Examiners say ex-Stanford execs knew of financial problems at Texas financier’s Caribbean bank

By Juan A. Lozano, AP
Wednesday, August 25, 2010

Witnesses: Execs knew of woes at financier’s bank

HOUSTON — Executives who worked with Texas financier R. Allen Stanford were aware of problems at his now defunct Caribbean bank, including fabricated investment reports and that Stanford secretly used money from investors to fund loans to himself, two financial experts testified Wednesday.

The two accountants were questioned about Stanford’s financial dealings during a court hearing in which a federal judge was to decide if Stanford and two executives — under indictment on charges they bilked investors out of $7 billion in a massive Ponzi scheme — will continue having their legal bills paid for by an insurance policy.

The insurer, Lloyd’s of London, says the policy doesn’t pay on charges of money laundering, one of the many counts Stanford and Gilbert Lopez, the ex-chief accounting officer, and Mark Kuhrt, the ex-global controller, face in a federal indictment. Stanford and the ex-executives say they are not guilty and that Lloyd’s should honor the policy, which so far has paid more than $15 million in legal fees to them in their criminal and civil cases.

The hearing before U.S. District Judge Nancy Atlas, which began Tuesday and will continue on Thursday, is providing a preview of the upcoming criminal trials in the case.

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.

The two accountants are both certified fraud examiners. One, Mark Berenblut, was hired by Lloyd’s to examine the bank’s records, while the other, Alan Westheimer, was hired by attorneys for Kuhrt and Lopez. Both were called as witnesses for Lloyd’s.

Berenblut testified that, in reviewing e-mails between Kuhrt and other company executives that contained copies of monthly investment reports, he found the figures used to show money being deposited by investors into the bank was being manipulated. Attorneys for Lloyd’s, mirroring claims by prosecutors, say the bank’s balance sheets were made up and the work of reverse engineering.

“My belief is these numbers are artificial. They have been set with a predetermined objective in mind,” said Berenblut.

Attorneys for Kuhrt and Lopez contended Berenblut failed to prove the former executives had anything to do with alleged fraud at the bank or that they benefited from it.

Westheimer, earlier testified that Kuhrt and Lopez told him they knew money deposited into the bank was being used to fund personal loans to Stanford and that this wasn’t being reported to investors. Prosecutors have accused Stanford of secretly diverting more than $1.6 billion in investor funds as personal loans to himself to pay for his lavish lifestyle.

Westheimer, who interviewed Kuhrt and Lopez, told attorneys for Lloyd’s that the two men also told him Stanford had asked them to keep confidential a $63.5 million land purchase in 2008 that the financier had made in the Caribbean.

Prosecutors in the criminal case contend the value of the land purchase was later artificially inflated to $3.1 billion to boost the bank’s revenues and hide financial losses. Stanford has contended the land purchase was legitimate and he had planned to use it to build a super exclusive resort in Antigua.

Giselle James, a former employee of the Stanford Financial Group who testified on behalf of Stanford, said she helped promote development of the resort, called the Islands Club Project.

James said the project, which had started to be built, proposed creating 30 estates on Guiana Island, a small island off the northeast coast of Antigua.

James, who is from Antigua but now lives in Houston, spoke highly of Stanford and said she loved working for him.

Kuhrt and Lopez have tried to put the blame for what happened at the bank on James Davis, Stanford’s former chief financial officer, who has pleaded guilty in the case and is cooperating with prosecutors. Attorneys for Stanford have said the financier didn’t have direct involvement in the daily workings of his companies and was sometimes out of the loop.

Westheimer said Kuhrt and Lopez told Davis about their concerns with the loans and that it was Davis’ idea to inflate the value of the $63.5 million land purchase.

Stanford and the two former executives are not testifying at the hearing, asserting their Fifth Amendment right against self-incrimination.

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.

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