By Patsy R. Brumfield / Daily Journal
HOUSTON, Texas – Former Baldwyn entrepreneur James M. Davis continues to try to keep his cool under wilting cross-examination by Robert Scardino in the criminal fraud trial of Davis’ ex-boss, R. Allen Stanford.
(For multiple daily updates from court, go to djournal.com and click on the Allen Stanford Trial News icon. Also, to watch live Tweets from the courtroom, follow me @realnewsqueen #stanfordtrial. With that hashtag, you also can get other courtroom reporters Tweets.)
Monday, Judge David Hittner told attorneys he’d work with them on some issues today before the jury returns. If so, we’ll see what they seek to accomplish.
• • •
It’s Day 12 of the state’s case against Stanford.
10:05 – Judge in, tells jury he’s got about 10 mins of work outside their presence.
Before, Laura Pendergest-Holt’s attorney got audience to rise with fake “All rise.”
Stellmach – Issue about … ask def to identify companies they are talking about. Tier 3 equity investments, not technically owned by the bank. What else do they went to talk about? We haven’t heard back yet.
Parra – Phone message 7:30 with Costa. Said exhibit in their possession that would list those companies … 1325 A,B Excel spread sheet. JUDGE – LIKE WHAT? (Go to machinerY … It’s name is ELMO!) Sheet, as potential exhibit at top – SIBL at top, down below are companies intended to be consolidated under SIBL so that the bank could continue to pay the funds.
Stellmach – UPPER PART – shows that consolidation never happened. Can’t see relevance.
Parra – Won’t get into all. As a whole, bolded boxes … JUDGE – CAN’T EVEN MAKE OUT THE PRINTING. SHOW ME, HIM TOO. I CAN’T SEE IT. HONESTLY IT’S TOO SMALL. TALK TO ME ABOUT IT. I CAN’T SEE IT. GO ON.
Parra – Here’s what consolidation would prove. Intent, if scheme to defraud or intent. JUDGE – A FEW QUESTIONS …. IF THAT DOESN’T CLEAR IT UP, WHAT WILL?
JUDGE – I HAVE MY OWN NOTES…. APOLGIZE FOR READING:
* TO GOVT – Isn’t defendant entitled to put on evidence to rebutt govt allegations?
Doesn’t valuation evidence go to the weight of whether RAS intended to defraud or misrepresentations were material?
STELLMACH – No. Pattern instruction looks at intent. Specific intent to defraud, involves that defendand and CDs. They contend … entities…
JUDGE – Divide planned and actual. He had airlines, airplanes, yatchts, restaurants – in existence.
STELLMACH- Def wants to argue that he had good faith to make depositors whole with these inestments. We must show that he intended to deceive people to induce them to do something they wouldn’t have otherwise done.
JUDGE – NEXT QUESTION: With respect to specif intent to defraud, what is govt position of what it must prove to satisfy? That he intended some harm?
STELLMACH – YES, that he deprived people of full information and caused them to buy CDs. Causing them to purcahse something they otherwise wouldn’t have purchased.
JUDGE – Can issue of good faith be accomplished with an instruction?
STELLMACH – Still doesn’t allow them to argue
JUDGE – Planning to argue good faith? YES –
PARRAS – Don’t believe cases about good faith are applicable.
JUDGE – Why proposed consolidations, without existing entities, … that’s at least in effect. This one, the diagram, is proposed scenario of what might occur.
PARRA – Evidence will show this was put into effect before Fall of 2008. Well under way by Oct. 2008. We have witnesses to testify … that international regs would allow this… by Dec. 2008, world economy was going into caputs… bringing experts in to talk about chart.
STELLMACH – How did 2009 plan serve as good faith?
JUDGE – Two diff things. Projection on paper versus other items in existence, and overlap.
STELLMACH- Regardless, on chart of not, if not owned by bank, how does that go to defendant’s good faith? It’s our theory, consistent with the law.
JUDGE – Law, cases going both ways. Good faith instruction each of you has, are there others around?
STELLMACH- yes. But def makes a fraudulent misrepresentation, even if he doesn’t intend them hardm, still has a good faith obligation.
FAZEL – They put up list of companies. Systematically asked Amadio … about them.
JUDGE – How have value without existence.
Did they all exist?
STELLMACH – Labels new holdings, some did exist. Restaurnt, real estate company.
FAZEL – ALL THESE COMPANIES EXISTED.
Stellmach- Existed but not held by bank.
JUDGE – CHART PREPARED? WHEN? Feb. 6, 2009. When did SEC shut down? (Stellmach – later)
PARRA – Witness will say this existed in 2008, they were following through on this plan to consolidated strength of company and allowed them to continue to pay depositors.
