Receiver, Examiner and Investors’ Attorney Announce

August 30, 2010
FROM: Peter Morgenstern, Esq. (pmorgenstern@mfbnyc.com), (212) 750-6776
John Little, Esq. (stanfordexaminer@lpf-law.com), (214) 573-2307
Ralph Janvey, Esq. (SFREMails@stanfordeagle.com)

On August 10, 2010 United States District Judge David Godbey approved the appointment of a seven-member official investors committee to represent the interests of all Stanford investors (the “Committee”). Since that time, the court-appointed Receiver, Examiner, and counsel for the investors who sought establishment of the Committee have conferred and considered expressions of interest from investors and their representatives who inquired about serving on the Committee. After considerable deliberation, taking into account the candidates’ experience and background and the objectives of the Committee, the following individuals have been asked and have agreed to serve on the Committee:

• John J. Little, the court-appointed Examiner;

• Peter D. Morgenstern, the attorney for the investors who sought appointment of the Committee and represents a diverse group of investors from around the world;

• Ed Snyder, an attorney who represents several hundred Mexican investors with combined losses in excess of $220 million;

• Ed Valdespino, an attorney who represents over two thousand Latin American investors, primarily from Venezuela, with combined losses in excess of $500 million;

• Dr. John Wade, an investor from Louisiana;

• Angela Shaw, an investor and the founder and director of the Stanford Victims Coalition; and

•Jaime Pinto Tabini, a Peruvian attorney who represents a substantial group of clients.

The Committee members represent a cross-section of the Stanford victims’ community and will work together to fairly and effectively represent the interests of ALL investors, regardless of their nationality or geographic location. The specific responsibilities of the Committee are set forth in the Court’s Order, but simply put, the mission of the Committee is to assist in maximizing recoveries for all investors in the shortest time reasonably possible, and to provide Stanford investors with a direct voice on important issues related to the receivership proceedings. Undoubtedly, there are many besides the persons listed above who could serve well as Committee members, but because the Committee consists of only seven members, it is not possible to accommodate all who are qualified and willing to serve. We encourage ALL investors to communicate any concerns, questions or ideas to the Receiver, the Examiner or to any member of the Committee at any time and on any topic relating to these cases. We sincerely welcome your participation and input. The Committee intends to communicate regularly with you, primarily by means of a website to be established by the Committee, and through other means, including organizing a public forum in the coming months to provide investors with an opportunity to ask questions or raise issues of concern to them. Additionally, both the Receiver and Examiner will continue to provide information to the public on the Stanford matter through their respective websites and through formal reports to the Receivership Court.

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Yep, the defence is Blame it all on Davis

In testimony today, forensic accountant Alan Westheimer said fraud defendants Mark Kuhrt and Gil Lopez told their superior, James Davis, chief financial officer of the Stanford Financial Group, that the loans should spelled out in the company’s 2006 annual report.

Kuhrt, former Stanford Financial global controller and Lopez, former accounting chief, hired Westheimer to interview them and help present their case because they have invoked their Fifth Amendment rights against self-incrimination.

In his testimony today, Westheimer described Kuhrt and Lopez as “mid-level accounting managers” who discharged their obligations by making the recommendation to Davis.

Davis has pleaded guilty to charges in the case and is cooperating with prosecutors.

The indictment alleges that investors were told the CDs were invested in liquid assets and easily could be converted to cash, when some of the investors’ money actually went to Stanford and his ventures.

International law requires the bank to report such “related party transactions,” Westheimer testified. Kuhrt and Lopez knew this and told Davis the information should be in the financials.

“They told me they had absolute faith in Mr. Davis,” Westheimer said, and believed he was “carrying out is responsibilities appropriately.”

More from AP: It’s a wrap. Lets wait for her ruling.

U.S. District Judge Nancy Atlas on Friday wrapped up a four-day hearing in which she listened to testimony detailing Stanford’s financial dealings at his now defunct companies.

Attorneys for the insurer, Lloyd’s of London, argued that evidence, including the bank’s annual statements and e-mails, showed that Stanford misused bank deposits for personal loans and two ex-executives helped hide this through false records, which violates the insurance policy’s money laundering clause.

If Atlas determines Stanford and Gilbert Lopez, the ex-chief accounting officer, and Mark Kuhrt, the ex-global controller, committed money laundering, one of the charges they face in a federal indictment, they might have to pay back the millions of dollars they have so far received for their legal bills. Atlas said she would issue her ruling at a later date.

“Mr. Kuhrt and Mr. Lopez conspired for years with … Mr. Stanford to cook the books and rob investors of billions of dollars,” Barry Chasnoff, an attorney for Lloyd’s, said Friday during closing arguments in the hearing.

A fraud examiner hired by Lloyd’s, testified this week that Stanford secretly used billions of dollars in bank deposits as loans, which prosecutors say helped pay for his lavish lifestyle, and that Stanford inflated the value of real estate holdings to hide the loans and make the bank appear profitable.

