Ex-Stanford executive testifies of blood oath

HOUSTON— Jailed Texas financier R Allen Stanford’s extreme measures to hide his Caribbean bank’s fraud included entering into a blood oath with a top regulator, the man who was in charge of the tycoon’s books told jurors yesterday. James M Davis, the former chief financial officer for Stanford’s companies, testified the financier came to an agreement with the official responsible for reviewing his bank on the island nation of Antigua where that person, Leroy King, would not dig too deeply into the institution’s operations. Prosecutors allege Stanford masterminded a fraud in which he bilked investors out of more than US$7 billion in a massive Ponzi scheme centered on the sales of certificates of deposit, or CDs, from the bank. “Mr Stanford said they (he and King) actually cut themselves and had a blood oath,” a frail-looking Davis, 63, said.

 

Davis said Stanford made regular cash payments of “hush money” to King and another regulator “for them to look the other way.” He also testified the financier loaned the Antiguan government about US$40 million, which was never repaid. 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. King was also indicted and is awaiting extradition to the US. Three other ex-Stanford company executives were also charged and await trial in September.

 

Davis said Stanford ran his business empire through a mix of flattery and fear, describing his management style as charismatic but also dictatorial. Davis, the prosecution’s star witness, told jurors Stanford laughed about the alleged fraud at the bank. Davis said he would often mimic in front of Stanford being handcuffed and having his legs shackled as a reference to being arrested. “Occasionally he would laugh and say, ‘Well that’s OK. ... I didn’t know what was going on and I’ll just blame it all on you,’” said Davis, as Stanford looked on and shook his head. 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 the Justice Department in exchange for a possible reduced sentence.

 

Davis, who was Stanford’s roommate at Baylor University for a semester in 1973, said he realised the bank was a fraud after he was asked to help lie to a potential investor that the bank had insurance.

Davis told jurors CDs were insured by a company that had been set up by Stanford but that wouldn’t be able to pay for any losses. He said Stanford referred to the insurance company as a “marketing device.”

Davis testified that in August 1991, he was asked by Stanford to fly to the insurance company’s London office, which was actually a 10-foot (three-metre) square cubicle, and fax a letter to a potential investor confirming the bank had insurance. (AP)