SCARDINO – We have quetions for CFO Davis, that he was making plans to consolidated.
FAZEL – On open door … when they put that witness up, saying companies have no value. Opens door for us to put on defense. Also, they say didn’t have value, as in cash value. They asre skipping inherent value.
JUDGE – Instruction to jury, that the advertised funds would go into A, B, C and they went into X, Y and Z. Bottom line. All maneuvering to get around it, if jury follows that instruction, if they get it, that would be for naught.
STELLMACH – opening the door …
JUDGE – Not considering that now. What I think it proper… Ruling made
Fazel – Not maneuver. He promised and did something else. They can’t prove what he did or did not do. Also, we’re going to say, what he promised, he did. Those are our defense theories. When their witnesses say no value, we should be able to put on witnesses to say they don’t know wht they’re talking about.
JUDGE – Besides property in Tier 3, can’t go into anything else.
PARRA – Govt. argument focuses on 4th element of fraud case. Doesn’t say anything abou others.
JUDGE – Knowing participation of intent to defraud …
PARRA – They want to focus on good-faith element. In addition, separately are Elements 1 and 2.
JUDGE – I understand your position. Got a handle on it.
PARRA – We hve promissory notes. RAS is sold shareholder. Loans from bank to Stanford .. all his personal liability are theoretically able to be got at through those promissory notes. All his holdings, consolidation or not. theoretically people could sue him through his banks, intersts in businesses – assets to make people whole until receiver stepped in.
STELLMACH – Allowing them to inject irrelevant information.
JUDGE – I’ve got one case to look at, will be back in 10 minutes with ruling.
10:26 – OUT
10:32 – Judge back
Rules on valuation: Defense may go into it for some extent. Not in excrutiating detail. Globally, some on local basis. Also, I will say this. I am not there yet, but I am looking at seriously the good-faith instruction out of 11th Circuit. CAse is going both ways. Experienced lawyers … both sides. Safest way to let some of it in. If gets too detailed … not saying I won’t entertain expert requests … may say it’s duplicative. May or may not. You’ve tried cases before me. Keep it local, some individualized. If gets bogged down, I may stop it.
Judge – I’m not sold on 11th Circuit yet.
stellmach – IN TERMS OF being specific, for companies that were in center block, going to be established. JUDGE – YES, primarily there. Will leave it to the defense to be reasonable. In your summation, to get back to your full case – he promised ABC and went to XYZ. I’m not practicing law. I’m saying I’m giving them their show.
FINN – May I approach?
COSTA – Motion about other banks … that SCardino has violated on several occasions. If they want to get into that, they should approach.
SCARDINO- Now that we’re on that subject, I didn’t hear it … that Costa about four feet from jury, made a comment that jury heard because FAzel could hear it… comment about Stanford’s affairs when I was crossing Davis about his affairs. If Costa wants to cite me about motion, judge should admonish Costa.
COSTA – Facing you. Stellmach was objection, I was saying to him about Stanford affairs about rebuttal. Not in direction of jury. I ruled against Motion for Mistrial.
Judge – Do you want an instruction?
Scardino – I would.
COSTA – Other banks’ financial conditions are not on trial.
FAZEL – We can’t avoid the situation.
COSTA – No problem talking about economy, but not about other banks. They are not on trial.
JUDGE – HOLD IT, If it happens again… At end, last night about 6:30, I said if any problem you hear coming up … wait until it moves on.. approach bench right away.
FINN – David Finnk represents Davis. I was not in courtroom yeterday but they asked hi about a cell phone. I have it in my hand. But there is quite a bit of privileged material between us on there, emails, texts. Approx 2 years ago, he gave it to FBI. They made a complete copy, understand they shared with defense. Subsequent to copy, they gave it back to Davis. He has been using it to communicate with me for past few years. I’m looking for guidance from court on how to proceed with phone.
JUDGE – SCARDINO?
SCARDINO – Doesn’t want to get into privilete.
FINN – Got if from his wife at hotel about 15 mins ago.
Scardino – Exhibit discussed yesterday $880M, isn’t on phone anymore?
Finn – They gave it to the FBI and isn’t on phone anymore.
STELLMACH – Accidentally deleted that one message.
Judge – Scrdino, what do you want?
Scardino – Show custody of the phone with Mr. Davis.
JUDGE – CALL JURY IN.
10:44 – Davis enters
Judge – I do want to … mention to you one instruction. During the testimony yesterday late, if anybody heard any comments made by any other attorneys at tables .. you are to disregard it. Only evidence is from witness stand and attorney at the lecturn.
