Witness: Stanford Was Center of Fraud

Allen Stanford used fake insurance and false financial statements to deceive investors and regulators as he sought to shield his global financial empire from government scrutiny for more than two decades, his top deputy said on Feb. 2.

James Davis was testifying at the criminal trial of his former boss in federal court in Houston. Stanford is accused of running a $7 billion Ponzi scheme based on fraudulent certificates of deposit issued by his bank in Antigua.

“All monies came from the depositors for all the Stanford companies and operations,” Davis told the jury on day nine of Stanford’s trial.

Davis, 63, has pleaded guilty to charges of fraud, conspiracy and obstruction as part of a plea deal with federal investigators. He is the only person to have pleaded guilty in the alleged Ponzi scheme.

His testimony pits him against his one-time close friend and former college roommate at Baylor University in Waco, Texas. During Davis’ testimony, Stanford alternated between listening intently and scribbling notes.

Davis said he and Stanford prepared false financial statements for investors, lied to employees at the bank and in one instance carried out a scam to dupe a customer into believing deposits at the offshore bank were insured.

In 1991, Davis said he flew to London, where Stanford had set up a shell insurance company called British Insurance Fund. He faxed a fake insurance policy to a potential customer who was worried about coverage of his deposits. Davis said he caught the next flight back to Houston after he sent the fax.

Davis, who admitted he believed the bank was a fraud from nearly the start of his tenure with Stanford in 1988, told William Stellmach, an attorney with the U.S Department of Justice, that he could not leave the firm.

“I wanted to please Mr. Stanford,” Davis said. “I was a coward. Years later, I was greedy, regrettably.”

Over the course of his 21-years working for Allen Stanford, Davis told the jury he received about $14 million in compensation.

“He trusted me to keep the confidence,” Davis said. “If he told someone else, the fraud that was going on would have been exposed.”

Davis was the chief financial officer of Antigua-based Stanford International Bank. Blaming him for the alleged scheme is a key part of Stanford’s defense strategy.

Davis, who has been free on $500,000 bond, also told the jury that Stanford opened his bank in Antigua to escape scrutiny from U.S. regulators. “He didn’t feel he could go through that rigorous regulatory vetting,” said Davis, who looked frail and wore a suit that was clearly too large for him.

He described his former boss as a charismatic dictator who managed employees with “money, flattery, intimidation and fear.”

(Reporting By Anna Driver; Editing by Eddie Evans)

Topics Fraud