Day 8, Morning: Accountant says Stanford paid bills with CD money

By Patsy R. Brumfield / Daily Journal

11:32A.M.
HOUSTON, Texas – Day 8 in government’s prosecution of fallen financier R. Allen Stanford, accused of leading a $7.2 billion Ponzi scheme on purchasers of certificates of deposit sold through his Stanford International Bank Ltd. in Antigua.
NOTE: For anyone who wants a transcript of this trial, likely to last 6-8 weeks, just put a $2,250 deposit down with the Southern District of Texas, U.S. District Court.
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10:06 – Judge Hittner in courtroom, Lawyers in confab with him about “one issue.” What, isn’t apparent yet.
Jury in. Judge says 10:15 a.m. start on Thursday so area district judges can get together for staff recognition event.
10:13 – Costa calls Henry Amadio, accountant. U of Houston grad. Worked for Aero Mexico 1992-2002. Different depts. Supervised general accounting dept. 2002 – went to work for Stanford Financial Group Co.
(How first heard of it?) Contacted by HR manager. (Why?) INitially, looking for an internal audit manager to work in one of their airlines company had. Two, Caribbean Sun and Caribbean Star. They were fairly new. Asked me for an interview, with HR mgr, (thinking, can’t remember name.) Then Gil Lopez. He was at that time the controller of SFG. Controller oversees all accounting processes. About position, Lopez said interested my experience in airline … although didn’t have internal controls experience. Interviewed with Mark Kurdt.
After that, they got promoted. Lopez was chief accounting officer, Kurdt was global controller. CAO was higher rank. Went to work dealing with fixed assets, with airlines, with accountants to establish account systems etc. Started $52K salary, Dec. 16, 2002. (When got there, did what?) worked with airlines, setting up accounting systems/processes, traveling to do inventory of equipment for different entities. (Direct employer?) SFG Co., it was management support company, HR support to other affiliated companies owned by Allen Stanford.
(Is one Stanford International Bank?) Yes. (After you got there, did you visit SIBL on Antigua?) Yes, in January 2003 went to Antigua. (What going on at bank?) Preparation of annual report. (Internal audit?) Yes. (How many from Houston went there to do report, audit?) At least 5-6 people. (Internal Audit Dept.?) yes. 2 internal auditors went there, others. (How long there?) About week and a half. (Said SFG provided accounting services to Bank, did bank also have accountants there?) Yes. (Which report worked on?) 2002. (Exhibit – 2002 report) Recognizes it. (Who signed tht report?) Allen Stanford, James Davis. (graphs in rpt – read?) Bank has internal system for accounting to ensure safety of deposits, approved accounting standards. Banks independent accts engaged for independent accounts. (WHO?) CAS Hewlett. (Verifying books?) Yes. (read?) Objective outside review … of financial condition of bank. (Outside auditor worked with internal auditors on statements?) Yes, correct. (Testing data, what means to you?) To use sampling of info of accounting data, test if it’s accurate. (Bank audit, what type data to test?) All sorts of diff documents, financials, also client deposits, investments.
(Pg 34 in report – balance sheet in 2002 report?) Yes, correct. (Assets, liabilities?) Yes. (Talk about liabilitites.. $1.6B in 2002, breaks down?) Customer deposits are vast majority. (In Antigua, was backup docs to show that that was amount owed to CD depositors?) Correct. Saw testing of liabilities. (Assets?) Investments bank makes to invest those clients’ deposits. (Why view?) That way, person to deposit will see money is invested correctly, no high risk. (Bank requirements about assets versus liabilities?) Yes. Assets have to be higher than liabilities ot have cushion to cover any withdrawals of clients money. (Fixed assets?) Building, furniture, machinery ($5M reported) Vast majority was investment portfolio, $5.7B. (In 2003, did you see any backup docs to support investment portfolio?) No I didn’t. (What kind of backup docs enable someone to test portfolio report?) Would be broker/dealer statements, bank statements showing diff investments, their returns. No, didn’t see them.
