Financier Stanford and ex-execs battling insurer over legal bills in $7 billion fraud case

By Juan A. Lozano, AP
Monday, August 23, 2010

Legal bills at issue in Texas financier’s hearing

HOUSTON — Jailed Texas financier R. Allen Stanford and three of his former company executives have racked up millions of dollars in legal fees as they defend themselves against charges they bilked investors out of $7 billion in a massive Ponzi scheme.

An insurance policy has thus far covered their legal bills. But the insurer, Lloyd’s of London, is trying to turn off the financial spigot by having the policy voided. Stanford and the ex-executives have sued Lloyd’s.

The question of whether the insurer will continue paying is in the hands of U.S. District Judge Nancy Atlas, who is holding a court hearing beginning Tuesday in an effort to resolve who will pay the legal bills. The hearing could also provide a preview of the upcoming criminal trials in the case.

Lloyd’s says the policy doesn’t pay on charges of money laundering, one of the many counts Stanford and ex-executives, Laura Pendergest-Holt, Gilbert Lopez and Mark Kuhrt, face in a federal indictment.

The financier and his ex-employees say they are not guilty and that Lloyd’s should honor the policy, which will pay up to $100 million. So far, Stanford alone has spent more than $6 million on legal fees by hiring and firing attorneys from at least 10 different law firms.

At the hearing, which will include witness testimony and could last up to four days, attorneys for Lloyd’s will have to prove Stanford and the executives committed money laundering. Besides money laundering, Stanford and his one-time colleagues have also been indicted on charges of wire and mail fraud.

Those expected to testify include former investors who allegedly lost money through investments in Stanford’s businesses and financial experts, some who will say Stanford’s financial empire was a sham and others who will say it was a legitimate enterprise.

Stanford and the three other defendants, however, were not going to testify, asserting their Fifth Amendment right against self-incrimination, said Bob Bennett, Stanford’s attorney.

“None of the parties will testify … because of the pending criminal case,” Bennett said. “They don’t want to give a road map to the prosecution.”

Prosecutors were expected to attend the hearing, which could possibly give them a preview of the defenses Stanford and the other executives might present at their criminal trials.

Stanford’s trial, being handled by another Houston federal judge, is set to begin Jan. 24. The others will be tried after that.

Stanford and the former executives are accused 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.

Authorities say Stanford and the executives fabricated the bank’s records, bribed Antiguan regulators with investors’ money from a secret Swiss bank account and misused funds to pay for Stanford’s lavish lifestyle.

Attorneys for Lloyd’s did not return telephone calls seeking comment about the hearing.

But in court documents filed last week, they said Stanford treated the bank in Antigua as “his personal piggy bank, secretly sucking out investor funds to use and lose as he pleased.”

Lloyd’s attorneys called Pendergest-Holt, the chief investment officer, the “face of Stanford’s criminal enterprise” who knew Stanford promised unrealistic returns on investments and said Lopez, the chief accounting officer, and Kuhrt, the global controller, helped create false annual reports for Stanford that helped “dupe regulators and keep the fraud going.”

Stanford and the three former executives are also fighting a Securities and Exchange Commission lawsuit filed in Dallas that makes similar allegations.

Bennett said he is confident Atlas will rule in favor of Stanford and the other executives.

“I think it’s going to be real close,” he said. “But win or lose, we will go (to trial) in January.”

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