The R. Allen Stanford who’s due in a Houston federal courthouse today to start his $7 billion investment fraud trial is far different from the Texas billionaire prosecutors indicted 2 1/2 years ago.
Weeks before his June 2009 indictment, Stanford strode into the same courthouse with a high-profile defense lawyer and volunteered to surrender. U.S. marshals declined at the time to arrest the Stanford Group Co. founder, then estimated by Forbes to be worth $2.2 billion.
“I’m not a damn swindler,” Stanford said weeks before he was charged. He vowed to clear his name, take back assets seized by securities regulators, and repay more than 20,000 investors he’s accused of defrauding through allegedly bogus certificates of deposit at Antigua-based Stanford International Bank Ltd.
Now 61-years-old and visibly thinner, Stanford has endured a string of setbacks since he was indicted and jailed because prosecutors said he might try to flee. In September 2009, he suffered broken facial bones in a beating by another inmate and became addicted to anti-anxiety medications prescribed by prison doctors after the attack. After completing eight months in a prison rehabilitation unit in November, Stanford claims he still can’t remember much of his life or details of his once far-flung business empire, according to his lawyers.
“In a complex financial fraud case, it’s almost impossible for defense counsel with even substantial resources to put on a good defense without the active participation of their client,” said Barry Pollack, a white-collar defense attorney with Miller & Chevalier in Washington who isn’t involved in the case. “His attorneys are hamstrung without his help.”
Stanford’s insurance company successfully sued him in jail to avoid paying his legal defense costs. With all his corporate and personal possessions seized by U.S. securities regulators in a parallel civil fraud suit, he was declared indigent and given taxpayer-funded attorneys by U.S. District Judge David Hittner, who will oversee Stanford’s trial.
This month, the financier’s entire defense team tried to quit. Contractors complained they hadn’t been paid in months, and his lawyers insisted time and budget constraints imposed by the courts had left them unable to adequately defend Stanford against charges that could imprison him for more than 20 years. Hittner disagreed and ordered the team to prepare for trial as scheduled.
Prosecutors accuse Stanford of skimming more than $1 billion in investor deposits to fund a lavish lifestyle -- including yachts, a fleet of jets, cricket teams and a private Caribbean island -- and to support multiple women, several of whom crowded into court almost three years ago with their children to support the financier. The Stanford entourage has since dwindled to occasional courtroom appearances by his mother and a lone female admirer, who says she also visits him regularly in prison.
Lead prosecutor Gregg Costa said the government will prove Stanford “obtained CD proceeds under false pretenses.” Any value represented by Stanford’s other holdings is irrelevant in light of misrepresentations Stanford made to customers concerning the safety, oversight and performance of their investments, Costa said last week in court filings.
“It was bait and switch,” Assistant U.S. Attorney William Stellmach said at a Jan. 18 hearing. “He told depositors that their money was in safe, conservative, highly liquid investments. In fact, billions of dollars were diverted to various personal businesses and investments that he himself owned.”
Houston attorneys Ali Fazel and Robert Scardino, Stanford’s lead defense counsel, said they’ll use thousands of bank and business records to show jurors the financier never intended to defraud anyone. They claim no investor lost money until the government stepped in and seized the businesses, destroying their value. Stanford International Bank stumbled in the same global financial meltdown that tripped up banks worldwide in late 2008, they said.
The missing billions of dollars prosecutors claim Stanford misappropriated were actually used to fund startup companies, real-estate ventures and other investments intended to keep above-average returns flowing to investors in the Antiguan bank CDs, his lawyers said. These assets account for the missing investor funds, they claimed. The defense will demonstrate that Stanford’s accountants were working on rolling them onto the bank’s books when regulators stepped in, Fazel told Hittner.
“There was a consolidation project under way, not just something they were talking about, but that they were doing,” Fazel said at the Jan. 18 court hearing. “The government’s contention that this is fraud is just wrong.”
Hittner will begin quizzing 80 prospective jurors today, looking for Houston-area residents without extensive prior knowledge of Stanford’s case or biases from media coverage of what the government claims is the second-largest Ponzi scheme in U.S. history. Only the estimated $20 billion in investor principal taken by confessed swindler Bernard Madoff, the New York investment manager, ranks larger, according to the government.
As Stanford faces a trial that will last at least a month, his court-appointed receiver in the regulatory case continues to sell his assets to help repay investors and creditors. The receiver traded away Stanford’s right to use his own name in business to end a trademark lawsuit by Stanford University. Stanford had claimed he’s related to the school’s founder, a boast which prosecutors said they’ll tell jurors is false.
Life in Prison
If Stanford is convicted, prosecutors said they’ll ask to keep him in prison for what amounts to the rest of his life. Acquittal wouldn’t return his wealth.
“The asset liquidation is all happening outside of the criminal process and would’ve happened without the criminal charges,” Pollack said, comparing Stanford International Bank to a business in involuntary bankruptcy. If Stanford’s acquitted in the criminal case, he will gain little advantage in fighting the U.S. Securities and Exchange Commission’s allegations because of the lower burden of proof in civil cases, Pollack said.
“It’s not uncommon that someone can be acquitted criminally and still be found civilly liable,” he said. “A jury can say, we’re not 98 percent sure you committed fraud, but we’re at least 51 percent sure you did.”
The criminal case is U.S. v. Stanford, 09-cr-342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank, 09-cv-298, U.S. District Court, Northern District of Texas (Dallas).
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