Day 12 afternoon, Part 1: Davis has tough time explaining $1.2M he didn't put on tax reports

By Patsy R. Brumfield / Daily Journal

3:42
HOUSTON, Texas – Defense attorney Robert Scardino continued to push former Stanford CFO James Davis to admit he was the one who defrauded investors and pillaged the Stanford International Bank Ltd., not its owner R. Allen Stanford.
It’s Day 12 in the US vs Stanford. He’s accused of masterminded a $7.2 billion Ponzi scheme on CD investors through SIBL, in Antigua.
(Below is a running account of testimony begun after the lunch break today. Please forgive the typos and glitches likely as I type fast. Read all my accounts @djournal.com under the Allen Stanford Trial News icon. Also watch immediate Tweets on Twitter.com @realnewsqueen. Use the hashtag, #stanfordtrial, to see all reporters’ remarks in the courtroom.
Also, send questions to me at patsy.brumfield@journalinc.com.
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2:22 p.m. – Judge, jury back.
(Scardino – Exhibit … discussing, plea agreement. Quickly walk you through that, explain it. What you agreed to. OK?) Yes sir. (Familiar with document?) Yes sir. (Had lawyer when entered into agreement?) I did. (Who drafted it?) Don’t know. (Whether or not more than one draft?) Don’t know. (Indicates you’ll plead with some kind of agreement?) Yes sir. (Given this to review, see if you agreed to it or not?) Yes sir. (Went over with lawyer?) Yes sir. (Page 1 … agree to plead guilty to Counts 1-2-3- of The Information. Do you understand what information is?) Yes sir. It’s charges that I admit to and agree to. (Outline what you agree to?) Yes. (Count 1, conspiracy to commit wire, mail and securities fraud?) Yes. (Conspiracy, what is it?) With others to commit a crime. (Anything else?) It’s a plan. (Any more?) JUDGE – Tell us elements. (Have to do something to forward the conspiracy?) Yes sir. Judge – Called an overt act.
(Latin “to breath together” conspiracy. What is wire fraud?) To send fraudulent materials through electronic means, through the mail. (Securities fraud?) Under securities laws, fraud. Conspired with others to breach those laws and committed fraud. (Which laws?)That state that you do not mis-state accuracy of the financials statements and reporting out to potential investing public. (Did govt. explain that or your atty?) I came up with that one myself. (Researched this?) I did not.
(Second page … listing of various guidelines to determine his sentence. Calculation?) It means that my actions have indicated that I crossed these listing items and crossing those, breaking these elements, have a period of time attached to them of years. (Law calculatiosn…. to explain that the way sentencing works under guidelines..assigns a numerical number for certain types and kinds of behavior?) Yes. (Wire Fraud – Level 7 …. adds up pluses until it gets to a Minus 2. What refers to?) Don’t know. (Acceptance of responsibility – a Minus 3) Comes to total of 46. (Understand that you testify in a manner acceptable to prosecution, they will ask Judge Hittner to reduce your sentence?) Yes sir.
(Page 3 … punishment ranges… see them. Cts 1-3, not more than 5 years. Ct 2, not more than 20 years… Judge Hittner can stack them to get up to 30 years?) Yes. (Exposure is up to 30 years. You’re trying to avoid that?) Yes, I don’t want to spend 30 years in prison. (How old are you?) 63 (You may not have 30 years?) That’s right.
(Item 6 – financial disclosure prior to sentencing. Done that yet?) No sir. (Provided govt with financial statement yet?) No sir. (Wasn’t a requirement from govt?) Don’t recall doing that. (Don’t have a statement?) I don’t recall preparing a statement yet. (Never told them about the $6M?) No. (Item 7 – cooperation, your cooperation?) Yes. (Agreement carried potential motion for departure. What does that mean?) Understand that my sentencing is up to the judge but this 5K1 could ultimately could amount to a departure from the sentencing. (Hoping to please the prosecution before this jury?) No sir, I’m telling the truth. (4th line … in sole judgement and discretion of the United State, talking prosecutors?) Yes sir. (That you provide “substantial assistance”?) They determine what substantial assistance is. (Who does? Prosecutors?) Yes, their decision.
