Jan. 23 (Bloomberg) -- The R. Allen Stanford who arrived at the Houston federal courthouse in shackles to start his $7 billion investment fraud trial today is far different from the Texas billionaire prosecutors indicted 2 1/2 years ago.
Weeks before his June 2009 indictment, Stanford strode into the same courthouse with a high-profile defense lawyer and volunteered to surrender. U.S. marshals declined at the time to arrest the Stanford Group Co. founder, then estimated by Forbes to be worth $2.2 billion.
“I’m not a damn swindler,” Stanford said weeks before he was charged. He vowed to clear his name, take back assets seized by securities regulators, and repay more than 20,000 investors he’s accused of defrauding through allegedly bogus certificates of deposit at Antigua-based Stanford International Bank Ltd.
Now 61 and visibly thinner, Stanford has endured a string of setbacks since he was indicted and jailed because prosecutors said he might try to flee. In September 2009, he suffered broken facial bones in a beating by another inmate and became addicted to anti-anxiety medications prescribed by prison doctors after the attack. After eight months in a prison rehabilitation unit, Stanford claims he still can’t remember much of his life or details of his once far-flung business empire, according to his lawyers.
“In a complex financial fraud case, it’s almost impossible for defense counsel with even substantial resources to put on a good defense without the active participation of their client,” said Barry Pollack, a white-collar defense attorney with Miller & Chevalier in Washington who isn’t involved in the case. “His attorneys are hamstrung without his help.”
Stanford’s insurance company successfully sued him in jail to avoid paying his legal defense costs. With all his corporate and personal possessions seized by U.S. securities regulators in a parallel civil fraud case, he was declared indigent and given taxpayer-funded attorneys by U.S. District Judge David Hittner, who is overseeing the criminal trial.
The judge interviewed 80 prospective jurors today, questioning them to determine possible bias for or against the former financier. About a fourth of them said they had some familiarity with Stanford’s story. By day’s end, more than half of the panelists had been sent home, while Hittner detained the rest for further questioning in his chambers.
The judge told them to return to court tomorrow.
The financier’s entire defense team tried to quit earlier this month. Contractors complained they hadn’t been paid in months, and his lawyers insisted time and budget constraints imposed by the courts had left them unable to defend Stanford adequately against charges that could imprison him for more than 20 years. Hittner disagreed and ordered the team to prepare for trial as scheduled.
Prosecutors accuse Stanford of skimming more than $1 billion in investor deposits to fund a lavish lifestyle -- including yachts, a fleet of jets, cricket teams and a private Caribbean island -- and to support multiple women, several of whom crowded into court almost three years ago with their children to support the financier. The Stanford entourage has since dwindled to occasional courtroom appearances by his mother and a lone female admirer, who says she also visits him regularly in prison.
Lead prosecutor Gregg Costa said the government will prove Stanford “obtained CD proceeds under false pretenses.” Any value represented by Stanford’s other holdings is irrelevant in light of misrepresentations Stanford made to customers concerning the safety, oversight and performance of their investments, Costa said last week in court filings.
“It was bait and switch,” Assistant U.S. Attorney William Stellmach said at a Jan. 18 hearing. “He told depositors that their money was in safe, conservative, highly liquid investments. In fact, billions of dollars were diverted to various personal businesses and investments that he himself owned.”
Houston attorneys Ali Fazel and Robert Scardino, Stanford’s lead defense counsel, said they’ll use thousands of bank and business records to show jurors the financier never intended to defraud anyone. They claim no investor lost money until the government stepped in and seized the businesses, destroying their value. Stanford International Bank stumbled in the same global financial meltdown that tripped up banks worldwide in late 2008, they said.
Prosecutors say Stanford’s alleged fraud is the second-largest Ponzi scheme in U.S. history. Only the estimated $20 billion in investor principal taken by confessed swindler Bernard Madoff, the New York investment manager, ranks larger, according to the government.
The missing billions of dollars prosecutors claim Stanford misappropriated were actually used to fund startup companies, real-estate ventures and other investments intended to keep above-average returns flowing to investors in the Antiguan bank CDs, his lawyers said. These assets account for the missing investor funds, they claimed. The defense will demonstrate that Stanford’s accountants were working on rolling them onto the bank’s books when regulators stepped in, Fazel told Hittner.
“There was a consolidation project under way, not just something they were talking about, but that they were doing,” Fazel said at the Jan. 18 court hearing. “The government’s contention that this is fraud is just wrong.”
Hittner told the prospective jurors that the trial would be “very, very challenging” and last about six weeks.
“It’s about as interesting a case as you can find anywhere in the country,” the judge said. Fourteen jurors will be selected, including two alternates. The alternates won’t learn who they are until the evidence has been presented and deliberations are about to begin.
“Anybody ever been to Antigua and Barbuda?” Hittner asked the prospective jurors, after finishing his introductory remarks. He then started describing Antigua-based Stanford International Bank Ltd. and the Stanford Group Co., which is incorporated in Texas.
Several jurors said they’d heard or read media coverage of the criminal and civil cases. One potential panelist said his employer had done advertising and promotional work for Stanford’s businesses while another said he’d been sent to Antigua to assess a Stanford property.
Several of the prospects said they had banking and accounting backgrounds, still others said they worked in the oil and gas industry. Many said they had prior experience as jurors and some as litigants.
When Hittner asked the 80th juror if she had heard anything that might affect her ability to be impartial, she replied, “I’m afraid so” before Hittner cut her off and asked her to join the queue to speak with him in chambers.
Stanford’s court-appointed receiver in the regulatory case continues to sell assets to help repay investors and creditors. The receiver traded away Stanford’s right to use his own name in business to end a trademark lawsuit by Stanford University. Stanford had claimed he’s related to the school’s founder, a boast which prosecutors said they’ll tell jurors is false.
If Stanford is convicted, prosecutors said they’ll ask to keep him in prison for what amounts to the rest of his life. Acquittal wouldn’t return his wealth.
“The asset liquidation is all happening outside of the criminal process and would’ve happened without the criminal charges,” Pollack said, comparing Stanford International Bank to a business in involuntary bankruptcy. If Stanford is acquitted in the criminal case, he will gain little advantage in fighting the U.S. Securities and Exchange Commission’s allegations because of the lower burden of proof in civil cases, Pollack said.
“It’s not uncommon that someone can be acquitted criminally and still be found civilly liable,” he said. “A jury can say, ‘we’re not 98 percent sure you committed fraud, but we’re at least 51 percent sure you did.’”
The criminal case is U.S. v. Stanford, 09-cr-342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank, 09-cv-298, U.S. District Court, Northern District of Texas (Dallas).
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