Ground Rules for Stanford Testimony

Lawyers in the R. Allen Stanford fraud trial on Friday began discussing
ground rules for his testimony, which likely will start early next week if
he chooses to take the stand.

Defense lawyers said they have one more expert witness to call on Monday,
after which Stanford might testify. They gave no hint in open court about
their decision, and a gag rule forbids them from any other public comments
about the case.

After the jury was dismissed for the weekend, prosecutors, defense lawyers
and U.S. District Judge David Hittner talked about what will be admissible
if Stanford elects to tell jurors his side of the story. Defense lawyers
told jurors early in the trial that their client would testify, but he
doesn’t have to.

The prosecution has the burden of proving his guilt beyond a reasonable

Friday morning, a prosecutor’s question to a defense witness prompted a
heated court argument after Stanford’s lawyers sought a mistrial.

Hittner denied the mistrial motion but instructed jurors that they should
base conclusions on testimony from the witness stand and not on lawyers’

‘Skunk in the jury box’

Defense attorney Ali Fazel moved for the mistrial, arguing that prosecutor
Andrew Warren put a “skunk in the jury box” when he asked a defense expert
witness if he knew computer hard drives containing Stanford financial
information had been erased.

Warren was cross-examining forensic accountant Morris Hollander, who was
beginning his third day on the witness stand and had testified that the
auditing and financial statements of Stanford’s companies complied with
international accounting standards.

He had acknowledged previously that he based his information on the
financial reports themselves, and didn’t have access to working papers that
Stanford’s auditor, CAS Hewlett, used to generate the annual reports.

“Are you aware that the firm erased the hard drives?” Warren asked.

Jury escorted out

Fazel immediately asked for the mistrial, and the jury was escorted out so
lawyers could argue the motion.

“They’re making it sound like the reason the wiping occurred is because
there’s something in those records or lack of in those records that make the
wiping necessary,” Fazel said.

The government said Hewlett’s daughter told investigators she wiped his
firm’s hard drives clean after he died in 2009, but that nothing in Warren’s
question implied wrongdoing.

The defense argued that the condition of the hard drives constituted hearsay
and not evidence.

The indictment against Stanford alleges that Hewlett received bribes in
exchange for producing favourable financial reports.

Testimony before the jury resumed after about 45 minutes, and Hollander
repeated his earlier testimony that financial statements show loans to
Stanford from his bank in the Caribbean nation of Antigua were for
investment in his companies.

Reorganization backed

He also said that the investments and other entries in the financial reports
suggest Stanford was reorganizing his financial network – consistent with a
defense argument that the Stanford businesses would have remained solvent
had the U.S. government not seized their assets in February 2009.

The government alleges that Stanford and others ran a $7 billion fraud using
money investors put into certificates of deposit at Stanford International
Bank – which like all Stanford’s ventures was a subsidiary of Houston-based
Stanford Financial Group.

Stanford has denied wrongdoing. He is being held without bail because
Hittner ruled that his former wealth and international contacts make him a
flight risk.


Accountant: Stanford’s bank properly audited

Thursday, February 23, 2012

There was nothing “extravagant” about millions that were paid to the outside
auditor of jailed Texas tycoon R. Allen Stanford’s Caribbean bank, an
accountant told jurors Thursday at the financier’s fraud trial.

Prosecutors allege the bank was at the centre of a Ponzi scheme that took
billions from investors. But Morris Hollander, a forensic accountant hired
by Stanford’s defense team, testified that his review of financial
statements and other documents seemed to show the bank was being properly
audited by the businessman’s outside auditor, C.A.S. Hewlett, and the bank
was adhering to international accounting rules.

When questioned by a prosecutor, however, Hollander said he had not seen any
of the bank’s actual accounting books and records. He said his conclusions
were based only on his review of prepared annual reports and other documents
that authorities allege were fabricated by Stanford.