(Mr. Davis … looking for particular page to refer to. Do you understand that govt has informed you that if you testify in a manner consistent with their theory of the case, something else they can do to reduce your sentence?) No sir. (Remember reference to something called a Rule 35?) No sir. (I remember it but I just can’t find it. Give me a second.) Yes sir. (Did govt not tell you that if it’s consistent, even after sentence by Hittner, they can file a Rule 35 Motion to further reduce your sentence? Explain that?) No, they didn’t explain that. No. (If you do a good job?) Glad to know that it’s there. JUDGE – MUST SIGN THE ORDER (After sentence, additional reduction, at judge’s discretion? That’s absolutely correct?) I understand it now.
NOBODY COULD FIND PROVISION FOR LATER REDUCTION REQUEST.
(Part of your agreement is to disclose everything financial to prosecutors?) Did that. (But didn’t tell them about the $6M?) No sir. (You might be in jeopardy of your deal going away?) NO sir. (Exhibit – see this?) Yes. (Department of Justice, US Atty addressed to Scardino and Fazel?) Dated Dec. 28, 2011. (Part redacted, nothing to do with you?) Yes sir. (At bottom, says regarding Mr. DAvis …advises us he got $400K in wire transfer SFG Acct. 731 From Soc Gen, he understood was a gift from RAS and didn’t pay taxes on them. Davis making arrangements to notify IRS and pay taxes and penalties. Letter notifes RAS lawyers that you have informed govt. of this event?) Yes sit.
(When did you tell them?) I believe in December 2011. (Did you just wake up in night and remembered the $400K?) Believe they asked me about it, the $400K item. Believe they asked me a question about the item or it was in the phrase… was there any other payments made by Mr. Stanford or Stanford companies to you. Don’t recall exact circumstances. (Govt had document and asked about this $400K from slush fund?) Don’t recall exactly the impetus. Recall saying yes, got wire from that account.
(I’m trying to find out what brought this to the govt’s attention? Was it you? Did you tell them, oh I forgot about it in 2006? Or, did they say they discovered a document and we want to ask you about it?) Yes, I believe I was asked about an amount by the FBI. (Back to letter … Davis has advised us, received $400K from Soc Gen. Which is it? Did you just remember or they confronted you?) I advised the of that. (WhY? Remembered or were reminded by a document?) I was asked a question about a $400K item that came into my account. I remembered that it was a payment made at RAS discretion to me and advised them of the transfer. Part of the $14M over 20 years.
(You said you remembered he wired $400K to you in 2006 from Soc Gen 731. And govt asked you about the document? Let’s get it straight?) I remember the $400K very clearly. Telling govt I received it. Remember telling them where I received it from. (Soc Gen 731?) Yes. (Just over a month ago?)
(Exhibit – ?) Transfers from 731 account to various other persons. (RAS got some, who else?) financial advisers. funds, I got one in August 28, 2000. (This exhibit, an analysis of wire transfers out of Soc Gen 731 to others … would be you in 2000?) Yes. (This is govt exhibit of wire transfers?) Yes. (Show jury where you got wire transfer out of 731 in 2006?) Not listed here. I got the money. It probably was a check. (You said a wire transfer from a specific account?) Yes sir. (You lied to govt?) Not intentionally, sir. I received many payments over the years. … (This is U.S. courtroom, requires hire standard of rules. Either you made a mistake about $400K to govt or you lied?) Yes sir
(On exhibit – govt said you would amend tax return to reflect $400K. Done ityet?) No sir. (It was income in 2006?) Yes. (Not a loan? Just income?) Yes sir. (Wouldn’t be on W-2, listed as other?) Yes sir. (So you under reported your 2006 tax report by at least $400K, that’s tax fraud?) NO sir, considered a gift since it came from Stanford. CPA said to list it as a gift. (Was it listed there?) He said to consider it as a gift. I can’t remember. Don’t have it with me.
(Discussed, with prosecutors, they won’t prosecute you for the tax fraud?) Not part of my deal. (Could be?) I don’t think so. (If reported $400K?) Not saying that.
(Exhibit – 2006 tax return …?) Appears to be. (Prepared with tax preparer?) Yes. (Item No. 7, wages etc. you listed $1.962M as wages?) Yes sir. (Attach W-2?) I believe so. (List the $400K in wire transfer or in other income on Line 21?) Uh… should have, will be listed … (Telling us you will change it for your amended return?) That’s the plan. (Line 21 or Line 7?) As advised by my tax specialist. (Already talked about it?) No sir. (Line?) I don’t know where it belongs. (Not wages?) OK, so that’s where it should go.
