In The News

Ex-Stanford exec tells jurors bank's profits faked

By Juan A. Lozano Associated Press
Published: Friday, Feb. 3 2012 1:30 p.m. MS

finn-davis

Attorney David Finn and James Davis, former Chief Financial Officer in Stanford International Bank Ltd. walk out of Bob Casey U.S. Courthouse upon the conclusion of Davis' first day of testimony on Thursday, Feb. 2, 2012, in Houston. Prosecutors allege Texas financier R. Allen Stanford masterminded a fraud in which he bilked investors out of more than $7 billion in a massive Ponzi scheme centered on the sales of certificates of deposit, or CDs, from a Caribbean bank. (Houston Chronicle, Mayra Beltran, Associated Press)

HOUSTON — Jailed Texas financier R. Allen Stanford helped fake profit numbers for his Caribbean bank and funnel millions of dollars of depositor funds to a secret Swiss bank account used to pay for personal expenses, bribes to regulators and employee bonuses, the man who was in charge of the tycoon's books told jurors Friday.

James M. Davis, the former chief financial officer for Stanford's companies, testified the financier's bank never reported having an unprofitable year because he and Stanford worked together to fabricate figures for annual reports and other documents. Prosecutors allege Stanford masterminded a fraud in which he bilked investors out of more than $7 billion in a massive Ponzi scheme centered on the sales of certificates of deposit, or CDs, from the bank on the island nation of Antigua.

Davis, 63, said the fake profit numbers were part of the ruse to hide the fraud and show CDs purchased by investors were doing well and the bank itself was on solid financial footing.

 

Attorney David Finn and James Davis, former Chief Financial Officer in Stanford International Bank Ltd. walk out of Bob Casey U.S. Courthouse upon the conclusion of Davis' first day of testimony on Thursday, Feb. 2, 2012, in Houston. Prosecutors allege Texas financier R. Allen Stanford masterminded a fraud in which he bilked investors out of more than $7 billion in a massive Ponzi scheme centered on the sales of certificates of deposit, or CDs, from a Caribbean bank. (Houston Chronicle, Mayra Beltran, Associated Press)

Finn and Davis

"Was Stanford uncomfortable with reporting too high a (profit) number?" prosecutor William Stellmach asked Davis, the prosecution's star witness.

"No," Davis said before a packed courtroom that included Stanford's mother, one of his daughters and two of the financier's ex-employees — Gilberto Lopez and Mark Kuhrt — who have also been indicted and are free on bond as they await trial in September.

Authorities allege Stanford used depositors' money to fund his businesses and his lavish billionaire lifestyle and pay bribes to regulators and auditors. They also allege he lied to depositors by telling them their funds were being safely invested.

Stanford's attorneys contend the financier was a savvy businessman whose financial empire, headquartered in Houston, was legitimate. They have suggested Davis, who worked 21 years for Stanford, is behind the fraud.

Stanford is on trial for 14 counts, including mail and wire fraud, and faces up to 20 years in prison if convicted.

Davis said while the bank never reported an unprofitable year, it did have to report at least one unprofitable quarter to keep up the charade: the third quarter of 2001 when the 9/11 terrorist attacks happened.

Davis sketch This courtroom sketch shows Former Stanford CFO James Davis, replicating for jurors the handcuffing motion he used to make to warn R. Allen Stanford that what they were doing was illegal Thursday, Feb. 2, 2012 in Houston, Texas. Davis, who pled guilty for his part in a $7 billion Ponzi scheme headed by Stanford, testified against the Texas tycoon during Stanford’s fraud trial in Houston on Thursday. (Houston Chronicle, Ken Ellis, Associated Press)

"It would have been unreasonable to report a profit when world markets collapsed," he said.

Davis also testified Stanford transferred CD deposit funds to a secret Swiss bank account with Societe Generale belonging to the financier.

Davis said Stanford used the money for "real estate purchases, paying for personal expenses, beginning another company."

Davis, who began testifying Thursday, said Stanford then had him make transfers ranging from $500,000 to $10 million from the Swiss account to a personal account the financier had in Houston. Jurors were shown copies of letters Davis signed asking for these transfers from 2000 to 2006.

Davis testified some of the money in the Swiss account was also transferred to an account Stanford had in Antigua to pay for bribes to the top regulator on the island nation who oversaw the financier's bank. Some of the funds from the secret account were also used to pay employee bonuses, he said.

Davis pleaded guilty in 2009 to three counts: conspiracy to commit mail, wire and securities fraud; mail fraud; and conspiracy to obstruct a Securities and Exchange Commission investigation. The plea is part of a deal Davis made with prosecutors in exchange for a possible reduced sentence.

Stanford was once considered one of the United States' wealthiest people, with an estimated net worth of more than $2 billion. He's been jailed without bond since being indicted in 2009.

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