Stanford Financial’s Davis Says Founder Conspired in Fraud
R. Allen Stanford directed his executives to falsify investment returns, threatened to fire them if they revealed $2 billion he secretly borrowed from his Antiguan bank and approved of office affairs, according to witnesses at his criminal fraud trial.
“I was involved in faking the numbers, but he was the chief faker,” James M. Davis, Stanford Financial Group Co.’s former chief financial officer, told jurors yesterday at Stanford’s trial in federal court in Houston. “He’d been faking even before I came on board.”
Davis, 63, is testifying against his ex-boss and former Baylor University roommate as part of a plea deal. Davis pleaded guilty in 2009 to helping Stanford swindle investors of more than $7 billion through bogus certificates of deposit at Antigua-based Stanford International Bank. Davis faces as long as 30 years in prison.
Davis testified that Stanford approved of a three-year affair Davis had with Laura Pendergest Holt, whom he met through a university Bible study run by Davis and his wife. Holt, who also has been criminally charged in the fraud scheme, was promoted to chief investment officer of Stanford Financial after the affair ended in 2003.
“‘That’s good; she’ll be loyal,’” Davis testified Stanford told him upon learning that two of his top lieutenants were having an affair. Davis also told jurors that Stanford reassured Holt at a private meeting the three had in 2007 that she could trust him that the bank’s assets were invested as Stanford said they were. Holt has denied any involvement in the alleged fraud scheme.
Dan Cogdell, Holt’s defense attorney, has monitored testimony in court this week. He has declined to comment on allegations concerning Holt, citing a gag order by U.S. District Judge David Hittner forbidding lawyers to publicly discuss the case.
Prosecutors accuse Stanford of secretly borrowing more than $2 billion from his bank to fund a luxurious lifestyle and invest in money-losing enterprises ranging from Caribbean airlines to cricket tournaments. A former company accountant who tracked Stanford’s borrowings testified this week that he was told he would be fired if he shared that data outside a select circle of top executives.
Davis’s testimony resumes today. He is expected to remain on the stand into next week, in a trial that the judge said may last six weeks.
Stanford, 61, denies all wrongdoing. His lawyers contend the former billionaire was a hands-off visionary who left details of his sprawling organization to Davis and others.
‘Finger on Pulse’
“He had his finger on the pulse,” Davis testified yesterday of Stanford’s management style. He said he conspired with Stanford and others at the Houston-based firm to commit crimes because he wanted to please Stanford and because he was a “coward” and “greedy.”
Stanford was a “charismatic dictator” who ruled employees through a blend of “money, flattery, intimidation and fear,” Davis told jurors. He said Stanford once refused to speak to him for three months after Davis rearranged their offices without his permission. Stanford also terrified Davis by giving him a 170-mile-an-hour test drive down a Houston freeway in Stanford’s new Mercedes-Benz, Davis said.
Davis, who joined Stanford’s company in 1988, said he realized the bank was a fraud in mid-1991, when his boss flew him to London solely to fax proof of depositor insurance to a wealthy prospective client. Davis said he faxed the document from the leased cubicle that constituted the offices of British Insurance Fund Ltd., a shell company Stanford had created to provide insurance for the bank, and immediately returned to Houston.
When asked by Assistant U.S. Attorney William Stellmach why he didn’t leave the company then, Davis replied: “I believed in Mr. Stanford -– wrongfully so, regrettably so, God forgive me so. But I continued to stay there and lie with him.”
When Davis that same year found he couldn’t account for half of the bank’s assets, Stanford told him the company would rapidly increase CD sales to “close that hole,” Davis testified. Davis said he asked Stanford at one point if his bank, which for decades reported consistently above-average returns to investors, had ever been profitable.
“He said we were at the beginning,” Davis testified. “In 1985-1986, there were profits. After that, no.”
The case is U.S. v. Stanford, 4:09-cr-00342, U.S. District Court, Southern District of Texas (Houston).
To contact the reporters on this story: Laurel Brubaker Calkins in Houston at firstname.lastname@example.org; Andrew Harris in Chicago at email@example.com
To contact the editor responsible for this story: Michael Hytha at firstname.lastname@example.org
Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.