- The Washington Times - Friday, August 28, 2009

HOUSTON | The former finance chief for jailed Texas financier R. Allen Stanford said his boss created a business empire where blood oaths were taken to secure loyalty, bribes were paid from a secret Swiss bank account and investor profits were more fiction than financial genius.

New details about how Mr. Stanford purportedly bilked investors out of $7 billion were made public Thursday after James M. Davis, Mr. Stanford’s former chief financial officer, became the first person to plead guilty in the case.

Davis admitted in Houston federal court to three counts: conspiracy to commit mail, wire and securities fraud; mail fraud; and conspiracy to obstruct a Securities and Exchange Commission investigation. The plea is part of a deal Davis, who has been helping prosecutors, made with the Justice Department in exchange for a possible reduced sentence.

His plea came hours after Mr. Stanford was taken from the privately run prison where he is being held outside Houston to a local hospital with an irregular heartbeat and high pulse. Mr. Stanford had been set to appear in the same courtroom for a hearing on whether he can get a new attorney. U.S. marshals spokesman Alfredo Perez said Mr. Stanford was undergoing tests at the hospital but declined to give more details.

Davis, 60, only made a brief statement after his hearing.

“I did wrong. I’m sorry. I apologize. I take responsibility for my actions,” he told reporters outside the courthouse.

But Davis’ 23-page plea agreement provided new details of how Mr. Stanford’s business began; how he, Mr. Stanford and others manufactured profits; and how panic set in as they tried to hold off federal investigators who were closing in on their scheme.

Mr. Stanford, Davis and other executives of the now defunct Houston-based Stanford Financial Group are accused of orchestrating a massive Ponzi scheme by advising clients to invest more than $7 billion in certificates of deposit from the Stanford International Bank in the Caribbean island of Antigua.

Investors heard their investments were safe and being scrutinized by Antigua’s bank regulator and an independent auditor.

Mr. Stanford claimed higher rates of return on his CDs than those offered by commercial banks in the United States and consistent double-digit returns on his bank’s investment portfolio.

But Davis said in the court documents that the bank’s balance sheets were made up and the work of “reverse engineering.”

To protect his scheme, Mr. Stanford paid more than $200,000 in bribes, as well as $8,000 for two tickets to the Super Bowl in Houston in 2004, to Leroy King, the former chief executive officer of Antigua’s Financial Services Regulatory Commission, or FSRC, according to court documents.

Mr. King has also been indicted with Mr. Stanford and is awaiting extradition to the United States.

Davis said Mr. Stanford secured Mr. King’s loyalty in a most unusual way.

“Sometime in 2003, Stanford performed a ‘blood oath’ brotherhood ceremony with King and another employee of the FSRC. … This brotherhood oath was undertaken in order to extract an agreement from both King and the other FSRC employee that they, in exchange for regular cash bribe payments, would ensure that the Antiguan bank regulators would not ‘kill the business’ of the bank,” according to the plea agreement.

Davis faces up to 30 years in prison when sentenced. While a sentencing date of Nov. 20 was set, Mr. Finn said he believes that will be delayed.

As part of his plea agreement, Davis was also ordered to forfeit $1 billion in proceeds he made from his illegal actions, although there’s little hope Davis can ever retrieve the funds.

Mr. Finn said authorities have seized all his client’s assets and Davis, who had made between $5 million and $6 million in the past decade, is broke and now doing manual labor on a relative’s farm in Michigan, making $10 an hour.

Mr. Stanford, along with three former company executives, have pleaded not guilty to various charges, including wire and mail fraud, in a 21-count indictment issued June 18. Mr. Stanford has been jailed without bond since then.

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