Decision of whether insurer pay legal bills for Texas financier Stanford now in hands of judge

Fate of Stanford’s legal fees in hands of judge

HOUSTON — Whether jailed Texas financier R. Allen Stanford and two of his former company executives — all accused of bilking investors out of $7 billion in a massive Ponzi scheme — will continue having their mounting legal bills paid for by an insurance policy is now in the hands of a federal judge.

U.S. District Judge Nancy Atlas on Friday wrapped up a four-day hearing in which she listened to testimony detailing Stanford’s financial dealings at his now defunct companies.

Attorneys for the insurer, Lloyd’s of London, argued that evidence, including the bank’s annual statements and e-mails, showed that Stanford misused bank deposits for personal loans and two ex-executives helped hide this through false records, which violates the insurance policy’s money laundering clause.

If Atlas determines Stanford and Gilbert Lopez, the ex-chief accounting officer, and Mark Kuhrt, the ex-global controller, committed money laundering, one of the charges they face in a federal indictment, they might have to pay back the millions of dollars they have so far received for their legal bills. Atlas said she would issue her ruling at a later date.

“Mr. Kuhrt and Mr. Lopez conspired for years with … Mr. Stanford to cook the books and rob investors of billions of dollars,” Barry Chasnoff, an attorney for Lloyd’s, said Friday during closing arguments in the hearing.

Stanford and the former executives are accused by prosecutors of orchestrating a colossal pyramid scheme by advising clients from 113 countries to invest more than $7 billion in certificates of deposit at the Stanford International Bank on the Caribbean island of Antigua, promising huge returns. Stanford’s businesses were headquartered in Houston.

A fraud examiner hired by Lloyd’s, testified this week that Stanford secretly used billions of dollars in bank deposits as loans, which prosecutors say helped pay for his lavish lifestyle, and that Stanford inflated the value of real estate holdings to hide the loans and make the bank appear profitable.

However, Stanford’s attorneys argued the once flamboyant billionaire ran a legitimate business that helped develop Antigua. They acknowledged Stanford was not a “hands on guy” and didn’t know all the inner workings of his more than 100 companies but contended he didn’t misuse bank deposits as personal loans and that this money actually went to support other companies and investments.

“Maybe he was negligent, maybe he should have been a little more careful. But whatever he did does not rise to the level of criminality,” said Bob Bennett, one of Stanford’s attorneys. “Mr. Stanford was not at the center of anything illegal or wrong.”

Attorneys for Kuhrt and Lopez said their clients were not aware of any fraud at the bank and informed others about concerns they had with the bank’s operations.

“If there was a fraud committed here, it’s a fraud we were totally unaware of and totally in no way did we participate in,” said Richard Kuniansky, Kuhrt’s attorney.

Lopez’s attorney, Jack Zimmermann, said there was no proof his client knew bank records were false and that Lopez was duped just like the bank’s investors.

Stanford, Kuhrt and Lopez, who all declined to testify, have alluded that the real culprit was James Davis, Stanford’s former chief financial officer, who has pleaded guilty in the case and is cooperating with prosecutors.

In his plea agreement, Davis detailed how he, Stanford and others manufactured profits and that he and others artificially inflated the bank’s assets to hide that Stanford was using bank deposits as personal loans.

Alan Westheimer, a fraud examiner hired by Kuhrt and Lopez, testified he found no proof the two ex-executives manipulated bank records to hide the alleged fraud.

The insurer’s case mirrors the accusations made against Stanford and the two ex-executives by prosecutors in the criminal case in Houston and by the Securities and Exchange Commission in a lawsuit it filed in Dallas.

The hearing gave a preview of some of the defenses Stanford and the ex-executives might present at their criminal trials. Prosecutors and FBI agents working on the criminal case attended the hearing.

Stanford’s trial, being handled by another Houston federal judge, is set to begin Jan. 24. The others will be tried after that. Besides money laundering, Stanford and his one-time colleagues have also been indicted on charges of wire and mail fraud.

Stanford has been jailed since being indicted in June 2009 while Kuhrt and Lopez are free on bond.