By Patsy R. Brumfield/NEMS Daily Journal
HOUSTON, Texas – Former Stanford executive James Davis admitted in court Thursday that he had an affair with Laura Pendergest-Holt, whom he met in the Bible study class he and his wife taught.
The “personal relationship” with the Baldwyn native, he said, lasted from 2001 to 2003.
Davis met her in 1996 and recruited her to work for Stanford when she finished college in 1997. Pendergest-Holt was promoted to chief investment officer of Stanford Financial Group in late 2004 and ran the Memphis office, where a staff managed investments to bring profit to the company.
Davis said when he told their boss, R. Allen Stanford, about the affair, he was pleased.
“That’s good,” Davis said Stanford told him. “She’ll be loyal.”
What did he mean by that, the prosecutor asked Davis, who is testifying in Stanford’s $7.2 billion fraud case in Houston, Texas, the town where he built his financial empire.
“That she would continue to speak, act, manage in a loyal way to sell CDs and the method of sharing internally and externally” that investments being managed and monitored as the company claimed to investors, Davis explained.
Stanford’s trial began Jan. 23 and is expected to run six to eight weeks.
Davis’ testimony is scheduled for three days, then probably at least another two under what’s been blistering cross-examination by defense attorneys toward other government witnesses.
“Yes, I did lie” about many aspects of the international business, Davis said. “I wanted to please Mr. Stanford. I was proud, embarrassed. I was a coward. Years later, I was greedy,” his voice choking back emotion, “regrettably.”
Davis said he first met Stanford while the two were Baylor University students in 1973. They were roommates one semester.
After a series of accounting jobs, Davis went to work for Stanford in 1988, which lasted until federal agents raided the business in February 2009 and charged the higher-ups with a Ponzi scheme on investors who bought certificates of deposit through Stanford International Bank Ltd. in Antigua.
“He was charismatic, dictatorial,” Davis described his boss. “He controlled by money, flattery, intimidation and fear.”
Davis said he knew the bank business was a fraud, as early as the summer of 1991 when questions arose with a CD salesman, that FDIC insurance would help make the product more attractive to potential clients. Stanford told everyone SIBL had insurance through British Insurance Fund Ltd., based in London.
The moment of truth, Davis said, came when Stanford told him to fly from Houston to London, send a fax to a potential client from BIF’s office and fly back home.
“He told me that it was not a real company in terms of an insurance company,” Davis testified. “It had no ability to pay a loss. It was a marketing device.”
Davis said he did as requested. The office was a small cubicle within a business set up to house other business activity.
“He trusted me to keep the confidence. If it had been someone else, the fraud would have been exposed,” Davis explained. “After that, I knew it was a fraud.”
Why not quit, the prosecutor asked him.
“I wanted to please Mr. Stanford,” Davis answered. “I was a coward. He signed my paycheck.”
Ultimately, Davis said he realized that Stanford was retaining 75 percent of investment assets and using CD deposits to fund his playboy lifestyle of yachts and private planes in furtherance of a vision to attract the richest of the rich to the Caribbean and his assorted companies.
Only he and Stanford ever knew exactly what was in that asset pool, called Tier 3.
In August 2009, Davis pleaded guilty to his part in the Ponzi scheme and faces up to 30 years in prison. If his cooperation for the government rises to a high enough level, prosecutors will recommend leniency to U.S. District Judge David Hittner, presiding over the trial in downtown Houston.
Davis said Stanford’s draw on bank deposits grew to $5.1 billion but Stanford insisted they could “grow” the bank’s assets to expand their way out of the debt, which depositors were never told about.
But when the 2008 economic downturn hit, depositors got nervous and started pulling their money out of the bank. They did that until February 2009, when a U.S. investigation and receivership froze all assets.
To date, no one has gotten any more money out of the Stanford financial empire except the receiver, who’s spent millions to determine, find and liquidate those assets. Victims voice concern that there won’t be anything left for them.
Davis, whose first salary was about $60,000 a year, said his compensation reached $900,000 a year, plus substantial bonuses at the end. Across his 20 years with Stanford, he said he received about $14 million for his work.
More than once, he insisted, he went to Stanford to voice deep concerns about their money hole. He said he’d stand in front of his boss and pretend his hands and legs were shackled as if he were under arrest – that discovery would have consequences.
“He would laugh and say hahaha, that’s OK, I’ll just tell them you’re on the books. I’ll just blame it all on you. Laugh it off!”
Stanford’s attorneys say the scheme was all Davis’ fault and that Stanford had no idea what was happening with the money.