10:29 – (Costa – same doc. Breakdown of investments?) Yes. (Equity, treasury bonds?) Yes. (Ever go again for an internal audit?) No. (Learned if internal auditors ever saw docs to verify investments?) (Learn whether backup docs ever given to internal auditors?) No, never given to them. (You said worked in acct department. Did your dept ever receive brokerage satements to verify numers?) No. (think it was unusual?) Yes, it was unusual. Because for internal auditor to give objective review of financials, need to have that information. (Ever told why never disclosed? to auditors?) Information, explanation why … because of the unique investment model company had. Very secretive, not to be revealed. VEry confidential. (Investments, very confidential, told?) yes.
(Aero Mexico, other companies – don’t want their financials disclosed?) Yes. (Can they do something to prevent getting outside?) Sign confidentiality agreements with auditors. (At Stanford, was it enough?) No. (Secrecy with portfolio consistent generally with SFG?) Yes. (Phrase for getting information?) Everything “need to know basis.” (Experience early that highlighted secrecy?) Yes, one occasion we left printed financials on a printer and were informed tht it shouldn’t ever be left in the printer or outside the acct department. Mark Kurdht mentioned to me. (After 2003, never went back to Antigua. Did you continue work on annual report?) Yes. (Level of involvement?) Level of review diff drafts. After ame from Antigua, reviewed multiple drafts from marketing advertising company. Make sure oldinfo flowing into new report, making sure things added up.
(Exhibit – 2007 annual report. Last one published?) Yes. (What about 2008?) Not yet finalized when receivership took over in February 2009. (Pg 6 – read?) Says manage a strong ash flow and strong return on investment…. says our sole shareholder reinvests every dollar earned back into the retained earnings … (What?) Earnings by company. (Is he taking profits or puttingthem back?) Back into the bank. No distribution to shareholders. Strengthened capital base. (By time published, did you have info that it was not true?) Yes, I did.
(What info di you have tht RAS wasn’t putting money into bank?) Fact that we had a shareholder funding report that was reflecting all of the funding that was sent to all Stanford affiliated companies. And those were funds that later on learned were coming from bank and part of clients’ deposits and distributed on behalf of shareholders to all the cash needs of the affiliated companies. (We’ll look at records. How much money?) $1.6 billion. (But said Stanford not taking profits, knew it wasn’t true. Other?) Yes, wasn’t enough profits in bank to make up $1.6B accumulated as shareholder funding to different affilaited companites. Only conclusion that money was oming from client deposits to cover that amount, $1.6B, had gone to RAS other companies.
(Pg 17 – reads) Only bank loans to cash-secure basis. Loans permitted up to 80% deposit…. doesn’t expose clients to risk from commecial loans. (Saw risk?) Yes, I did. Not a true statement. BEcause of shareholder funding report and knowing how diff company were cash funding, there was an existing loan. REferred to as note receivable. (Loaning to?) to R. Allen Stanford (What basic risk of loaning?) That it will not get repaid. ($16B loan, risk not to be repaid?) Yes, that was the concern. Loans growing every year, at one time … (Lending low-risk?) Type of loans only for ash depositors, it’s cash guaranteed. If no repayment the bank can use the deposits to cover for it. (what is comemrcial loan?) Mortgages, car loans (To start a business?) Yes. (Ws RAS using $1.6B?) To start businesses.
(When first learn RAS taking $$ from CDs?) In 2005, in preparing shareholder funding rpt, I was aware that there was a notes receivable in bank, called an investment acct. (What’s notes receivable?) It’s a debt owed to the bank. (Entry, who?) Mr. Stanford. (Report – to compile it?) Yes, because of diff companies and funding different, we needed wya to keep track of capitalization. Funds coming … to keep track correctly recorded funds, as shareholder funding. (Flow chart?) (First, who directed you to compile report to track money from bank to RAS and companies?) Gil Lopez and Mark Kurdt, also Mr. Davis. (Davis say what to do wiht it?) He would share with shareholder. R. Allen Stanford. (How he was referred to in accting department. (You created flow chart?) Yes.
