Stanford Used ‘Slush Fund’ at SocGen for Bribes, Davis Testifies
R. Allen Stanford’s ex-finance chief testified that the financier funneled millions of dollars siphoned from investor deposits through a “slush fund” at Societe Generale SA (GLE) in Switzerland to cover bribes, personal expenses and private investments.
“It was a slush fund, just used for whatever the holder wanted to use it for,” James M. Davis, Stanford Financial Group Co.’s former chief financial officer, told a jury yesterday about the SocGen account at Stanford’s criminal fraud trial. “One purpose was to pull cash out to bribe the regulator in Antigua, Mr. Leroy King.”
Prosecutors contend Stanford diverted $2 billion from customer deposits at his Antigua-based Stanford International Bank to fund his luxurious lifestyle and money-losing ventures such as Caribbean airlines and real-estate developments. More than $40 million went to maintain Stanford’s yachts and as prize money for a cricket tournament, according to records introduced in the 10th day of Stanford’s trial in federal court in Houston.
Davis, 63, told jurors that by the end of 2007, $130 million had been transferred from the Antiguan bank to the Stanford account at SocGen. “These funds came from CD depositors,” he said.
When Assistant U.S. Attorney William Stellmach asked Davis how much of this money Stanford ultimately paid back, Davis replied, “I don’t believe he actually repaid any of the money.”
Denies Wrongdoing
Stanford, 61, denies all wrongdoing in connection with what the government claims was a $7 billion investment fraud scheme built on bogus certificates of deposit at his Antiguan bank. King, former chief executive officer of Antigua and Barbuda’s Financial Services Regulatory Commission, is fighting extradition to the U.S., where he was indicted in 2009 on charges he accepted bribes from Stanford to mislead U.S. securities regulators.
Davis said Stanford’s personal tax accountant decided the financier would get more favorable tax treatment if Stanford signed promissory notes for funds he borrowed from the bank. The U.S. Internal Revenue Service was auditing Stanford at the time to determine if the cash transfers should be treated as loans or ordinary compensation.
Prosecutors showed jurors promissory notes Stanford signed for hundreds of millions of dollars, as well as one Davis signed in 2000 on behalf of Stanford Financial Group for $100 million. Davis said the tax adviser had asked him sign for the company “because it was difficult to get Mr. Stanford’s time to sit down and sign the notes.”
‘Bookkeeping Flip’
Davis walked jurors through a flow chart sketched on a large pad that illustrated the movement of $132 million in depositor funds to Stanford through a venture capital fund he controlled. At some point, funds were shown flowing back from Stanford to the Antiguan bank, with a value of $327 million.
“That was not actual cash” going back to the bank from Stanford, Davis testified. It was a “bookkeeping flip,” designed to make IRS auditors think Stanford was servicing his promissory notes, Davis said.
When Stanford was informed of the accounting maneuver, he “stuck out his hand and said, ‘Great job,’” Davis said.
Davis told jurors Stanford gave King at least $10,000 to $15,000 in cash every quarter, as well as tickets to the National Football League Super Bowl championship games in 2005 and 2009, to prevent government examiners from probing the bank’s investment portfolio.
Inflated Totals
Davis said that for years he supplied inflated totals for the bank’s investment accounts to Antiguan regulators to disguise the gap between the bank’s actual assets and its reported assets. In October 2008, when one island examiner demanded supporting documents for accounts listed in the bank’s portfolio, Davis said Stanford ordered him to create fake account statements that verified the false totals. When Davis accidentally put the wrong dates on the fake statements, Stanford sent a private jet to pick up the corrected paperwork.
In June 2005, Davis said King gave Stanford a copy of a confidential letter from the U.S. Securities and Exchange Commission, asking Antiguan banking authorities for help investigating Stanford’s bank for possible fraud. Davis said Stanford and a company lawyer drafted King’s reply to the SEC, which falsely assured the American regulators that Stanford’s bank was clean.
The case is U.S. v. Stanford, 4:09-cr-00342, U.S. District Court, Southern District of Texas (Houston).
To contact the reporters on this story: Laurel Brubaker Calkins in Houston at laurel@calkins.us.com; Andrew Harris in Chicago at aharris16@bloomberg.net
To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net
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