Friday, Part 3: Davis begins on start of SEC investigation into bank

By Patsy R. Brumfield / Daily Journal

3:45
HOUSTON, Texas – After lunch Friday, former Stanford CFO James Davis continued on the stand.
The former Baldwyn area resident is likely to testify against his ex-boss. R. Allen Stanford, until the middle of next week. Trial is expected to last 6-8 weeks, but today, Judge David Hittner told the jury that it’s coming along faster than they first planned. Outside their presence, he said to the courtroom that it’s important to keep the jurors happy.
Seen in the courtroom today are ex-Stanford executives Gil Lopez and Mark Kuhrt. They are co-defendants with ex-CIO Laura Pendergest-Holt and a former Antiguan bank regulator, Leroy King, who’s fighting extradition. That trial was moved recently from June to September in Houston.
(Please excuse the typos and glitches likely as I type as fast as I can. Follow these other accounts on djournal.com.)
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2:15 – (Stellmach – asks Davis – CD deposit process? How could send funds?) Two ways, one by wire transfer from their sending bank, other by personal check. (Exhibit – acct statements from Stanford Group Co. …under acct number … William E. Junell .. CD purchase amt? $700K Dec 24, 2008?) (highlight …. pg 2 … computer problem .. use overhead … $700K in Junell’s acct. .. see “originator”?) Houston, STanford Group Escrow Acct. (Beneficiary? … where) In Toronto Canada (ended up>?) SIBL Toronto Canada. JUDGE – I DON’T UNDERSTAND WHAT THIS IS. EXPLAIN WHAT IT IS.
(Based on seeing this, …. JUDGE – he made a deposit somewhere? Davis – this amount $700K came from client. In an Escrow Bank Acct. with Stanford Group Brokerage … he made a transaction to buy a CD for $700K, in SFG in Texas in the name of that client. (Next?) Debited from acct and sent to acct Toronto Dominion Bank, ultimately went to SIBL acct in Toronto for further credit to same client. JUDGE – PURCHASE OF CD Davis – yes, for $700K.
(SO, one way depositors could buy – wiring funds) Yes. Other way, depositor could write a check and it could buy CD. (Exhibits – if somebody wanted to buy and not wire money like Junell, if they showed up and wrote a check to financial adviser, how did tht work?) Documentation supporting the check … would be logged in on paper. Paper acct info and check to admin person at brokerage. Check, acct info on other similar purchases of CDs. Once a day, total purchases sent by pouch – FEDEX overnight letter to SIBL in Antigua. (Davis looks at file) Acct. opening letters, checks to go from brokerage firms to the bank in Antigua. (Example of a mail pouch report? … ) FEDEX from SFG in Houston on Westheimer. Customer docs FEDEXed to SIBL in St. John’s, Antigua. (Document with info forwarded?) Shows client’s name or client’s SIBL acct number. Amount shows check forwarded. In this case $2M. Description code – top item, pkg of acct opening documents.
(Once makes purchase … info completed in U.S., sent to Antigua?) Yes. (Think we’re done with mail pouch .. just wanted to show example.)
(You testified that fraud to which he pled guilty last about 20 years?) Yes 16=17 years.
(Let’s look at marketing material about supposed protections in place.) (Investment Philosophy Portfolio Diversification …?) (When did you join board?) 1992 (How put on?) Mr. Stanford asked me to join the board. (How many on it at time?) I believed 5. (Who?) Businessmen for most part, central Texas, one Barrister from eastern Caribbean. (Met frequently?) Several times year, meet in Stanford offices in U.S. and Caribbean. met regularly in the early years. (When stopped meeting reg?) Mid-90s. (Then what?) Couple of times a years, twice a year and some meetings by phone. (Agenda?) Yes, prepared by Mr. STanford. (Format for meetings?) Usually, for day’s duration,l certainly a full afternoon. Going through state of company message from chairmn. Review of financial information, statements. Review of world economic situation, financial markets. Also update by chairman on other items of interest that might be happening in other Stanford companies (those not overseen by board?) Yes.