(Admits Davis tax return into evidence)
(Exhibit – check to James Davis for $400,000 to me by Mr. Stanford. 2006. From Mellon United National Bank.) (Did you tell prosecutors about this $400K?) I believe I did, I believe it’s the same. (Let’s back up, when got your $1.9 million salary in 2006. Did you get check every two weeks? Bonus at end?) Paid check, bonuses quarterly or other times. (Did you give govt. all that information?) Yes. (Wages styled on payroll check. Bonuses reflected it was a bonus?) Some were, some were not. (To show as wages through payroll. Other income to put on Line 21?) Yes sir. (This check we’re looking at to you $400K, was it reported on 2006 tax returns as other income?) No sir, it was not. (Wages?) NO sir. (You committed tax fraud for this too?) MY CPA said it was a gift and did not put it down. It was not fraud. (It didn’t go onto line as a gift?) No sir, it was not reported. (When you said RAS wired you $400K from Soc Gen, not this check?) No. (This is a check to you?) It is.
(Exhibit – another check April 22, 2006?) Check to me from STerling Bank, RAS account, $400K. (This isn’t wire transfer from Soc Gen?) Correct. (This isn’t wages or indicated as any time of bonus?) Doesn’t say that. (Tell govt about this check?) Yes sir. (You did?) Yes sir. (Is this part of the mistake that in Dec. you said got $400K by wire, just one of these checks? Oh, you said they confronted you with a document?) Yes sir. (Mistaken?) I guess. (Possible it’s a lie?) Not possible
(So, this is anotehr $400K in 2006 not reported on your tax return?) Yes sir. (So under-reporting on your taxes really was $1.2M?) Break that down, please. (Three $400K items not listed on your tax returns.) Wire transfer you referred to .. I don’t recall that being or did not see it on the list … the exhibit … from defense counsel of wire transfers out of 731 account. That $400K was not listed on that page. It must have been a mistake and I was just thinking about one of these checks. I made a mistake.
(Will court admonish him?) JUDGE – GOVERNMENT? Stellmach- referring a summary he didn’t prepare. JUDGE – I ELECT NOT TO COMMENT. WILL NOT ADMONISH ANYONE AT THIS POINT. It’s up to you,t he jury, to decide how much weight to put on anything.
(Mr. Davis… what was Crosswalk?) Band my two older sons had in the 1990s. (Legal entity created for it?) Yes, 1997. Mississippi Secretary of State’s incorporation. (Lists resident James Z. Davis?) My oldest son. (SOS document.. sig?) That’s mine. (You incorporated this entity?) Yes. (Have bank account for it?) yes sir. (Exhibit – Open account for Crosswalk?) Yes. (Signatories?) Wife and myself. (Note below says, Jim DAvis only signer. Is that instruction?) I don’t recall it. (Document says so?) It does.
(Exhibit – What is this?) Check from Mr. Stanford to Crosswalk in 2004 for $250,000. (Get more than one?) I believe there was two – one more from Sterling Bank, Mellon Bank. (Farmers & Merchants Bank statement …?) Crosswalk account. (BAck in 2004, what shows balance May 28, 2004?) Zero. (Two checks from RAS – $500K?) Yes. (Page 3 – Farmers & Merchants .. shows what you did with the money?) Yes sir. (What do with it?) Distributed into the companies in Baldwyn. (You needed money?) To do things in Baldwyn. (This was a defunct company and convinced RAS to put $500K to put into this business?) No, from RAS to me… money he wrote to me for bonuses, I presume. (Clearly, though you used them for what they appeared to be written for? To Crosswalk Inc., which didn’t exist at all then?) Correct, only in name. (Not functioning?) No sir. (RAS gave you $500K just because … and you put it in this account?) Yes. (Didn’t say it was an ongoing business?) No sir. (This isn’t a loan?) It was a bonus.
(Anything to say it was a bonus?) No sir, personal check from Mr. STanford.
(New subject …. You prepared a CV, at one time, a resume’?) Yes sir. (When did you do that?) Don’t remember saying I did it. (Threatened to quit?) Mr. Stanford? (No you said you threatend to quit?) Yes, 2006 and 2008. (When RAS said hey, Jim, come work for me? Work history before that?) Worked for Stafford Smith Inc., refrigeration company in Michigan, controller. (Undergrad Baylor, acct and finance?) Yes. (Next?) From there to Stanford. (Ever work for automobile entity?) Not to my knowledge. (Ever have any financial problems for auto-parts biz?) No. (Ever ask RAS for loans before he hired you? To help out of financial bind?) NO sir.