Stanford is accused by prosecutors of orchestrating a 20-year scheme that
bilked more than $7 billion from investors through the sale of certificates
of deposit from his bank on the Caribbean island nation of Antigua. They
also allege Stanford, whose financial empire was headquartered in Houston,
lied to depositors by telling them their funds were being safely invested
but instead spent it on his businesses and his lavish lifestyle.

Prosecutors allege Stanford bribed Hewlett, who was based in Antigua, with
more than $4.6 million from a secret Swiss bank account over a 10-year
period, to help him hide the massive fraud. Defense attorneys say the money
was payment for auditing services.

“Are these amounts (the $4.6 million) extravagant … if you were auditing
the bank?” Ali Fazel, one of Stanford’s attorneys asked.

“In my view they are not extravagant,” Hollander said.

Prosecutors have also alleged Stanford used up to $2 billion from deposits
as personal loans and investors were not made aware of the loans.

Hollander said based on international accounting standards, the loans did
not need to be reported to investors because they were actually investments
in Stanford’s businesses, which included two airlines and a company that
maintained his fleet of private jets.

Prosecutor Andrew Warren said that from 2003 to 2008, Stanford’s various
companies lost $711 million.

“Would people have bought the CDs if they had known the size of loans to Mr.
Stanford?” Warren asked.

Stanford’s attorneys have said he was trying to consolidate his businesses
to pay back investors when authorities seized his companies. Hollander said
his review of prepared reports showed the proposed consolidation indicated
Stanford’s various companies had a total value of $8.59 billion by the end
of 2008. Prosecutors allege nearly all of that money was already gone by
that point and the proposed consolidation was just a way to hide the fraud.

“Does consolidation allow you to create billions of dollars out of thin
air?” Warren asked.

“Not consolidation by itself,” Hollander said.

Hollander spent much of his time going over the bank’s reports and
explaining financial terms to jurors, sometimes in painstaking detail.

That prompted federal prosecutor Gregg Costa to say during a jury break that
the testimony was moving at a “glacial pace” and to suggest the defense team
was delaying the trial _ in its fifth week _ so it could have more time to
prepare for when Stanford takes the stand.

Fazel replied that “assumes Stanford will testify.”

Defense attorneys said at the start of the trial the financier would
testify. After testimony ended Thursday, Fazel told U.S. District Judge
David Hittner a final decision hasn’t been made.

Since Stanford began his defense last week, witnesses have said the
financier was not a hands-on boss and that his chief financial officer,
James M. Davis, handled the day-to-day operations of his businesses.
Stanford’s attorneys have accused Davis, the prosecution’s star witness, of
being behind the alleged fraud. Defense witnesses have also testified that
many of Stanford’s business ventures were profitable and depositors were
informed there was risk with their investments.

Testimony was to resume Friday.

Stanford Accountant Witness Says No Sign of Fraud in Financier’s Reports

By Andrew Harris and Laurel Brubaker Calkins – Feb 23, 2012

Morris Hollander, an accountant testifying at R. Allen Stanford’s trial,
told a jury he saw no sign of fraud in annual reports issued by the
financier’s Antigua bank.

“I see no evidence that indicates there was any fraudulent financial
reporting contained in those reports,” Hollander said during his second day
of testimony for the defense in the trial at the U.S. courthouse in Houston.

Hollander, a partner in the international accounting firm Marcum Group LLP,
told the court while his testimony was based on those reports, he hasn’t
seen underlying accountant work papers from which financial figures in those
reports were derived.

The financier, who has been on trial since Jan. 23, is fighting a cold that
has forced the early adjournment of the trial each of the past two days.
Stanford has been in court for the entirety of today’s proceedings.

Challenged Testimony
Federal prosecutors, led by Andrew Warren, repeatedly challenged Marcum’s
testimony today, prompting U.S. District Judge David Hittner to reiterate
that Hollander’s recitation of figures from Stanford financial records are
admissible only for the fact they were said and not for their objective

Still, based upon a consolidated statement of Stanford business holdings in
December 2008, the financier held more than $9 billion in assets, Hollander

Warren greeted Hollander on cross-examination late today with the question,
“Hypothetically, if I tell you I have a trillion dollars in my pocket, how
much money do I have in my pocket?”