(Ever get any truthful info about bank/s assets?) No. (Told about RAS loans?) No sir. (So, words that strategy set annually by board? Got accurate info?) No sir. (Bank moved to Antigua?) In 1991. (You said about RAS telling you about blood oath with Leroy King on Antigua?) Yes. (What told you about paying King?) Said he made them in cash, at night, jbetwen two of them. (Go to one of your charts … show how money sent to Mr. King, according to what RAS told you.) DAvis gets up to go to flipchart … draws line out from Stanford circle of $$, straight to circle, then down to another circle. (Explain?) RAS said moey would come from SIBL CD money, to Soc Gen slush fund, transfers from fund to Bank of Antigua ltd. to acct in name of RAS… cash out of that withdrawn and handed to Mr. King by Mr. Stanford.
SCARDINO – SAYS HE CAN’T READ IT… IN THE NAME OF …
(So RAS had bank acct at B of Antigua?) Yes. In this case, he would request the asst. mgr or manager … withdrawl from that acct., would put cash withdrawl in pkg and get ti to Mr. STanford (He did what?) Meet with Mr. King and hand the cash to Mr. King. (To be clear, you say why? He told you?) Correct. (Ever present when csh went to King?) No. (Ever see Mr. Stanford with cash for King?) Yes. (Tell us?) One evening in airport hangar, Stanford, in Antigua, believe … inside Stanford hangar by airport. (Who present?) Myself and RAS. (Where see cash?) In conference room on table inside his briefcase, it was open, he pointed to it and said, unfortunately I’ve got to see Mr. King and give him cash.
(Said he would deliver/) Yes. (You there?) No. (RAS ever say how much paying King?) $10-15K … more than once a quarter, no less than that. King was director of FSRC in Dept. of Treasurer. Replaced Althea Crick. (Ever speak with King directly?) Yes sir. (About?) Other than non-business related items, how’s bank doing he’d ask. We’d go over it. (Did King ever comment on any gifts from RAS?) Yes, he called me several … (What were gifts?) Super Bowl tickets, 2008-9, 2004-5 … (So when he said Super Bowl tickets, what did he say?) Said he hadn’t been able to reach RAS and didn’t have tickets yet. (Did what?) Relayed to RAS.
(Told him? He said?) Said he would take care of it. (Did he?) Yes. (How?) King would say to me, when we met, “was a great game.” (Other access to planes?) Yes he took trips on plane to mainland … to Atlanta. (How frequently?) No sir. (How know using RAS plane?) Because he told me, Mr. King.
(Familiar with IB5?) Yes sir. (Exhibit – 1st pg … wht is this?) Cover page to quarterly financial pkg from SIBL to FSRC, ageny headed by King. (Period?) 3Q 2008. (What info did bank have to file on Antigua?) Financial statments, balance sheets, P&L statements, subsidiary line items, a lot of detail. (IB5? What is it?) That section of the report, detail products or investment products reported and institutions these products held in and amount. (What info on IB5 related to bank’s assets?) Detail itemization of investment section (What info about assets held?) One of line items, … (Turn to IB5 … under column … list of names … what info in that?) Intermediary broker issuer has names of financial institutions where investments were actually held or at least reported to be held. This report was a lie, falsified. JUDGE – WHOLE THING? Davis – yes sir. (So these issuers suppose to be where SIBL asset are held?) Yes. (Balance sheet value – shows what?) Report states that at … certain bank … or RBS.. has an amount in name of SIBL of $33.374Million. (Another entry for RBS… $17M.. why multiple entries?) Could be that a difference between products, bond, securities. (This filed by SIBL with FRSC about where assets are? Is it accurate?) No sir. (How?) Amounts are inflated and are not the actual amts in the accounts listed. (Why?) To cover the missing funds.
(Missing funds…. did SIBL hve accts in these?) Yes (What’s fake?) The amt of assets in dollars are inflated. (Were assets on deposit there, Tier 2?) Yes. (But Tier 2 was how much of portfolio?) About 15% (Any numbers accurate in IB5 about bank assets at institutions?) I don’t believe so. (Who prepared the fake numbers?) Accounting. I would receive the report …(What role did you play in this?) I would fill in the numbers. (Given any numbers before go the report?) Yes, by Mr. Kuhrt, global controller, from his office. (Got a draft of it?) Yes. (Number accurate?) No (Why?) Because they were derived from a p[revious report that had balances from previous report to FSRC, template to use to fill in and complete in current period. (Use old report to update?) Yes.