(Exhibit – recognize this?) Yes sir. (What is it?) Resume of myself. (Did you write it?) Yes sir, had it prepared. (Shown on screen … written by you in Baldwyn, MS?) Yes sir. (Wrote?) 1995. (Summary … tells the world that you are thoroughly experience in financial and business admin, as well as planning and portfolio management? Right?) Yes sir. (Learn that at Baylor?) Over the years. (At refrigeration company?) Learned it at STanford and dealing at banks from other positions. (Spec expertise – CFO, board of Stanford Financial Group?) Yes sir. (Knowledge of Eastern CAribbean banks, World Bank, IMF, and Federal Reserve System?) Said I had knowledge. (Government compliance, domestic and international. Strong leadership qualities. Ability for confidentiality and trust?) Yes sir. (Say anything about I’m a liar?) NO sir (A fraudster?) No sir.
(If somebody hires you, you say, you have all these qualities to help future employer in their endeavors?) Yes. (Were you lying when you created this document?) I was lying, loosely. Ability to maintain confidentiality and trust. Lying to everybody else. (What’s lie, what’s not? … walks through resume.) It’s true. (Line for line … you’re saying more than capable of dealing with complicated financial matters?) What i’m saying, yes sir.
(Mr. Davis … jump to something want to make sure we cover before break?) (You testified about your communication with RAS, told jury he was in the loop for fraud, talked about it all the time?) Yes sir, correct. (Have op to go over communication with RAs over the years? Was it compiled for you or did you put it together?) No sir. (Govt didn’t make list of it so wouldn’t have to take your word for it?) No sir.
(Review doc you wrote – email to?) To RAS Nov. 27 2005, from me. Drafted this. (Subject – various items. 8”35 p.m. Where were you?) Living in Mississippi. (Where was RAS?) I’m not sure. (Sent email… nothing about fraud there?) No sir. (Thanks for all you’ve done for me. Didn’t you tell jury you committed crimes to please RAS?) Yes sir. (Can you reconcile that with this statement?) Yes sir, he paid me well. (Tried to please him, and you were greedy?) Started out trying to please and ended trying to please…til end. (Thanks for thousands of others?) He did things for other people. (What had he done?) Paid them high salaries. (Thousands? On Antigua, huge benefit?) Yes sir. (Thanks for leadership meetings. What talking about?) Periodically with corporate executives, within Stanford Group of companies. (Say welcome and desperately needed? Mean you didn’ thave very often?) Means that we need them. (That RAS wasn’t always available?) Probaby meant that.
(You … pushed us to where we are today. Building billions in value. Consistent with told jury in giant scheme to commit fraud?) Yes sir. (If you were in a conspiracy, wouldn’t it be odd to write this to him?) Trying to get him motivated… (More fraud?) To show up. (So, he was ABSENTEE?) At times, he was. (You were running the business?) No sir. (Said his attention was needed?) (During next level of growth, need to reel in managing directors? Are they aprt of fraud?) More accountability on the budget. (Asking for that, with fraud?) NO sir. (Talking at my end… meetings over past years. Does that mean RAS wasn’t in these meetings?) My department’s meetings. He wouldn’t have been there. (Then… you say.. along with CFO responsibilties, pursued … lists other things … with a desire for excellence. You’re trying to do, not Stanford?) Yes sir. (Say I can have better agenda with better quality members. Say My Own agenda …. talk ABOUT MY REPORTS? I am chairman of Ecuador.Not Stanford?) I was. (Advisory Committee – CFO is chairperson? That’s you?) Yes. (Insurance ADvisory Commit – CFO chairm, that’s you?) It is.
(Next pg – Financial Mgt Advisory Committee – CFO is chair, that’s you?) Yes. (You’re in charge of all that, aren’t you?) As defined. (Budget Advisory Committee, CFO is chairperson, you?) Yes sir. (Which committees is Stanford in charge of?) None.
(Says… finally, consider myself to be closest business confidante in your life. If I am, I am not that very close. We rarely spend the time together to talk about huge problems running these many companies.) (Complaining?) Asking for more time. (Consistent that you ran giant fraud?) No.
(Next page…DAvis says should be the ones to speak to direct reports. What are you saying here?) Referring to cabinet group RAS has as this leadership team. Meetings I’m referring to were attended by individuals and I was asking, pointing out, that some should not be there. (You’re saying, it’s your report? You’re in control there?) Of my reports, yes sir. (You are chair of these areas? Asking?) For him to give me more control of the financial areas. (Please receive what I have said with the right heart. Signed Your Brother, Jim.)
3:41 BREAK / SCARDINO says last area will be his last.