SCARDINO – To Davis.
(How are you? Staying?) Fine, thanks. Staying at Hotel (Guest of the govt.?) Govt paying my hotel. (Discuss yesterday with govt?) No. (With atty Finn?) I did. (Talked about your cell phone?) Yes sir. (Exhibit on screen – claim you drafted to RAS and his response at bottm?) Yes sir. (Was it email?) No. (Text?) Yes. (Said have lawyer draw up the loan documents so could have legitimacy when asked him for money?) NO sir. I said loan documents were drawn up. (Sorry, thought you said lawyer?) NO sir. (Anyone? Who?) Manager of Davis Holdings LLC, Ethan Nanney. (Telling now because that’s what you told FBI in 2010?) No, no one told me that.
(Doc, seen it before?) No sir. (Look at it. see what it is?) Belongs to FBI. (Summary of interview with you Special AGents Walter and Nunez with you Nov. 3, 2010.?) If you say it is, yes sir. Appears to be FBI notes on two pages. (Asked this yesterday. Have had a chance to review any FBI notes from your interviews?) No sir. (Nobody asked if case roadmap is correct from your view?) No sir. (Second page, highlighted … see that, refreshes memory of anything?) Yes sir. (What told jury, isn’t it. Promissory note created by Ethan Nanney, acct. for Davis HOldings?) Yes. (Nobody reminded you about who created it?) No sir.
(Now that we know person and position? Did you get that note?) No sir. (Ask lawyer to get it?) No sir. (Know if Walter or Nunez made effort to acquire note?) NO sir. (Was it signed by you?) Yes. (Stanford?) No sir. (Telling jury he loaned the money, loan not a theft? But no doc to show he signed it?) No sir.
(Cell phone message, 2008…. ) Davis a little flushed in the face … (Mr. Davis, asked you to bring that phone?) No, my attorney has it. (So last night spoke to him about this part of your testimony?) Yes. (Other parts of testimony?) Talked to him about a lot of things. (Did?) Yes. He’s my attorney, gives me advice. (Talked to him about cell phone … did you tell him I wanted the cell phone?) Yes. (Get it?) With my attorney. In courtroom. (Point to him?) Mr. David Finn on first row. (He’s a former judge, former U.S. atty?) Yes. (Reason why you hired him?) He has the cell phone. (Can I look at it?)
(How long had phone?) Long time (Since 2008? It’s all cracked?) It is. Got squeezed. (Not thrown in lake, was it?) No sir. (Phone that generated this exhibit. Can you show us how take a picture of text message on it by pressing two buttons on phone?) Don’t understand question. (Phone capable of recording any email or text message within the phone? Know that?) No, I don’t know that. (If you had, you wouldn’t have taken some Xerox picture of the text?) Possibly. (Access that information?) OBJECTION – JUDGE – WE DISCUSSED THIS AT LENGTH – work up to question. (Looked for it? When?) Last night. (Before last night?) I did. (When started to look to replicate?) Looked for it, not to replicated it after I gave phone to the govt last year. (For a year?) No, then, and then last night. Didn’t find it. (No longer in my phone?) Everything before Feb. 7, 2009 missing.. in that text stream.
(Did you erase it?) Not to my knowledge no sir. (Not there?) No, can’t find it. Other there but after Feb. 7 … (Info in phone that related to relationship with Mr. STanford?) Be more specific? (Said he was in the loop all the time. Was that in phone?) Yes sir. (Info prior to Feb. 2009?) Yes and after. (But say prior to 2009 erased?) Yes, don’t know how it was lost. But couldn’t find it after got it back from govt. (If we had it, we might see something other than your testimony about communciations with Stanford?) Yes, some from him after that. (Same time threw computers in lake?) NO sir. (In February 2009?) Yes sir. (All lost about the same time?) OBJECT – (When notice it disappeared, compares with lake?) This information was here on the machine, phone a full year or more after lake incident. (Who showed it to? So somebody could verify?) Showed it to my wife. (Make copies of emails and texts like you did this one?) I made other copies.
(Thought it was important …but none of other RAS communications?) I did make copies of other messages from RAS? (Where are they?) Gave some to govt., have some in my personal possession. (Where is it?) In my house in Michigan. (You knew you were coming?) Yes. (This is U.S. District Court… serious cases here?) Yes. (Highest proof is demanded here, don’t you?) Yes sir. (You knew you would going to tell jury you were a liar?) Yes, I am a liar. (But you don’t leave docs in Michigan? Knew you were going to testify in front of jury. Knew you were going to tell them you are a liar? You don’t bother to bring docs but leave in Michigan?) Left them, right?) Yes sir.
