Allen Stanford Ponzi Scheme

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Jury Convicts Stanford in $7 Billion Ponzi Fraud

March 6, 2012
By CLIFFORD KRAUSS
http://www.nytimes.com/2012/03/07/business/jury-convicts-stanford-in-7-billion-ponzi-fraud.html

HOUSTON — A federal jury on Tuesday convicted R. Allen Stanford, a Texas financier, on 13 out of 14 counts of fraud in connection with a worldwide fraud that lasted more than two decades and involved more than $7 billion in investments.

The ruling came after jurors on Monday sent the judge a note, one of several since deliberations began Feb. 29, saying they were unable to reach a unanimous verdict on all 14 counts. The judge ordered them to continue deliberating.

The jury decision came three years after Mr. Stanford was accused of defrauding nearly 30,000 investors in 113 countries in a Ponzi scheme involving $7 billion in fraudulent high-interest certificates of deposit at the Stanford International Bank, which was based on the Caribbean island of Antigua. Prosecutors argued that Mr. Stanford had lied for more than two decades, promoting safe investments for money that he channeled into an unimaginably luxurious lifestyle, a secret Swiss bank account and half-baked business deals that consistently lost money.

The prosecutors heavily relied on James M. Davis, Mr. Stanford’s old roommate from Baylor University, who served as his chief financial officer. Mr. Davis testified that the Stanford business empire was a fraud complete with bribes for Antiguan regulators and schemes to cover up operations from federal investigators. He described how Mr. Stanford had sent him to London to send a fax to a prospective client from a bogus insurance company office to reassure him that his investment would be safe.

“There really is no dispute that Allen Stanford lied,” a federal prosecutor, William J. Stellmach, told the jurors in his closing argument, “lining his pockets with billions of dollars of other people’s money.” Another prosecutor, Gregg Costa, compared Mr. Stanford to Bernard L. Madoff, who is in a federal penitentiary for orchestrating an even larger Ponzi scheme until his empire collapsed four years ago.

The defense denied those charges, basing their case on the fact that Mr. Stanford’s clients were paid on schedule until the Securities and Exchange Commission made the first allegations three years ago, destroying the value of his businesses. His lawyers repeatedly pointed out that his investment literature said a loss of principal was possible and that Mr. Stanford’s assets still had value when his businesses were shut down by the federal government. In their opening arguments, they suggested that Mr. Stanford would testify in his own defense, but after days of preparing him, the defense decided to rest its case without putting Mr. Stanford on the stand.

His lawyers sought to portray Mr. Stanford as detached when it came to financial details, which he supposedly left to Mr. Davis, who pleaded guilty to charges of fraud and conspiracy to obstruct an S.E.C. investigation into the Stanford business.

The defense argued that Mr. Davis often acted without Mr. Stanford’s knowledge even as they argued that the Stanford bank was fulfilling its promises to investors until the government stepped in and shut the firm down.

“The government wants you to believe it was all a fraud,” said Robert A. Scardino, a defense lawyer. “That’s just not what happened.”

Mr. Stanford is no longer the swaggering financier who only three years ago had an estimated fortune of more than $2 billion, a knighthood awarded by Antigua and a collection of yachts, jets and mansions. He even owned his own professional cricket team and stadium and, according to prosecutors, he treated Antigua like his personal business haven, with politicians and regulators in tow, through bribes and political campaign contributions.

In his testimony, Mr. Davis portrayed his former boss as a charismatic, bullying manager who manipulated him to lie and cheat investors. He described how Mr. Stanford invited him to drive with him in his new Mercedes-Benz on a highway outside Houston and floored the accelerator until the car reached 170 miles an hour. “He instilled intimidation and fear,” Mr. Davis said.

During cross-examination, Mr. Scardino accused Mr. Davis of manipulating financial statements and requesting that bribes be sent to an Antiguan auditor without Mr. Stanford’s knowledge. Mr. Davis countered that it was Mr. Stanford who engineered the fraud for more than two decades. Near the end of his testimony, he shook his finger at Mr. Stanford and said that anyone who wanted to know the truth about the Stanford enterprises had only to “follow the money, just follow the money.”

For the prosecution, the Stanford case was a Ponzi scheme in which he and five conspirators gave investors false financial statements indicating that the certificates of deposit were invested in conservative assets when $2 billion was actually lent to Mr. Stanford. All along, auditors, along with the head of Antigua’s Financial Services Regulatory Commission, received bribes to cover up the scheme and misinform the S.E.C., they said.

For Mr. Stanford’s lawyers, the financier has been a victim of an overly aggressive federal government willing to imprison him before proving his guilt. While Mr. Madoff was released on $10 million bail before his trial, prosecutors successfully argued that Mr. Stanford, who also held an Antiguan passport, could flee before a trial.

It took three years to bring Mr. Stanford to trial because he was severely beaten in a 2010 brawl with another federal inmate in a prison outside Houston and then became addicted to prescription anti-stress drugs. He underwent a year of therapy before Judge David Hittner of United States District Court ruled that he was fit to stand trial. The defense had said he could not properly defend himself because he had lost much of his memory.

http://www.nytimes.com/2012/03/07/business/jury-convicts-stanford-in-7-billion-ponzi-fraud.html