(How faked the numbers?) I’d change them in the column Balance Sheet Value… so total would equal amt reported in financial statement. (Any risk to this scheme by filing report in Antigua?) I think not, no sir. (Potential risk?) Yes indeed. (What was risk?) If Antigua bank examiner were to contact for confirmation purposes.. those instituions listed, then in that process, the examiner would find out those numbers reported were fraudulent. (How many years of fraudulent IB5s?) As long as there was a report called IB5. Years.
(Potential danger, said yes.) (Was actual danger?) NO sir. (Why?) Because RAS had arranged with regulator through bribes that regulator and examiners in FSRC would not perform the confirmation process. (Discuss fake numbers with RAS?) Yes sir. (Did RAS ever talk about limiting access to this IB5 info? within organiazton?) Yes, not to be seen by anyone. (Limiting access, instructions?) Yes. (What insttuctions from RAS?) Mr. STanford did not … no one else is to see this. (Tell RAS whether anyone else had access to numbers filed?) Yes. Believe I did, numbers will pass through the completion stage to the FSRC. (Did anybody else have access, did you tell him?) Yes. (Who told him had access?) Mr. Kuhrt, Lopez. (He said?) He asked me if we could trust them. I said they’d been doing accounting for years and could be trusted.
(Lopez/Kuhrt had access, any change by him toward them?) He told me that they were in the loop. Well, I’m going to get with them.. give them a tour of what’s going on in Antigua. Spend some time together. Think he took them on a helicopter tour of northeastern end of Antigua, also a mock model set up of resort in offices adjacent to the hangar in Antoigua.
(Paul Ash, name?) Was a bank exmainer with FSRC. (Time talked about Ash with RAS?) Yes. (When?) 2007, certainly 2008. (What conversation with RAS about Ash?) That conversation… Ash getting very close to investment section examination, wanting detailed backup for individual investments. Wanted to see statments from financial institutions to support entries on IB5. (Why King couldn’t intervene?) Yes. Mr. STanford told me King couldn’t steer him completely away. He was intent, determined to see verification of those numbers. (RAS said Ash wanted to see actual acount pgs… next step?) In 2008, 3Q exam, I got call from RAS. Said that you’re going to have to falsify some bank statements for Mr. Ash to look at for him to verify part of portfolio. He’ll just take three. Falsify three of them and I’ll pick them up. Could have been more than three. I did as he said. Falsified statements, Put in envelopem handed them to him in Atlanta, weekend of FEDEX Cup championship in 2008. (Afterhanded him statements, did he talk about it again?) Yes. (When?) The next day, on Monday. Received a call at house from RAS. Quieted, stern voice -said Date’s wrong on the statement. Said have to do them again. (What did?) RAS, in that call, need to do statements again. Rodriguez just shown. Do it again, I’ll send plane to pick them up. I did them again. I was in Tupelo MS. JUDG E- STANFORD WHERE?) Davis -on island.
(Only time hd to fake them?) Yes. (Forging docs when?) Mid, late October 2008. (Solve problem?) That one, yes. Didn’t hear any more after pilots picked up that package.
(Perdeen Tooaree?) Know him, supervisor of banks at FSRC in Antigua. Came form India and was career banking specialist, on loan to government. Placed him in FSRC, on loan from International Monetary Fund. IMF is a worldwide group that studies economics, monetary issues, try to standardize things for users of the world. (Disuss Tooaree with RAS?) Yes. (When?) Remember one series in year Tooaree left… 06 or 07… (What did RAS say about Tooaree?) He said Mr. King said Tooaree was getting too close to verification o finvestment section of balance sheets. (Steps to take, RAS said?) Was going to start disinformation campaign thru media to turn citizens of Antigua against Touaree that he would be fearful and flee the island?
(Did RAS say he did that?) Yes. (What steps?) Said he thru radio and newspapers, planted derogatory info about Touaree. (Did he say it worked?) Touaree left the island.
3:14 – (Exhibit – email … from J Rodriguez) Prez of SIBL. (Nov. 14, 2005 email – attaches a news article.. what says?) Yes in Tampa, Fla., region. (What says in email?) Says article refers to a loan by SIBL. No loan was in our books, at least not in loan portfolio .. perhaps booked as an investment. Must have Ts crossed and Is dotted, in new reg world led by Touaree-types. (Article refers to HSLN?) Yes. Health Systems Solutions… a company invested into private equity by Mr. STanford. (Rodriguez says doesn’t have on books of bank?) Yes. (Your response? copied RAS.) Thanks for email, we need to talk.