(SCARDINO HAS QUESTION – Costa, asks who created?) In 2008 (Look at left side of chart. Show?) Reflects the flow of funds from SIBL for shareholder to the affiliated companies. (Judge asks wehre bank is on chart?) It’s called Down South, James Davis didn’t want to refer to it by the bank name. Bank in Antigua. Companies would ask for cash. (Was one company the airlines?) Yes. (Significant?) yes. They did. (Why would Carib Sun tell treasury it needed money from the shareholder?) Company wasn’t making money, losing a lot, Not making profit. To pay expenses … needed cash to survive. (Who at Carib Sun they needed money?) Yes, From Stanford. (When request went to treasury, is Down South the bank?) Yes. (Money in bank? send money?) To SFG Global Management. (Money from bank to SFGGM, when company involved?) Between 07 and 08. (Another before?) Yes, SFG in Houston. (Same work?) Yes.
(Money from bank to SFG, later SFGGM. Middle company send company?) Distribute according to cash need of affiliated company as requested. Carib Sun for example. On chart, would be on bottom in Stanford Group of Companies. ($$ transfer from SFG?) Yes, not directly from bank. (Judge – why not?) Since multiple requests, SFGGM in charge to keep track of all funding and how distributed. (Judge – what’s theory of govt. To be sure .. what to show relevance?) Costa – At end, $2B from bank went to RAS companies. RAS taking stealing from depositors and not disclosing it. Violation known as fraud of shareholders. He didn’t have money to repay it, relying on depositors.
(Costa – break this down more. MOney from?) From Stanford INternational Bank, “Down South” company on chart. (Why said it was owed to depositors? WHY?) Because it started to grow. Conclusion was it had to be depositors’ money. (Money from bank to SFG. Sole shareholder?) Mr. Stanford. (RAS?) R. Allen Stanford. (Money to middle entity. There where?) To different affiliated companies as they requested, like the airlines. (What else?) (Laugh inc ourtroom… Costa tries to draw airplane)
(Money? elsewhere? Cricket tournaments?) Yes. (Stanford Development?) Yes. (SD do?) Development, construction of a lot of faiclities, bank itself, buildings. (You said from these companies’ perspectives …they treated as funding from the shareholder. Showing that RAS was funding. But in fact, where he getting it?) Money was flowing from SIBL to shareholder to SFG. Ultimately coming from clients’ deposits.
(Report data?) From treasury, from actual wire transfers. (How got?) They would provide it. (Who was treasurer?) Patricia Maldanado. She went them. Compiled monthly. Gave report to Kurdt, Lopez – they would send to Davis. (Met with Davis about reports?) Some meetings, showed concern about amt of money requested and spent, he would say he’d prefer to talk to the shareholder about concern. (Who was concerned?) Well, I was concerned about how much it was growing and not repaid. Davis concerned, as well as Gill and Mark. (Did you ever know rpt provided to anybody else?) Nobody else. Probably on… (accountant outside?) Yes. (Who?) Harry Fayle, Stanford’s personal CPA. (Say provided to Lopez and Kurdht? Emailed?) No. (Why not?) Davis said not to email. (Did Lopez say who he shared it with?) He said nobody but Davis, Lopez, Mark. (What would happen if shared?) Yes, need to know. Shouldn’t be seen by anybody else. Jeopardize my job, Lopez said. (Shareholder fudnign report?) Yes.
(General secrecy? Other docs told you would be fired if you disclosed?) Particularly, this one. (Time when you were asked … docs saved where?) Computer network. (Told to move it and other docs off the shared drive?) Yes, 2006. Direction from Davis to remove out of network drive any docs related to the bank, because it wouldbe held in bank, not Houston. Included Shareholder Funding Report. (Because? Why?) Instructions were that since was offshore bank, info should be held and prepared in bank in Antigua. (Doing docs in Antigua?) Some, some not done. (Did you continue to do work for bank out of Houston?) Yes.
(What diff was where docs saved?) In an external drive. (When told to move them?) In 2006, sometime. (Ever told that SEC informed RAS and Davis tht investigating CD program at SIBL?) No, I did not know. (Told Stanford Group hired outside lawyer to deal with it?) NO, I did not know. Davis unhappy we didn’t move info to external drive as quickly as wanted it done. Reprimanded for not doing it. (showed him external drive)
(External drive?) The Football, called by Mr. Rocca, a budget acct. (Why?) Only guess OBJECTION. SUSTAINED. (Did you carry it around the office?) In my laptop bag. (Issue of money from bank to companies, started with arequest?) Yes. (Who approved?) Typically by Mr. Davis. (Sometimes RAS included on emails?) Some occasions, yes.
