Former CEO testifies Stanford conspired in investment fraud

By Bloomberg – Friday, February 3rd, 2012.

James Davis, the former Stanford Financial Group Co finance chief, testified as a government witness that R Allen Stanford, the company founder, conspired with him in an investment fraud.

Davis, 63, pleaded guilty to three felony charges in August 2009 and agreed to cooperate with prosecutors. He testified today against his former boss and Baylor University roommate at Stanford’s criminal trial in federal court in Houston.

Assistant US Attorney William Stellmach asked Davis if he committed any crimes at Houston-based Stanford Financial Group.

“Yes, sir, I did,” he replied.

Stanford, 61, is accused of leading a $7 billion investment fraud scheme. He maintains he’s not guilty of the 14 criminal counts he’s charged with. They include mail fraud, wire fraud and obstructing a US Securities and Exchange Commission investigation.

Stanford’s lawyers have argued that while their client was the public face of the organisation, he was misled about its financial health by Davis and other executives.

Davis pleaded guilty to conspiring to commit mail and wire fraud, mail fraud and conspiring to obstruct the SEC probe. He told the jury today he faces as long as 30 years imprisonment.

“My obligation is to tell the truth,” Davis said of his plea deal with prosecutors.

Dressed in a dark suit and a silver tie, he testified in a quaking voice about his association of more than 30 years with Stanford. The financier leaned forward at the defense table and glared at his former colleague.

Davis testified that he lied about financial statements of Stanford International Bank Ltd, the Antigua-based financial institution prosecutors say sold fraudulent certificates of deposit to investors.

“I lied about overstating the value of these investments, and I lied about the nature of these investments,” he said.

“Who conspired with you to commit those crimes?” Stellmach asked.

“Mr Allen Stanford and others,” Davis said.

Stellmach asked why Davis agreed to lie about overseeing the bank’s professional money managers, who weren’t under his supervision.

“I wanted to please Mr Stanford,” he said, his voice choked. “I was proud, embarrassed. I was a coward.”

He described Stanford’s management style as that of a “charismatic dictator.”

“In his charismatic way, he controlled by money, flattery, intimidation and fear,” Davis said. “He used to say it is much better to be feared as a leader than loved – get better results.”

Davis said he was well paid while working for Stanford. He also said the financier at one point refused to speak with him for three months.

Stanford once invited him for a ride in his new Mercedes Benz, he said.

“We went 170 miles per hour down the freeway,” Davis said. “Scared me to death. He paid well, flattered you, instilled intimidation and fear.”

The case is US v Stanford, 4:09-cr-00342, U.S. District Court, Southern District of Texas (Houston) Bloomberg.