Day 6, Part 2: Money mgr says Holt, Davis wanted him to change report slant

By Patsy R. Brumfield / Daily Journal

HOUSTON, Texas – R. Allen Stanford’s trial begins Day 6 with “the big” James Davis testimony looming, possibly later today. We’ll see.
Stanford, 61, faces up to 20 years in prison if convicted on charges he operated a $7.2 billion Ponzi scheme on 20,000-plus investors worldwide.

(Below is a running account from the courtroom. Please excuse the typos and glitches likely as I type fast.) #stanfordtrial
• • •
9:40 – Judge hears discussion about another criminal case. Stanford’s girlfriend in audience with perhaps a dozen others.

Stanford comes in with dark suit, light blue shirt and no tie. He smiles at the woman, then begins to take a look at documents.9:40 – Judge hears discussion about another criminal case. Stanford’s girlfriend in audience with perhaps a dozen others.

Stanford comes in with dark suit, light blue shirt and no tie. He smiles at the woman, then begins to take a look at documents. His mother enters a few minutes later.

10:00 – Stanford working intently on documents with attorney Ali Fazel. Prosecutor Costas in courtroom now. Seats starting to fill up in the downtown Houston courtroom.

10:15 – Judge back from recess to attend to other court business. Jury enters at 10:20, 5 women 10 men (three are alternates). Judge asks about courtroom temperature. Court having a little trouble with audio-visual displays. Mark Collinsworth, Memphis investment research analyst, on stand.

Collinsworth – Stanford Group Co. Financial advisers sold CDs. Line to Stanford International Bank. Graphic shows how money moved around, just Tier 2 from research advisers to global money managers. Tier 3 larger, 9-10 times larger. In Memphis, about 25 in Memphis worked on Tier 2, none on Tier 3. Davis, Stanford, board/investment team managed Tier 3, Laura PH Tier 2.

Told never to talk about Tier 2 – Holt and Davis told them, multiple times.

He’s looking at annual financial reports. Blacked out sheet, now pages are visible. Balance sheet – MC says snapshot in time of finances. Total reported assets of SIBL (Objects to form of Q) (Renew objection) (Pros Andrew Warren) Warren asks him about total assets – about $7B, MC says.

Includes total Tiers 1-3. Tier 1 cash end of 2007 – $627M. Oversight, not in Memphis. Total amt of Tiers 2-3 end of 2007 – $6B. Out of that, what was amt in Tier 2? About $889M. (Total of Tier 3 end of 2007?) About $6B? (Checking math) About $5.5B. (Where money located?) $889M with European money mgrs. Other Tier 3 managed by .. called themselves managers day to day overseen by Stanford, Davis, board. European managers were Tier 2, they bought stocks etc. European mgrs for Tier 2. (Know where Tier 3 managers were?) No.

10:36 – (Look at document) (Judge says Scardino isn’t here, at funeral, back Tuesday.) (Pros says exhibit not entered for truth. What is doc?) Standard operating procedure for senior investment officer. To explain how bank mngs money for client. (Page 2 – page from manual. Asks him to read it.) SFG and SIC installs strategic investment officer job. (Who shareholder?) Stanford. (Another graph, read) Manual to provide info on transfer program about strategic investment officer. (Another page – asks to read graph) Q&A in manual to help SIO about goals of bank, resource to address client need. (Next page – asks to read. Who manages portfolio?) SIO oversees SIBL portfolio. More than 20 advisers responsible for managing the assets, it says. (Is that your understanding?) Yes. (Asks about Mr. Zerek, SIO?) CIO is one with ability to bust a trade – that’s Laura Pendergest-Holt. (What about this group of global advisers? Is this European? Who led this group?) 20 is European. Just Tier 2 managed. (Another page – how many analysts are watching the portfolio?) Team of 15, it says. Monitor daily activity. (Accurately describe Memphis work?) Yes. (Entire portfolio?) I don’t know how it was managed. (Accurate of entire portfolio managed?) Don’t know if it’s Tier 2 or 3. I only managed in Tier 2. (Does Memphis group manage portfolios?) Says SFG Group just managed Tier 2.

(Another page in manual – training manual for Tier 1) Liquid cash, managed by Patricia Maldonado. Tier 2 – more aggressive, stocks. etc. Tier 3 – longterm bonds, blue chips. Not what I thought Tier 3 was – that it had private equity, some hedgefunds. (Ever been to Antigua?) Yes, late 2001. (Judge asks how you get down there?) It’s an all-day journey. Memphis, Miami, Puerto Rico, Antigua. (How flew?) Mostly commercial, occasionally private jet, STanford’s. (Why went?) To start prep for our move down there. Going ot start in 2002 doing 4 analysts to live there and rotate out of there every 3 months. Work in office at bank. If client came through, would work with us to answer questions. (How many done?) I only did one. Other rotations, eventually broke it down to 2 analysts every two weeks. I did five or six of those. (Who’s idea was that?) Mr. Stanford’s idea.

