Fraud examiner says ex-Stanford execs knew financier tapped investor money for personal loans

Witness: Execs knew Stanford tapped investor funds

HOUSTON — Two executives who worked with jailed Texas financier R. Allen Stanford knew he was secretly using money from investors to fund loans to himself, a fraud examiner testified Wednesday.

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

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 might last through the end of the week, 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 fraud examiner, Alan Westheimer, 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 after being hired by their attorneys in preparation for the hearing, told attorneys for Lloyd’s the two men also told him Stanford had asked them to keep confidential a $63.5 million land purchase in 2008 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 a super exclusive resort.

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 ex-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.