March 7 (Bloomberg) -- R. Allen Stanford’s jury, a day after finding the Texas financier guilty of leading a $7 billion international fraud, heard evidence on federal prosecutors’ request that he forfeit $300 million in assets.
The jury of eight men and four women yesterday convicted Stanford on 13 of 14 charges including four wire fraud counts and five mail fraud counts carrying maximum penalties of 20 years in prison. No sentencing date has been set.
The forfeiture trial that continued today started about 2 1/2 hours after jurors rendered their verdict. Prosecutors want the panel to decide how much money Stanford must give up now that they’ve said he is guilty.
“Fifty percent of a prosecutor’s job is to obtain the conviction,” said Paul Pelletier, a former Stanford prosecutor who is now with Boston-based Mintz Levin Cohn Ferris Glovsky & Popeo PC. “The other 50 percent is to recover for the victims, and forfeiture goes a long way towards that goal.”
Stanford, the founder of Houston-based Stanford Financial Group, denied federal government allegations that he lied to investors about the nature and oversight of the certificates of deposit issued by the bank and sold in U.S. by his securities firm, Stanford Group Co.
U.S. Postal Inspector Clayton Gerber today traced the flow of money from Stanford investors to accounts in Switzerland and, ultimately, to a bank in the Cook Islands near New Zealand, where they were held in what Gerber identified as the Baby Mama Trust.
The trust held proceeds from the 2009 sale of a Key Biscayne, Florida, home owned by Rebecca Reeves-Stanford, with whom the financier had two out-of-wedlock children.
Gerber said that home was bought in 2005 with money from the sale of a Boca Raton home that Stanford purchased for Reeves-Stanford in 2002 for $1.1 million using CD holders’ money transferred to a Swiss bank account.
On cross-examination by co-lead defense counsel Ali Fazel, Gerber said he didn’t have opening balances for all of the bank accounts about which he testified. While some of those accounts were opened before 2000, his review only reached back to about that year, he said.
“Aren’t you making assumptions as to what monies were there to begin with?” Fazel asked.
“No,” the postal inspector said.
Stanford funds now held in the U.K., Switzerland, Canada and Antigua belong to his bank depositors, Justice Department lawyer Andrew Warren told the jury yesterday at the outset of the forfeiture proceeding.
“It includes the SocGen slush fund about which you’ve heard a lot about already,” Warren said, referring to money held at a Swiss unit of Paris-based Societe Generale SA. “Every single dollar the U.S. is seeking is CD depositors’ money that stems from Mr. Stanford’s crimes and belongs to the victims of his fraud.”
Fazel responded that the government can’t prove that every dollar in every Stanford account spanning more than 20 years is subject to seizure as a product of fraud.
“The question is whether all the money -- including money in his children’s accounts -- is the result of ill-gotten gains, and we maintain it is not,” Fazel said.
The jury must find that specific Stanford assets were obtained with criminal proceeds in order to force him to give them up, Pelletier said. Funds recovered through this process will be returned to Stanford fraud victims.
Lead prosecutor Gregg Costa declined to discuss the case after yesterday’s verdict, citing a gag order imposed on counsel for both sides by U.S. District Judge David Hittner, who presided over the six-week trial.
The jury began deliberating on Feb. 29. Hittner ordered them to resume deliberations on March 5 after the panel sent him a note saying it was deadlocked.
The panel acquitted Stanford only of the claim he committed fraud in 2006 by using interstate wire communications to buy $9,000 in Super Bowl tickets for the chief of the Antiguan regulatory authority responsible for monitoring his Stanford International Bank Ltd.
“We are disappointed in the outcome,” Fazel said after the verdict. “We expect to appeal.”
While a defense lawyer told jurors in an opening statement on Jan. 24 that they would hear from Stanford, he was never called to the witness stand. Once ranked 205 on Forbes magazine’s 2008 list of the richest Americans, with a net worth of $2.2 billion, Stanford has been jailed as a flight risk since being indicted in June 2009.
Stanford’s lawyers soon will begin marshaling their arguments for appeal, former federal prosecutor Douglas T. Burns, now a white-collar criminal defense lawyer in New York who isn’t involved in the case, said in a phone interview.
“They’re going to scour through the trial record for any mistakes made” by Hittner, he said. The defense team may also challenge the judge’s December ruling denying a requested postponement.
Stanford sustained head injuries in a September 2009 jailhouse inmate assault and later developed an addiction to anti-anxiety medication resulting in a near nine-month term at a federal prison hospital in North Carolina.
His lawyers had argued he wasn’t fit for trial and that they had insufficient time to prepare their case.
“They could say the judge erred and made an abuse of discretion,” Burns said.
Kevin Sadler, lead lawyer for Stanford’s court-appointed receiver, Ralph Janvey, said the financier’s conviction may bolster the receiver’s lawsuits alleging fraudulent transfers against former Stanford financial advisers and investors who “persist” in claiming no fraud occurred at Stanford’s operations, he said.
“This conviction makes it impossible for that kind of fantasy to be sustained anymore,” Sadler said. “As silly as it sounds, people are still asserting that.”
Houston investor Cassie Wilkinson ran to court after receiving a call at the gym that the jury had reached a verdict. Wilkinson, who attended most of the trial, said she lost about $500,000 on Stanford CDs.
“It is a relief that 12 jurors saw it the way we did,” she said afterward. “The bottom line is still we’ve lost. But it is justice, and there’s been no justice for the victims.”
The government presented testimony at trial from investors who bought the allegedly fraudulent CDs as well as from the executives who helped sell them.
The witnesses included government officials and former Stanford Group Co. Chief Financial Officer James M. Davis, who pleaded guilty to fraud-related charges in 2009 and testified for five days against Stanford. Davis, whose relationship with Stanford traces back to when they were Baylor University roommates, told the jury he knew the boss was committing fraud and didn’t stop it.
Prosecutors told the jury in their closing argument that Stanford wasted investor money on failing businesses, yachts and cricket tournaments. They said he secretly borrowed as much as $2 billion from his bank and sought to build an island resort for billionaires.
By 2008, the bank owed investors $7 billion that didn’t exist, prosecutor William Stellmach said.
“Stanford had been digging that hole for years with his lavish lifestyles and loser companies,” he said.
Stanford’s defense lawyers argued that his banking disclosures complied with internationally accepted accounting standards. They also contended he had sufficient assets in an array of private enterprises to repay all investors. They said Stanford was consolidating those companies onto the bank’s balance sheets when the SEC sued him for fraud and seized his businesses in February 2009.
The defense presented former Stanford employees who said they saw no evidence of fraud at the company. Some testified in support of the defense’s contention that Stanford was an absentee visionary who left the details of running his operation to Davis.
Stanford co-counsel Robert Scardino used part of his closing argument to challenge Davis’s credibility, calling him “one of the biggest liars you ever heard about or read about.”
Stanford was declared indigent and given a taxpayer- financed defense because all of his assets were frozen by court order in February 2009 when he was sued by the U.S. Securities and Exchange Commission.
The U.S. judge in Dallas overseeing that case appointed a receiver to marshal and liquidate Stanford’s holdings to repay investors. While Stanford waited in jail for his criminal trial to begin, the receiver sold his businesses, boats, six airplanes and stakes in a boutique hotel and golf course.
Stanford also lost the honorary knighthood given to him by the Antiguan government for his economic development efforts there. Antigua’s parliament stripped him of the title in November 2009.
The criminal case is U.S. v. Stanford, 09-cr-00342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank Ltd., 09-cv-298, U.S. District Court, Northern District of Texas (Dallas).