(Purpose of why in Antigua?) Worked in office, walked potential clients through, sought to answer questions from them. (Rotations – how many time talked to clients/) None. (Work in Antigua?) Much slower there. Computers slow, limited memory, Internet very slow. Took 3 hours to go to lunch. They think you’re on vacation, restaurant service is very laid back. Did same work as Memphis. (See anybody from Lloyds there?) No. I was at SIBL. Never saw anybody from Lloyds, other insurance companies there. Nickname for Antigua? The Rock, basically a rock in middle of ocean with nothing to do. (For where worked?) The Fishbowl, room analyists with glass, animals in a cage, We’d kind of wave at them and that’s about it. (Private equity?) Companies where stocks aren’t publicly traded. Don’t trade on any stock markets. (Companies?) Large and small. (Ever heard of stanford Venture Capital?) Did private equity deals. Did work later. Asks to be on a vetting committee in 2008. Davis wanted me to look at all the potential deals with SVC to see if they are quality, not quantity.

Good portfolios have structure, organization, like a work of art. Noah’s Ark Syndrome means like Noah, two by two, like a zoo, not well structured. (Review these investments?) Yes. (Compare with your work?) Large companies versus micro-companies. Tier 2 had mega-caps like Coke, high returns, positive cash flow. In SVC, lower quality, negative cash flow, high debt levels, poor returns. (Liquidity? Was SVC liquid?) No, they don’t rade on exchange so to get buyer, must find them. Can’t trade quickly. (As you understood SVC, who owned it?) Top was SFG. (Nov. 2008, what happening per Tier 2 portfolio?) When first time we saw withdrawals come out of it.

Previous 9 years, money came in. About Thanksgiving, actually started pulling money out – Laura Pendergest-Holt. (Why?) Told that with year-end, wanted to show a large cash position. Laura said. Iwas told Tier 2. (Reason, said why because of more CD redemptions?) Nobody said. (News of Madoff scheme?) Dec. 2008 (Per your job?) I became extremly concerned about how Tier 3 was invested and its location. Returns on SIBL’s portfolio was very similar, hedgefunds. After Madoff news, discovered those funds were feeder funds into Bernie Madoff. (Why concern?) Because SIB returns were very similar. (Judge – how so?) Returns were averaging 11% like SIB – I believed Tier 3 was directly invested or indirectly with Bernie Madoff. (Overall SIB?) Concerns to Laura PH. She said seen Tier 3, nothing to worry about. She called a conference with portfolio managers, talked about how company made money in 2008.

(Did what she say address concerns?) I felt good after. Changed, over next day or so. She said place made money was real estate and private equity. AFter thinking about it, these were worst of year. Didn’t know how made money that way. (Explain again.) She said they made money … Tier 3 … private equity is ownership in a company that isn’t publicly traded, like Facebook, Yahoo. Must negotiate private deals. (Did you review the SVC private equity? Big companies?) Oh, no. Usually, big firms … see Facebook, AOL, Yahoo, well known just not public. (You saw?) Companies… you wouldn’t recognize any of them. (Judge – how know what’s in Tier 3?) It was SVC, which Danny Bogard was working on. (Warren – goes to chart to ask who manages what, again.) (Where does SVC fit in?) Not anywhere in Tier structure. I didn’t know who ultimatley funded SVC. It was a separate company, not within Tier structure.

Says never knew what was in Tier 3, how much. (Prior to talking to Laura PH in 2008, ever seen any of its assets?) No. (What did she tell you?) Private equity, real estate, some hedgefunds. (Concered a few days later?) We’re siting there, Laura is good sales person, made you feel warm and fuzzy about things. I felt that way, then my brain kicked in and this just doesn’t make sense per real estate, if it’s down 50-60 percent. (Why didn’t it make sense, what LPH what she said?) Can’t make money if real estate is going down. Can’t sell real estate short – it’s way to make money when market goes down.

(Why didn’t make sense?) It was a total disconnect. That they had done deals and sold them. REality – market was a total collapse. (Private equity?) She said values going up. But understood … bulk need some kind of cash flow. (Holt said private equity values up?) In real world, it was going down. (Did anyone tell you … 2007… but in 2008, did anybody say annual report numbers aren’t real?) No. (What LPH saying?) Trying to neutralize our concerns … when started asking questions, they made her feel uncomfortable. (What about 2008 SIB?) About $8B. (She said not to worry, $8B in assets. Did she show you spread sheets for Tier 3, statements?) No. (Ever insight into Tier 3?) No.

Davis, LPH in Memphis. Stanford, I don’t know where he was based. Stanford was the boss, gave vision. Davis in charge of executing those orders.