However, Stanford’s attorneys argued the once flamboyant billionaire ran a legitimate business that helped develop Antigua. They acknowledged Stanford was not a “hands on guy” and didn’t know all the inner workings of his more than 100 companies but contended he didn’t misuse bank deposits as personal loans and that this money actually went to support other companies and investments.

“Maybe he was negligent, maybe he should have been a little more careful. But whatever he did does not rise to the level of criminality,” said Bob Bennett, one of Stanford’s attorneys. “Mr. Stanford was not at the center of anything illegal or wrong.”

Attorneys for Kuhrt and Lopez said their clients were not aware of any fraud at the bank and informed others about concerns they had with the bank’s operations.

“If there was a fraud committed here, it’s a fraud we were totally unaware of and totally in no way did we participate in,” said Richard Kuniansky, Kuhrt’s attorney.

Lopez’s attorney, Jack Zimmermann, said there was no proof his client knew bank records were false and that Lopez was duped just like the bank’s investors.

Stanford, Kuhrt and Lopez, who all declined to testify, have alluded that the real culprit was James Davis, Stanford’s former chief financial officer, who has pleaded guilty in the case and is cooperating with prosecutors.

In his plea agreement, Davis detailed how he, Stanford and others manufactured profits and that he and others artificially inflated the bank’s assets to hide that Stanford was using bank deposits as personal loans.

Alan Westheimer, a fraud examiner hired by Kuhrt and Lopez, testified he found no proof the two ex-executives manipulated bank records to hide the alleged fraud.

The insurer’s case mirrors the accusations made against Stanford and the two ex-executives by prosecutors in the criminal case in Houston and by the Securities and Exchange Commission in a lawsuit it filed in Dallas.

The hearing gave a preview of some of the defenses Stanford and the ex-executives might present at their criminal trials. Prosecutors and FBI agents working on the criminal case attended the hearing.

Undisclosed Stanford Loans Prove Fraud, Examiner Says

Stanford International Bank Ltd.’s $1.7 billion in undisclosed loans to indicted financier R. Allen Stanford are proof the bank was involved in fraud, a examiner testified in a U.S. court trial in Houston.

“There’s a complete disconnect between what the bank is saying, that it has fully liquid, short-term, fully monetized assets, and the fact a third of these assets are loans to the shareholder,” fraud accountant Mark Berenblut said today.

Berenblut made the statement in his second day of testimony in a civil trial over whether directors’ and officers’ insurance sold to Stanford’s businesses by Lloyd’s of London is voided by alleged criminal conduct.

Investors bought more than $7 billion in certificates of deposit from the Antiguan bank, which Stanford controlled as sole shareholder until the U.S. Securities and Exchange Commission sued the financier in February 2009, and seized his businesses.

Stanford and three other company executives in June 2009 were indicted by a federal grand jury in Houston on charges they’d run a $7 billion fraud scheme centered on the sale of certificates of deposit by the Stanford bank.

Rejected Claims

Investors had been told the bank’s portfolio consisted of conservative, highly liquid investments that offered above- market returns.

Lloyd’s last year rejected the executives’ pleas for coverage under the $100 million worth of insurance bought by the business after Stanford Group Cos. Chief Financial Officer James M. Davis pleaded guilty to charges he aided in the scheme.

The case is Laura Pendergest-Holt v. Certain Underwriters at Lloyd’s of London, 4:09-cv-03712, U.S. District Court, Southern District of Texas (Houston).

The criminal case is U.S. v. Stanford, 09-cr-00342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank, 09-cv-00298, U.S. District Court, Northern District of Texas (Dallas).

Manx link to Antigua corruption inquiry

• Criminal investigation looks at bank accounts
• HSBC ‘accepted £2.3m for ousted PM’s chief of staff’

The government of Antigua has begun criminal inquiries into large payments discovered in Isle of Man bank accounts controlled by Antiguan politicians.

Disclosure of these Caribbean corruption inquiries comes at an unwelcome time for the Isle of Man, described by the chancellor, Alastair Darling, as “a tax haven sitting in the Irish Sea”. The island is under review by the UK government, which subsidises its low-tax regime.

According to documents seen by the Guardian, HSBC bank, in the Isle of Man, accepted $3.2m (£2.3m) on behalf of Asot Michael, once chief of staff to the former Antigua prime minister Lester Bird.

The Bank of Bermuda refused to handle a similar account and filed a “suspicious activity report” before the further account was opened on the Isle of Man, according to investigators’ reports

Another $1.4m in total was paid into HSBC Manx accounts belonging to a former Antiguan high commissioner in London, Sir Ronald Sanders.

The cash under investigation came via an Israeli businessman, Bruce Rappaport, who is alleged to have diverted Antiguan funds into his own pocket while making payments to local politicians.