(You testified yesterday… just said to jury … that you are no longer a liar. Quit lying?) Yes sir. (Lied for 16 years, then drew line in sand?) Yes sir. (Talk about that … you testified … talked about SEC wanted testimony about SIBL?) My understanding, yes sir. (You told govt atty, what shared with RAS about testimony to SEC?) No sir. What I shared with SEC? (Transcript from yesterday … what tell Stanford?) Said I wasn’t going to lie. (Even tho lying since 1991?) Yes, see that. (Answer was ..?) Even tho lying 16-17 years. Said drew line in sand, also if lie future not bright. Decided there’s never bad time to tell the truth. It’s never too late. (What you told jury?) I said. (Line in sand, like at Alamo) What I said.
(Let’s see what you did? When conversation?) January 2009. (Talk about after that line in the sand? Meeting in Miami?) Yes. (Talked about it at some length … in February after you weren’t goig to lie any more?) Yes. (When threw computer in lake?) February, first part. (After linein sand?) Yes sir. (When cellphone info disappear?) 2010, late. (Info after Feb. 2009?) No, Before Feb. 2009. (Happened after line in sand?) Yes. (Talk about Miami meetings – with all in control of Stanford businesses…Exhibit – identify?) A work sheet … my hand writing. (You drew this?) Yes.
(On screen … You testified that during Miami meeting, you generated a pie chart?) Yes. (Pie chart was prettier than this?) I do remember, I produced that as well. (Based on this drawing?) Yes sir. (At top … drawl circle Tier 3 … )Yes sir. (points to chart… this little arc shows …?) Represented private equity holdings. (What?) Investments made in companies not listed on a marketable securities exchange … private. (These are companies that you acquired?) Stanford companies acquired. (But you did, didn’t you?) I was in the process of the purchase of investment entities, RAS approved. (Stanford entities … in Tier 3… showing it’s 20 percent of total in SFG?) Yes, these inflated nubmers, but yes. (List 29 companies?) Yes sir. (13 investment partnerships?) Yes. (Part of this would it be Stanford Venture Capital?) Probably (Stanford development Co., Stanford Bullion?) I don’t think so. (Some companies listed… that YOU acquired.. were companies that actually existed?) They had legal existence. Some did do business, yes. (Bricks and mortar?) Yes. (Did business?) Yes. (Some had value?) Yes.
(Some potential?) Yes. (Not like the airlines? Set up to lose money?) Airlines were not part of this. That was a $550 investment into a defunct airline. It was all lost. (To get rich people to the island?) Commercial or the six Stanford aircraft? (Commercial airline?) Not on this chart.
(Above Tier 3… wrote 6.6B?) Billion. (Chart, representing that Tier 3 had assets worth $6.3B?) That bookkeeping had a value of $6.3 billion in Tier 3. (Info from Lopez?) Came from acct. records that existed. I inflated the numbers, They are bogus. (Got aheadof me … records somewhere that reflect real number?) Reflect the cost, yes. (Lopez provided some numbers?) Correct. (With $6.3B?) No (You inflated, not Lopez?) Right. (What about Kuhrt? Role he played?) Global controller. (He gave any numbers here?) Part of them, yes. (False $6.3B?) No, I did (Ms. Holt, did she have anything to di with it?) No. (What about RAS… did he say draw chart and inflate Tier 3?) No. I put it there.
(Not number RAS provided? Reality, it’s your handwriting. Not Kuhft, Lopez or Holt?) Yes. (Drew this days before RAS came to meeting?) Day before. (Did he send you a template to use?) No sir, I did what he asked me to do for 21 years I was with him to lie for him. He asked me to lie for 17 years. (He asked you to write $6.3B?) Every quatrter he asked. (Here, you stepped over that line in stand?) Said wasn’t going to lie to the SEC.
I lied and I spun and I lied and I spun. (You more afraid to SEC? Than to these federal prosecutors who could put you in prison for the rest of your life?) I was concerned.
(Line in sand just for SEC?) It is what it is. (You did continue to lie? Right?) Up until I got an attorney. (Now, another line in sand. Finn convinced you to quite lying?) Been telling the truth ever since. JUDGE – LOWER THE VOICE.
(Mr. Davis – talked about the real books, before you started cooking them. SAid receivers got the real books. Remember? 1999 annual report?) I do. (Asked for real books?) Company has them. (Recever has them?) I believe so. (You don’thve them?) Not to my knowledge. (Point is … ) What real books. I didn’t keep any books. In Oracle accounting system with SGC et al. (So real books we don’t have?) REceiver has everything I know about. (Receive has info to reflect value of Tier 3?) Possibley, I don’t know.
