R. Allen Stanford’s businesses collapsed in part because the stock market plunged and a court- appointed receiver destroyed much of the companies’ value after they were seized by the government, James M. Davis, Stanford Financial Group Co.’s former finance chief, told jurors.
Davis, testifying yesterday for the government under a plea deal at Stanford’s federal court trial in Houston, was shown a letter he wrote shortly after regulators seized Stanford’s companies in February 2009.
“There was from the start never a thought to put the clients in harm’s way in this process, never a hint of criminal intent,” Robert Scardino, a lawyer for Stanford, read from the letter, which Davis said he wrote to an attorney he was trying to hire to defend him at the time.
“The underlying global business growth model remained strong,” Davis wrote in the letter, adding that some of Stanford’s businesses were moving toward profitability.
“Isn’t that 180 degrees opposite from what you’ve been telling this jury?” Scardino asked Davis. “You said these companies had no value.”
Davis responded, “A number of the companies Stanford owned were growing; they were worth something.” The 2009 letter “could be true under certain circumstances,” he said.
The former finance chief told jurors he changed his mind a month after writing that letter, when he met with his current attorney, who persuaded him to seek a plea deal. “But at the time I was still lying,” he said of the letter. “I was still in the middle of it.”
Davis’s testimony may bolster Stanford’s defense that he never intended to defraud investors of $7 billion through what the U.S. says was a Ponzi scheme built on bogus certificates of deposit at Antigua-based Stanford International Bank.
Stanford’s lawyers claim accountants were in the process of consolidating companies the financier funded with $2 billion in secret bank loans onto the Antiguan bank’s portfolio when regulators stepped in and stopped the process.
“It would’ve been a last-ditch effort to hide the fraud that had been going on and plug the hole” between the bank’s reported and actual assets, which was revealed when investors accelerated CD withdrawals from the bank, Davis testified.
“Was it to hide the fraud or save the bank?” Scardino asked.
“It was one and the same,” the ex-CFO replied. “The show would be over without something happening pretty quick.”
Scardino said Stanford Group Co., the financier’s broker- dealer, was “given away” by a court-appointed receiver who recovered no value for it.
“It was carried on your books for half a billion dollars,” Scardino said. “Oppenheimer offered more than that for it.”
Davis testified that in December 2008, he received a flowchart of a Stanford International Bank consolidation project, which would have placed most of Stanford’s private companies in a new umbrella company, Stanford International Bank Ltd. Holdings. Jurors were also shown a solvency analysis Davis received stating the consolidated companies’ fair market value exceeded $8 billion at the end of 2008.
Davis said he received both e-mails from Gil Lopez, Stanford’s former chief accounting officer, who worked on the business consolidation. Lopez was charged along with Stanford in June 2009 and is set to be tried in September.
Lopez, who says he’s innocent, has been in the courtroom since Davis took the stand last week. Mark Kuhrt, Stanford’s former global controller, who is indicted with the other Stanford executives, has also been a courtroom visitor.
Davis read the jury an e-mail he sent Stanford in November 2005, begging Stanford to spend more time with him discussing “the many details of running these huge companies.”
Stanford’s attorneys have told the jury that their client was a hands-off visionary who left the details of running his companies to others, primarily Davis.
“So you were running the company?” Scardino asked Davis.
“No sir,” Davis replied. “His attention was desperately needed.”
Davis testified that he hopes his cooperation will lead to leniency when he is sentenced. Under the terms of his plea, Davis, 63, faces as long as 30 years in prison.
Davis said while he doesn’t wish to spend the rest of his life in prison, he’d rather be there than free and “bound as I was for the last 20 years with Allen Stanford.”
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).
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