The Manx role in the Caribbean island’s affairs is laid out in a report following a prolonged investigation by a Canadian forensic accountant, Robert Lindquist. He was called in by the new Antiguan prime minister, Spencer Baldwin, in 2004 to investigate “questionable payments” by Bird’s regime, ousted in a general election.

A civil lawsuit against Bird and his chief of staff accused them of corruption. A new general election is due tomorrow. Coincidentally or not, the Baldwin government announced that police had now been called in, and that Rappaport had agreed to hand back $12m in settlement of the civil lawsuit against him. There had been a “gigantic conspiracy” to rob local taxpayers, the Antiguan attorney general said last month. He said Antigua had been making inflated payments of $400,000 a month, supposedly to pay off a debt to a firm which built a desalination plant on the island. But paperwork unearthed revealed that only $200,000 a month was actually due. The extra cash was routed through a company controlled by Rappaport, and money was passed on to a Panama offshore entity called Bellwood.

Sanders, the former high commissioner, denied getting kickbacks. “I don’t know what kickbacks there could be,” he said. “I worked for Rappaport for a long time, and he paid me.” His lawyers said: “He firmly denies that there has been any impropriety on his part in this matter.”

Bird said that he had committed no crime and was the victim of a “witchhunt”. Michael, his former chief of staff, has also denied wrongdoing, saying: “It is a red herring across the campaign trail.”

HSBC said yesterday that it would publicly neither confirm nor deny information about individual Manx accounts.

“HSBC has robust anti-money laundering policies and clearly defined policies and procedures concerning politically exposed persons,” it said. “Where HSBC identifies any concerns it reports as required to the relevant authorities.”

Execs knew of woes at financier’s bank

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.
Copyright © 2010 The Associated Press. All rights reserved.

Witness questions Stanford bank loans

Over $3 billion in transactions not properly disclosed, he says

R. Allen Stanford’s Caribbean island bank loaned more than $3 billion to Stanford and his companies without properly disclosing the loans, a witness for Lloyd’s of London testified Wednesday in a hearing on whether Lloyd’s should pay the jailed Stanford’s legal fees.

Mark Berenblut, a forensic accountant with NERA Economic Consulting in Toronto, said international reporting standards require that banks report transactions with related entities. He said the Stanford International Bank in Antigua loaned $1.7 billion to Stanford personally and $1.8 billion to companies he controlled.

Berenblut also testified that he reviewed e-mails and financial transactions that showed the bank reverse engineered financial statements — adjusting the numbers to achieve desired results.

The bank is central to the government’s criminal case against Allen Stanford and his co-defendants. Indictments allege that they lured investors into a $7 billion Ponzi scheme by offering above-average interest rates on certificates of deposit issued by the bank.

Stanford and two other former executives of Houston-based Stanford Financial Group want U.S. District Judge Nancy Atlas to order that Lloyd’s continue paying their legal fees under an insurance policy that covered Stanford Financial’s officers and directors. The hearing is expected to last through the week, and Atlas told the parties not to expect an immediate decision on the legal fees.

Lloyd’s had been paying the fees but contends the policy doesn’t cover defense against money laundering charges, which are among the accusations in indictments against Stanford, founder of Stanford Financial Group; its former accounting chief, Gil Lopez; its former global controller, Mark Kuhrt; and its former chief investment officer, Laura Holt.

Holt has settled with Lloyd’s, Atlas said Tuesday.

All four say they are innocent of the charges against them. Stanford has been jailed for more than a year as a flight risk. The others are free on bail.

Stanford Financial Group’s ex-finance chief, James M. Davis, was charged separately, pleaded guilty and is cooperating with prosecutors.

He figured in testimony Wednesday by Alan West-heimer of Houston, a forensic accountant hired by Lopez and Kuhrt. The two have invoked their Fifth Amendment rights against self-incrimination, but Westheimer testified about interviews he did with them.

He figured in testimony Wednesday by Alan West-heimer of Houston, a forensic accountant hired by Lopez and Kuhrt. The two have invoked their Fifth Amendment rights against self-incrimination, but Westheimer testified about interviews he did with them.

According to Westheimer’s account, Stanford bought land on several Caribbean islands for $63.5 million in 2008. Giselle James, a former Stanford employee called as a witness by his lawyer, Robert S. Bennett, testified that Stanford planned a project called Islands Club containing 30 exclusive estates.

According to Westheimer’s testimony, Davis told Kuhrt and Lopez to value the land at $3.74 billion on company books, saying he based that figure on recent comparable sales.

In their interview with Westheimer, “Lopez and Kuhrt were very clear about the red flag this raised,” West-heimer testified.

They told Davis they would need a real estate appraisal and advice from outside legal counsel before they recorded the higher valuation in the company’s financial records, and Davis told them he would take care of the matter, West-heimer said.