Lawyer: Greed May Explain Former Stanford Associate’s Actions

By Brenda Sapino Jeffreys
Texas Lawyer
August 31, 2009

After pleading guilty on Aug. 27 to three criminal charges that could put him in prison for 30 years, James M. Davis, the former chief financial officer for Stanford Financial Group and Stanford International Bank Ltd., expressed remorse for his actions that contributed to the downfall of the bank and began more than a decade ago.

“I did wrong. I’m sorry. I apologize,” the silver-haired, 60-year-old former banker told reporters outside the federal courthouse in Houston following his re-arraignment in U.S. District Judge David Hittner’s court.

David Finn, Davis’ criminal-defense attorney, told reporters that Davis, unlike most of his clients, fessed up to his wrongdoing from the first moment he came to his Dallas office.

“He had a heavy heart the first time I met him. He was very contrite,” Finn, a partner in Milner & Finn in Dallas, recalled from their initial meeting earlier this year. “James Davis came in and said, ‘I know I did wrong.’ ”

The very next day, Davis met with investigators for the U.S. Securities and Exchange Commission, Finn said.

Finn said “greed” may explain Davis’ actions.

“Why does anyone do anything that’s wrong? . . . Frankly, my guy allowed himself to be used by Allen Stanford,” Finn said.

According to the factual basis of Davis’ plea deal, prosecutors allege Davis started making false accounting entries beginning in 1988, when he started a job as controller of a bank owned by R. Allen Stanford in Montserrat, and he continued, while in various executive positions with Antigua-based Stanford International Bank, to create “false books and records” that overestimated the value of the bank’s investments, and helped prepare fictitious investment reports about the bank that were provided to securities regulators in Antigua. By the end of 2008, the prosecutors allege in the factual basis for plea, financial documents put SIB’s assets at more than $7 billion, when they were actually less than $2 billion.

Davis also helped Stanford obtain money from a Swiss bank account that Stanford used to bribe at least two employees of the securities regulation agency in Antigua and an outside auditor, the government alleges in the factual basis of the plea deal.

Davis pleaded guilty to one count of conspiracy to commit mail, wire and securities fraud; one count of mail fraud; and one count of conspiracy to obstruct SEC proceedings. He faces up to five years in prison on the two conspiracy charges and up to 20 years in prison on the mail fraud charge. He also faces a fine of up to $250,000 on each charge.

In the plea agreement Davis signed, he agreed to cooperate with the government in its investigation of the alleged $7 billion conspiracy to defraud. As part of the plea deal, he agreed to a $1 billion forfeiture judgment. The government reserves the right to ask for a “downward departure” from the sentencing guidelines if it determines his cooperation rises to the level of “substantial assistance.”

Finn said Davis expects to receive “stiff punishment.”

The charges against Davis were included in United States v. James M. Davis, an information unsealed on June 19. Also on June 19, several other individuals, including Stanford, chairman of Houston-based Stanford Financial Group, were indicted, and each has pleaded not guilty to the criminal charges.

Stanford, who is being held in a federal prison in Conroe, was supposed to appear in Hittner’s court on Aug. 27 for a hearing on who will represent him, but Hittner announced in court that Stanford was taken by ambulance to a hospital at 5:30 a.m. because of an irregular electrocardiogram and a high pulse rate.

Stanford’s attorney, Dick DeGuerin of DeGuerin & Dickson in Houston, has asked to withdraw as his lawyer because he wants assurance that he will be paid. Hittner said the hearing on whether to allow DeGuerin to withdraw will be reset. Stanford announced earlier this month that his new legal team includes Patton Boggs, but Hittner will not allow DeGuerin to withdraw unless another firm enters the case unconditionally. [ See “Between a Rock and a Hard Case,” Texas Lawyer, Aug. 10, 2009, page 6. ]

After Davis’ hearing, DeGuerin said he believed stress may have caused Stanford to have medical problems on Aug. 27. Finn said it’s not serendipitous that Stanford was ill on the day Davis was scheduled to plead guilty to criminal charges.

“It had everything to do with my client and me and the government getting together in this courtroom,” Finn said.

Hittner scheduled Davis’ sentencing for Nov. 20. But Finn said it is doubtful Davis will be sentenced before Stanford’s trial is finished. Finn said Davis has been cooperating with the FBI, the U.S. Department of Justice and the SEC and he will continue to do so. Finn noted that Davis came to Houston on Aug. 26, the day before his re-arraignment, and met with the FBI and federal prosecutors.

Finn says his client’s cooperation is important to the government, but the fraud alleged in the indictment is relatively unsophisticated.

“You can just follow the money,” Finn said.

Finn said Davis’ cooperation has extended to assisting the government with a search for evidence in a pond on his property in Mississippi. Finn would not say what the divers were looking for in the pond. When asked if it was money, Finn replied, “I wish.”

Finn said that because the government has seized Davis’ assets through a civil suit filed by the SEC that is pending in the U.S. District Court for the Northern District of Texas, Davis is living with family in Michigan and is working for $10 an hour on a family farm to raise some money to pay his lawyer.

Finn said there is no way Davis has the money to cover the $1 billion forfeiture order. He said Davis made $5 million to $6 million over the past few years.

DeGuerin said it remains to be seen how Davis’ cooperation will impact the criminal case against Stanford and the other defendants.

“Mr. Davis seems to be the center of their case, and we will have to see what happens,” DeGuerin said.

Finn told reporters that the government’s allegations in the factual basis of the plea deal suggest that others may be indicted. The factual basis mentions but fails to identify by name two attorneys and SIB Executive A.

“Not all shoes have dropped yet,” Finn said.

At the government’s request, Hittner continued the terms of Davis’ bond.