(Talk?) Because the information was sensitive toward fact that private equity investment… those weren’t reported in any promotional materials on bank. (Why copied him?) I wanted RAS to be aware of it beause Rodriguez reported directly to RAS.
(2005 – time when you learned about investigation by US SEC?) Yes, I did. (How first learn?) RAS informed me. (RAS said?) Said that SEC opened an investigation on SIBL and its products and that there was in the investigation descriptions from SEC that SIBL possibly is running a Ponzi scheme. (When RAS showed you docs?) One day, he said: STand by Fax machine. (2005?) Yes. (He said ?) Stand by machine, sending you fax. (Exhibit – recognize?) Yes. (How?) Document faxed by RAS. (Discuss it?) Yes. (Exhibit – top of pg … SEC letterhead, Privileged and Confidential. ) OBJECTION – (Asked what RAS understood about investigation? Limited purpose.) JUDGE – DID THIS COME FROM RAS? DAvis – yes . Discussed it with him, this is document to discuss with him. OVERRULED.
(Upper part of document – Privileged and Confidential.) Sent by Elizabeth Jacobs, deputy dir of SEC, Office of International Affairs. June 9, 2005.
SIDEBAR WITH ATTYS – 3:22 /
(Letter to Leroy King? )Yes. (Privileged and Confidential? On every page?) Yes. (Last page… graph …read that?) Yes, sir … correspondence … we ask that request not be communicated to anyone else without OK of SEC … also notify us of any legal request for this document. (Anything on it to show sent to RAS?) No (Letter to King, from SEC?) Yes. (Based on letter from RAS that he knew about confidential communication?) No, I wasn’t surprised. (Why?) Because I knew RAS was paying bribes to King, in close communication. (Based on letter to King, did you understand that SEC investigating CD program at bank?) Yes. (What saw in letter, did you have concerns?) Yes. (Concerned about the scheme you described?) No. Because Mr. STanford had relationship with King … had been no problems on that issue. (Based on what you read, concern that SEC could uncover misconduct?) Absolutely. Yes sir. (Did RAS, when he discussed with you, relay any concerns?) Yes. (What told you?) Said it was serious, that he was working with General Counsel and his outside attorneys.
(Later, when RAS discussed investigation? When?) Following year. (When had it, did RAS talk about how dealing with it?) Yes. (What said?) One thing said is that a letter was written as a reply to investigation letter. (What did RAS say about response by King to SEC?) Yes. (Was RAS playing any role?) Said he had plumbed under the island, met with King, Alvarado… wrote letter for King to put on his letterhead and send back to SEC. (Did he show you that letter?) Yes. At one point in time. (Who’s name under?) King, went to Elizabeth Jacobs, SEC.
(Exhibit – recognize?) RAS showed it to me. Letter he and Alvarado wrote for King. OBJECT – HEARSAY. OVERRULED. (Look at letter …FSRC letterhead … sent?) To Elizabeth Jacobs, SEC … (Reference to SGC … in text of letter… se where got confidential letter.. 3rd graph: as verbally relayed to you over many months between SEC and FSRC, exmination of SIBL March 05, review of accts at SIBL and FSRC exam of SIBL April 2006 reveal no matters that would affect SIBL standing with FSRC.
(Next graph … top graph … ) We wish to assure SEC that FSRC most reent onsight exam, just 5 months ago, confirms SIBL’s compliance in safety and solvency, and all other applicable laws and regs. FSRC also confirms that no other issues of concern with SIBL to day. (Next graph …) FSRC has excellent relationship with reg bodies in U.S. Repeated asked for support of allegations of possible fraudulent activities by SIBL, such as depositor complaint to validate concerns. Mr. Moore of your office says no such supporting documentation. (Where were records and docs showing transfer of funds showing $2B to RAS?) (Brokerages regulated by SEC?) Yes. (Bank was not regulated by SEC?) No, that is correct. (Brokerages in US were selling CDs issued by bank?) Yes.
(So, according to SEC doc sayig didn’t have documents, in original letter from SEC to King, was SEC asking or documents? (REPHRASE) (When SEC sent 2005 letter, did it ask for documents from FSRC?) Yes. (Documents related to CD program?) Yes. (So those documents in Antigua?) Yes. (To get, SEC must o thru FSRC?) Yes.
3:44 – BREAK
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