11:11 – FAZEL (DEFENSE ATTY): (Asks how Stanford is set up. Talk about structure, as you understand it?) Hired by Holt. Interviewed with Davis, too, not Stanford. (RAS was owner, 100% shareholder?) Correct. (How many companies in 2008, RAS owned or was involved with?) Oooh, maybe 11-12 that I’m aware of. (What about over 100?) Would surprise me. (Other than RAS … in your world, in Memphis …just that portion of the company?) Yes. (Underneath RAS, people who an company. SIBL, SVC, SIC. Who was pres of SIBL?) Juan R. Torantino, JRT. (Pres of SG?) Danny Bogard. (Pres of SVC?) Rocky Stein. (Davis, was CFO of SIBL? Also of SVC, S..?) Don’t think so. Mainly with SIBL. (At Memphis, day to day there run by Mr. Davis?) Yes. (Laura PH reported to?) Davis. (Who made final decisions about investments at SIBL?) Davis.

(Asks questions about Bank of Panama, Venezuela – in Tier 2?) I don’t think so. (Other banks were run by others. Reported to hierarchy of Stanford Company?) Correct. (In beginning on Friday, talked about liquidity?) Yes. (Remember … am I correct? … liquidity ratio is current assets, divided by current liability?) Yes, correct for liquidity ratio, current ratio. (Agree that real estate to close in one year, is current assets?) No. (Any assets, like real estate to close within one year, is considered as current?) Yes, definition of current is within one year, liquid. (Better example, let’s say own a home, want equity loan in house against equity, bank says great, fill out forms. Home turns into assets. Money there. Definitions depend on circumstances. As matters change, some assets that weren’t current become current?) Yes.

(Point is, some absolutes but things change. Some assets become current?) Yes.

(Tier systems. Anything wrong with having tier systems in company?) No, most major banks have that system. (Anything wrong, unusual with purely liquid tier?) No. (Money coming into bank, it’s pooled with other money?) Right. (Idea then money used by the bank. Illegal?) No. (Pooling of money isn’t illegal?) No. (Not like keeping money in trust.) Right. (Tier 1 – liquid assets?) Yes. (Idea to keep pure cash so money is used for withdrawals. Wrong?) No. (Regularly done?) Yes.

(Tier 1 – in SIBL? Any problems?) NO, it was cash. (Unusual about having treasurer of the institutions having control if it?) No. (Moneys necessary to move from one place to another? Treasurer’s job?) Nothing wrong. No. (Tracking report – talked about on Friday – conglomeration of some analysts in Memphis, put into one report?) Correct. (Your part, what you were looking at?) Right. (You didn’t keep track of everybody else?) No. (Illegal, unusual about that?) No. (Numbers for SIBL, SGC.. remember?) Yes.

11:29 – (Fazel writing on flip-chart – aware SIBL had $7.9B CD deposits in 2008?) No. (SGC broker dealer?) Yes. (Aware in Sept. 2008, SGC had about $7.5B in assets?) No. (Bank of Antigua, Panama, Venegzuel – $5.2B in asset then?) No. (About $15B in assets?) Yes. (Awre another $31B in assets under asets in SVC?) No. (Add them – About $48B?) Agree. (Of tht, SIBL CD program is about 14%?) Correct. (Of $48B under management …) (While at Stanford, you worked on all sorts of projects – Double Eagle?) No worked in Triple Eagle. Same as Double but with stocks instead of commodities. (Explain TE goal) Computer program to select stocks to remove human emotion from selections? Nothing illegal, fraudulent. (March 2008, email from Laura PH?) A lot, which? (Regarding from Davis to Holt to you about SIM?) Stanford Investment Model. (Issue with reporting to Stanford?) Stanford iInvesment Model, nothing unusual. (What did Stanford ask them to do?) Be more specific. (About how well SIM was doing?) Wanted to know what return nubmers were for first Q of 2008. (Conversation between Holt, Davis, Stanford about SiM numbers?) Yes. (What happened when asked?) At that time, SIM market was down less than market. They wanted nubmers to be positive to show Stanford. (What they wanted you to do?) To change nubmers from negative to positive – Laura PH and Davis. (To change numbers?) Yes, there’s a story with it. (judge – short story). About SiM, I reported on general forecasts. In St. Croix at dinner with Davis’ son Zach, he was an analyst under me. He reported to me. Laura said have you seen this email? Showed it to me, make the numbers positive. I thought she wanted article to have a more positive tilt on the economy. To research report. That’s when others said, don’t change numbers. Must be referring to article. She wouldn’t ask me to change numbers to positive., surely. Then I go back to room, read report. wasn’t negative just factual about global economy. Wonder if she wants me to change the nubmers. STanford ocming in next day. Hoped he wasn’t going to ask me. I was going to tell him the truth. Never changed the nubmers. Don’t know if they were changed. Did Stanford ask? Never did. Felt very relieved. I wasn’t going to lie to the owner of the company. (But PH and Dvis asked for change?) Yes.

11:40 – (Fazel hands him document. Jog memory? Correct, what you said?) Yes. (Asks to enter into evidence.) Judge – asks for 15 minute recess.

• • •