The former CFO of Stanford Financial Group has pleaded guilty to fraud and obstruction charges in a scheme involving the sale of $7 billion in certificates of deposit issued by the Antigua-based bank.
James M. Davis, 60, admitted that he and others at the bank misused and misappropriated most of those investor assets, including by diverting more than $1.6 billion into undisclosed personal loans to a co-conspirator, while misrepresenting to investors Stanford International Bank Ltd.s financial condition, its investment strategy and the extent of its regulatory oversight by Antiguan authorities. As part of his plea agreement, Davis agreed to the entry of a preliminary order of forfeiture of $1 billion.
Davis was charged in June with conspiracy to commit mail, wire and securities fraud; mail fraud; and conspiracy to obstruct an SEC investigation. According to the plea documents, Davis and his co-conspirators began in 1990 to make false entries into the general ledgers of SIBL relating to revenues and revenue balances. Despite this false reporting, Davis and his co-conspirators promoted SIBLs investments as being well-managed, safe and secure and touted in SIBLs annual reports false year-by-year percentage and dollar increases in the purported value of SIBLs earnings, revenue and assets.
Davis further admitted in the plea documents that he and his co-conspirators used bogus revenue numbers for each year to generate the desired return on investment that was reported to investors. These reverse-engineered numbers were developed using a secret instruction sheet that Davis admitted was provided to employees in SFGs accounting group with instructions on to how to make changes to the spreadsheets to generate the false adjusted revenue figures.
Davis also admitted in the plea documents that in order to effectuate the scheme, misrepresentations were made to investors about who managed SIBLs entire non-cash portfolio of assets. Specifically, Davis admitted that 80 percent of SIBLs portfolio, internally referred to as "Tier III," was not managed by global money managers, as was represented to investors, but was actually made up of illiquid investments. These included at least $2 billion in personal loans to a co-conspirator, which were disguised as investments, and overvalued real and personal property, including interests in real estate that SIBL had acquired in 2008 for approximately $65 million, but was ultimately valued on SIBLs books at $3.2 billion. Davis admitted that none of these facts were disclosed to investors.
According to the plea documents, Davis admitted that he and his co-conspirators promoted the sale of SIBL CDs by representing to SIBL CD investors that SIBLs operations and financial condition were being scrutinized by Antiguas bank regulator, the Financial Services Regulatory Commission. Davis also admitted that he knew these statements to be false, because he helped funnel bribe payments to a bank regulator, who is also an accused co-conspirator, in order to ensure that Antiguan regulators would not properly examine the financial statements of SIBL.
Also according to the plea documents, from 2005 through February of 2009, Davis admitted that he and his co-conspirators made a number of misrepresentations to the SEC in order to impair and impede the SECs investigation.
In related cases, Robert Allen Stanford, chairman of SFG; Laura Pendergest-Holt, the chief investment officer of SFG; Gilberto Lopez, SFGs chief accounting officer; Mark Kuhrt SFGs global controller; and Leroy King, the administrator and chief executive officer of the FSRC, were indicted on June 18, 2009, on fraud and obstruction charges related to the scheme. Each are charged with conspiracy to commit mail, wire and securities fraud; wire fraud; mail fraud; and conspiracy to commit money laundering. In addition, Stanford, Pendergest-Holt and King are charged with conspiracy to obstruct an SEC investigation and obstruction of an SEC investigation. A trial date has not been set.
Also, on June 19, 2009, the U.S. District Court for the Southern District of Florida unsealed an indictment charging Bruce Perraud, a former SFG global security specialist at SFGs Ft. Lauderdale, Fla., office, with one count of destruction of records in a federal investigation. Perraud is scheduled to stand trial on Sept. 21, 2009.
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