By JUAN A. LOZANO, Associated Press
HOUSTON (AP) — Texas financier R. Allen Stanford helped fake profits for his Caribbean bank and funnel millions of depositors' dollars to a secret Swiss bank account used for personal expenses, bribes to regulators and employee bonuses, the man who was in charge of the tycoon's books told jurors Friday.
James M. Davis, the former chief financial officer for Stanford's companies, testified the financier's bank never reported an unprofitable year because he and Stanford fabricated figures for annual reports and other documents. Prosecutors claim Stanford bilked investors out of more than $7 billion in a massive Ponzi scheme centered on the sales of certificates of deposit, or CDs, from the bank on the island nation of Antigua.
Davis, 63, said the false numbers were meant to hide the fraud and show CDs purchased by investors were doing well and the bank itself was on solid financial footing.
"Was Stanford uncomfortable with reporting too high a (profit) number?" prosecutor William Stellmach asked Davis, the prosecution's star witness.
"No," Davis said before a packed courtroom that included Stanford's mother, one of his daughters and two of the financier's ex-employees — Gilberto Lopez and Mark Kuhrt — who have also been indicted and are free on bond as they await trial in September.
Authorities allege Stanford used depositors' money to operate his businesses and pay for his lavish lifestyle and bribes to regulators and auditors. They also say he lied to depositors by telling them their money was 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.
Davis said while the bank never reported an unprofitable year, it did have to report at least one unprofitable quarter to keep up the charade: the third quarter of 2001 when the 9/11 terrorist attacks happened.
"It would have been unreasonable to report a profit when world markets collapsed," he said.
Davis also testified Stanford transferred CD deposits to a secret Swiss bank account the financier had with Societe Generale. He said Stanford used the money for "real estate purchases, paying for personal expenses, beginning another company."
Davis also said Stanford had him transfer some money from the Swiss account to accounts the financier had in Houston and back to Antigua, where bribes of at least $10,000 to $15,000 were paid every three months to the top regulator on the island nation who oversaw the financier's bank. Some of the money from the secret account was used to pay employee bonuses, he said.
The Antigua regulator, Leroy King, helped tip the financier off in 2005 when the U.S. Securities and Exchange Commission began investigating the CD program, Davis said. Stanford help write the response King sent back to the SEC in 2006 saying his agency had found nothing wrong at the bank, he said. King has also been indicted in the case and is awaiting extradition to the U.S.
Davis testified funds from the Swiss account were also used to regularly bribe Stanford's outside auditor, C.A.S. Hewlett, who was based in Antigua, with amounts as high as $180,000. Davis said Stanford considered Hewlett "greedy" but "indispensable" to hiding the fraud.
Stanford worried about Hewlett's health and even brought him to Houston for a physical exam, he said. When Hewlett died in January 2009, Stanford said "he was the lucky one," Davis told jurors. Authorities took over Stanford's companies the following month.
Davis pleaded guilty to three fraud and conspiracy charges in 2009 as part of a deal he made with prosecutors in exchange for a possible reduced sentence. His testimony, which started Thursday, is scheduled to continue Monday.
Stanford was once considered one of the United States' wealthiest people, with an estimated net worth of more than $2 billion. He's been jailed without bond since being indicted in 2009.
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