Only drama left besides verdict is whether Stanford will talk

The R. Allen Stanford fraud trial appears to be winding down, and the big
question is whether the Texas tycoon will take the stand today, Monday or at

The defense team will continue this morning with their paid expert
accountant witness, Morris Hollander. Once his testimony is over, another
paid witness is expected to come on, and then possibly Stanford himself.

Stanford doesn’t have to take the stand. And the defense team does not have
to tell U.S. District Judge David Hittner or the prosecution team that he is
testifying until the last possible moment.

The 61-year-old financial services king is accused of running a $7 billion
Ponzi scheme through sales of certificates of deposit from his Antigua bank
and if convicted on the 14 counts against him, could spend 20 years in

The government claims CD customers were told their money was going toward
safe and conservative investments and presented evidence that two-thirds of
it was used to fund his other companies and Stanford’s high-end tastes.

But the defense says the bank was solvent, in the midst of a reorganization
and would be here today if the government had not shut it down in 2009.

Second Report of the Joint Liquidators Grant Thornton

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Stanford bank CDs complied with rules, witness says

By Terri Langford

HOUSTON — Certificates of deposit issued by R. Allen Stanford’s offshore bank complied with regulatory requirements as to their use and marketing, a defense witness testified Wednesday in Stanford’s trial on charges the CDs were fraudulent.

Mike Callahan, who has worked as a securities broker and as a compliance officer ensuring that financial companies follow laws and rules, testified that Stanford brokers who sold the CDs earned 3 percent commission. That is within guidelines set by the Financial Industry Regulatory Authority, an industry self-regulating organization, he said.

Testifying as a defense expert witness, Callahan also said that unlike stocks — which represent a share of ownership in a company — CDs are bank deposits that promise a certain return over time, but don’t stipulate how the bank is to use the money.

He noted that investors in the CDs issued by Stanford International Bank in Antigua received disclosure notices explaining that the CDs weren’t insured by a government agency, as are most deposits in U.S. banks, and that they carried risks, including loss of all funds invested.

“They’re telling the investors these securities are not covered by SIPC,” Callahan said, referring to the Securities Investors Protection Corp., an industry organization created by Congress that protects investors in certain instances if a broker-dealer fails.

On prosecution cross-examination, Callahan agreed that disclosure statements alone don’t show that an institution isn’t committing fraud.

Stanford and others are accused of using the CD funds for luxury items, investments in risky business ventures and unsecured personal loans.

According to earlier prosecution testimony, Stanford International investors were told that the bank was subject to oversight by Antiguan regulators and an independent auditor.

But the indictment alleges that a regulator and auditor received bribes in exchange for favorable reports, and Callahan agreed that if that were the case, it would be false to state that the bank was monitored independently.

Lawyers for Stanford, 61, a Mexia native, have told jurors he will testify in his own defense although he isn’t required to. A gag order issued by U.S. District Judge David Hittner prohibits parties from commenting on the case beyond what they say in open court.

Wednesday’s court session ended early, for the second consecutive day, because Stanford appears to be suffering from a cold.

In other testimony Wednesday, a defense expert witness said that Stanford Group Co., a brokerage that marketed the bank CDs through offices in Houston and elsewhere, was overseen by the U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority.

“It was a highly regulated business,” said Morris Hollander, a certified public accountant and forensic accountant — an auditor who analyzes financial documents for use as court evidence.

The Antiguan bank, however, was not subject to any U.S. government or industry authorities, Hollander said.

Hollander said he examined 20 years of financial reports for the bank, a subsidiary of Houston-based Stanford Financial Group. In preparing its financial documents from the late 1980s to the early 1990s, Hollander said, the bank used Generally Accepted Accounting Principles, the U.S. standard. It later changed to International Financial Reporting Standards, which Hollander said was appropriate since the bank had many clients in Latin America.