez and Kuhrt knew the shareholders’ loans were growing and needed to be disclosed to investors, he said.
When they advised Stanford Chief Financial Officer James M. Davis to disclose the loans in footnotes to financial statements, Westheimer said, Kurht and Lopez told him Davis refused to do so.
Davis last year pleaded guilty to helping Stanford run the alleged Ponzi scheme. Prosecutors and his attorney have said he is cooperating in the investigation. He has not yet been sentenced.
Lopez and Kuhrt are accused by prosecutors of falsifying Stanford’s financial statements to match “pre-ordained” rates of return Stanford had been promising investors.
Forensic accountant Berenblut, who followed Westheimer on the stand, testified that in examining Stanford’s records for July 2007, he found entries showing an additional $1.6 million in expenses after the month ended, which should have caused a corresponding drop in reported net income and return on investment.
“The revenue number is adjusted upward to maintain what I believe is a pre-established return on investment,” Berenblut testified. “That’s very unusual.”
The case is Laura Pendergest-Holt v. Certain Underwriters at Lloyd’s of London, 4:09-cv-03712, U.S. District Court, Southern District of Texas (Houston).
The criminal case is U.S. v. Stanford, 09-cr-00342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank, 09-cv-00298, U.S. District Court, Northern District of Texas (Dallas).