Feb. 15 (Bloomberg) -- R. Allen Stanford invested much of the millions of dollars he borrowed from investors into growing businesses prosecutors didn’t consider when they evaluated Stanford’s operation for fraud, his lawyer told jurors.
“Isn’t it important to tell this jury what he actually did with the money?” Ali Fazel, Stanford’s lawyer, asked the FBI agent who reviewed Stanford’s books. “Isn’t it misleading to say it went into his personal account when clearly these monies were used for business purposes?”
“All of it was going into his 100-percent-owned companies, his possessions, his expenditures,” FBI Special Agent Robert Martin told jurors at Stanford’s criminal fraud trial, now in its fourth week in federal court in Houston.
“They’re businesses,” Fazel said.
“He spent the money,” Martin replied.
Fazel showed jurors an internal spreadsheet he said indicated hundreds of millions of dollars in value at Stanford’s consolidated companies. Martin testified yesterday the government valued these ventures at “practically zero,” because they were largely unprofitable and were owned by Stanford rather than the bank.
“This is a road map that can clearly tell what the valuations of those companies are, and you never looked at this document before you told this jury these companies had no value,” Fazel told Martin. The consolidated companies had “not only a positive value but positive cash flow, as of Dec. 31, 2008, and positive cash flow should equate to a positive value of the company,” he said.
“That’s not always the case,” Martin responded. He dismissed the spreadsheet as “a mishmash of all kinds of stuff.”
Stanford, 61, is fighting charges he defrauded investors through bogus certificates of deposit at his Antigua-based Stanford International Bank Ltd. Imprisoned as a flight risk since his indictment in June 2009, Stanford faces as long as 20 years in prison if convicted of the most serious charges against him.
Prosecutors accuse Stanford of secretly borrowing $2 billion from depositors’ CDs to finance an extravagant lifestyle and an array of risky ventures, ranging from Caribbean airlines and real estate developments to cricket tournaments. Investors were told their money was kept in safe, liquid assets rather than in speculative ventures.
Stanford’s lawyers have told jurors their client was actively consolidating more than 100 private ventures onto the bank’s balance sheet when regulators seized his operations in February 2009. The attorneys claim that consolidation would have recapitalized the bank and repaid investors, if regulators hadn’t stopped it.
Martin testified there was a $7 billion “hole” between the bank’s actual and reported assets at the time regulators seized Stanford’s operations on suspicion of fraud in February 2009.
“Does consolidating companies allow you to create billions of dollars in assets out of thin air?” Assistant U.S. Attorney Andrew Warren asked Martin. The Federal Bureau of Investigation agent replied that it doesn’t.
Martin said he evaluated Stanford’s side ventures for profitability to gauge their ability to repay his investment.
“There were several great examples of businesses that just aren’t worth anything anymore,” the agent said. He told jurors that Stanford sold his two Caribbean airlines “at a big loss” after they burned through $333 million. “That’s $333 million in loans to companies that don’t even belong to Stanford anymore,” he said.
The criminal case is U.S. v. Stanford, 09-cr-342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank, 09-cv-298, U.S. District Court, Northern District of Texas (Dallas).
--Editors: Peter Blumberg, Glenn Holdcraft
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