(Remember… changing subjects … remember speaking with Stellmach about CAS Hewlett?) Yes sir. He was a public accountant, auditor for Stanford groups in Antigua. (And he was hired as outside auditor?) Yes sir. (Didyou personally know him?) Yes I did. (Testimony, he was paid money for outside audit from bank, then got extra money from Swiss account?) Yes sir. (Said itwas money that was inflated. Told jury that Hewlett was part of the conspiracy to defraud because helping you and Stanford hide the real numbers? Is that right?) Yes. (Have any documents to show us to indicate where Hewlett entered into a conspiracy to commit this fraud?) Annual reports he certified would be evidence since he’d never seen a detail. (Must jump back to believe you to believe that, don’t we?) That’s what happened. (Docs with Hewlett to defraud? We must believe you?) It’s what happened.
(No documents?) The payments sent to him from a slush fund. (Said RAS said Hewlett extorting money from Stanford .. had you over the barrel?) He was extorting money from RAS. Yes. (Money from Swiss acct. used for Island offices?) Yes, that’s form of bribes. (Hewlett got bigger offices and staff… for a bribe? Not to increase his staff?) … (Hewlett did have bigger presence?) Yes sir. (Copanies growing?) A lot of them, more brick and mortar. (Inspite of your testimony that you inflated…) We inflated. (Bottom line, that concerns growing, a lot of development on island in U.S.?) With depositors funds. (Lot of money coming in?) Yes. (To develop companies?) Yes, we were. (Hewlett, as outside auditor, his job grew?) His amount of fraud grew, yes sit.
(Exhibit – RAS approved payments?) Yes (Exhibit – what is this?) Statement of account from CBG … bank in Switzerland. (Talk about this account. Soc Gen?) Society General. (Last three digits of account were 731?) Yes. (You referred to as a?) This was an outside bookkeeping account, slush fund. (This is a record of bank acct in Switzerland, shows how money transferred in or out of this bank?) Out of this account, summary of account. (Familiar with this?) Yes. (You took money out of this account?) Explain. ($6M in Dec. 2008?) No (Transferred to you?) No. (We’ll get back to that.)
(Lettter SFG, March 14, 2002 … addressed to Blaise Freedli, Soc Gen 1st VP)) Knew personally. Fax. (Ask him what?) Please debit 731 acct and transfer …. wire 80K British pounds to BArlclay’s Bank in London, in CAS Hewlett’s name. March 18, 2002. (Remember going on exhibit?) Yes sir. (To show money transferred from Soc Gen to Hewlett?) Yes. (Who signed this?) I did. (Anbody else?) No sir. (RAS on there?) No. (Kuhrt, Lopez?) NO sir, I was only one. (You signed this?) I did
(Next page … .JUDGE – TELL ME WHEN BREAK)
(Next correspondence…?) Feb. 26, 2003 – to Freedli, fax. Subject – increasing standing order to Hewlett. (So you sent it … call him Blaise … ) Yes sir. (You sent it, nobody else?) Yes, I did under RAS authority. (Any docs , not to take your word?) Entire fraud of 21 yars is pretty large documentation. (Next pg – date?) Nov. 1, 2005. (Another letter to Freeli?) Yes, Fax. (Not trying to hide this?) No sir. (Your correspondence with Swiss banker) Yes. (Asking?) Wire transfer to Hewlett at his BVI acct. As RAS indicated. (At bottom of page, says what?) Copy R. Allen Stanford. Telephoned to verify. (Did RAS?) Don’t know. I doubt it. (If these money requests were bribes, would you be so cavalier to make a paper trail?) Yes, they were bribes and I did. (You weren’t very smart about the bribes?) I was a liar and I wasn’t very smart. (Another letter about Hewlett and sign it?) I sent the request. (Another Feb. 10 2006… you’re the one who made these requests?) Yes sir. (April 30…same request from you?) Yes sir.
(Next page – govt exhibit – email to Freedli’s assistant, what telling her?) Saw him at Washington, D.C., at Stanford event. Was a Stanford adviser (In fraud?) Not to my knowledge. (Tell asst. to change form 15Kpounds to 20Kpounds.. until further notice. Trusting her not to reveal this bribe?) I didn’t consider that. RAS copied on that letter. (Saying it was a bribe out in the open?) 21 years out in the open, yes sir. (Last one – five months before receiver…sending faxes, you will telephone to verify. No one else?)
BREAK 15 MINUTES