(Exhibit – email) March 10 2008 from Maldanado to RAS. (First email, March 4 to RAS, copied to?) Davis, Kuurdt, Lopez. (Asks for funding?) Airline. (What goin gon?) Airlines had lost a lot of money, needed more money to continue operating. (Davis concerned?) Yes, he was. (RAS on request? Why?) In context… OBJECT – SUSTAINED (Doyou know why?) Davis concerned about airline funds, losing. Wanted RAS to be aware because of fudning needs. Shortly after, airlines shut down. This was close to that. (Davis concerned about $$ to airlines? Did Davis say this is great, more money?) No, he never said that. (He was concerned and why RAS was copied?) yes. (What does Maldonado ask?) For OK to fund airlines (How much?) $5M (Where money from?) From SIBL, Down South, CD depositors money.
(Next email? March 6, 2008. Email from Maldonado to RAS?) Yes. (What she says?) Asks for OK to disburse money to Sun and Star airlines. Witholding employee pay and reimbursements. $4.8M (Why?) To payroll. (Typical expenses?) Yes. (First email – what does she say at end?) OK to fund this week? (First page – top email. How often requests from airlines and other companies?) At least twice a month. (Email say?) RAS, OK to proceed with $$ to pay current invoices? (Get approved?) Yes, from bank to airline through middle entity. Correct.
(Exhibits – recognize?) Year-end reports. These are Excel spreadsheets. (Normal to do?) Yes, every month. Kept in course of business. In external drive. (Where did data come from?) From wire transfers, daily cash reports, match with financials of the company. (Reports – told not to disclose or jeopardize job?) Correct. (Another exhibit – doc?) Shareholder fund assumption of debt and notes payable. (List?) List of every single Stanford affiliated entity. (Grouped?) By regions. (Let’s take SFG Co. you worked for?) Yes. 2004-2006 (Shows?) Directly funded to SFG. (Shows how much dame from where?) From SIBL. (2004-2006 $$ to SFG?) $253M (2007?) $7M
(Recorded?) Every company would report as Notes Payable. It’s a debt that company has to its owner (to RAS? From where money?) From SIBL. (Were companies able to pay that back to RAS to repay bank?) NO, none of it was paid back. (If wasn’t paid back, would you change account statements?) Money ultimately was owed to the bank.
( REcognize email?) Yes. (From Kurdt? Look at it.) Lopez email to Davis, shareholder fudning. Asks for OK so $95M can be moved from Notes Payable to Capital. (Would show it from a debt to a RAS investment?) Yes. (Next email) copies RAS, email to Davis – no other option, no repayment. Approved to drop Notes Payable as capital infusion. Upon isntructions from the shareholder, Allen Stanford. copied on email.
(BAck to shareholder funding document. Did you group airlines together?) Yes, I did. (Private jets?) No. (Did privae jets get money form bank?) Yes. (where on report?) Under SFG Co., parent company of Stanford Aviations corporate jet money. (A lot going to airlines?) Toward the end in 2007-08, accumulated close to $30M. (From CD depositors to pay for jet expenses?) Yes. Pilots, fuels, hangars. (Look at these airlines… commercial companies?) Yes. (Carib Sun, how much $$ from CDs? 2004-06) $123M (Shows additional amts for balance?) End of 2007, $125M
(Next Carib Star … diff?) One had license to go to PR., other only in Caribbean. (Star by ’07?) $143M (Airline expense total? from SIBL?) $330.9M
(Other companies, Stanford Development Co.) Construction Co. in Antigua, lot of projects – bank, Stickey Wicket, Cricket field … (includes costs or operating expenses?) includes Wicket, SDC was parent. (Kind of restaurant?) Sports bar, restaurant? (Compare food in Houston?) Chili’s maybe. ( REstaurnt $$ from bank?) About $20M accumulated over the years for Stickey Wicket. (So Development Co. $290M by this. At end of ’07 had SDC taken out?) (Know Arnold Knoche?) Prez of Stanford Development Co.
11:31 – JUDGE LET’S TAKE BREAK.
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