Accounting Law

Siding with CFO’s Account, Jury Convicts Stanford in Ponzi Fraud

R. Allen Stanford is found guilty on all but one of 14 counts, and now faces 20 years in prison on each count.

By Laurel Brubaker Calkins and Andrew Harris

R. Allen Stanford was convicted of fraud in what prosecutors said was a $7 billion, Ponzi-style scheme involving bogus certificates of deposit at his Antigua-based bank.

In a way, the trial had taken the form of a showdown between Stanford's account and that of his CFO, James M. Davis, who had pleaded guilty to fraud-related charges in 2009, and testified for five days against Stanford. At one point, Davis had cited the size of their boats -- his own 12-footer and the boss's 100-foot ocean-going yacht -- to express their division of authority there.

A federal jury in Houston today found Stanford guilty of all but one of the 14 counts against him, including wire and mail fraud and obstructing a federal regulatory investigation. Stanford, 61, faces as long as 20 years in prison for each fraud count.

Stanford, who was ranked 205 on Forbes magazine’s 2008 list of the richest Americans with a net worth of $2.2 billion, has been jailed since being indicted in June 2009 after prosecutors said he might try to flee. A second trial with the same jury will be held later today to determine the amount Stanford must forfeit. Prosecutors are seeking about $300 million in assets.

The founder of Stanford Financial Group, based in Houston, denied accusations by prosecutors and the U.S. Securities and Exchange Commission that he cheated investors through CDs issued by Stanford International Bank Ltd.

The jury of eight men and four women began deliberating Feb. 29 before reaching today’s verdict after a five-week trial. While a defense lawyer told jurors in an opening statement on Jan. 24 that they would hear from Stanford, he was never called to the witness stand.

Stanford was found not guilty of a single wire fraud count related to bribing an official with Super Bowl tickets.

Head Injuries

Stanford, who sustained head injuries in a 2009 inmate assault at a jail in Houston, developed an addiction to prescription anti-anxiety drugs and spent almost nine months at a federal prison hospital in North Carolina. His lawyers tried unsuccessfully in December to delay his trial, arguing he was suicidal and may never sufficiently recover from the beating to face a jury. U.S. District Judge David Hittner declared Stanford legally competent and ordered the trial to go ahead.

The government presented testimony at trial from investors who bought the allegedly fraudulent CDs as well as from the executives who helped sell them.

The witnesses included government officials, along with former Stanford Group Co. CFO Davis. Davis, whose relationship with Stanford traces back to when they were Baylor University roommates, told the jury he knew the boss was committing fraud and didn’t stop it.

Cricket Tournaments

Prosecutors told the jury in their closing argument that Stanford wasted investor money on failing businesses, yachts and cricket tournaments. They said he secretly borrowed as much as $2 billion from his bank and sought to build an island resort for billionaires.

“The truth is that he flushed it away,” said Justice Department lawyer William Stellmach. “He told depositors he was using their money in one way and the truth was completely different.”

By 2008, the bank owed investors $7 billion that didn’t exist, Stellmach said.

Originally published on www.bloomberg.com. Reprinted with permission from Bloomberg News. Story copyright 2014 Bloomberg News communications. All rights reserved.