Bloomberg News

Stanford Decried Wall Street Greed in 2008 Speech Shown at Trial

January 29, 2012

Jan. 27 (Bloomberg) -- R. Allen Stanford, standing trial on allegations he led a $7 billion investment fraud, appeared in an October 2008 video shown to jurors in which he decried “damn greed” on Wall Street as the financial crisis deepened.

“People are stupid, they’re greedy, they’re lazy, they don’t stick to their core values,” he told a gathering of Stanford Financial Group Co. executives in Miami. “We’re different.”

In the video, shown yesterday in Houston federal court, the financier told his audience that the company was “$5.5 billion more liquid than it should have been.” Four months later, U.S. regulators filed suit claiming his businesses were missing billions of dollars in investor money. He was indicted in June 2009.

Prosecutors accuse Stanford of skimming more than $1 billion in investor deposits from his Stanford International Bank Ltd. to fund a lavish lifestyle and support real estate developments and unrelated companies that included regional airlines and newspapers.

Charged with mail fraud, wire fraud and obstructing a U.S. Securities and Exchange Commission probe, Stanford, 61, told jurors earlier this week that he wasn’t guilty. He faces as long as 20 years in prison if convicted on the most serious charges.

U.S. District Judge David Hittner, who is overseeing Stanford’s case, said the trial, which began Jan. 23, could last six weeks.

The video was played as Jason Green, former president of Stanford Group Co.’s private client group, testified against his ex-boss.

Green told the jury of 10 men and five women, which includes three alternates, about a monthly newsletter Stanford drafted for his investors and sent to him for his input in December 2008, the same month New York money manager Bernard Madoff admitted to the biggest Ponzi scheme in U.S. history.

‘Exposure’ to Madoff

“We want our depositors to know that SIBL had no direct or indirect exposure to any of Madoff’s investments” or to subprime debt, Green read aloud from the draft newsletter.

Green also read to the jury an e-mail he sent to Stanford and to Stanford’s chief financial officer, Jim Davis, less than a week before the SEC sued and put them out of business. Davis has pleaded guilty to fraud and is expected to testify against Stanford.

In the e-mail, Green urged the men to hire a major accounting firm as the Stanford business auditor, replacing a sole practitioner in Antigua, to publish a validation of its asset values by their custodians, and to hold a conference call or town meeting with Stanford investors to provide transparency in the “trust-but-verify” post-Madoff era.

‘Antiguan Madoff’

Green in that e-mail referenced news articles accusing “Sir Allen of being the Antiguan Madoff,” adding that he and other managers believed that absent taking the steps he outlined, “We would not have a business to defend.”

Asked by prosecutor William Stellmach whether Stanford responded, Green said, “The silence was deafening. No.”

Then, just days before regulators’ Feb. 17 seizure of his business, Stanford sent his brokers a letter to give their clients, Green said.

In it, the financier told depositors their money was safe. He also said investors ought not be concerned by media reports that regulators were investigating his operations, calling these visits “routine examinations” being conducted on many large financial institutions at that time.

Structured Commissions

Earlier, Green had testified that Stanford structured commissions at his securities brokerage to reward members of his sales force who sold the most certificates of deposit issued by his Antigua bank.

Those CDs are at the heart of U.S. government charges that Stanford orchestrated an investment fraud scheme.

Brokers who had quarterly sales of at least $1 million in CDs in excess of any funds clients withdrew during the period earned bonuses and commissions twice as big as those paid to employees who didn’t, Green said. Those who fell short of that target were dropped to the lowest compensation rate.

Stanford organized brokers into regional teams that competed to sell the most CDs every quarter. Team names ranged from the Miami Money Machine for Stanford’s top producers in South Florida to the Aztec Eagles for his Mexican operation. Prosecutors showed jurors a scorecard that Green said showed sales by these “superstars” were as much as $323 million in 2006, which was 110 percent of their goal.

Blue Shirt

Wearing a charcoal-gray suit and blue shirt, Stanford watched and took notes as Green answered the prosecutor’s questions and read from documents shared with the jury.

Green told jurors that while he hasn’t been criminally charged for his role in the alleged scheme, he has been sued by former brokerage clients on claims of negligence for recommending the CDs.

He said the receiver appointed in a lawsuit filed against Stanford by the U.S. Securities and Exchange Commission also sued him, seeking to recover bonuses and commissions he earned selling the CDs.

“I’m taking some risk in testifying, but I feel that it’s the right thing to do,” Green said under questioning by Stellmach. “That’s why I’m here.”

Caribbean Bank

Stanford first began selling his Caribbean bank CDs to U.S. citizens around the time Green joined the company in 1996. Previously, the CDs were only sold to non-American citizens to limit the Antiguan bank’s exposure to U.S. regulations and oversight, said Green, who was with the business until the end.

The financier is accused of deceiving employees and investors about the extent to which he personally managed the bank’s investment portfolio. The government claims Stanford and the company’s finance chief managed about 90 percent of the bank’s funds, which prosecutors told jurors Stanford treated “like a personal piggybank.”

Green testified that he was “shocked” to learn that Laura Pendergest Holt, the firm’s chief investment officer, wasn’t overseeing a team of European money managers who handled all of Stanford’s investment portfolio as he had been told by “Mr. Stanford, Mr. Davis, everyone that was affiliated with the bank that was in a position to know.”

‘Managing the Managers’

“You wanted to know that somebody was managing the managers,” Green said. Pendergest Holt told him “maybe two or three days before the FBI and the receiver shut us down” that she managed just a fraction of the bank’s portfolio.

Green said Stanford clearly ran the company, in his opinion. He recalled an instance where Stanford heatedly objected to a decision made by Davis.

“‘I don’t know who Jim Davis thinks he is,’” Green said he remembered Stanford shouting. “‘This is my company.’ I know that he talked to Mr. Davis about it, and I’m sure he gave him an earful. Mr. Davis wasn’t very nice to me for some time” after the incident.

During cross-examination by Stanford lawyer Ali Fazel, Green said that internal sales contests were commonplace in the financial services industry before being banned by regulators. He also said he didn’t sell the company’s CDs to every client even though it would have boosted his ratings in the competition.

The former Stanford executive also conceded that the brokerage sold more than just Stanford bank CDs.

‘Bad or Evil’

“Is there anything bad or evil about growth?” Fazel asked.

“No,” Green replied, agreeing it would be counter- intuitive to not want to grow a business.

“This is a capitalist system” the attorney pressed on, “There’s nothing wrong with that, is there?”

“Not inherently,” Green answered. His cross-examination continues later today.

The criminal case is U.S. v. Stanford, 09-cr-342, U.S. District Court, Southern District of Texas (Houston). The SEC case against Stanford is Securities and Exchange Commission v. Stanford International Bank, 09-cv-298, U.S. District Court, Northern District of Texas (Dallas).

--Editors: Peter Blumberg, Michael Hytha

To contact the reporter on this story: 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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